- Diluted EPS Increases 15.8% to $0.22 -
- Operating Income Increases 32.2% -
IRVING, Texas, Aug. 24 /PRNewswire-FirstCall/ -- Michaels Stores, Inc.
(NYSE: MIK) today reported preliminary unaudited financial results for its
second quarter ended July 30, 2005. Net income for the quarter increased
$4.1 million to $30.8 million, up 15.2% versus $26.7 million for the same
quarter last year. Diluted earnings per share increased 15.8% for the quarter
to $0.22 versus $0.19 in the second quarter of 2004.
Michael Rouleau, Chief Executive Officer, said, "We are pleased with our
overall performance for the quarter, as we increased our same-store sales by
4.2% over the same period last year and expanded our operating margins by over
140 basis points to 8.4% of sales. Our operating income increased 32.2% over
the same period last year to a second quarter record of $62.8 million. We
continue to make solid progress in leveraging our new inventory management
systems, resulting in higher inventory in-stock positions, stronger sales of
regular priced merchandise, reduced levels of clearance in our basic
assortments and enhanced execution of our merchandising programs in our
stores."
Mr. Rouleau added, "During the quarter, we also made excellent progress on
our 'Pursuit of the Perfect Store' initiative. Our 25 test stores have been
remodeled and their performance is exceeding the performance of the remainder
of the chain. We are also in a position to begin piloting our new Hybrid
Distribution method with key vendors in the second half of this year. Our
Hybrid Distribution project is expected to add additional efficiencies to our
supply chain, enhance service to our stores and improve our overall inventory
quality and productivity."
Mr. Rouleau concluded, "For the second half of the year we expect our
merchandising initiatives, stronger advertising programs, increased store
staffing levels and improved store execution to deliver solid sales
performance and record earnings. Fiscal 2005 should be our 9th straight year
of record profit."
Operating Performance
Total sales for the quarter increased 9.2% to $745.5 million from
$682.9 million for the same period last year. Same-store sales for the quarter
increased 4.2% on a 2.4% increase in average ticket, a 1.4% increase in
transactions and a 0.4% increase in custom frame deliveries. A favorable
currency translation, due to the stronger Canadian dollar, contributed
approximately 0.4% to the average ticket increase for the quarter. Our
domestic Michaels Stores' Pacific, Southwest and Southeast zones delivered
strong same-store sales performances during the second quarter of this year
with an average increase of approximately 6% versus the same period last year.
The more weather sensitive Northern, Mid-Atlantic, and Northeast zones
averaged a same-store sales increase of approximately 1% over the second
quarter of fiscal 2004. Strongest departmental performances came in our
Jewelry & Beading, Paper-crafting, Foam and Yarn categories, all contributing
solidly to overall same-store sales for the quarter.
For the quarter, the Company's operating income increased 32.2% to
$62.8 million and to 8.4% of sales from $47.5 million and 7.0% of sales for
the same period last year. Gross margin expanded approximately 20 basis
points from 37.7% of sales in the second quarter of last year to 37.9% in the
second quarter of fiscal 2005, due to improved merchandising margins,
partially offset by higher occupancy costs. Merchandise margin expanded
primarily as a result of stronger sales of merchandise at regular price and
better clearance margin realization.
Selling, general and administrative expenses increased 5.2% and supported
a 9.2% increase in sales, with expenses as a percent of sales declining to
29.3% from 30.3% in the second quarter of last year. Reductions in personnel
related costs over the prior year generated the majority of the expense
leverage. In the second quarter of fiscal 2004, the Company reported that
workers' compensation costs increased significantly, up $4.5 million versus
the second quarter of fiscal 2003, and recorded an expense of $4.9 million, on
a pre-tax basis, for exposure related to financial difficulties at a major
insurance carrier.
Balance Sheet
The Company's combined cash and short-term investment balances at the end
of the quarter were $182.9 million, a decrease of $124.5 million over last
year's second quarter combined ending balances of $307.4 million. The Company
previously announced that it redeemed its $200 million, 9 1/4% Senior Notes in
July 2005, which also resulted in a pre-tax charge to earnings of $12.1
million recognized in the second quarter, representing the combination of the
call premium and unamortized debt costs associated with the notes.
Average inventory per Michaels store, at the end of the second quarter,
inclusive of distribution centers, increased 6.9% year over year to $1.154
million after declining 10.7% in the second quarter of 2004. The primary
driver of this increase came from an incremental investment in Yarn in
preparation for the fall and holiday season. The Company's Perpetual
Inventory and Automated Replenishment merchandising systems continue to enable
inventory to be redeployed from slow growth to higher growth categories with
incremental inventory investments being made in Yarn, as well as feature space
and Back to School categories.
Additionally, during the quarter, the Company opened 13 and relocated
three Michaels stores and opened two Recollections stores.
The Company also announced that it has repurchased an additional 457,900
shares of the Company's common stock during the second quarter of fiscal 2005
under its stock repurchase plans at an average price, including commission, of
$41.13 per share. Subsequent to the end of the quarter, the Company
repurchased an additional 542,100 shares at an average price, including
commission, of $38.31 per share. As of August 24, 2005, under its repurchase
plans, the Company is authorized to repurchase approximately 2.45 million
additional shares plus such shares as may be repurchased with proceeds from
the future exercise of options under the Company's 2001 General Stock Option
Plan.
Outlook
The Company currently forecasts same-store sales for the third quarter of
fiscal 2005 to increase 2% to 4% with operating margin expanding approximately
80 to 100 basis points, driving an increase of approximately 15% to 20% in
operating income versus the third quarter of fiscal 2004. Diluted earnings
per share for the third quarter of 2005 are currently expected to range from
$0.38 to $0.40, versus $.31 in the third quarter of 2004.
For the fourth quarter of fiscal 2005, same-store sales are expected to
increase 4% to 6% over the fourth quarter of fiscal 2004. Operating margin is
expected to expand by approximately 150 to 200 basis points in the fourth
quarter of fiscal 2005 versus the fourth quarter of fiscal 2004, driven by
gross margin expansion. As compared to the fourth quarter of fiscal 2004,
operating income is expected to increase over the prior year by 20% to 25% in
the fourth quarter with net income and diluted earnings per share also
increasing 20% to 25%.
For fiscal 2005, the Company currently expects same-store sales to
increase 4% to 6% and total sales to increase 9% to 11%. Operating margin for
the year is currently expected to grow approximately 150 to 160 basis points
primarily driven by gross margin expansion. Diluted earnings per share for
2005 are currently expected to range from $1.85 to $1.90, an increase of
approximately 25% to 30% over fiscal 2004 results.
The Company will host a conference call at 4:00 p.m. central time today to
discuss its second quarter and year-to-date fiscal 2005 earnings results as
well as its outlook for the second half of fiscal 2005. Those who wish to
participate in the call may do so by dialing 973-633-6740. Any interested
party will also have the opportunity to access the call via the Internet at
http://www.michaels.com . To listen to the live call, please go to the
website at least fifteen minutes early to register and download any necessary
audio software. For those who cannot listen to the live broadcast, a replay
will be available for 30 days after the date of the event. Recordings may be
accessed at http://www.michaels.com or by phone at 973-341-3080, PIN 5446629.
The Company plans to release its 2005 third quarter sales on Thursday,
November 3, 2005, at 6:30 a.m. central time. Any interested party may view
the Company's press release at http://www.michaels.com .
Michaels Stores, Inc. is the world's largest specialty retailer of arts,
crafts, framing, floral, wall decor, and seasonal merchandise for the hobbyist
and do-it-yourself home decorator. As of August 24, 2005, the Company owns
and operates 872 Michaels stores in 48 states and Canada, 165 Aaron Brothers
stores, 11 Recollections stores and four Star Wholesale operations.
This document may contain forward-looking statements that reflect our
plans, estimates, and beliefs. Any statements contained herein (including, but
not limited to, statements to the effect that Michaels or its management
"anticipates," "plans," "estimates," "expects," "believes," and other similar
expressions) that are not statements of historical fact should be considered
forward-looking statements and should be read in conjunction with our
consolidated financial statements and related notes in our Annual Report on
Form 10-K for the fiscal year ended January 29, 2005, and in our Quarterly
Report on Form 10-Q for the quarter ended April 30, 2005. Specific examples of
forward-looking statements include, but are not limited to, forecasts of same-
store sales growth, operating income, and diluted earnings per share. Our
actual results could differ materially from those discussed in these forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to: our ability to remain competitive in the
areas of merchandise quality, price, breadth of selection, customer service,
and convenience; our ability to anticipate and/or react to changes in customer
demand; changes in consumer confidence; unexpected consumer responses to
changes in promotional programs; unusual weather conditions; the execution and
management of our store growth and the availability of acceptable real estate
locations for new store openings; the effective maintenance of our perpetual
inventory and automated replenishment systems and related impacts to inventory
levels; delays in the receipt of merchandise ordered from our suppliers due to
delays in connection with either the manufacture or shipment of such
merchandise; transportation delays (including dock strikes and other work
stoppages); changes in political, economic, and social conditions; commodity,
energy and fuel cost increases, currency fluctuations, and changes in import
duties; our ability to maintain the security of electronic and other
confidential information; financial difficulties of any of our insurance
providers, key vendors, or suppliers; and other factors as set forth in our
Annual Report on Form 10-K for the fiscal year ended January 29, 2005,
particularly in "Critical Accounting Policies and Estimates" and "Risk
Factors," and in our other Securities and Exchange Commission filings. We
intend these forward-looking statements to speak only as of the time of this
release and do not undertake to update or revise them as more information
becomes available.
This press release is also available on the Michaels Stores, Inc. website
(http://www.michaels.com ).
-- Tables Follow --
Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Quarter Ended Six Months Ended
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Net sales $745,493 $682,934 $1,566,509 $1,408,786
Cost of sales and occupancy
expense 463,203 425,628 979,539 891,256
Gross profit 282,290 257,306 586,970 517,530
Selling, general, and
administrative expense 218,012 207,158 442,482 412,859
Store pre-opening costs 1,454 2,643 4,193 5,126
Operating income 62,824 47,505 140,295 99,545
Interest expense 15,500 5,069 20,590 10,397
Other (income) and expense, net (2,369) (877) (5,049) (1,666)
Income before income taxes 49,693 43,313 124,754 90,814
Provision for income taxes 18,878 16,567 47,406 34,736
Net income $30,815 $26,746 $77,348 $56,078
Earnings per common share:
Basic $0.23 $0.20 $0.57 $0.41
Diluted $0.22 $0.19 $0.56 $0.40
Weighted average shares
outstanding:
Basic 135,774 136,304 135,896 136,432
Diluted 139,134 139,280 139,203 139,486
Dividends per common share $0.10 $0.06 $0.17 $0.12
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
Subject to reclassification July 30, January 29, July 31,
2005 2005 2004
ASSETS
Current assets:
Cash and equivalents $182,909 $535,852 $257,443
Short-term investments --- 50,379 50,000
Merchandise inventories 1,090,239 936,395 954,736
Prepaid expenses and other 39,010 26,613 39,655
Deferred and prepaid income taxes 58,580 22,032 26,865
Total current assets 1,370,738 1,571,271 1,328,699
Property and equipment, at cost 963,201 913,174 845,738
Less accumulated depreciation (544,714) (506,193) (450,010)
418,487 406,981 395,728
Goodwill 115,839 115,839 115,839
Other assets 18,765 17,569 14,923
134,604 133,408 130,762
Total assets $1,923,829 $2,111,660 $1,855,189
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $248,645 $256,266 $211,408
Accrued liabilities and other 232,385 242,682 194,798
Income taxes payable --- 12,992 ---
Total current liabilities 481,030 511,940 406,206
9 1/4% Senior Notes due 2009 --- 200,000 200,000
Deferred income taxes 26,848 30,355 28,241
Other long-term liabilities 86,898 72,200 39,170
Total long-term liabilities 113,746 302,555 267,411
594,776 814,495 673,617
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.10 par value,
2,000,000 shares authorized; none
issued --- --- ---
Common Stock, $0.10 par value,
350,000,000 shares authorized;
shares issued and outstanding of
135,827,039 at July 30, 2005,
135,726,717 at January 29, 2005,
and 135,774,156 at July 31, 2004 13,583 13,573 13,577
Additional paid-in capital 425,002 451,449 463,523
Retained earnings 880,990 826,821 700,079
Accumulated other comprehensive
income 9,478 5,322 4,393
Total stockholders' equity 1,329,053 1,297,165 1,181,572
Total liabilities and stockholders'
equity $1,923,829 $2,111,660 $1,855,189
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
Subject to reclassification July 30, July 31,
2005 2004
Operating activities:
Net income $77,348 $56,078
Adjustments:
Depreciation 48,085 43,576
Amortization 194 197
Write-off of unamortized debt
issuance costs 12,133 ---
Other 325 521
Changes in assets and liabilities:
Merchandise inventories (153,844) (61,813)
Prepaid expenses and other (12,397) (10,457)
Deferred income taxes and other (4,853) 1,712
Accounts payable (7,621) 38,700
Income taxes payable (32,737) (2,377)
Accrued liabilities and other (5,363) 869
Other long-term liabilities 11,584 2,190
Net cash (used in) provided
by operating activities (67,146) 69,196
Investing activities:
Additions to property and equipment (60,510) (51,861)
Purchases of short-term investments (226) (50,000)
Sales of short-term investments 50,605 ---
Net proceeds from sales of
property and equipment --- 45
Net cash used in investing
activities (10,131) (101,816)
Financing activities:
Repayment of Senior Notes (209,250) ---
Proceeds from stock options exercised 25,787 18,387
Repurchase of Common Stock (71,197) (55,114)
Cash dividends paid to stockholders (23,184) (16,364)
Proceeds from issuance of Common
Stock and other 2,178 1,329
Net cash used in financing
activities (275,666) (51,762)
Net decrease in cash and equivalents (352,943) (84,382)
Cash and equivalents at beginning of period 535,852 341,825
Cash and equivalents at end of period $182,909 $257,443
Michaels Stores, Inc.
Summary of Operating Data
(Unaudited)
The following table sets forth the percentage relationship to net sales of
each line item of our unaudited consolidated statements of income:
Quarter Ended Six Months Ended
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy expense 62.1 62.3 62.5 63.3
Gross profit 37.9 37.7 37.5 36.7
Selling, general, and administrative
expense 29.3 30.3 28.2 29.3
Store pre-opening costs 0.2 0.4 0.3 0.3
Operating income 8.4 7.0 9.0 7.1
Interest expense 2.1 0.8 1.3 0.8
Other (income) and expense, net (0.4) (0.1) (0.3) (0.1)
Income before income taxes 6.7 6.3 8.0 6.4
Provision for income taxes 2.6 2.4 3.1 2.4
Net income 4.1 % 3.9 % 4.9 % 4.0 %
The following table sets forth certain of our unaudited operating data
(dollar amounts in thousands):
Quarter Ended Six Months Ended
July 30, July 31, July 30, July 31,
2005 2004 2005 2004
Michaels stores:
Retail stores open at beginning
of period 857 818 844 804
Retail stores opened during the period 13 9 27 23
Retail stores opened (relocations)
during the period 3 10 11 22
Retail stores closed during the period --- --- (1) ---
Retail stores closed (relocations)
during the period (3) (10) (11) (22)
Retail stores open at end of period 870 827 870 827
Aaron Brothers stores:
Retail stores open at beginning of
period 165 158 164 158
Retail stores opened during the period --- 3 1 3
Retail stores closed during the period --- (1) --- (1)
Retail stores open at end of period 165 160 165 160
ReCollections stores:
Retail stores open at beginning of
period 9 2 8 2
Retail stores opened during the period 2 3 3 3
Retail stores open at end of period 11 5 11 5
Star Wholesale stores:
Wholesale stores open at beginning
of period 4 3 3 3
Wholesale stores opened during the
period --- --- 1 ---
Wholesale stores open at end of
period 4 3 4 3
Total store count at end of period 1,050 995 1,050 995
Other operating data:
Average inventory per Michaels
store (A) $1,154 $1,079 $1,154 $1,079
Comparable store sales increase (B) 4.2% 5.5% 6.1% 5.7%
(A) Average inventory per Michaels store calculation excludes Aaron
Brothers, Recollections, and Star Wholesale stores.
(B) Comparable store sales increase represents the increase in net sales
for stores open the same number of months in the indicated period
and the comparable period of the previous year, including stores
that were relocated or expanded during either period. A store is
deemed to become comparable in its 14th month of operation in order
to eliminate grand opening sales distortions.
SOURCE Michaels Stores, Inc.
 back to top
Related links:
http://www.michaels.com
Company News On-Call:
http://www.prnewswire.com/comp/115769.html
Photo Notes:http://www.newscom.com/cgi-bin/prnh/20040804/DAMICHAELSLOGO
AP Archive: http://photoarchive.ap.org PRN Photo Desk
photodesk@prnewswire.com
CONTACT:
Lisa K. Klinger, Vice President - Treasurer
and Investor Relations of Michaels Stores, Inc., +1-972-409-1528
|
