IRVING, Texas, Aug. 25 /PRNewswire-FirstCall/ -- Michaels Stores, Inc.
(NYSE: MIK) today reported record financial results for its second quarter and
the six months ended July 31, 2004. Diluted earnings per share for the
quarter were $.38, a 9% increase over last year's $.35. These results include
pre-tax costs of $4.9 million ($3.0 million after tax) for the establishment
of insurance reserves resulting from the financial difficulties being
experienced by one of the Company's insurance providers. Excluding this item,
diluted earnings per share in the quarter were $.43, a 23% increase over last
year. On a year-to-date basis, diluted earnings per share were $.80 compared
to $.65 for the same period last year, a 23% increase. Excluding the charge
related to the insurance carrier's difficulties, diluted earnings per share
year-to-date were $.85, a 31% increase over the same period last year.
Net income for the second quarter was $26.7 million, a 10% increase
compared to net income of $24.3 million in the same period last year.
Excluding the insurance-related charge, net income for the quarter increased
23% to $29.8 million over the prior year. On a year-to-date basis, net income
was $56.1 million compared to net income of $45.1 million in the same period
last year, a 24% increase. Excluding the insurance charge, year-to-date net
income was $59.1 million, a 31% increase over last year.
Michael Rouleau, President and Chief Executive Officer, said, "We are very
pleased with our record performance for the second quarter and the first half
of 2004. The significant investments we have made in our infrastructure give
us great confidence in our future. Although a number of external factors
could impact consumer spending, we remain optimistic regarding our potential
for a strong second half performance, including the Holiday selling season,
and another record year."
Operating Performance
Sales of $682.9 million for the second quarter of 2004 were up 11% over
sales of $616.5 million in the same period last year. Same-store sales were
up 5% for the quarter. Year-to-date sales were $1.409 billion, an 11%
increase over sales of $1.273 billion in the same period last year. Same-
store sales were up 6% year-to-date.
During the second quarter, the Company opened nine and relocated
10 Michaels stores, opened three and closed one Aaron Brothers store, and
opened three Recollections stores.
The Company's operating income totaled $47.5 million or 7.0% of sales for
the quarter ended July 31, 2004, compared to operating income of $45.5 million
or 7.4% of sales for the same period last year. Operating income for the
first half of 2004 was $99.5 million or 7.1% of sales compared to
$85.0 million or 6.7% of sales in the same period of 2003. Operating income
includes the aforementioned $4.9 million charge recorded in the second quarter
related to the establishment of insurance reserves reflecting the financial
difficulties at one of the Company's insurance carriers. In addition,
workers' compensation expense for the quarter increased $4.5 million over the
same period last year due to higher than anticipated losses related to
unfavorable loss development experiences, particularly in California.
Operating income also includes incremental costs related to previously
announced initiatives for additional Michaels store relocations this year, the
distribution center realignment project, and Aaron Brothers' headquarters
relocation to the Michaels corporate offices in Irving, TX. Expenses related
to these projects were $2.3 million in the second quarter and $4.8 million
year-to-date.
Balance Sheet
The Company's cash balance as of July 31, 2004, the end of the second
quarter, was $307.4 million, an increase of $170.2 million over the same
period last year. Average inventory per Michaels store at the end of the
second quarter, inclusive of distribution centers, decreased 11% to
$1.079 million from $1.208 million for the same period last year.
The Company also announced that it has repurchased 913,200 shares of its
common stock during the second quarter under its stock repurchase plans at an
average price of $51.81 per share and has repurchased an additional 203,900
shares during the month of August under its stock repurchase plans at an
average price of $52.58 per share. As of August 25, 2004, under its
repurchase plans, the Company is authorized to repurchase approximately
1.6 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 is projecting a same-store sales increase of 3% to 5% in the
second half of the year, contributing to a forecasted annual same-store sales
increase of 4% to 6% in 2004. Same-store sales in the third quarter are
expected to increase 3% to 5% overall with same-store sales increases of 4% to
6% in both August and October with relatively flat same-store sales in
September.
The Company's diluted earnings per share for the remainder of 2004 are
expected to be in the $.62 to $.65 range for the third quarter, in the $1.49
to $1.55 range for the fourth quarter, and in the $2.92 to $3.05 range for the
full year, a 15% to 20% increase.
A conference call will be held at 4:00 p.m. CT today to discuss second
quarter earnings results. 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. Replay may be accessed at http://www.michaels.com or by
phone at 973-341-3080, PIN 4251270.
The Company plans to release its August 2004 sales results on Thursday,
September 2, 2004 at 6:30 a.m. CT. Any interested party may view the 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 25, 2004, the Company owns
and operates 831 Michaels stores in 48 states and Canada, 161 Aaron Brothers
stores, six Recollections stores, and three Star Wholesale operations.
Certain statements contained herein which are not historical facts are
forward looking statements that involve risks and uncertainties, including,
but not limited to, customer demand and trends in the arts and crafts
industry, related inventory risks due to shifts in customer demand, the effect
of economic conditions, the impact of competitors' locations or pricing, the
availability of acceptable locations for new stores, difficulties with respect
to new information system technologies, supply constraints or difficulties,
the results of financing efforts, the effectiveness of advertising strategies
and other risks detailed in the Company's Securities and Exchange Commission
filings. The Company intends these forward-looking statements to speak only
as of the time of this release and does 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 31, August 2, July 31, August 2,
2004 2003 2004 2003
Net sales $682,934 $616,516 $1,408,786 $1,272,904
Cost of sales and occupancy
expense 425,628 382,788 891,256 803,336
Gross profit 257,306 233,728 517,530 469,568
Selling, general, and
administrative expense 207,158 186,673 412,859 381,267
Store pre-opening costs 2,643 1,590 5,126 3,343
Operating income 47,505 45,465 99,545 84,958
Interest expense 5,069 5,065 10,397 10,136
Other (income) and expense, net (877) (722) (1,666) (1,578)
Income before income taxes 43,313 41,122 90,814 76,400
Provision for income taxes 16,567 16,860 34,736 31,324
Net income $26,746 $24,262 $56,078 $45,076
Earnings per common share:
Basic $0.39 $0.36 $0.82 $0.67
Diluted $0.38 $0.35 $0.80 $0.65
Weighted average shares
outstanding:
Basic 68,152 66,673 68,216 66,878
Diluted 69,640 69,883 69,743 69,518
Dividends per common share $0.12 $0.10 $0.24 $0.10
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
July 31, January 31, August 2,
2004 2004 2003
ASSETS
Current assets:
Cash and equivalents $307,443 $341,825 $137,201
Merchandise inventories 954,736 892,923 988,276
Prepaid expenses and other 39,655 29,198 24,084
Deferred and prepaid income taxes 26,865 19,426 20,946
Total current assets 1,328,699 1,283,372 1,170,507
Property and equipment, at cost 845,738 808,230 754,699
Less accumulated depreciation (450,010) (420,313) (385,712)
395,728 387,917 368,987
Goodwill 115,839 115,839 115,839
Other assets 14,923 14,519 13,172
130,762 130,358 129,011
Total assets $1,855,189 $1,801,647 $1,668,505
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $211,408 $172,708 $209,911
Accrued liabilities and other 194,798 194,395 167,325
Income taxes payable --- 2,377 ---
Total current liabilities 406,206 369,480 377,236
9 1/4% Senior Notes due 2009 200,000 200,000 200,000
Deferred income taxes 28,241 28,241 21,514
Other long-term liabilities 39,170 36,628 32,625
Total long-term liabilities 267,411 264,869 254,139
673,617 634,349 631,375
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $0.10 par value,
2,000,000 shares authorized; none
issued --- --- ---
Common Stock, $0.10 par value,
150,000,000 shares authorized;
shares issued and outstanding of
67,887,078 at July 31, 2004,
67,997,567 at January 31, 2004,
and 66,821,014 at August 2, 2003 6,789 6,800 6,682
Additional paid-in capital 470,311 495,910 487,406
Retained earnings 700,079 660,365 541,063
Accumulated other comprehensive
income 4,393 4,223 1,979
Total stockholders' equity 1,181,572 1,167,298 1,037,130
Total liabilities and stockholders'
equity $1,855,189 $1,801,647 $1,668,505
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
July 31, August 2,
2004 2003
Operating activities:
Net income $56,078 $45,076
Adjustments:
Depreciation 43,576 40,464
Amortization 197 200
Other 521 561
Changes in assets and liabilities:
Merchandise inventories (61,813) (178,858)
Prepaid expenses and other (10,457) (5,445)
Deferred income taxes and other 3,902 1,835
Accounts payable 38,700 115,147
Income taxes payable (2,377) (21,438)
Accrued liabilities and other 869 (11,397)
Net change in assets and liabilities (31,176) (100,156)
Net cash provided by (used in)
operating activities 69,196 (13,855)
Investing activities:
Additions to property and equipment (51,861) (40,880)
Net proceeds from sales of
property and equipment 45 13
Net cash used in investing
activities (51,816) (40,867)
Financing activities:
Proceeds from stock options exercised 18,387 5,469
Repurchase of Common Stock (55,114) (25,968)
Cash dividends paid to stockholders (16,364) (6,678)
Proceeds from issuance of Common
Stock and other 1,329 1,069
Net cash used in financing
activities (51,762) (26,108)
Net decrease in cash and equivalents (34,382) (80,830)
Cash and equivalents at beginning of period 341,825 218,031
Cash and equivalents at end of period $307,443 $137,201
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 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy expense 62.3 62.1 63.3 63.1
Gross profit 37.7 37.9 36.7 36.9
Selling, general, and administrative
expense 30.3 30.3 29.3 30.0
Store pre-opening costs 0.4 0.2 0.3 0.2
Operating income 7.0 7.4 7.1 6.7
Interest expense 0.8 0.8 0.8 0.8
Other (income) and expense, net (0.1) (0.1) (0.1) (0.1)
Income before income taxes 6.3 6.7 6.4 6.0
Provision for income taxes 2.4 2.8 2.4 2.5
Net income 3.9 % 3.9 % 4.0 % 3.5 %
The following table sets forth certain of our unaudited operating data
(dollar amounts in thousands):
Quarter Ended Six Months Ended
July 31, Aug. 2, July 31, Aug. 2,
2004 2003 2004 2003
Michaels stores (A):
Retail stores open at beginning of
period 818 771 804 754
Retail stores opened during the
period 9 9 23 27
Retail stores opened (relocations)
during the period 10 4 22 9
Retail stores closed during the
period --- --- --- (1)
Retail stores closed (relocations)
during the period (10) (4) (22) (9)
Retail stores open at end of period 827 780 827 780
Aaron Brothers stores:
Retail stores open at beginning of
period 158 153 158 148
Retail stores opened during the period 3 4 3 9
Retail stores closed during the period (1) --- (1) ---
Retail stores open at end of period 160 157 160 157
Recollections stores:
Retail stores open at beginning of
period 2 --- 2 ---
Retail stores opened during the period 3 1 3 1
Retail stores open at end of period 5 1 5 1
Star Wholesale stores (A):
Wholesale stores open at beginning
of period 3 2 3 2
Wholesale stores opened during the
period --- --- --- ---
Wholesale stores open at end of period 3 2 3 2
Total store count at end of period 995 940 995 940
Other operating data:
Average inventory per Michaels store $1,079 $1,208 $1,079 $1,208
Comparable store sales increase 5% 1% 6% 2%
(A) Opening store counts reflect a reclassification of our Los Angeles
combination wholesale-retail store from a Michaels store to a Star
Wholesale store. Beginning in fiscal 2004, our Los Angeles
wholesale-retail store will be managed as part of our Star Wholesale
concept.
Michaels Stores, Inc.
Disclosures Regarding Non-GAAP Financial Measures
During the second quarter of 2004, the Company recognized pre-tax costs of
$4.9 million ($3.0 million after tax) for the establishment of insurance
reserves resulting from financial difficulties being experienced by one of the
Company's insurance providers ("the insurance reserve"). Net income excluding
the insurance reserve and diluted earnings per share excluding the insurance
reserve are not measures of performance calculated in accordance with
generally accepted accounting principles ("GAAP"). Net income excluding the
insurance reserve and diluted earnings per share excluding the insurance
reserve should not be considered in isolation of, or as a substitute for, the
GAAP financial measures net income or diluted earnings per share,
respectively, as indicators of the Company's performance.
The Company believes the presentation of net income excluding the
insurance reserve and diluted earnings per share excluding the insurance
reserve is relevant and useful information to investors because it allows
investors to view performance in a manner similar to the method used by
management to track operating performance from period to period and helps
improve investors' ability to understand trends in the Company's operating
performance.
As the Company uses net income excluding the insurance reserve and diluted
earnings per share excluding the insurance reserve as measures of performance,
the tables below reconcile these measures to net income and diluted earnings
per share, respectively, the most directly comparable financial measures
calculated and reported in accordance with GAAP:
Reconciliation of net income to net income excluding the insurance reserve
($ in thousands):
Quarter Ended Six Months Ended
July 31, August 2, July 31, August 2,
2004 2003 2004 2003
Net income $26,746 $24,262 $56,078 $45,076
Adjustments to reconcile
net income to net income
excluding the insurance
reserve:
The insurance reserve $3,046 n/a $3,046 n/a
Net income excluding the
insurance reserve $29,792 $24,262 $59,124 $45,076
Reconciliation of diluted earnings per share to diluted earnings per share
excluding the insurance reserve:
Quarter Ended Six Months Ended
July 31, August 2, July 31, August 2,
2004 2003 2004 2003
Diluted earnings per share $0.38 $0.35 $0.80 $0.65
Adjustments to reconcile
diluted earnings per share
to diluted earnings per
share excluding the
insurance reserve:
The insurance reserve $0.04 n/a $0.04 n/a
Rounding $0.01 n/a $0.01 n/a
Diluted earnings per
share excluding the
insurance reserve $0.43 $0.35 $0.85 $0.65
SOURCE Michaels Stores, Inc.
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Related links:
http://www.michaels.com
Company News On-Call:
http://www.prnewswire.com/comp/115769.html
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CONTACT:
Jeffrey N. Boyer, Executive Vice President -
Chief Financial Officer, +1-972-409-1581, or Christopher J.
Holland, Vice President - Finance, +1-972-409-1667, both of
Michaels Stores, Inc.
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