A view of the industry through the
eyes of a chain buyer.
Quarter, Fiscal Year Report
Highlights of a positive report.
by Staff Report (April 4, 2011)
The company's third-quarter sales and margins
were up and costs were controlled, so why did the company post
Sales. For the fourth quarter ended Jan.
29, total sales were $1.331 billion, up 2.4% from a year ago.
Same-store sales increased 0.7% due to a 0.3% increase in average
ticket and a 0.4% increase in transactions. The fluctuation in
exchange rates between the Canadian and U.S. dollars favorably
affected same-store sales by approximately 40 basis points.
For the year, net sales increased 3.7% to
$4.031 billion, thanks to a 2.5% increase in same-store sales and
$47 million in sales from new stores. The increase in same-store
sales was driven by a 1.3% increase in transactions and a 1.2%
increase in average ticket including a favorable currency
translation of approximately 70 basis points.
Comment. CEO John Menzer said custom
framing, bakeware, and wall frame categories were particularly
helpful in driving the sales growth.
Profit. Gross profit for the quarter,
inclusive of occupancy costs, increased $6 million to $523 million.
For the year, it increased $99 million to $1.564 billion.
Margins. Gross margin decreased 50 basis
points to 39.3% for the quarter. The company said the decline was
driven primarily by a 70 basis points decrease in merchandise
margin. That was due to a decline in vendor allowances and higher
freight costs, which were partially offset by lower merchandise
costs from increased direct imports and improved pricing and
promotion management. For the year, gross margin improved 110 basis
points to 38.8% of sales.
SG&A. Selling, general and
administrative expense in the quarter decreased $3 million to $312
million and, as a percentage of sales, decreased 80 basis points to
23.4% due primarily to decreased performance-based bonus expense.
For the year, SG&A expense increased $7 million to $1.059 billion,
but decreased 80 basis points as a percentage of sales.
Operating Income. Operating income
increased $8 million to $207 million, (15.6% of sales) in the fourth
quarter. For the year, it was $488 million (12.1%) from $397 million
(10.1%). Net income increased 14% to $98 million in the quarter, but
for the year, it dropped to $98 million from $107 million the
Interest. Interest expense dropped
slightly to $69 million for the quarter, but increased $19 million
for the year to $276 million. The company refinanced its $750
million Senior Notes during fiscal 2010, resulting in a loss on
early extinguishment of debt of $53 million for the early call and
tender premiums and remaining unamortized debt issuance costs.
EBITDA. Adjusted EBITDA (a measure of
cash flow) for the quarter was $241 million, or 18.1% of sales,
versus $238 million, or 18.3% of sales, for the same quarter last
year. For the year it was $622 million, or 15.4% of sales, versus
$544 million, or 14.0% of sales, the previous year.
Debt and Cash. Year-end debt levels
totaled $3.668 billion, down from $3.803 billion a year ago. The
cash balance at the end of the year was $319 million, up $102
million over a year ago. Michaels had no borrowings outstanding and
$604 million available under its revolving credit facility.
Subsequent to year-end, Michaels made an additional voluntary
prepayment of $50 million toward its Senior Secured Term Loan.
Inventory. Average inventory per
Michaels store at the end of the year was $758,000, down 6.8%, due
to improved inventory turns and productivity.
Capital spending. This past year it
jumped from $43 million to $81 million and is expected to increase
to $115-$125 million this year, mostly for new, relocated, and
Stores. During the year, the company
opened 33 new stores, including 10 relocations, and closed one
Michaels store and closed 15 Aaron Brothers stores. The current
store count is 1,047 Michaels stores and 137 Aaron Brothers stores.
Call. Execs held a conference call with
analysts and said, among other things, the company is looking at
both smaller population centers and urban settings for smaller
stores. A recording of the call is available. It can be accessed for
the next three weeks
www.michaels.com or by calling 800-642-1687 and using PIN #
The complete report is available at