Insights on business, and practical
ways to improve your own.
The Michaels Sale and October Retail Results
The CLN Newsbrief emailed to
by Mike Hartnett (November 6, 2006)
MICHAELS IS SOLD, GOES PRIVATE
The Michaels merger/acquisition is complete. Shareholders will
receive $44/share, with the total being $6+ billion. Bain Capital
and The Blackstone Group now own equal stakes in Michaels; funds
affiliated with Highfields Capital Management own a minority stake,
and Michaels senior management will also acquire a minority stake.
The current management team, led by Jeffrey Boyer and Gregory
Sandfort, remains in place.
The deal required financing: a $1 billion asset-based revolver at
3% above LIBOR (London Inter-Bank Offered Rate, like the U.S. prime
interest rate, a benchmark used to determine loan interest); a $2.4
billion term loan at LIBOR + 3%; a $700 million unsecured bridge
loan facility; and a $700 million senior subordinated bridge loan
"We are pleased with the successful outcome of this
transaction," Boyer said. "We look forward to partnering
with Bain Capital and Blackstone to take Michaels Stores to the next
level, both operationally and financially, and to realize our
Company's full long-term potential with the help of our dedicated
"Our new partners share our vision of the significant growth
opportunities at Michaels as we further accelerate our critical
merchandising, marketing, strategic sourcing and operating
initiatives," Sandfort stated. "We are focused on
enhancing our business by attracting new customers and continuously
improving the service we offer."
As of Oct. 31, Michaels has 919 Michaels stores in 48 states and
Canada, 165 Aaron Brothers stores, 11 Recollections stores, and four
Star Wholesale operations. The stock ceased trading on the New York
Stock Exchange on Oct. 31. (Comment: The basic strategy of
investment companies is to build up the company for five years or so
and then take it public – sell stock – again. If that all goes
according to plan, it will be interesting to see how many stores the
company has in 2011.)
OCTOBER SALES FIGURES
Lower gas prices and cooler weather were supposed to boost
October sales and they did – but only for some retailers. J.C.
Penney, Kohl's, Limited Brands, Children's Place, and Nordstrom
posted better than expected results, Reuters reported, but Costco,
Chico's, Claire's Stores, and American Eagle Outfitters did not meet
Wall Street expectations. Results for retailers related to our
industry were grim.
Jo-Ann's net sales were $167.9 million, down 3.8% from a year
ago. Same-store sales decreased 6.4%. For the third quarter ended
Oct. 28, net sales were $461.9 million versus $474.2 million a year
ago, and same-store sales have decreased 5.4%. The company will
report its third-quarter earnings on Nov. 20.
Wal-Mart's U.S. stores had a same-store increase of only 0.3%,
the smallest increase in six years. Only five days prior, the
company had predicted the increase would be 0.5%, down from an
earlier forecast of a 2%-4% increase. Analysts expected the increase
to be 1.5%. Total sales rose 7.7% to $16.6 billion.
For the quarter, same-store sales are up 3.5% and overall sales
have risen 8.3% to $162 billion. "The U.S. Wal-Mart stores that
were not impacted by the 2005 hurricanes had comps of approximately
1.7%t in October," said Tom Schoewe, Exec VP/CFO. "Last
year, we saw a positive impact on comps from customers who restocked
their homes after the hurricanes and this continued through the end
of the fiscal year. The impact on comps from hurricanes will
continue, but will soften somewhat during the next three months.
"Our remodeling efforts in the Wal-Mart Stores division wrap
up during the next two weeks to ensure there is no disruption for
our customers during the holiday shopping period," Schoewe
added. "Remodeling activities will begin again in late January
and will continue into the next fiscal year."
Schoewe said sales of food and consumables outpaced general
merchandise. Price cuts on key toys boosted sales and he promised
similar efforts in consumer electronics would also be effective.
Pharmacy sales were strong, too, but apparel sales, particularly
women's apparel, were softer than expected.
Nevertheless, the company predicted November sales would be flat.
Meanwhile, Target rolled along, posting a 3.9% same-store sales
increase and predicted the November increase would be 4%-7%.
Hancock's same-store sales declined 1.4%, while overall sales
fell 7.3% to $34.3 million, due to having 41 fewer stores this year.
For the quarter, same-stores sales are down 1.5% and overall sales
are down 6.6% to $97 million.
CEO Jane Aggers said, "Our apparel and quilting/craft
categories continued to be bright spots during October. However, the
gains in those areas were more than offset by declines in the home