A view of the industry through the
eyes of a chain buyer.
and A.C. Moore: Fourth Quarter, Fiscal Year Results
Profits, losses, and sales.
Staff Report (April 5, 2010)
Sales for the fourth quarter ended Jan. 2 were
$149.7 million, down 9.3%, primarily due to a decrease in same-store
sales of 8.8% and operating fewer stores. But the pre-tax loss for
the quarter was $6.3 million, compared to a loss of $13.2 million a
year ago. The company recorded an income tax benefit of $5.7
million, due to a change in Federal tax law that allowed it to carry
back tax losses for five years from the previously allowed two
years. Net loss for the quarter was $0.5 million ($0.02/share)
compared to a net loss of $13.0 million ($0.64) a year ago.
Fourth quarter 2009 results include a non-cash
fixed asset impairment of $0.17 per share, closed store expenses of
$0.14 per share and an income tax benefit of $0.24 per share. Fourth
quarter 2008 results include a non-cash fixed asset impairment of
$0.21 per share, closed store expenses of $0.28 per share, adjusting
an interest rate swap to fair market value of $0.12 per share and a
tax valuation allowance of $0.01 per share.
Sales for fiscal 2009 year were $468.9 million,
down 12.3% and same-store sales fell 10.8%. The net loss for the
fiscal year was $25.9 million ($1.15), versus a net loss of $26.6
million ($1.31) a year ago. This year included a non-cash fixed
asset impairment of $0.19/share, closed store expenses of $0.18, and
an income tax benefit of $0.25 per share. Fiscal 2008 results
include a non-cash asset impairment of $0.30 per share, closed store
expenses of $0.37 per share, adjusting an interest rate swap to fair
market value of $0.12 per share and a tax valuation allowance of
$0.17 per share.
CEO Rick Lepley stated, “Obviously, we are not
pleased with our performance for last year. But, we did make
significant progress on many of our strategic initiatives during
2009 that we believe will lead to improved operations by the end of
The current store count is 135.
The complete press report is available
For the year ended Jan. 30, Michaels’ fourth
quarter income rose 32% to $86 million. For the year, net income was
$107 million compared to a net loss of $5 million the previous
Net sales for the quarter increased 2.4% to
$1.300 billion and same-store sales rose 1.5%. Net sales for the
year were $3.888 billion, up 1.9%, and same-store sales increased
CEO John Menzer said, "We are pleased with the
significant improvement in our overall operating performance during
the fourth quarter. Our focus was on in-store execution to drive
sales and maximize gross margin dollars, while effectively clearing
through seasonal merchandise. Continued strong control over expenses
and well managed inventory levels significantly improved
profitability and cash flow."
The 2.4% sales increase was due to $12 million
in incremental sales from new stores and a 1.5% increase in
same-store sales, which was driven by a 1.6% increase in average
ticket partially offset by a 0.1% decrease in transactions. The
fluctuation in exchange rates between the Canadian and U.S. dollars
favorably affected same-store sales for the fourth quarter by
approximately 130 basis points. For the year, sales from new stores
contributed an incremental $64 million of the $71 million growth in
sales while same-store sales increased 0.2% due to a 3.2% increase
in transactions, partially offset by a 2.9% decrease in average
ticket and an adverse impact of 0.1% related to the change in
deferred custom framing revenue.
The quarter’s gross margin rate, inclusive of
occupancy costs, increased 350 basis points to 39.8% of sales,
driven primarily by a 300 basis-point improvement in merchandise
margin due to more conservative purchases of seasonal merchandise,
enhanced management of promotional and clearance activity, and lower
transportation costs. The year’s margin rate improved 140 basis
points to 37.7% of sales, of which 120 basis points were related to
improved merchandise margins. The increase was primarily due to
improved management of clearance and promotional activity, lower
costs as a result of increased direct import activity, and lower
fuel and distribution costs.
Selling, general and administrative (SG&A)
expense in the quarter increased $20 million to $315 million and, as
a percent of sales, increased 90 basis points to 24.2%, due
primarily to increased performance-based bonus expense partially
offset by a decrease in payroll and ad expense. SG&A expense for the
year decreased $8 million, to $1.052 billion and as a percent to
sales, 70 basis points to 27.1% of sales. The decline is due
primarily to decreased payroll, severance, depreciation, ad and
supplies expenses, partially offset by performance-based bonus
expense – and prior year amounts included consulting expenses for
studies related to consumer insights and other strategic
Operating income increased approximately $38
million to $199 million, or to 15.4% of sales, in the fourth quarter
compared to a year ago. For the year operating income was $397
million, or 10.1% of sales, versus $304 million, or 8.0% of sales,
for fiscal 2008.
Interest expense for the quarter was down
slightly to $70 million. Interest expense for the year was $257
million, down $45 million, due to a lower average interest rate on
variable-rate debt and lower average debt levels.
Adjusted EBITDA for the quarter was $238
million, or 18.3% of sales, versus $207 million, or 16.3% of sales,
a year ago. Adjusted EBITDA for the year was $544 million, or 14.0%
of sales, compared to $489 million, or 12.8% of sales, the prior
Year-end debt levels totaled $3.803 billion
compared to $3.929 billion a year ago. The decrease is the result of
scheduled repayments of its Sr. Secured Term Loan totaling $23
million, as well as ending the year with no borrowings under its
revolving credit facility. At the end of fiscal 2009, the company
had $217 million in cash compared to $33 million the previous year,
and $674+ million of availability under its revolving credit
facility. As of March 24, 2010, the credit facility remains undrawn
and availability was approximately $640 million.
Average inventory per Michaels store at the end
of fiscal 2009, inclusive of distribution centers, was $814,000,
down 4.1% from last year due to efforts to improve inventory turns
Capital spending during fiscal 2009 totaled $43
million versus $85 million for fiscal 2008. Approximately $27
million of current year expenditures were attributable to real
estate activities, including new, relocated, existing, and remodeled
stores, with the remainder being attributable to strategic
initiatives and maintenance requirements.
Michaels currently plans capital expenditures
this year to be $90-$100 million as it accelerates new store
openings and resumes investment in infrastructure and other
During the past year, Michaels opened 23 new
stores, including five relocations, and closed four Michaels stores.
The company also closed nine Aaron Brothers stores.