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Category: Stock Market and The Michaels Companies
Date: 4 September 2019 Stock Price: $6.01 We take a look at the 2nd quarter earnings for their 2019 fiscal year of The Michaels Companies the largest speciality provider of arts and crafts, framing and seasonal merchandise.
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About The Michaels Companies
The Michaels Companies, Inc. is North America's largest specialty provider of arts, crafts, framing, floral, wall décor, and seasonal merchandise for Makers and do-it-yourself home decorators. The Company operates more than 1,260 Michaels stores in 49 states and Canada. Additionally, the Company serves customers through a variety of digital platforms including Michaels.com, consumercrafts.com and aaronbrothers.com. The Michaels Companies, Inc., also owns Artistree, a manufacturer of high quality custom and specialty framing merchandise, and Darice, a premier wholesale distributor in the craft, gift and decor industry. For a list of store locations or to shop online, visit www.michaels.com or download the Michaels app.
Financial overview of The Michaels Companies' latest earnings report
The numbers we are interested in (for the quarter):
- Net sales: $1.033 billion (down from $1.053 billion)
- Cost of sales and occupancy expenses: $633.703 million ( down from $679.938 million for the same quarter of the previous year)
- Net income: $24.457 million (down from $27.488 million
- Diluted earnings per share: $0.16 (up from $0.16 for the same quarter of the previous year)
- Diluted number of shares outstanding: 157.273 million (178.215 million)
- So the diluted earnings per share barely increased over the course of the last year yet there was a significant decline in the number of shares in issue. And with less shares in issue, profits are divided among fewer shareholders so one would expect all else being equal that earnings per share would increase, but due to a $3million decline in net earnings the positive effect of less shares is negated by lower net earnings
- Cash and cash equivalents: $130.981 million
- Cash and cash equivalents per share: $0.82
- Cash and cash equivalents makes up 13.78% of The Michaels Companies current market capital
- Cash and cash equivalents makes up 3.5% of The Michaels Companies total assets
- Merchandise inventories: $1.256 billion (down from $1.280 billion for the same quarter of the previous year)
- Merchandise inventories makes up 33.89% of The Michaels Companies total assets.
- We get worried when inventories makes up more than 20% of a group's total assets. But it is encouraging to see that the amount of inventories on the group's books is lower than it was for the same quarter last year
- We get worried when inventories makes up more than 20% of a group's total assets. But it is encouraging to see that the amount of inventories on the group's books is lower than it was for the same quarter last year
- Merchandise inventories makes up 33.89% of The Michaels Companies total assets.
- Cash generated from operations: $62.238 million
- Cash generated from operations per share: $0.39
The Michaels Companies' management commentary on the results and earnings guidance
IRVING, Texas--(BUSINESS WIRE)-- The Michaels Companies, Inc. (NASDAQ: MIK) today reported diluted earnings per share for the second quarter of fiscal 2019 of $0.16, or $0.19 per adjusted diluted share excluding a charge associated with closing the Pat Catan’s stores and costs related to the redemption of our 2020 Senior Subordinated Notes and issuance of our 2027 Senior Notes. This compares to diluted earnings per share for the second quarter of fiscal 2018 of $0.15, or $0.15 per adjusted diluted share excluding a charge associated with the restructure of Aaron Brothers and adjustments for early extinguishments of debt and refinancing costs. A reconciliation of non-GAAP financial measures to the respective GAAP measures is included in this release.
“We are pleased to return to positive comparable store sales in the second quarter of fiscal 2019. Our teams are focused on driving sales and executing on our 2019 priorities, and the early results show the customer is responding positively,” said Mark Cosby, Interim CEO. “It is encouraging to see this early progress and we are focused on the disciplined execution of our priorities to continue to build on this early momentum.”
Third Quarter and Fiscal Year 2019 Outlook:
The Company’s guidance for fiscal 2019 excludes any restructure charges related to the Pat Catan’s store closures, any expenses associated with the transition of the Company’s former CEO, a write-off of an investment in a liquidated business, and costs related to debt refinancing activities.
For fiscal 2019, the Company expects:
For the third quarter of fiscal 2019, the Company expects:
“We are pleased to return to positive comparable store sales in the second quarter of fiscal 2019. Our teams are focused on driving sales and executing on our 2019 priorities, and the early results show the customer is responding positively,” said Mark Cosby, Interim CEO. “It is encouraging to see this early progress and we are focused on the disciplined execution of our priorities to continue to build on this early momentum.”
Third Quarter and Fiscal Year 2019 Outlook:
The Company’s guidance for fiscal 2019 excludes any restructure charges related to the Pat Catan’s store closures, any expenses associated with the transition of the Company’s former CEO, a write-off of an investment in a liquidated business, and costs related to debt refinancing activities.
For fiscal 2019, the Company expects:
- net sales will be between $5.16 billion and $5.19 billion;
- comparable store sales will be approximately flat;
- to open net 16 new Michaels stores, inclusive of up to 12 Pat Catan’s stores the Company plans to rebrand and reopen, and relocate 13 Michaels stores;
- adjusted operating income will be in the range of $625 million to $645 million;
- interest expense will be approximately $153 million;
- the effective tax rate will be between 23% and 24%;
- adjusted diluted earnings per share will be between $2.31 and $2.42, based on diluted weighted average shares of approximately 156 million; and
- capital expenditures will be approximately $135 million.
For the third quarter of fiscal 2019, the Company expects:
- comparable store sales to be flat to up 1.0%;
- to open 13 new Michaels stores, 11 of which were previously Pat Catan’s, close one Michaels store and relocate five Michaels stores;
- adjusted operating income will be between $133 million and $142 million;
- net interest expense will be approximately $39 million;
- the effective tax rate will be between 23% and 24%; and
- adjusted diluted earnings per common share will be between $0.46 and $0.51, based on diluted weighted average common shares of 155 million.
The Michaels Companies (NASDAQ: MIK) stock price history
The image below shows the stock price history over the last 5 years for the Michaels Companies. And its not been a good time for The Michaels Companies shareholders. 5 years ago it was trading at $17 a stock. It briefly touched $30 a share in 2016 and since then its been a slow and steady decline all the way down to its current stock price of $6.01. It is trading a lot closer to its 52 week low than it is to ts 52 week high, which is another indication that short term sentiment towards the stock is largely negative.
The Michaels Companies (NASDAQ: MIK) latest stock valuation
Based on the group's latest earnings report and the guidance provided we value The Michaels Companies stock at $11.13. The target price of The Michaels Companies stock would have been even higher if it wasn't for their worryingly large amount of inventories. Due to the large inventories on their books we adjusted the valuation for the stock to compensate for sales and margin pressure in order for the group to reduce inventories. Our target price for The Michaels Companies is actually very close to the mid point between their current 52 week high and 52 week low.