Michaels Cos. (MIK) Misses Q1 EPS by 57c, Revenues Miss

Michaels Cos. (NASDAQ: MIK) reported Q1 EPS of ($0.43), $0.57 worse than the analyst estimate of $0.14. Revenue for the quarter came in at $799.9 billion versus the consensus estimate of $1.03 billion.

First Quarter Fiscal 2020:

• The 27% decline in sales for the first quarter of fiscal 2020 compared to the prior year period was due to temporary store closures as a result of the COVID-19 pandemic. Sales related to 11 additional Michaels stores (net of closures) since the end of the first quarter of fiscal 2019 and an increase in e-commerce sales of $118.8 million or nearly 300%, partially offset the decline. Total comparable store sales decreased 27.6%.
• Operating loss was $60.7 million compared to operating income of $92.7 million in the first quarter of fiscal 2019. Adjusted operating loss for the first quarter of fiscal 2020 was $60.7 million compared to $101.4 million in adjusted operating income in the first quarter of fiscal 2019. A full reconciliation of Adjusted operating (loss)/income is available within the tables of this press release.

Ashley Buchanan, Michaels Chief Executive Officer, commented, “During an unprecedented time, our teams quickly adapted and executed on key priorities for our business. While temporary store closures negatively impacted our first quarter results, I am proud of the way our team responded to changing market conditions, implementing safety and business continuity measures to protect the health of our associates while continuing to safely service the needs of our customers. This quarter, we significantly accelerated Michaels’ transformation into an omnichannel retailer by introducing a robust set of customer facing digital and fulfillment capabilities. As we reopen stores, we are encouraged by the trends we are seeing. Moving through the rest of the year, we will continue to introduce additional capabilities that enable us to serve customers wherever and however they want to shop. We believe these actions, along with our strong liquidity, will enable us to successfully navigate the current environment and emerge a healthier, stronger and better positioned omnichannel company.”

Outlook:

Following the completion of a strategic review, on May 14, 2020 the Company announced that it plans to close its Darice wholesale operations. The Company will retain a sourcing-related office in China and expects the closure process to be substantially completed by November 30, 2020. The Company anticipates the fiscal year 2020 after-tax, primarily non-cash, cost of the closure to be in the range of $46 million to $52 million, consisting primarily of the liquidation of inventory, employee-related expenses and costs associated with the write-off of intangible assets.

As of June 4, 2020, approximately 1,000 stores were open and fully operational. Based on the current state and local laws and guidance, the Company anticipates substantially all 1,273 Michaels stores will be open by the end of June 2020.

Based on current trends, the Company believes it will use cash during its fiscal second quarter. Expected uses of cash during the second quarter include seasonal working capital and cash payments that were deferred from the first quarter. The Company expects to generate positive cash flow in the second half of fiscal 2020 and believes it has sufficient liquidity for the foreseeable future.

Given the continued uncertainty associated with the COVID-19 pandemic, the Company is not providing any additional financial outlook information at this time.

For earnings history and earnings-related data on Michaels Cos. (MIK) click here.

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