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Michaels Q4 beats Street; profit down amid charges

The Michaels Companies reported a drop in fourth quarter profit amid restructuring charges related to the closing of one its banners but its results still beat analysts’ estimates.

Michaels reported its results several weeks after it announced that Chuck Rubin had “mutually agreed” with the board to resign as CEO. Michaels has tapped 30-year retail veteran Mark S. Cosby as interim CEO. Rubin will continue as chairman of Michaels until April 1, 2019. The retailer is on the hunt for a permanent chief executive.

The arts and crafts retailer posted net income of $181.4 million, or $1.15 a share, for the quarter ended Feb. 2, down from $202.9 million, or $1.11 a share, in the year-ago period, which had an extra week. Excluding restructuring charges primarily related to the closure of 36 Pat Catan’s stores and a tax adjustment, EPS came to $1.44, ahead of analysts’ estimates of $1.42.

Sales inched down to $1.78 billion from $1.891 billion, beating estimates of $1.77 billion. Michaels said the decrease was primarily due to the extra week in the fourth quarter of fiscal 2017, the closure of all 94 full-size Aaron Brothers stores in the first quarter 2018, and a 0.4% decline in comparable store sales.

In comments, Neil Saunders, managing director, GlobalData Retailer, noted that Michaels lost out on non-regular customer traffic during the crucial holiday period.

“The holiday period is traditionally a time when Michaels pulls in non-regular customers – those shoppers who don’t normally use the chain because they don’t undertake crafting themselves but who come in to purchase gifts for others,” he said. “Interestingly, however, our data show that Michaels did not see that much growth in the number of people from this segment. One of the reasons is that customer overlap with non-specialist players like Amazon and Walmart has increased.” Increased customer sharing has been an ongoing problem for Michaels for some time, but the dynamics this quarter underscore the necessity to boost the brand’s relevance to occasional customers.” (Click here for more commentary.)

For the year, Michaels reported profit of $319.5 million, or $1.86 per share. Revenue was $5.27 billion.

In a statement, Denise Paulonis, executive VP and CFO, said the company saw momentum in the quarter resulting from investments made earlier in the year. These include enhancements made to and the Michaels app, the launch of buy online, pick up in store in all U.S. stores, a new promotional tool to help the chain manage discounts more effectively and the conversion of 238 additional stores to a new flexible merchandising area format.

For fiscal 2019, the company is expecting adjusted EPS of $2.34 to $2.46 on sales of $5.19 billion to $5.24 billion.
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