Despite the fact that the coming of fall should be a great time for arts-and-crafts type stores, Michaels Stores
For the quarter ended Oct. 30, Michaels reported net income that was up 11% at $42.5 million, or $0.31 per share. Total sales increased 6% to $799.9 million, but here's one warning signal that investors take into consideration: Same-store sales increased a measly 1% in the quarter, and one might have thought that the weeks leading up to the Halloween holiday would have helped a retailer such as Michaels make a better showing than that.
Meanwhile, Michaels' same-store sales may falter a bit in November, according to the press release. Although the company forecast its same-store sales will increase 2% to 3%, November same-store sales are down 2% to 4% -- hmmm. This slack seems a little odd for an arts-and-crafts store in the beginning of the fall holiday season, since these retailers usually attract plenty of decorators. It makes one wonder how December will really pan out.
Are big-box competitors such as Wal-Mart
On the other hand, as we've seen before, one of Michaels' claims to fame is its cash cushion. The company's cash increased 63% over this time last year. In the first nine months of the year, Michaels generated $20 million in free cash flow. Last year at this time, Michaels' cash flow generation was in the negative range.
Judging whether it's an opportunity to buy shares in the arts-and-crafts purveyor bears some consideration. Even though the stock was recently down 8%, it's still trading at a P/E of 20. That's pretty high, especially given suspicion that growth may be stalling. Also, buying into Michaels right now is making a bet that the drop in same-store sales was a fluke and not a signal of a coming trend.
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Alyce Lomax does not own shares of any of the companies mentioned.