What happened
Shares of The Michaels Stores (MIK) jumped as much as 19.7% higher in Thursday's morning session. At the closing bell, the earnings-based gains had settled down to a still-impressive 11.6% reading.
So what
In the third quarter, Michaels held its sales flat year over year at $1.24 billion. On the bottom line, earnings rose 18.9% to $0.44 per diluted share. Analysts had been expecting earnings of $0.43 per share on sales closer to $1.26 billion.
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Now what
Top-line sales took an unplanned $10 million hit from hurricanes Irma and Harvey, both of which closed stores and disrupted Michaels' distribution efforts in the third quarter.
But gross margins expanded by 100 basis points, or one full percentage point, thanks to a richer product mix and more cost-effective sourcing management. On top of that, the company continued a generous share buyback program that has reduced the share count by 11.4% over the last four quarters.
Michaels shares are trading at an affordable 11.5 times trailing earnings, including Thursday's significant surge. I'm impressed by the company's ability to run an effective brick and mortar business in this age of online retailing.
