On Thursday morning, The Michaels Companies (MIK) reported results for the fourth quarter of fiscal year 2017, which ended on Feb. 3. The arts and crafts store chain enjoyed a solid holiday season but followed up with modest guidance for the next quarter and fiscal year.
Michaels' fourth-quarter results: The raw numbers
|
Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Net sales |
$1.89 billion |
$1.75 billion |
8% |
|
Comprehensive income |
$209 million |
$197 million |
6% |
|
GAAP earnings per share (diluted) |
$1.11 |
$0.95 |
17% |
Data source: The Michaels Companies.
What happened with The Michaels Companies this quarter?
Comparable-store sales rose 2.5% in the fourth quarter, driven by a combination of higher average transaction values and increased foot traffic to Michaels' stores. Michaels also opened one new store during the fourth quarter while closing one Aaron Brothers framing store. All told, these results were roughly in line with management's guidance for the fourth quarter.
2017 was a 53-week reporting period for Michaels, which ends its fiscal years on the Saturday closest to Jan. 31 of each year rather than a fixed date. For the same reason, the fourth quarter encompassed 14 weeks instead of the usual 13. This calendar quirk added $79 million to the fourth quarter's net sales along with a $0.08 boost to earnings per share.
On the other hand, one-time charges related to new tax rules reduced Michaels' earnings by $14.6 million or $0.08 per share. In return, the company's effective tax rates will decrease from 32% to roughly 24%, starting in the first quarter of 2018.
Image source: Getty Images.
What management had to say
In general, Michaels' management sees 2018 as a year to rebuild and remodel, paving the way toward stronger growth in 2019 and beyond. Hundreds of stores are being remodeled to a standard layout, e-commerce operations will tie into the store network through in-house fulfillment of online orders, and Michaels is investing in more and better data analysis to support its retail operations.
"Building on the progress we made in fiscal 2017, in fiscal 2018 we will reinvest some of the benefits of tax reform to accelerate planned investments to drive future sales and earnings growth," said CEO Chuck Rubin in a prepared statement. "While this acceleration will result in temporarily elevated levels of operating expense in fiscal 2018, I am confident these investments will position us to increase our market share and expand our leadership in the arts and crafts channel."
Looking ahead
In 2018, Michaels is closing 94 of its 97 Aaron Brothers stores, replacing them with store-within-a-store framing services under the same name in all 1,238 Michaels stores. The recently launched online framing service is about to get rebranded under the Aaron Brothers name, simplifying all framing sales under a single brand with clearer ties to Michaels' retail stores.
By the numbers, the company should see first-quarter sales in the neighborhood of $1.15 billion and adjusted earnings near $0.37 per diluted share. Both of these targets sit just below the results from the first quarter of 2017, where adjusted earnings stopped at $0.38 per share on $1.16 billion in net sales.
All told, Michaels' revenue guidance points to single-digit percentage declines for both the first quarter and full year of 2018. That's a sharp break from recent history, since Michaels hasn't posted a single instance of negative year-over-year growth at any point in the last five years. Management also expects modestly lower first-quarter earnings compared to the year-ago period, as reinvestments into the business largely erase the benefits of lower taxes.
