Arts and crafts retailer The Michaels Companies (NASDAQ:MIK) has parted ways with its CEO. The company announced last week that Chuck Rubin is no longer in that position, and has been replaced on an interim basis by veteran retail industry executive Mark Cosby.
Michaels gave few details of Rubin's departure in its press release, saying that Rubin had "mutually agreed with the Board of Directors to transition out of his role as CEO." He will keep his position as chairman of the company's board until April 1.
While Rubin's exit was unexpected, it doesn't come as a big shock if you look at how the stock has been doing. Since mid-2016, Michaels' shares have generally been on a downward trajectory; across the last three years, they've shed 45% of their value. Fears of a "retail apocalypse," of course, play into this. Many retailers with a heavy brick-and-mortar presence are suffering as sales move online and investors fret.
In the case of Michaels -- especially under the leadership of Rubin, who had been CEO since 2013 -- this fear doesn't seem justified. Arts and crafts tends to be a fairly tactile pursuit; practitioners like to prod the merchandise before making a buy. That, plus the fact that many goods in this category sell for only a few dollars, mitigates against large-scale customer poaching by online retailers.
I think more of a problem is that there's no hot arts and crafts trend just now, so perhaps the consumer base isn't expanding by much, if at all. Michaels consistently shows growth, yes, but it's rarely spectacular. The company's last-reported fiscal year (2017) was fully in character, with both the top and bottom lines rising by 3%.
A recent attempt at expansion has fallen flat. In 2016, Michaels acquired Pat Catan's, an Ohio-based arts and crafts retailer with 36 stores. Earlier this year Michaels announced it would shutter most Pat Catan's locations, holding on to a maximum of 12 (all of which will be rebranded as Michaels).
Check out the latest earnings call transcript for The Michaels Companies.
An experienced hand
Michaels considers stopgap CEO Cosby to be at least the equal of Rubin, if its terms of employment are anything to go by. Cosby will be drawing the same base salary (just over $1.2 million per year), and be eligible for performance-based bonuses and stock options.
Based on his long service in the trenches of retailing, the company has reason to believe in him. Earlier this decade he was president, North America at Office Depot -- basically the survivor of the former Office Depot/Office Max duopoly (Office Depot bought Office Max in a deal that closed in 2013.) Among his other positions, Cosby was president, stores at Macy's, which some think of a a top victim of the retail apocalypse.
So Cosby is a veteran of various kinds of retail operations, some of which have undergone strategic transitions over the past few years. Michaels can certainly fit into this category, as the company has recently been building out flexible merchandising areas (FMAs) across its store network. These centrally located zones in the stores feature seasonal or timely goods that attempt to capture business based on trends or holidays.
So on paper, this CEO switch is a sensible one, and Michaels shareholders should be comforted that an experienced pro is taking the reins of the company. But more than experience will be needed to kick up higher growth and (hopefully) reverse the company's declining share-price trend. We'll see if Cosby is up to the task.