What happened

Shares of Michaels Companies (NASDAQ:MIK) crashed hard on Thursday, following the release of weak third-quarter results. The stock closed on Thursday 15.6% lower.

So what

In the third quarter, Michaels saw comparable-store sales falling 2.2% year over year, far below the essentially flat guidance target. Top-line sales fell 4% to $1.22 billion, and adjusted earnings came in 17% lower at $1.40 per diluted share. Analysts had been expecting earnings near $1.48 per share, on revenue closer to $1.27 billion.

An empty aisle of empty shelves in a soon-to-close-forever retail store

Michaels stores weren't quite this empty in the third quarter. Image source: Author.

Now what

Michaels' management said that some of the weak performance sprang from challenging macroeconomic and industry trends, but those pressures were amplified by execution issues. The company is promising to step up its marketing, inventory management, and seasonal sales events in the fourth quarter, continuing to focus more keenly on so-called Makers -- true crafting enthusiasts who may pay higher prices for better service and a unique product assortment. This is not a unique strategy in the brutally competitive consumer goods sector, but it's rare to see companies defining their target audiences in as much detail as Michaels is doing nowadays.

The stock now trades at 3.3 times trailing earnings, having plunged 59% lower over the last 52 weeks. This is either a toxic failure or a huge rebound in the making, depending on whether the company can execute in its quest for higher-quality customers and wider profit margins.