Michaels Companies 10-Q 31 Aug 18 2018 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Aug. 04, 2018	Aug. 23, 2018
Document and Entity Information
Entity Registrant Name	Michaels Companies, Inc.
Entity Central Index Key	1,593,936
Document Type	10-Q
Document Period End Date	Aug. 4, 2018
Amendment Flag	false
Current Fiscal Year End Date	--02-02
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		171,367,524
Document Fiscal Year Focus	2,018
Document Fiscal Period Focus	Q2

CONSOLIDATED STATEMENTS OF COMP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net sales	$ 1,053,267	$ 1,072,593	$ 2,208,778	$ 2,231,156
Cost of sales and occupancy expense	679,938	670,082	1,378,887	1,361,012
Gross profit	373,329	402,511	829,891	870,144
Selling, general and administrative	300,981	313,867	629,598	641,263
Restructure charge	(3,220)		44,278
Store pre-opening costs	1,295	662	2,799	1,640
Operating income	74,273	87,982	153,216	227,241
Interest expense	37,101	31,051	71,695	61,488
Losses on early extinguishments of debt and refinancing costs	1,835		1,835
Other (income) expense, net	(832)	1,353	(2,525)	1,309
Income before income taxes	36,169	55,578	82,211	164,444
Income taxes	8,681	20,016	27,838	56,674
Net income	27,488	35,562	54,373	107,770
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other	807	13,944	(6,246)	8,672
Comprehensive income	$ 28,295	$ 49,506	$ 48,127	$ 116,442
Earnings per common share:
Basic (in dollars per share)	$ 0.15	$ 0.19	$ 0.30	$ 0.57
Diluted (in dollars per share)	$ 0.15	$ 0.19	$ 0.30	$ 0.57
Weighted-average common shares outstanding:
Basic (in shares)	177,348	186,886	179,436	187,927
Diluted (in shares)	178,215	187,931	180,426	189,171

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
Current Assets:
Cash and equivalents	$ 123,191	$ 425,896	$ 134,119
Merchandise inventories	1,280,095	1,123,288	1,195,495
Prepaid expenses and other	98,742	97,830	87,176
Accounts receivable, net	31,095	26,207	24,311
Income taxes receivable	16,523	3,761	20,085
Total current assets	1,549,646	1,676,982	1,461,186
Property and equipment, at cost	1,613,115	1,593,683	1,530,622
Less accumulated depreciation and amortization	(1,167,985)	(1,173,663)	(1,122,928)
Property and equipment, net	445,130	420,020	407,694
Goodwill	119,074	119,074	119,074
Other intangible assets, net	20,983	21,769	22,736
Deferred income taxes	31,532	34,538	37,137
Other assets	26,180	27,832	12,202
Total assets	2,192,545	2,300,215	2,060,029
Current Liabilities:
Accounts payable	555,270	483,002	510,818
Accrued liabilities and other	351,987	370,457	391,784
Current portion of long-term debt	140,261	24,900	112,125
Income taxes payable	427	79,586	823
Total current liabilities	1,047,945	957,945	1,015,550
Long-term debt	2,695,087	2,701,764	2,712,475
Other liabilities	148,893	150,001	99,997
Total liabilities	3,891,925	3,809,710	3,828,022
Commitments and contingencies
Stockholders’ Deficit:
Common stock, $0.06775 par value, 350,000 shares authorized; 171,375 shares issued and outstanding at August 4, 2018; 181,919 shares issued and outstanding at February 3, 2018; and 183,414 shares issued and outstanding at July 29, 2017	11,504	12,206	12,330
Additional paid-in-capital		21,740	59,099
Treasury stock			(11,361)
Accumulated deficit	(1,700,978)	(1,539,781)	(1,822,509)
Accumulated other comprehensive loss	(9,906)	(3,660)	(5,552)
Total stockholders' deficit	(1,699,380)	(1,509,495)	(1,767,993)
Total liabilities and stockholders' deficit	$ 2,192,545	$ 2,300,215	$ 2,060,029

CONSOLIDATED BALANCE SHEETS (Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares shares in Thousands	Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
CONSOLIDATED BALANCE SHEETS
Common Stock, par value (in dollars per share)	$ 0.06775	$ 0.06775	$ 0.06775
Common Stock, shares authorized	350,000	350,000	350,000
Common Stock, shares issued	171,375	181,919	183,414
Common Stock, shares outstanding	171,375	181,919	183,414

CONSOLIDATED STATEMENTS OF CASH

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017
Cash flows from operating activities:
Net income	$ 54,373	$ 107,770
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	59,054	57,423
Share-based compensation	12,334	10,557
Debt issuance costs amortization	2,522	2,549
Accretion of long-term debt, net	(256)	(252)
Restructure charge	44,278
Deferred income taxes	770	(225)
Losses on early extinguishments of debt and refinancing costs	1,835
Changes in assets and liabilities:
Merchandise inventories	(177,586)	(67,218)
Prepaid expenses and other	2,217	(1)
Accounts receivable	(6,366)	(1,096)
Other assets	(1,165)	(700)
Accounts payable	54,823	(11,841)
Accrued interest	553	(7,691)
Accrued liabilities and other	(49,838)	(2,811)
Income taxes	(87,341)	(91,771)
Other liabilities	3,231	1,272
Net cash used in operating activities	(86,562)	(4,035)
Cash flows used in investing activities:
Additions to property and equipment	(69,908)	(43,120)
Cash flows from financing activities:
Common stock repurchased	(252,508)	(191,164)
Payments on term loan credit facility	(11,790)	(12,450)
Borrowings on asset-based revolving credit facility	133,600	139,100
Payments on asset-based revolving credit facility	(15,600)	(58,100)
Payment of debt refinancing costs	(1,069)
Payment of dividends	(317)	(408)
Proceeds from stock options exercised	1,449	5,483
Net cash used in financing activities	(146,235)	(117,539)
Net change in cash and equivalents	(302,705)	(164,694)
Cash and equivalents at beginning of period	425,896	298,813
Cash and equivalents at end of period	123,191	134,119
Cash paid for interest	69,101	67,453
Cash paid for taxes	$ 114,950	$ 148,187

BASIS OF PRESENTATION

BASIS OF PRESENTATION	6 Months Ended
	Aug. 04, 2018
BASIS OF PRESENTATION
BASIS OF PRESENTATION	1. BASIS OF PRESENTATION All expressions of the “Company”, “us”, “we”, “our”, and all similar expressions are references to The Michaels Companies, Inc. and our consolidated, wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires. Our consolidated financial statements include the accounts of The Michaels Companies, Inc. and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10‑Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 3, 2018 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934. In the opinion of management, all adjustments (consisting of normal recurring accruals and other items) considered necessary for a fair presentation have been included. We report on the basis of a 52- or 53-week fiscal year, which ends on the Saturday closest to January 31. All references to fiscal year mean the year in which that fiscal year began. References to “fiscal 2018” relate to the 52 weeks ending February 2, 2019 and references to “fiscal 2017” relate to the 53 weeks ended February 3, 2018. In addition, all references to “the second quarter of fiscal 2018” relate to the 13 weeks ended August 4, 2018 and all references to “the second quarter of fiscal 2017” relate to the 13 weeks ended July 29, 2017. Finally, all references to “the six months ended August 4, 2018” relate to the 26 weeks ended August 4, 2018 and all references to “the six months ended July 29, 2017” relate to the 26 weeks ended July 29, 2017. Because of the seasonal nature of our business, the results of operations for the 13 and 26 weeks ended August 4, 2018 are not indicative of the results to be expected for the entire year. Aaron Brothers In March 2018, we closed substantially all of our Aaron Brothers stores and began the process of repositioning our Aaron Brothers brand as a store-within-a-store, providing custom framing services in all Michaels stores. In the first six months of fiscal 2018, we recorded a restructure charge totaling $44.3 million, consisting primarily of costs associated with the termination of the remaining lease obligations, the write-off of fixed assets and employee-related expenses. For the six months ended August 4, 2018 and July 29, 2017, Aaron Brothers net sales totaled approximately $12.9 million and $52.8 million, respectively. Excluding the restructure charge, Aaron Brothers did not have a material impact on the Company’s operating income in the periods presented. Share Repurchase Program In June 2017, the Board of Directors authorized a new share repurchase program for the Company to purchase $500.0 million of the Company’s common stock on the open market or through accelerated share repurchase transactions. The share repurchase program does not have an expiration date, and the timing and number of repurchase transactions under the program will depend on market conditions, corporate considerations, debt agreements and regulatory requirements. Shares repurchased under the program are held as treasury shares until retired. In June 2018, the Company entered into an accelerated share repurchase agreement (“ASR Agreement”) with JPMorgan Chase Bank, N.A. (“JPMorgan”). Under the ASR Agreement, we paid JPMorgan a purchase price of $250.0 million for an initial delivery of 10.7 million shares of our common stock, representing 86% of the shares to be purchased under the agreement. On August 30, 2018, we completed the share repurchase and received an additional 1.7 million shares. The total number of shares repurchased was based upon a volume weighted average price of our stock over a predetermined period. As of August 4, 2018, we had $150.0 million of availability remaining under our current share repurchase program. Upon final settlement of the ASR Agreement, the remaining authorization for future repurchases totaled $100.0 million. Accounting Pronouncements Recently Adopted In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014‑09”). ASU 2014-09 supersedes the revenue recognition requirements in “ Revenue Recognition (Topic 605) ” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08 , “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” which is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing ” which provides further guidance on identifying performance obligations and improves the operability and understandability of the licensing implementation guidance. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. We used the modified retrospective transition method to adopt ASU 2014-09 in the first quarter of fiscal 2018 with no adjustments required to our opening retained earnings. The adoption did not have a material impact to the consolidated financial statements, however, it did result in additional disclosures. Recent Accounting Pronouncements Not Yet Adopted In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the measurement of goodwill impairment by removing the second step of the goodwill impairment test, which requires the determination of the fair value of individual assets and liabilities of a reporting unit. Under ASU 2017-04, goodwill impairment is to be measured as the amount by which a reporting unit’s carrying value exceeds its fair value with the loss recognized not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The standard is to be applied on a prospective basis. We do not anticipate a material impact to the consolidated financial statements once implemented. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" ("ASU 2016-02"). Under ASU 2016‑02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. The lease standard requires companies to use a modified retrospective transition approach as of the beginning of the earliest comparable period presented in the company’s financial statements. In July 2018, the FASB issued ASU 2018-11, “ Leases (Topic 842): Targeted Improvements ” which provided an additional transition option that allows companies to continue applying the guidance under the current lease standard in the comparative periods presented in the consolidated financial statements. Companies that elect this option would record a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. We are in the process of determining which transition method to apply. The guidance under these standards is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. We are currently evaluating the impact that ASU 2016-02 will have on the consolidated financial statements and related disclosures. We believe the most significant impact relates to our accounting for real estate leases, which will be recorded as right-of-use assets and lease liabilities on our balance sheet upon adoption.

REVENUE RECOGNITION

REVENUE RECOGNITION	6 Months Ended
	Aug. 04, 2018
REVENUE RECOGNITION
REVENUE RECOGNITION	2. REVENUE RECOGNITION Our revenue is primarily associated with sales of merchandise to customers within our stores, customers utilizing our e-commerce platforms and through our Darice wholesale business (“Darice”). Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for return allowances, point-of-sale coupons and discounts. Revenue also excludes any amounts collected on behalf of third parties, including sales tax. Revenue from sales of our merchandise is recognized when the customer takes possession of the merchandise. Payment for our retail sales is typically due at the time of the sale. Right of Return We allow for merchandise to be returned under most circumstances up to 180 days after purchase. A sales return reserve is established using historical customer return behavior and reduces both revenue and cost of goods sold. Historically, the sales returns reserve was presented net of cost of sales in other current liabilities in the consolidated balance sheets. As a result of adopting ASU 2014-09, the Company presents the gross sales return reserve in other current liabilities and the estimated value of the merchandise expected to be returned in prepaid expenses and other in the consolidated balance sheets. The change did not have a material impact on our consolidated balance sheet as of August 4, 2018. Customer Receivables As of August 4, 2018, February 3, 2018 and July 29, 2017, receivables from customers, which consist primarily of trade receivables related to Darice, were approximately $23.9 million, $19.2 million and $17.9 million, respectively, and are included in accounts receivable, net in the consolidated balance sheets. Gift Cards We record a gift card liability on the date we issue the gift card to the customer. We record revenue and reduce the gift card liability as the customer redeems the gift card or when the likelihood of redemption by the customer is remote (“gift card breakage”). We estimate gift card breakage using the expected value method based on customers’ historical redemption rates and patterns. Gift card breakage income is recorded in net sales in the consolidated statements of comprehensive income over the estimated redemption period. The gift card liability is included in accrued liabilities and other in the consolidated balance sheets. The following table includes activity related to gift cards (in thousands): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Balance at beginning of period $ 51,513 $ 44,856 $ 56,729 $ 49,869 Issuance of gift cards 13,522 13,528 24,796 24,954 Revenue recognized (1) (13,484) (13,464) (29,138) (29,512) Gift card breakage (1,038) (735) (1,874) (1,126) Balance at end of period $ 50,513 $ 44,185 $ 50,513 $ 44,185 (1) Revenue recognized from the beginning liability during the second quarters of fiscal 2018 and fiscal 2017 totaled $7.2 million and $7.1 million, respectively. Revenue recognized from the beginning liability during the first six months of fiscal 2018 and fiscal 2017 totaled $15.1 million and $15.3 million, respectively.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS	6 Months Ended
	Aug. 04, 2018
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS	3. FAIR VALUE MEASUREMENTS As defined in Accounting Standards Codification (“ASC”) 820, Fair Value Measurements (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect less transparent active market data, as well as internal assumptions. These two types of inputs create the following fair value hierarchy: · Level 1—Quoted prices for identical instruments in active markets; · Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable; and · Level 3—Instruments with significant unobservable inputs. Impairment losses related to store-level property and equipment are calculated using significant unobservable inputs including the present value of future cash flows expected to be generated using a risk-adjusted weighted-average cost of capital and comparable store sales growth assumptions and therefore, are classified as a Level 3 measurement in the fair value hierarchy. The carrying value of cash and cash equivalents, accounts receivable and accounts payable approximates their estimated fair values due to the short maturities of these instruments. The table below provides the fair values of our senior secured term loan facility (“Amended Term Loan Credit Facility”), our 5.875% senior subordinated notes maturing in 2020 (“2020 Senior Subordinated Notes’’) and our interest rate swaps executed in April 2018. August 4, February 3, July 29, 2018 2018 2017 (in thousands) Assets Interest rate swaps $ 2,342 $ — $ — Liabilities Term loan credit facility $ 2,217,784 $ 2,246,302 $ 2,251,025 Senior subordinated notes 513,825 518,288 522,750 Interest rate swaps 3,233 — — The fair values of our Amended Term Loan Credit Facility and our 2020 Senior Subordinated Notes were determined based on quoted market prices which are considered Level 1 inputs within the fair value hierarchy. The fair value of our interest rate swaps was calculated using significant observable inputs including the present value of estimated future cash flows using the applicable interest rate curves and therefore, were classified as Level 2 inputs within the fair value hierarchy.

DEBT

DEBT	6 Months Ended
	Aug. 04, 2018
DEBT
DEBT	4. DEBT Long-term debt consists of the following (in thousands): August 4, February 3, July 29, Interest Rate 2018 2018 2017 Term loan credit facility Variable $ 2,220,560 $ 2,232,350 $ 2,251,025 Asset-based revolving credit facility Variable 118,000 — 81,000 Senior subordinated notes % 510,000 510,000 510,000 Total debt 2,848,560 2,742,350 2,842,025 Less unamortized discount/premium and debt costs (13,212) (15,686) (17,425) Total debt, net 2,835,348 2,726,664 2,824,600 Less current portion (140,261) (24,900) (112,125) Long-term debt $ 2,695,087 $ 2,701,764 $ 2,712,475 Revolving Credit Facility As of August 4, 2018 and July 29, 2017, the borrowing base under our senior secured asset-based revolving credit facility was $850.0 million and $827.7 million, respectively, of which Michaels Stores, Inc. (“MSI”) had unused borrowing capacity of $644.8 million and $681.4 million, respectively. As of August 4, 2018 and July 29, 2017, outstanding standby letters of credit, which reduce our borrowing base, totaled $87.2 million and $65.3 million, respectively. Term Loan Credit Facility On May 23, 2018, MSI entered into an amendment with JPMorgan and other lenders to amend and restate our term loan credit facility. The amended and restated credit agreement, together with the related security, guarantee and other agreements, is referred to as the “Amended and Restated Term Loan Credit Facility”. Borrowings under the Amended and Restated Term Loan Credit Facility bear interest at a rate per annum, at MSI’s option, of either (a) a margin of 1.50% plus a base rate defined as the highest of (1) the prime rate of JPMorgan, (2) the federal funds effective rate plus 0.5%, and (3) the one-month London Interbank Offered Rate (“LIBOR”) plus 1% or (b) a margin of 2.50% plus the applicable LIBOR. MSI is required to make scheduled quarterly payments equal to 0.25% of the original principal amount of the term loans (subject to adjustments relating to the incurrence of additional term loans) for the first four years and two quarters of the Amended and Restated Term Loan Credit Facility, with the balance to be paid on January 28, 2023. All other terms under the Amended Term Loan Credit Facility have remained unchanged. As a result of this refinancing, we recorded a loss on the early extinguishment of debt of $1.8 million during the second quarter of fiscal 2018. Interest Rate Swaps In April 2018, we executed two interest rate swaps with an aggregate notional value of $1.0 billion associated with our outstanding Amended Term Loan Credit Facility. The interest rate swaps have a maturity date of April 30, 2021 and were executed for risk management and are not held for trading purposes. The objective of the interest rate swaps is to hedge the variability of cash flows resulting from fluctuations in the one-month LIBOR. The swaps replaced the one-month LIBOR with a fixed interest rate of 2.7765% and payments are settled monthly. The swaps qualify as cash flow hedges and changes in the fair values are recorded in accumulated other comprehensive income in the consolidated balance sheet. The changes in fair value are reclassified from accumulated other comprehensive income to interest expense in the same period that the hedged items affect earnings. We reclassified $2.0 million and $2.1 million from accumulated other comprehensive income to interest expense during the three and six months ended August 4, 2018, respectively. As of August 4, 2018, the fair value of the interest rate swaps was a net liability of $0.9 million, consisting of $3.2 million recorded in accrued liabilities and other and $2.3 million recorded in other assets in our consolidated balance sheets.

ACCUMULATED OTHER COMPREHENSIVE

ACCUMULATED OTHER COMPREHENSIVE LOSS	6 Months Ended
	Aug. 04, 2018
ACCUMULATED OCI (LOSS)
ACCUMULATED OCI (LOSS)	5. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table includes detail regarding changes in the composition of accumulated other comprehensive loss (in thousands): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Beginning of period $ (10,713) $ (19,496) $ (3,660) $ (14,224) Foreign currency translation adjustment and other (1,440) 13,944 (5,587) 8,672 Interest rate swaps 2,247 — (659) — End of period $ (9,906) $ (5,552) $ (9,906) $ (5,552)

INCOME TAXES

INCOME TAXES	6 Months Ended
	Aug. 04, 2018
INCOME TAXES
INCOME TAXES	6. INCOME TAXES The effective tax rate was 24.0% for the second quarter of fiscal 2018 compared to 36.0% for the second quarter of fiscal 2017 and 33.9% for the six months ended August 4, 2018 compared to 34.5% for the same period in the prior year. The effective tax rate for both the second quarter of fiscal 2018 and the six months ended August 4, 2018 were lower than the same period in the prior year due to the reduction of the federal statutory tax rate from 35% to 21% associated with the enactment of the Tax Cuts and Jobs Act (“Tax Act”) in the fourth quarter of fiscal 2017. The decrease in tax rate for the six months ended August 4, 2018 was partially offset by provisional adjustments of $8.1 million related to repatriation taxes for accumulated earnings of foreign subsidiaries. The U.S. Treasury is expected to issue additional regulations and guidance in connection with the Tax Act, which may alter interpretations of the new tax law and could materially change our estimated provisional adjustments.

EARNINGS PER SHARE

EARNINGS PER SHARE	6 Months Ended
	Aug. 04, 2018
EARNINGS PER SHARE
EARNINGS PER SHARE	7. EARNINGS PER SHARE The Company’s unvested restricted stock awards contain non-forfeitable rights to dividends and meet the criteria of a participating security as defined by ASC 260, “ Earnings Per Share ”. In applying the two-class method, net income is allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Basic earnings per share is computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average common shares outstanding plus the potential dilutive impact from stock options and restricted stock units. Common equivalent shares are excluded from the computation if their effect is anti-dilutive. There were 7.3 million and 6.7 million anti-dilutive shares during the second quarters of fiscal 2018 and fiscal 2017, respectively. There were 7.0 million and 5.9 million anti-dilutive shares during the six months ended August 4, 2018 and July 29, 2017, respectively. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Basic earnings per common share: Net income $ 27,488 $ 35,562 $ 54,373 $ 107,770 Less income related to unvested restricted shares (56) (150) (123) (478) Income available to common shareholders - Basic $ 27,432 $ 35,412 $ 54,250 $ 107,292 Weighted-average common shares outstanding - Basic 177,348 186,886 179,436 187,927 Basic earnings per common share $ $ $ $ Diluted earnings per common share: Net income $ 27,488 $ 35,562 $ 54,373 $ 107,770 Less income related to unvested restricted shares (56) (149) (122) (475) Income available to common shareholders - Diluted $ 27,432 $ 35,413 $ 54,251 $ 107,295 Weighted-average common shares outstanding - Basic 177,348 186,886 179,436 187,927 Effect of dilutive stock options and restricted stock units 867 1,045 990 1,244 Weighted-average common shares outstanding - Diluted 178,215 187,931 180,426 189,171 Diluted earnings per common share $ $ $ $

SEGMENTS AND GEOGRAPHIC INFORMA

SEGMENTS AND GEOGRAPHIC INFORMATION	6 Months Ended
	Aug. 04, 2018
SEGMENTS AND GEOGRAPHIC INFORMATION
SEGMENTS AND GEOGRAPHIC INFORMATION	8. SEGMENTS AND GEOGRAPHIC INFORMATION We consider Michaels-U.S., Michaels-Canada, Aaron Brothers, Pat Catan’s and Darice to be our operating segments for purposes of determining reportable segments based on the criteria of ASC 280, Segment Reporting (“ASC 280”). We determined that Michaels-U.S., Michaels-Canada, Aaron Brothers and Pat Catan’s have similar economic characteristics and meet the aggregation criteria set forth in ASC 280. Therefore, we combine these operating segments into one reporting segment. Darice does not meet the materiality criteria in ASC 280 and, therefore, is not disclosed as a reportable segment. Our chief operating decision makers evaluate historical operating performance and forecast future periods’ operating performance based on operating income. Our net sales by country are as follows (in thousands): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 United States (1) $ 956,608 $ 977,779 $ 2,004,609 $ 2,034,422 Canada 96,659 94,814 204,169 196,734 Total $ 1,053,267 $ 1,072,593 $ 2,208,778 $ 2,231,156 (1) In March 2018, we closed substantially all of our Aaron Brothers stores. There were no Aaron Brothers net sales in the second quarter of fiscal 2018 and net sales totaled approximately $27.3 million in the second quarter of fiscal 2017. For the six months ended August 4, 2018 and July 29, 2017, Aaron Brothers net sales totaled approximately $12.9 million and $52.8 million, respectively.

CONTINGENCIES

CONTINGENCIES	6 Months Ended
	Aug. 04, 2018
CONTINGENCIES
CONTINGENCIES	9. CONTINGENCIES Fair Credit Reporting Claim On December 11, 2014, MSI was served with a lawsuit, Christina Graham v. Michaels Stores, Inc. , filed in the U.S. District Court for the District of New Jersey by a former employee. The lawsuit is a purported class action, bringing plaintiff’s individual claims, as well as claims on behalf of a putative class of applicants who applied for employment with Michaels through an online application, and on whom a background check for employment was procured. The lawsuit alleges that MSI violated the Fair Credit Reporting Act (“FCRA”) and the New Jersey Fair Credit Reporting Act by failing to provide the proper disclosure and obtain the proper authorization to conduct background checks. Since the initial filing, another named plaintiff joined the lawsuit, which was amended in February 2015, Christina Graham and Gary Anderson v. Michaels Stores, Inc. , with substantially similar allegations. The plaintiffs seek statutory and punitive damages as well as attorneys’ fees and costs. Following the filing of the Graham case in New Jersey, five additional purported class action lawsuits with six plaintiffs were filed, Michele Castro and Janice Bercut v. Michaels Stores, Inc. , in the U.S. District Court for the Northern District of Texas, Michelle Bercut v. Michaels Stores, Inc. in the Superior Court of California for Sonoma County, Raini Burnside v. Michaels Stores, Inc. , in the U.S. District Court for the Western District of Missouri, Sue Gettings v. Michaels Stores, Inc ., in the U.S. District Court for the Southern District of New York, and Barbara Horton v. Michaels Stores, Inc., in the U.S. District Court for the Central District of California. All of the plaintiffs alleged violations of the FCRA. In addition, the Castro, Horton and Janice Bercut lawsuits also alleged violations of California’s unfair competition law. The Burnside, Horton and Gettings lawsuits, as well as the claims by Michele Castro, have been dismissed. The Graham, Janice Bercut and Michelle Bercut lawsuits were transferred for centralized pretrial proceedings to the District of New Jersey. On January 24, 2017, the Company’s motion to dismiss for lack of standing was granted, and the court declined to rule on the merits of plaintiffs’ claims. The dismissal order was stayed for 30 days to allow the plaintiffs to amend their complaints. Because there were no amendments filed, two of the three centralized cases were dismissed and subsequently appealed to the U.S. Court of Appeals for the Third Circuit, and the remaining case ( Michelle Bercut ) was remanded to California Superior Court. We reached a tentative settlement on all pending lawsuits and a preliminary approval of the settlement was granted by the Court on April 18, 2018. The final approval hearing is scheduled for September 19, 2018. We do not believe the resolution of the lawsuits will have a material effect on our consolidated financial statements. General In addition to the litigation discussed above, we are now, and may be in the future, involved in various other lawsuits, claims and proceedings incident to the ordinary course of business. The results of litigation are inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time and result in diversion of significant resources.

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS	6 Months Ended
	Aug. 04, 2018
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS	10. RELATED PARTY TRANSACTIONS Affiliates of, or funds advised by, Bain Capital Private Equity, L.P. (“Bain Capital”) and The Blackstone Group L.P. (“The Blackstone Group”, together with Bain Capital and their applicable affiliates, the “Sponsors”) owned approximately 43% of our outstanding common stock as of August 4, 2018. The Blackstone Group owns a majority equity position in RGIS, a vendor we utilized until February 2018 to count our store inventory. There were no payments associated with this vendor during the second quarter of fiscal 2018. Payments associated with this vendor during the second quarter of fiscal 2017 were $1.7 million. Payments associated with this vendor during the six months ended August 4, 2018 and July 29, 2017 were $0.7 million and $3.7 million, respectively. These expenses are included in selling, general and administrative (“SG&A”) in the consolidated statements of comprehensive income. The Blackstone Group owns a majority equity position in Excel Trust, Inc., Blackstone Real Estate DDR Retail Holdings III, LLC and Blackstone Real Estate RC Retail Holdings, LLC, vendors we utilize to lease certain properties. Payments associated with these vendors during the second quarters of fiscal 2018 and fiscal 2017 were $1.5 million. Payments made during the six months ended August 4, 2018 and July 29, 2017 were $3.3 million and $3.4 million, respectively. These expenses are included in cost of sales and occupancy expense in the consolidated statements of comprehensive income. Three of our current directors, Joshua Bekenstein, Ryan Cotton and Peter F. Wallace, are affiliates of either Bain Capital or The Blackstone Group. As such, some or all of such directors may have an indirect material interest in payments with respect to debt securities of the Company that have been purchased by affiliates of Bain Capital and The Blackstone Group. As of August 4, 2018, affiliates of The Blackstone Group held $89.2 million of our Amended Term Loan Credit Facility.

CONDENSED CONSOLIDATED FINANCIA

CONDENSED CONSOLIDATED FINANCIAL INFORMATION	6 Months Ended
	Aug. 04, 2018
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
CONDENSED CONSOLIDATED FINANCIAL INFORMATION	11. CONDENSED CONSOLIDATED FINANCIAL INFORMATION Our debt covenants restrict MSI, and certain subsidiaries of MSI, from various activities including the incurrence of additional debt, payment of dividends and the repurchase of MSI’s capital stock (subject to certain exceptions), among other things. The following condensed consolidated financial information represents the financial information of MSI and its wholly-owned subsidiaries subject to these restrictions. The information is presented in accordance with the requirements of Rule 12-04 under the SEC’s Regulation S-X. Michaels Stores, Inc. Condensed Consolidated Balance Sheets (in thousands) August 4, February 3, July 29, ASSETS 2018 2018 2017 Current assets: Cash and equivalents $ 122,419 $ 425,129 $ 133,356 Merchandise inventories 1,280,095 1,123,288 1,195,495 Prepaid expenses and other current assets 135,480 127,656 115,662 Total current assets 1,537,994 1,676,073 1,444,513 Property and equipment, net 445,130 420,020 407,694 Goodwill 119,074 119,074 119,074 Other assets 79,093 84,537 72,679 Total assets $ 2,181,291 $ 2,299,704 $ 2,043,960 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 555,270 $ 483,002 $ 510,818 Accrued liabilities and other 351,584 369,647 391,047 Current portion of long-term debt 140,261 24,900 112,125 Other current liabilities 35,020 124,881 30,022 Total current liabilities 1,082,135 1,002,430 1,044,012 Long-term debt 2,695,087 2,701,764 2,712,475 Other liabilities 162,693 165,662 107,853 Total stockholders’ deficit (1,758,624) (1,570,152) (1,820,380) Total liabilities and stockholders’ deficit $ 2,181,291 $ 2,299,704 $ 2,043,960 Michaels Stores, Inc. Condensed Consolidated Statements of Comprehensive Income (in thousands) 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Net sales $ 1,053,267 $ 1,072,593 $ 2,208,778 $ 2,231,156 Cost of sales and occupancy expense 679,938 670,082 1,378,887 1,361,012 Gross profit 373,329 402,511 829,891 870,144 Selling, general and administrative 300,734 313,473 629,126 640,938 Restructure charge (3,220) — 44,278 — Store pre-opening costs 1,295 662 2,799 1,640 Operating income 74,520 88,376 153,688 227,566 Interest and other expense 36,272 32,405 69,176 62,801 Losses on early extinguishment of debt and refinancing costs 1,835 — 1,835 — Income before income taxes 36,413 55,971 82,677 164,765 Income taxes 8,740 20,162 27,951 56,795 Net income $ 27,673 $ 35,809 $ 54,726 $ 107,970 Other comprehensive income, net of tax: Foreign currency translation adjustment and other 807 13,944 (6,246) 8,672 Comprehensive income $ 28,480 $ 49,753 $ 48,480 $ 116,642 Michaels Stores, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) 26 Weeks Ended August 4, July 29, 2018 2017 Cash flows from operating activities: Net cash used in operating activities $ (87,943) $ (644) Cash flows used in investing activities: Additions to property and equipment (69,908) (43,120) Cash flows from financing activities: Net repayments of debt (27,390) (70,550) Net borrowings of debt 133,600 139,100 Payment of debt refinancing costs (1,069) — Payment of dividend to Michaels Funding, Inc. (250,000) (185,484) Net cash used in financing activities (144,859) (116,934) Net change in cash and equivalents (302,710) (160,698) Cash and equivalents at beginning of period 425,129 294,054 Cash and equivalents at end of period $ 122,419 $ 133,356

REVENUE RECOGNITION (Tables)

REVENUE RECOGNITION (Tables)	6 Months Ended
	Aug. 04, 2018
REVENUE RECOGNITION
Schedule of gift card liability	The following table includes activity related to gift cards (in thousands): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Balance at beginning of period $ 51,513 $ 44,856 $ 56,729 $ 49,869 Issuance of gift cards 13,522 13,528 24,796 24,954 Revenue recognized (1) (13,484) (13,464) (29,138) (29,512) Gift card breakage (1,038) (735) (1,874) (1,126) Balance at end of period $ 50,513 $ 44,185 $ 50,513 $ 44,185 (1) Revenue recognized from the beginning liability during the second quarters of fiscal 2018 and fiscal 2017 totaled $7.2 million and $7.1 million, respectively. Revenue recognized from the beginning liability during the first six months of fiscal 2018 and fiscal 2017 totaled $15.1 million and $15.3 million, respectively.

FAIR VALUE MEASUREMENTS (Tables

FAIR VALUE MEASUREMENTS (Tables)	6 Months Ended
	Aug. 04, 2018
FAIR VALUE MEASUREMENTS
Schedule of fair values of debt and interest rate swaps	August 4, February 3, July 29, 2018 2018 2017 (in thousands) Assets Interest rate swaps $ 2,342 $ — $ — Liabilities Term loan credit facility $ 2,217,784 $ 2,246,302 $ 2,251,025 Senior subordinated notes 513,825 518,288 522,750 Interest rate swaps 3,233 — —

DEBT (Tables)

DEBT (Tables)	6 Months Ended
	Aug. 04, 2018
DEBT
Schedule of outstanding debt	Long-term debt consists of the following (in thousands): August 4, February 3, July 29, Interest Rate 2018 2018 2017 Term loan credit facility Variable $ 2,220,560 $ 2,232,350 $ 2,251,025 Asset-based revolving credit facility Variable 118,000 — 81,000 Senior subordinated notes % 510,000 510,000 510,000 Total debt 2,848,560 2,742,350 2,842,025 Less unamortized discount/premium and debt costs (13,212) (15,686) (17,425) Total debt, net 2,835,348 2,726,664 2,824,600 Less current portion (140,261) (24,900) (112,125) Long-term debt $ 2,695,087 $ 2,701,764 $ 2,712,475

ACCUMULATED OTHER COMPREHENSI20

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)	6 Months Ended
	Aug. 04, 2018
ACCUMULATED OCI (LOSS)
Schedule of accumulated other comprehensive loss	The following table includes detail regarding changes in the composition of accumulated other comprehensive loss (in thousands): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Beginning of period $ (10,713) $ (19,496) $ (3,660) $ (14,224) Foreign currency translation adjustment and other (1,440) 13,944 (5,587) 8,672 Interest rate swaps 2,247 — (659) — End of period $ (9,906) $ (5,552) $ (9,906) $ (5,552)

EARNINGS PER SHARE (Tables)

EARNINGS PER SHARE (Tables)	6 Months Ended
	Aug. 04, 2018
EARNINGS PER SHARE
Schedule of calculation of basic and diluted earnings per share	The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share data): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Basic earnings per common share: Net income $ 27,488 $ 35,562 $ 54,373 $ 107,770 Less income related to unvested restricted shares (56) (150) (123) (478) Income available to common shareholders - Basic $ 27,432 $ 35,412 $ 54,250 $ 107,292 Weighted-average common shares outstanding - Basic 177,348 186,886 179,436 187,927 Basic earnings per common share $ $ $ $ Diluted earnings per common share: Net income $ 27,488 $ 35,562 $ 54,373 $ 107,770 Less income related to unvested restricted shares (56) (149) (122) (475) Income available to common shareholders - Diluted $ 27,432 $ 35,413 $ 54,251 $ 107,295 Weighted-average common shares outstanding - Basic 177,348 186,886 179,436 187,927 Effect of dilutive stock options and restricted stock units 867 1,045 990 1,244 Weighted-average common shares outstanding - Diluted 178,215 187,931 180,426 189,171 Diluted earnings per common share $ $ $ $

SEGMENTS AND GEOGRAPHIC INFOR22

SEGMENTS AND GEOGRAPHIC INFORMATION (Tables)	6 Months Ended
	Aug. 04, 2018
SEGMENTS AND GEOGRAPHIC INFORMATION
Schedule of net sales by country	Our net sales by country are as follows (in thousands): 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 United States (1) $ 956,608 $ 977,779 $ 2,004,609 $ 2,034,422 Canada 96,659 94,814 204,169 196,734 Total $ 1,053,267 $ 1,072,593 $ 2,208,778 $ 2,231,156 (1) In March 2018, we closed substantially all of our Aaron Brothers stores. There were no Aaron Brothers net sales in the second quarter of fiscal 2018 and net sales totaled approximately $27.3 million in the second quarter of fiscal 2017. For the six months ended August 4, 2018 and July 29, 2017, Aaron Brothers net sales totaled approximately $12.9 million and $52.8 million, respectively.

CONDENSED CONSOLIDATED FINANC23

CONDENSED CONSOLIDATED FINANCIAL INFORMATION (Tables)	6 Months Ended
	Aug. 04, 2018
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Schedule of Condensed Consolidated Balance Sheets	Michaels Stores, Inc. Condensed Consolidated Balance Sheets (in thousands) August 4, February 3, July 29, ASSETS 2018 2018 2017 Current assets: Cash and equivalents $ 122,419 $ 425,129 $ 133,356 Merchandise inventories 1,280,095 1,123,288 1,195,495 Prepaid expenses and other current assets 135,480 127,656 115,662 Total current assets 1,537,994 1,676,073 1,444,513 Property and equipment, net 445,130 420,020 407,694 Goodwill 119,074 119,074 119,074 Other assets 79,093 84,537 72,679 Total assets $ 2,181,291 $ 2,299,704 $ 2,043,960 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 555,270 $ 483,002 $ 510,818 Accrued liabilities and other 351,584 369,647 391,047 Current portion of long-term debt 140,261 24,900 112,125 Other current liabilities 35,020 124,881 30,022 Total current liabilities 1,082,135 1,002,430 1,044,012 Long-term debt 2,695,087 2,701,764 2,712,475 Other liabilities 162,693 165,662 107,853 Total stockholders’ deficit (1,758,624) (1,570,152) (1,820,380) Total liabilities and stockholders’ deficit $ 2,181,291 $ 2,299,704 $ 2,043,960
Schedule of Condensed Consolidated Statements of Comprehensive Income	Michaels Stores, Inc. Condensed Consolidated Statements of Comprehensive Income (in thousands) 13 Weeks Ended 26 Weeks Ended August 4, July 29, August 4, July 29, 2018 2017 2018 2017 Net sales $ 1,053,267 $ 1,072,593 $ 2,208,778 $ 2,231,156 Cost of sales and occupancy expense 679,938 670,082 1,378,887 1,361,012 Gross profit 373,329 402,511 829,891 870,144 Selling, general and administrative 300,734 313,473 629,126 640,938 Restructure charge (3,220) — 44,278 — Store pre-opening costs 1,295 662 2,799 1,640 Operating income 74,520 88,376 153,688 227,566 Interest and other expense 36,272 32,405 69,176 62,801 Losses on early extinguishment of debt and refinancing costs 1,835 — 1,835 — Income before income taxes 36,413 55,971 82,677 164,765 Income taxes 8,740 20,162 27,951 56,795 Net income $ 27,673 $ 35,809 $ 54,726 $ 107,970 Other comprehensive income, net of tax: Foreign currency translation adjustment and other 807 13,944 (6,246) 8,672 Comprehensive income $ 28,480 $ 49,753 $ 48,480 $ 116,642
Schedule of Condensed Consolidated Statements of Cash Flows	Michaels Stores, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) 26 Weeks Ended August 4, July 29, 2018 2017 Cash flows from operating activities: Net cash used in operating activities $ (87,943) $ (644) Cash flows used in investing activities: Additions to property and equipment (69,908) (43,120) Cash flows from financing activities: Net repayments of debt (27,390) (70,550) Net borrowings of debt 133,600 139,100 Payment of debt refinancing costs (1,069) — Payment of dividend to Michaels Funding, Inc. (250,000) (185,484) Net cash used in financing activities (144,859) (116,934) Net change in cash and equivalents (302,710) (160,698) Cash and equivalents at beginning of period 425,129 294,054 Cash and equivalents at end of period $ 122,419 $ 133,356

BASIS OF PRESENTATION, Fiscal Y

BASIS OF PRESENTATION, Fiscal Year (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017	Feb. 02, 2019	Feb. 03, 2018
Fiscal year
Duration period of fiscal year	91 days	91 days	182 days	182 days	364 days	371 days
Minimum
Fiscal year
Duration period of fiscal year			364 days
Maximum
Fiscal year
Duration period of fiscal year			371 days

BASIS OF PRESENTATION, Aaron Br

BASIS OF PRESENTATION, Aaron Brothers (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Restructure charge	$ (3,220)		$ 44,278
Revenues	1,053,267	$ 1,072,593	2,208,778	$ 2,231,156
Not Discontinued Operations | Aaron Brothers
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Restructure charge			44,300
Revenues	$ 0		$ 12,900
Revenues		$ 27,300		$ 52,800

BASIS OF PRESENTATION, Stock Re

BASIS OF PRESENTATION, Stock Repurchase (Details) - Share Repurchase Program June 2017 - USD ($) shares in Millions, $ in Millions	Aug. 30, 2018	Jun. 30, 2018	Aug. 04, 2018	Jun. 30, 2017
Share Repurchase Program
Common stock share repurchase authorized amount				$ 500
Value of shares repurchased		$ 250
Number of shares repurchased	1.7	10.7
Percentage of shares to be repurchased		86.00%
Remaining amount under share repurchase program	$ 100		$ 150

BASIS OF PRESENTATION, Accounti

BASIS OF PRESENTATION, Accounting Pronouncements (Details) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Retained earnings	$ (1,700,978)		$ (1,539,781)	$ (1,822,509)
Effect of change in guidance | ASU 2014-09
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Retained earnings		$ 0

REVENUE RECOGNITION, Right of R

REVENUE RECOGNITION, Right of Return (Details)	6 Months Ended
	Aug. 04, 2018
REVENUE RECOGNITION
Maximum number of days merchandise allowed to be returned	180 days

REVENUE RECOGNITION, Customer R

REVENUE RECOGNITION, Customer Receivables (Details) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
Customer Receivables
Accounts receivable, net	$ 31,095	$ 26,207	$ 24,311
Darice
Customer Receivables
Accounts receivable, net	$ 23,900	$ 19,200	$ 17,900

REVENUE RECOGNITION, Gift Cards

REVENUE RECOGNITION, Gift Cards (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
REVENUE RECOGNITION
Balance at beginning of period	$ 51,513	$ 44,856	$ 56,729	$ 49,869
Issuance of gift cards	13,522	13,528	24,796	24,954
Revenue recognized	(13,484)	(13,464)	(29,138)	(29,512)
Gift card breakage	(1,038)	(735)	(1,874)	(1,126)
Balance at end of period	50,513	44,185	50,513	44,185
Revenue recognized from the beginning liability	$ 7,200	$ 7,100	$ 15,100	$ 15,300

FAIR VALUE MEASUREMENTS, Debt (

FAIR VALUE MEASUREMENTS, Debt (Details) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
Senior subordinated notes
Fair Value Measurements
Interest rate (as a percent)	5.875%	5.875%	5.875%
Level 2 | Interest rate swap
Assets
Interest rate swaps	$ 2,342
Liabilities
Interest rate swaps	3,233
Level 1 | Term loan credit facility
Liabilities
Long-term loans and notes	2,217,784	$ 2,246,302	$ 2,251,025
Level 1 | Senior subordinated notes
Liabilities
Long-term loans and notes	$ 513,825	$ 518,288	$ 522,750

DEBT (Details)

DEBT (Details) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
Debt
Total debt	$ 2,848,560	$ 2,742,350	$ 2,842,025
Less unamortized discount/premium and debt costs	(13,212)	(15,686)	(17,425)
Total debt, net	2,835,348	2,726,664	2,824,600
Less current portion	(140,261)	(24,900)	(112,125)
Long-term debt	2,695,087	2,701,764	2,712,475
Term loan credit facility
Debt
Total debt	2,220,560	$ 2,232,350	2,251,025
Asset-based revolving credit facility
Debt
Total debt	$ 118,000		$ 81,000
Senior subordinated notes
Debt
Stated interest rate (as a percent)	5.875%	5.875%	5.875%
Total debt	$ 510,000	$ 510,000	$ 510,000

DEBT, Revolving (Details)

DEBT, Revolving (Details) - Michaels Stores - Asset-based revolving credit facility - USD ($) $ in Millions	Aug. 04, 2018	Jul. 29, 2017
Asset-based Revolving Credit Facility
Maximum borrowing capacity	$ 850	$ 827.7
Unused borrowing capacity	644.8	681.4
Outstanding letters of credit	$ 87.2	$ 65.3

DEBT, Term Loan (Details)

DEBT, Term Loan (Details) - USD ($) $ in Thousands	May 23, 2018	Aug. 04, 2018	Aug. 04, 2018
Debt
Losses on early extinguishments of debt and refinancing costs		$ 1,835	$ 1,835
Michaels Stores
Debt
Losses on early extinguishments of debt and refinancing costs		1,835	$ 1,835
Michaels Stores | Senior Secured Term Loan Facility
Debt
Scheduled quarterly payments as a percentage of the original principal amount of the term loans	0.25%
Period of incurrence of additional term loans to make scheduled quarterly payments	4 years 6 months
Losses on early extinguishments of debt and refinancing costs		$ 1,800
Michaels Stores | Senior Secured Term Loan Facility | Base rate
Debt
Margin basis spread on reference rate (as a percent)	1.50%
Michaels Stores | Senior Secured Term Loan Facility | Federal Funds
Debt
Margin basis spread on reference rate (as a percent)	0.50%
Michaels Stores | Senior Secured Term Loan Facility | One-month LIBOR
Debt
Margin basis spread on reference rate (as a percent)	1.00%
Michaels Stores | Senior Secured Term Loan Facility | LIBOR
Debt
Margin basis spread on reference rate (as a percent)	2.50%

DEBT, Interest Rate Swaps (Deta

DEBT, Interest Rate Swaps (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018USD ($)	Jul. 29, 2017USD ($)	Aug. 04, 2018USD ($)	Jul. 29, 2017USD ($)	Apr. 30, 2018USD ($)derivative
Debt
Interest expense	$ 37,101	$ 31,051	$ 71,695	$ 61,488
Senior Secured Term Loan Facility | Michaels Stores
Debt
Interest rate (as a percent)					2.7765%
Senior Secured Term Loan Facility | Michaels Stores | Accumulated Gain (Loss), Cash Flow Hedge | Reclassification out of Accumulated Other Comprehensive Income
Debt
Interest expense	2,000		2,100
Interest rate swap | Senior Secured Term Loan Facility | Michaels Stores
Debt
Number of interest rate swaps | derivative					2
Notional value					$ 1,000,000
Net liability	900		900
Interest rate swap | Senior Secured Term Loan Facility | Michaels Stores | Accrued liabilities and other
Debt
Derivative liability	3,200		3,200
Interest rate swap | Senior Secured Term Loan Facility | Michaels Stores | Other assets
Debt
Derivative asset	$ 2,300		$ 2,300

ACCUMULATED OTHER COMPREHENSI36

ACCUMULATED OTHER COMPREHENSIVE LOSS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Accumulated Other Comprehensive Loss
Balance at the beginning			$ (1,509,495)
Balance at the end	$ (1,699,380)	$ (1,767,993)	(1,699,380)	$ (1,767,993)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Loss
Balance at the beginning	(10,713)	(19,496)	(3,660)	(14,224)
Balance at the end	(9,906)	(5,552)	(9,906)	(5,552)
Foreign Currency Translation Adjustment & Other
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss	(1,440)	$ 13,944	(5,587)	$ 8,672
Interest rate swaps
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss	$ 2,247		$ (659)

INCOME TAXES (Details)

INCOME TAXES (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017	Feb. 03, 2018
INCOME TAXES
Effective tax rate (as a percent)	24.00%	36.00%	33.90%	34.50%
Charge for repatriation of earnings of foreign subsidiaries			$ 8.1
Income taxes at statutory rate (as a percent)			21.00%		35.00%

EARNINGS PER SHARE (Details)

EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Earnings per share
Anti-dilutive stock options shares excluded from the computation of earnings per share (in shares)	7,300	6,700	7,000	5,900
Basic earnings per common share:
Net income	$ 27,488	$ 35,562	$ 54,373	$ 107,770
Income available to common shareholders - Basic	$ 27,432	$ 35,412	$ 54,250	$ 107,292
Weighted-average common shares outstanding - Basic (in shares)	177,348	186,886	179,436	187,927
Basic earnings per common share (in dollars per share)	$ 0.15	$ 0.19	$ 0.30	$ 0.57
Diluted earnings per common share:
Net income	$ 27,488	$ 35,562	$ 54,373	$ 107,770
Income available to common shareholders - Diluted	$ 27,432	$ 35,413	$ 54,251	$ 107,295
Weighted-average common shares outstanding - Basic (in shares)	177,348	186,886	179,436	187,927
Effect of dilutive stock options and restricted stock units (in shares)	867	1,045	990	1,244
Weighted-average common shares outstanding - Diluted (in shares)	178,215	187,931	180,426	189,171
Diluted earnings per common share (in dollars per share)	$ 0.15	$ 0.19	$ 0.30	$ 0.57
Restricted Shares
Basic earnings per common share:
Less income related to unvested restricted shares	$ (56)	$ (150)	$ (123)	$ (478)
Diluted earnings per common share:
Less income related to unvested restricted shares	$ (56)	$ (149)	$ (122)	$ (475)

SEGMENTS AND GEOGRAPHIC INFOR39

SEGMENTS AND GEOGRAPHIC INFORMATION (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018USD ($)	Jul. 29, 2017USD ($)	Aug. 04, 2018USD ($)item	Jul. 29, 2017USD ($)
Segments
Number of reportable segments | item			1
Net Sales	$ 1,053,267	$ 1,072,593	$ 2,208,778	$ 2,231,156
United States
Segments
Net Sales	956,608	977,779	2,004,609	2,034,422
Canada
Segments
Net Sales	$ 96,659	$ 94,814	$ 204,169	$ 196,734

SEGMENTS AND GEOGRAPHIC INFOR40

SEGMENTS AND GEOGRAPHIC INFORMATION, Aaron Brothers (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenues	$ 1,053,267	$ 1,072,593	$ 2,208,778	$ 2,231,156
Aaron Brothers | Not Discontinued Operations
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Revenues	$ 0		$ 12,900
Revenues		$ 27,300		$ 52,800

CONTINGENCIES (Details)

CONTINGENCIES (Details) - Fair credit reporting claim - item	Jan. 24, 2017	Aug. 04, 2018
Commitments and Contingencies
Number of claims filed		5
Number of plaintiffs		6
Period dismissal order was stayed	30 days
Number of amendments filed	0
Number of cases dismissed	2
Number of consolidated cases filed	3

RELATED PARTY TRANSACTIONS (Det

RELATED PARTY TRANSACTIONS (Details)	Aug. 04, 2018
The Sponsors
Related Party Transactions
Percentage of equity ownership owned	43.00%

RELATED PARTY TRANSACTIONS, Tra

RELATED PARTY TRANSACTIONS, Transactions (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018USD ($)item	Jul. 29, 2017USD ($)	Aug. 04, 2018USD ($)item	Jul. 29, 2017USD ($)	Feb. 03, 2018USD ($)
Related Party Transactions
Long-term debt	$ 2,835,348	$ 2,824,600	$ 2,835,348	$ 2,824,600	$ 2,726,664
The Blackstone Group | Term loan credit facility
Related Party Transactions
Long-term debt	89,200		89,200
The Blackstone Group | Store Inventory Count Services | Selling, General and Administrative Expenses
Related Party Transactions
Expenses recognized	0	1,700	700	3,700
The Blackstone Group | Lease Services | Cost of Sales and Occupancy Expense
Related Party Transactions
Expenses recognized	$ 1,500	$ 1,500	$ 3,300	$ 3,400
Bain Capital or The Blackstone Group
Related Party Transactions
Number of directors | item	3		3

CONDENSED CONSOLIDATED FINANC44

CONDENSED CONSOLIDATED FINANCIAL INFORMATION, Balance Sheet (Details) - USD ($) $ in Thousands	Aug. 04, 2018	Feb. 03, 2018	Jul. 29, 2017
Current assets:
Cash and equivalents	$ 123,191	$ 425,896	$ 134,119
Merchandise inventories	1,280,095	1,123,288	1,195,495
Prepaid expenses and other current assets	98,742	97,830	87,176
Total current assets	1,549,646	1,676,982	1,461,186
Property and equipment, net	445,130	420,020	407,694
Goodwill	119,074	119,074	119,074
Other assets	26,180	27,832	12,202
Total assets	2,192,545	2,300,215	2,060,029
Current liabilities:
Accounts payable	555,270	483,002	510,818
Accrued liabilities and other	351,987	370,457	391,784
Current portion of long-term debt	140,261	24,900	112,125
Total current liabilities	1,047,945	957,945	1,015,550
Long-term debt	2,695,087	2,701,764	2,712,475
Other liabilities	148,893	150,001	99,997
Total stockholders' deficit	(1,699,380)	(1,509,495)	(1,767,993)
Total liabilities and stockholders' deficit	2,192,545	2,300,215	2,060,029
Michaels Stores
Current assets:
Cash and equivalents	122,419	425,129	133,356
Merchandise inventories	1,280,095	1,123,288	1,195,495
Prepaid expenses and other current assets	135,480	127,656	115,662
Total current assets	1,537,994	1,676,073	1,444,513
Property and equipment, net	445,130	420,020	407,694
Goodwill	119,074	119,074	119,074
Other assets	79,093	84,537	72,679
Total assets	2,181,291	2,299,704	2,043,960
Current liabilities:
Accounts payable	555,270	483,002	510,818
Accrued liabilities and other	351,584	369,647	391,047
Current portion of long-term debt	140,261	24,900	112,125
Other current liabilities	35,020	124,881	30,022
Total current liabilities	1,082,135	1,002,430	1,044,012
Long-term debt	2,695,087	2,701,764	2,712,475
Other liabilities	162,693	165,662	107,853
Total stockholders' deficit	(1,758,624)	(1,570,152)	(1,820,380)
Total liabilities and stockholders' deficit	$ 2,181,291	$ 2,299,704	$ 2,043,960

CONDENSED CONSOLIDATED FINANC45

CONDENSED CONSOLIDATED FINANCIAL INFORMATION, Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017	Aug. 04, 2018	Jul. 29, 2017
Supplemental Condensed Consolidating Statement of Comprehensive Income
Net sales	$ 1,053,267	$ 1,072,593	$ 2,208,778	$ 2,231,156
Cost of sales and occupancy expense	679,938	670,082	1,378,887	1,361,012
Gross profit	373,329	402,511	829,891	870,144
Selling, general and administrative	300,981	313,867	629,598	641,263
Restructure charge	(3,220)		44,278
Store pre-opening costs	1,295	662	2,799	1,640
Operating income	74,273	87,982	153,216	227,241
Losses on early extinguishments of debt and refinancing costs	1,835		1,835
Income before income taxes	36,169	55,578	82,211	164,444
Income taxes	8,681	20,016	27,838	56,674
Net income	27,488	35,562	54,373	107,770
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other	807	13,944	(6,246)	8,672
Comprehensive income	28,295	49,506	48,127	116,442
Michaels Stores
Supplemental Condensed Consolidating Statement of Comprehensive Income
Net sales	1,053,267	1,072,593	2,208,778	2,231,156
Cost of sales and occupancy expense	679,938	670,082	1,378,887	1,361,012
Gross profit	373,329	402,511	829,891	870,144
Selling, general and administrative	300,734	313,473	629,126	640,938
Restructure charge	(3,220)		44,278
Store pre-opening costs	1,295	662	2,799	1,640
Operating income	74,520	88,376	153,688	227,566
Interest and other expense	36,272	32,405	69,176	62,801
Losses on early extinguishments of debt and refinancing costs	1,835		1,835
Income before income taxes	36,413	55,971	82,677	164,765
Income taxes	8,740	20,162	27,951	56,795
Net income	27,673	35,809	54,726	107,970
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other	807	13,944	(6,246)	8,672
Comprehensive income	$ 28,480	$ 49,753	$ 48,480	$ 116,642

CONDENSED CONSOLIDATED FINANC46

CONDENSED CONSOLIDATED FINANCIAL INFORMATION, Cash Flow (Details) - USD ($) $ in Thousands	6 Months Ended
	Aug. 04, 2018	Jul. 29, 2017
Cash flows from operating activities:
Net cash provided by operating activities	$ (86,562)	$ (4,035)
Cash flows used in investing activities:
Additions to property and equipment	(69,908)	(43,120)
Cash flows from financing activities:
Payment of debt refinancing costs	(1,069)
Net cash used in financing activities	(146,235)	(117,539)
Net change in cash and equivalents	(302,705)	(164,694)
Cash and equivalents at beginning of period	425,896	298,813
Cash and equivalents at end of period	123,191	134,119
Cash and equivalents at beginning of period	425,896
Cash and equivalents at end of period	123,191	134,119
Michaels Stores
Cash flows from operating activities:
Net cash provided by operating activities	(87,943)	(644)
Cash flows used in investing activities:
Additions to property and equipment	(69,908)	(43,120)
Cash flows from financing activities:
Net repayments of debt	(27,390)	(70,550)
Net borrowings of debt	133,600	139,100
Payment of debt refinancing costs	(1,069)
Payment of dividend to Michaels Funding, Inc.	(250,000)	(185,484)
Net cash used in financing activities	(144,859)	(116,934)
Net change in cash and equivalents	(302,710)	(160,698)
Cash and equivalents at beginning of period	425,129	294,054
Cash and equivalents at end of period	122,419	133,356
Cash and equivalents at beginning of period	425,129
Cash and equivalents at end of period	$ 122,419	$ 133,356