Exhibit 99.1
NEWS RELEASE
FOR IMMEDIATE RELEASE
Jeffrey N. Boyer
Executive Vice President -
Chief Financial Officer
(972) 409-1581
Christopher J. Holland
Vice President – Finance
(972) 409-1667
Michaels Stores Announces Record Third Quarter
—EPS Increases 15% —
IRVING, Texas – November 23, 2004 – Michaels Stores, Inc. (NYSE: MIK) today reported record financial results for its third quarter and the nine months ended October 30, 2004. Net income for the quarter was $42.5 million, an 11% increase compared to net income of $38.2 million in the same period last year. On a post-split basis, diluted earnings per share for the quarter were $.31 compared to $.27 in the same period last year, a 15% increase.
Net income for the nine months was $98.6 million compared to net income of $83.3 million in the same period last year, an 18% increase. Diluted earnings per share for the nine months, on a post-split basis, were $.71 compared to $.60 in the same period last year, an 18% increase.
Michael Rouleau, President and Chief Executive Officer, said, “We are pleased with our third quarter performance and our progress year-to-date, and we are looking forward to another record year, our eighth in a row.”
Operating Performance
Total sales for the third quarter increased 6% to $799.9 million from $755.2 million for the same period last year. Same-store sales for the quarter grew 1%. For the quarter, customer traffic was up 2% and average ticket decreased 1%. For the quarter, the Company’s best performing departments were Needlework and Yarn, Impulse, Books, and Kids Crafts, and its best performing zones were the Pacific, Central, and mid-Atlantic.
Year-to-date sales of $2.209 billion increased 9% from $2.028 billion for the same period last year while same-store sales were up 4% year-to-date. Year-to-date, customer traffic increased 3% and average ticket was up 1%. Year-to-date, the Company’s best-performing departments were Needlework and Yarn, Art, Frames, and Kids Crafts and its best performing zones were the Central, Pacific, and Northeast.
During the third quarter, the Company opened 22 and relocated eight Michaels stores, opened four and relocated one Aaron Brothers store, and opened three Recollections stores.
For the quarter ended October 30, 2004, the Company’s operating income increased 14% to $72.8 million or 9.1% of sales compared to operating income of $63.6 million or 8.4% of sales for the same period last year. Operating income year-to-date increased 16% to $172.3 million or 7.8% of sales compared to $148.6 million or 7.3% of sales in the same period of 2003. Year-to-date operating income includes a $4.9 million charge recorded in the second quarter related to the establishment of insurance reserves reflecting the financial difficulties of one of the Company’s insurance carriers. Operating income also includes incremental costs related to previously announced initiatives
for additional closure costs related to store relocations this year, the distribution center realignment project, and Aaron Brothers’ headquarters relocation to the Michaels corporate offices in Coppell, TX. Expenses related to these projects were $4.9 million in the third quarter and $9.7 million year-to-date.
Balance Sheet
The Company’s cash balance as of October 30, 2004, the end of the third quarter, was $272.4 million, an increase of $166.9 million over the same period last year. Average inventory per Michaels store at the end of the third quarter, inclusive of distribution centers, decreased 8% to $1.213 million from $1.313 million for the same period last year.
On a post-split basis, the Company has repurchased 1,451,300 shares of its common stock during the third quarter under its stock repurchase plans at an average price of $27.19 per share. Year-to-date, on a post-split basis, the Company has repurchased 3,590,500 shares of its common stock at an average price of $26.34 per share. As of November 23, 2004, under its repurchase plans, the Company is authorized to repurchase approximately 2.3 million additional shares plus such shares as may be repurchased with proceeds from the future exercise of options under the Company’s 2001 General Stock Option Plan.
The Company also stated that during the third quarter it amended the terms of its $200 million Revolving Credit Agreement to extend its maturity date from April 30, 2005, to April 30, 2006, and to permit the planned prepayment of its $200 million 91/4% Senior Notes on the first available call date in July 2005.
Outlook
The Company has adjusted its fourth quarter forecast. Same-store sales are now expected to increase 2% to 3% with November same-store sales expected to be down 2% to 4%. Changes in its Veterans Day promotional event negatively impacted top-line sales performance while delivering stronger than planned gross margins. The Company continues to expect December same-store sales to increase 4% to 6% and January same-store sales to increase 3% to 5%.
The Company currently expects diluted earnings per share, on a post-split basis, to be at the low-end of its previous guidance of $.74 to $.76 for the fourth quarter and to range from $1.44 to $1.46 for fiscal 2004, inclusive of the $4.9 million charge recorded in the second quarter.
On a preliminary basis, the Company expects fiscal 2005 diluted earnings per share to increase at least 15% over fiscal 2004 results. Same-store sales are expected to increase 3% to 4% and total sales are expected to increase 7% to 9% compared to fiscal 2004. Operating margin is expected to grow 60 to 80 basis points over fiscal 2004 driven by both gross margin expansion and selling, general, and administrative expense leverage.
A conference call will be held at 4:00 p.m. CT today to discuss third quarter earnings results. Those who wish to participate in the call may do so by dialing 973-633-6740. Any interested party will also have the opportunity to access the call via the Internet at www.michaels.com. To listen to the live call, please go to the website at least fifteen minutes early to register and download any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available for 30 days after the date of the event. Replay may be accessed at www.michaels.com or by phone at 973-341-3080, PIN 4251275.
The Company plans to release its November 2004 sales results on Thursday, December 2, 2004 at 6:30 a.m. CT. Any interested party may view the Company’s press release at www.michaels.com.
Michaels Stores, Inc. is the world’s largest specialty retailer of arts, crafts, framing, floral, wall décor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator. As of November 23, 2004, the Company owns and operates 849 Michaels stores in 48 states and Canada, 164 Aaron Brothers stores, eight Recollections stores, and three Star Wholesale operations.
This document contains forward-looking statements that reflect our plans, estimates, and beliefs. Any statements contained herein (including, but not limited to, statements to the effect that Michaels or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and in our Quarterly Reports onForm 10-Q for the quarters ended May 1, 2004, and July 31, 2004. Specific examples of forward-looking statements include, but are not limited to, forecasts of same-store sales growth and diluted earnings per share. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service, and convenience; our ability to anticipate and/or react to changes in customer demand; changes in consumer confidence; unexpected consumer responses to changes in promotional programs; unusual weather patterns; the execution and management of our store growth and the availability of acceptable real estate locations for new store openings; the effective maintenance of our perpetual inventory and automated replenishment systems and related impacts to inventory levels; delays in the receipt of merchandise ordered from our suppliers due to delays in connection with either the manufacture or shipment of such merchandise; transportation delays (including dock strikes and other work stoppages); changes in political, economic, and social conditions; commodity cost increases and currency issues; financial difficulties of any of our insurance providers, key vendors, or suppliers; and other factors as set forth in our Annual Report onForm 10-K for the fiscal year ended January 31, 2004, particularly in “Critical Accounting Policies” and “Risk Factors,” and in our other Securities and Exchange Commission filings. We intend these forward-looking statements to speak only as of the time of this release and do not undertake to update or revise them as more information becomes available.
This press release is also available on the Michaels Stores, Inc. website (www.michaels.com).
– Tables follow –
Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Preliminary and Unaudited)
Quarter Ended | Nine Months Ended | |||||||||||||||
October 30, | November 1, | October 30, | November 1, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Net sales | $ | 799,905 | $ | 755,246 | $ | 2,208,691 | $ | 2,028,150 | ||||||||
Cost of sales and occupancy expense | 504,236 | 479,471 | 1,395,492 | 1,282,807 | ||||||||||||
Gross profit | 295,669 | 275,775 | 813,199 | 745,343 | ||||||||||||
Selling, general, and administrative expense | 220,489 | 208,474 | 633,348 | 589,741 | ||||||||||||
Store pre-opening costs | 2,408 | 3,702 | 7,534 | 7,045 | ||||||||||||
Operating income | 72,772 | 63,599 | 172,317 | 148,557 | ||||||||||||
Interest expense | 5,042 | 5,049 | 15,439 | 15,185 | ||||||||||||
Other (income) and expense, net | (1,077 | ) | 77 | (2,743 | ) | (1,501 | ) | |||||||||
Income before income taxes | 68,807 | 58,473 | 159,621 | 134,873 | ||||||||||||
Provision for income taxes | 26,319 | 20,265 | 61,055 | 51,589 | ||||||||||||
Net income | $ | 42,488 | $ | 38,208 | $ | 98,566 | $ | 83,284 | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.31 | $ | 0.28 | $ | 0.72 | $ | 0.62 | ||||||||
Diluted | $ | 0.31 | $ | 0.27 | $ | 0.71 | $ | 0.60 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 135,550 | 134,622 | 136,138 | 134,044 | ||||||||||||
Diluted | 138,796 | 141,698 | 139,257 | 139,924 | ||||||||||||
Dividends per common share | $ | 0.07 | $ | 0.05 | $ | 0.19 | $ | 0.10 | ||||||||
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Preliminary and Unaudited)
October 30, | January 31, | November 1, | ||||||||||
2004 | 2004 | 2003 | ||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and equivalents | $ | 272,406 | $ | 341,825 | $ | 105,477 | ||||||
Merchandise inventories | 1,096,400 | 892,923 | 1,103,527 | |||||||||
Prepaid expenses and other | 34,633 | 29,198 | 28,979 | |||||||||
Deferred and prepaid income taxes | 19,471 | 19,426 | 20,380 | |||||||||
Total current assets | 1,422,910 | 1,283,372 | 1,258,363 | |||||||||
Property and equipment, at cost | 863,421 | 808,230 | 779,440 | |||||||||
Less accumulated depreciation | (469,867 | ) | (420,313 | ) | (402,628 | ) | ||||||
393,554 | 387,917 | 376,812 | ||||||||||
Goodwill | 115,839 | 115,839 | 115,839 | |||||||||
Other assets | 16,810 | 14,519 | 13,603 | |||||||||
132,649 | 130,358 | 129,442 | ||||||||||
Total assets | $ | 1,949,113 | $ | 1,801,647 | $ | 1,764,617 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | $ | 257,023 | $ | 172,708 | $ | 220,349 | ||||||
Accrued liabilities and other | 222,248 | 194,395 | 189,976 | |||||||||
Income taxes payable | 6,066 | 2,377 | 3,916 | |||||||||
Total current liabilities | 485,337 | 369,480 | 414,241 | |||||||||
9 1/4% Senior Notes due 2009 | 200,000 | 200,000 | 200,000 | |||||||||
Deferred income taxes | 27,550 | 28,241 | 21,515 | |||||||||
Other long-term liabilities | 41,256 | 36,628 | 34,004 | |||||||||
Total long-term liabilities | 268,806 | 264,869 | 255,519 | |||||||||
754,143 | 634,349 | 669,760 | ||||||||||
Commitments and contingencies | ||||||||||||
Stockholders’ equity: | ||||||||||||
Preferred Stock, $0.10 par value, 2,000,000 shares authorized; none issued | — | — | — | |||||||||
Common Stock, $0.10 par value, 350,000,000 shares authorized; shares issued and outstanding of 135,093,810 at October 30, 2004, 135,995,134 at January 31, 2004, and 135,555,608 at November 1, 2003 | 13,509 | 13,600 | 13,556 | |||||||||
Additional paid-in capital | 438,850 | 489,110 | 503,410 | |||||||||
Retained earnings | 733,069 | 660,365 | 572,511 | |||||||||
Accumulated other comprehensive income | 9,542 | 4,223 | 5,380 | |||||||||
Total stockholders’ equity | 1,194,970 | 1,167,298 | 1,094,857 | |||||||||
Total liabilities and stockholders’ equity | $ | 1,949,113 | $ | 1,801,647 | $ | 1,764,617 | ||||||
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Preliminary and Unaudited)
Nine Months Ended | ||||||||
October 30, | November 1, | |||||||
2004 | 2003 | |||||||
Operating activities: | ||||||||
Net income | $ | 98,566 | $ | 83,284 | ||||
Adjustments: | ||||||||
Depreciation | 65,756 | 61,632 | ||||||
Amortization | 294 | 299 | ||||||
Other | 780 | 844 | ||||||
Changes in assets and liabilities: | ||||||||
Merchandise inventories | (203,477 | ) | (294,109 | ) | ||||
Prepaid expenses and other | (5,435 | ) | (10,340 | ) | ||||
Deferred income taxes and other | 757 | 2,435 | ||||||
Accounts payable | 84,315 | 125,585 | ||||||
Income taxes payable | 16,917 | (6,432 | ) | |||||
Accrued liabilities and other | 33,157 | 14,036 | ||||||
Net cash provided by (used in) operating activities | 91,630 | (22,766 | ) | |||||
Investing activities: | ||||||||
Additions to property and equipment | (71,663 | ) | (69,333 | ) | ||||
Net proceeds from sales of property and equipment | 60 | 31 | ||||||
Net cash used in investing activities | (71,603 | ) | (69,302 | ) | ||||
Financing activities: | ||||||||
Proceeds from stock options exercised | 28,944 | 28,556 | ||||||
Repurchase of Common Stock | (94,582 | ) | (37,369 | ) | ||||
Cash dividends paid to stockholders | (25,867 | ) | (13,439 | ) | ||||
Proceeds from issuance of Common Stock and other | 2,059 | 1,766 | ||||||
Net cash used in financing activities | (89,446 | ) | (20,486 | ) | ||||
Net decrease in cash and equivalents | (69,419 | ) | (112,554 | ) | ||||
Cash and equivalents at beginning of period | 341,825 | 218,031 | ||||||
Cash and equivalents at end of period | $ | 272,406 | $ | 105,477 | ||||
Michaels Stores, Inc.
Summary of Operating Data
(Preliminary and Unaudited)
The following table sets forth the percentage relationship to net sales of each line item of our unaudited consolidated statements of income:
Quarter Ended | Nine Months Ended | |||||||||||||||
October 30, | November 1, | October 30, | November 1, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales and occupancy expense | 63.0 | 63.5 | 63.2 | 63.3 | ||||||||||||
Gross profit | 37.0 | 36.5 | 36.8 | 36.7 | ||||||||||||
Selling, general, and administrative expense | 27.6 | 27.6 | 28.7 | 29.1 | ||||||||||||
Store pre-opening costs | 0.3 | 0.5 | 0.3 | 0.3 | ||||||||||||
Operating income | 9.1 | 8.4 | 7.8 | 7.3 | ||||||||||||
Interest expense | 0.6 | 0.6 | 0.7 | 0.7 | ||||||||||||
Other (income) and expense, net | (0.1 | ) | 0.0 | (0.1 | ) | (0.1 | ) | |||||||||
Income before income taxes | 8.6 | 7.8 | 7.2 | 6.7 | ||||||||||||
Provision for income taxes | 3.3 | 2.7 | 2.7 | 2.6 | ||||||||||||
Net income | 5.3 | % | 5.1 | % | 4.5 | % | 4.1 | % | ||||||||
The following table sets forth certain of our unaudited operating data (dollar amounts in thousands):
Quarter Ended | Nine Months Ended | |||||||||||||||
October 30, | November 1, | October 30, | November 1, | |||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Michaels stores (1): | ||||||||||||||||
Retail stores open at beginning of period | 827 | 780 | 804 | 754 | ||||||||||||
Retail stores opened during the period | 22 | 28 | 45 | 55 | ||||||||||||
Retail stores opened (relocations) during the period | 8 | 7 | 30 | 16 | ||||||||||||
Retail stores closed during the period | — | — | — | (1 | ) | |||||||||||
Retail stores closed (relocations) during the period | (8 | ) | (7 | ) | (30 | ) | (16 | ) | ||||||||
Retail stores open at end of period | 849 | 808 | 849 | 808 | ||||||||||||
Aaron Brothers stores: | ||||||||||||||||
Retail stores open at beginning of period | 160 | 157 | 158 | 148 | ||||||||||||
Retail stores opened during the period | 4 | 1 | 7 | 10 | ||||||||||||
Retail stores opened (relocations) during the period | 1 | — | 1 | — | ||||||||||||
Retail stores closed during the period | — | — | (1 | ) | — | |||||||||||
Retail stores closed (relocations) during the period | (1 | ) | — | (1 | ) | — | ||||||||||
Retail stores open at end of period | 164 | 158 | 164 | 158 | ||||||||||||
ReCollections stores: | ||||||||||||||||
Retail stores open at beginning of period | 5 | 1 | 2 | — | ||||||||||||
Retail stores opened during the period | 3 | 1 | 6 | 2 | ||||||||||||
Retail stores open at end of period | 8 | 2 | 8 | 2 | ||||||||||||
Star Wholesale stores (1): | ||||||||||||||||
Wholesale stores open at beginning of period | 3 | 2 | 3 | 2 | ||||||||||||
Wholesale stores opened during the period | — | 1 | — | 1 | ||||||||||||
Wholesale stores open at end of period | 3 | 3 | 3 | 3 | ||||||||||||
Total store count at end of period | 1,024 | 971 | 1,024 | 971 | ||||||||||||
Other operating data: | ||||||||||||||||
Average inventory per Michaels store | $ | 1,213 | $ | 1,313 | $ | 1,213 | $ | 1,313 | ||||||||
Comparable store sales increase | 1 | % | 2 | % | 4 | % | 2 | % |
(1) | Opening store counts reflect a reclassification of our Los Angeles combination wholesale-retail store from a Michaels store to a Star Wholesale store. Beginning in fiscal 2004, our Los Angeles wholesale-retail store will be managed as part of our Star Wholesale concept. |