Exhibit 99.1
Contact: Jeffrey N. Boyer | ||
Executive Vice President - | ||
Chief Financial Officer | ||
(972) 409-1581 | ||
Chris Holland | ||
Vice President — Finance | ||
(972) 409-1667 |
NEWS RELEASE
FOR IMMEDIATE RELEASE
Michaels Stores, Inc. Revises Previously Announced
Preliminary 2004 Results to Reflect Changes in Lease
Accounting Practices
IRVING, Texas, March 15, 2005 — Michaels Stores, Inc. (NYSE: MIK) announced today that it is making a one-time, non-cash, after-tax adjustment of $8.0 million to its results in the fourth fiscal quarter of 2004 to reflect the cumulative impact of a correction of its accounting practices related to leased properties. The Company has completed its evaluation, announced in its press release of March 2, 2005, of the impact of the cumulative effect of this adjustment. The adjustment reduces the Company’s previously announced fiscal fourth quarter diluted earnings per share from $0.80 to $0.75 and its fiscal year 2004 diluted earnings per share by $0.06 from $1.51 to $1.45. Of the $0.06 reduction in diluted earnings per share recorded in the fourth quarter, there is no net impact on diluted earnings per share attributable to fiscal years 2004 or 2003. The decrease of $0.06 is attributable to the net impact on diluted earnings per share of prior periods, the majority of which relates to periods prior to fiscal year 2000.
This correction of accounting practices was made in light of the views of the Office of the Chief Accountant of the Securities and Exchange Commission expressed in a letter of February 7, 2005 to the American Institute of Certified Public Accountants regarding the application of generally accepted accounting principles to operating lease accounting matters. Consistent with industry practices, in prior periods the Company had reported its straight line expenses for leases beginning on the earlier of the store opening date or the commencement date of the lease, which had the effect of excluding the pre-opening or build-out period of its stores from the calculation of the period over which it expenses rent. In addition, amounts received as tenant allowances were reflected in the balance sheet as a reduction to store leasehold improvement costs instead of being classified as deferred lease credits. The adjustment required to correct these practices will not affect historical or future net cash flows or the timing of payments under related leases. The Company believes that the new lease accounting practices will not have a material effect on future diluted earnings per share and is not changing its earnings guidance of diluted earnings per share for fiscal 2005 of $1.74 to $1.81, excluding the anticipated impact of non-cash expense related to the implementation of Statement of Financial Accounting Standards No. 123(R),Share-Based Payment.
In the past, the Company has followed lease accounting principles using methods that have been common practice in the retail and restaurant industries. In its March 2, 2005 earnings release, the Company stated that it had not made a decision whether to reflect the change in lease accounting practices in the 2004 financial results or in restatements of previously issued annual and interim financial statements. Upon completion of its evaluation, the Company decided to reflect the change in its 2004 financial results. Prior years’ financial results will not be restated as these issues were not material to previously reported results for any prior year.
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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 March 14, 2005, the Company owns and operates 847 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores, eight Recollections stores, and four 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 onForm 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, July 31, 2004, and October 30, 2004. Specific examples of forward-looking statements include, but are not limited to, forecasts of 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: changes in accounting principles; 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 conditions; 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 fluctuations; 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).
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Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
Fourth Quarter | Fiscal Year | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Net sales | $ | 1,184,560 | $ | 1,063,106 | $ | 3,393,251 | $ | 3,091,256 | ||||||||
Cost of sales and occupancy expense | 751,442 | 674,466 | 2,146,934 | 1,957,273 | ||||||||||||
Gross profit | 433,118 | 388,640 | 1,246,317 | 1,133,983 | ||||||||||||
Selling, general, and administrative expense | 265,097 | 233,420 | 898,445 | 823,161 | ||||||||||||
Store pre-opening costs | 823 | 1,026 | 8,357 | 8,071 | ||||||||||||
Operating income | 167,198 | 154,194 | 339,515 | 302,751 | ||||||||||||
Interest expense | 4,995 | 5,078 | 20,434 | 20,262 | ||||||||||||
Other (income) and expense, net | (1,861 | ) | (1,201 | ) | (4,604 | ) | (2,701 | ) | ||||||||
Income before income taxes | 164,064 | 150,317 | 323,685 | 285,190 | ||||||||||||
Provision for income taxes | 60,821 | 55,756 | 121,876 | 107,345 | ||||||||||||
Net income | $ | 103,243 | $ | 94,561 | $ | 201,809 | $ | 177,845 | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.76 | $ | 0.70 | $ | 1.49 | $ | 1.32 | ||||||||
Diluted | $ | 0.75 | $ | 0.68 | $ | 1.45 | $ | 1.27 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 135,086 | 135,288 | 135,875 | 134,356 | ||||||||||||
Diluted | 138,295 | 139,662 | 139,016 | 139,858 | ||||||||||||
Dividends per common share | $ | 0.07 | $ | 0.05 | $ | 0.26 | $ | 0.15 | ||||||||
Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Unaudited)
January 29, | January 31, | |||||||
Subject to Reclassification | 2005 | 2004 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 586,231 | $ | 341,825 | ||||
Merchandise inventories | 936,395 | 892,923 | ||||||
Prepaid expenses and other | 26,613 | 29,198 | ||||||
Deferred and prepaid income taxes | 22,032 | 19,426 | ||||||
Total current assets | 1,571,271 | 1,283,372 | ||||||
Property and equipment, at cost | 913,174 | 808,230 | ||||||
Less accumulated depreciation | (506,193 | ) | (420,313 | ) | ||||
406,981 | 387,917 | |||||||
Goodwill | 115,839 | 115,839 | ||||||
Other assets | 17,569 | 14,519 | ||||||
133,408 | 130,358 | |||||||
Total assets | $ | 2,111,660 | $ | 1,801,647 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 256,266 | $ | 172,708 | ||||
Accrued liabilities and other | 242,682 | 194,395 | ||||||
Income taxes payable | 12,992 | 2,377 | ||||||
Total current liabilities | 511,940 | 369,480 | ||||||
9 1/4% Senior Notes due 2009 | 200,000 | 200,000 | ||||||
Deferred income taxes | 30,355 | 28,241 | ||||||
Other long-term liabilities | 72,200 | 36,628 | ||||||
Total long-term liabilities | 302,555 | 264,869 | ||||||
814,495 | 634,349 | |||||||
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 135,726,717 at January 29, 2005 and 135,995,134 at January 31, 2004 | 13,573 | 13,600 | ||||||
Additional paid-in capital | 451,449 | 489,110 | ||||||
Retained earnings | 826,821 | 660,365 | ||||||
Accumulated other comprehensive income | 5,322 | 4,223 | ||||||
Total stockholders’ equity | 1,297,165 | 1,167,298 | ||||||
Total liabilities and stockholders’ equity | $ | 2,111,660 | $ | 1,801,647 | ||||
Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Subject to Reclassification | Fiscal Year | |||||||
2004 | 2003 | |||||||
Operating activities: | ||||||||
Net income | $ | 201,809 | $ | 177,845 | ||||
Adjustments: | ||||||||
Depreciation | 105,742 | 83,472 | ||||||
Amortization | 394 | 397 | ||||||
Other | 1,288 | 1,115 | ||||||
Changes in assets and liabilities: | ||||||||
Merchandise inventories | (43,472 | ) | (83,505 | ) | ||||
Prepaid expenses and other | 2,585 | (10,559 | ) | |||||
Deferred income taxes and other | 1,806 | 11,503 | ||||||
Accounts payable | 83,558 | 77,944 | ||||||
Income taxes payable | 39,699 | �� | 13,287 | |||||
Accrued liabilities and other | 69,240 | 18,007 | ||||||
Net cash provided by operating activities | 462,649 | 289,506 | ||||||
Investing activities: | ||||||||
Additions to property and equipment, net of landlord reimbursements | (125,737 | ) | (103,110 | ) | ||||
Net proceeds from sales of property and equipment | 133 | 105 | ||||||
Net cash used in investing activities | (125,604 | ) | (103,005 | ) | ||||
Financing activities: | ||||||||
Cash dividends paid to stockholders | (25,867 | ) | (20,145 | ) | ||||
Repurchase of Common Stock | (105,099 | ) | (75,499 | ) | ||||
Proceeds from stock options exercised | 35,494 | 30,724 | ||||||
Proceeds from issuance of Common Stock and other | 2,833 | 2,213 | ||||||
Payment of other long-term liabilities | — | — | ||||||
Net cash (used in) provided by financing activities | (92,639 | ) | (62,707 | ) | ||||
Net increase in cash and equivalents | 244,406 | 123,794 | ||||||
Cash and equivalents at beginning of period | 341,825 | 218,031 | ||||||
Cash and equivalents at end of period | $ | 586,231 | $ | 341,825 | ||||
Michaels Stores, Inc.
Summary of Operating Data
The following table sets forth the percentage relationship to net sales of each line item of our unaudited consolidated statements of income:
Fourth Quarter | Fiscal Year | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of sales and occupancy expense | 63.4 | 63.4 | 63.3 | 63.3 | ||||||||||||
Gross profit | 36.6 | 36.6 | 36.7 | 36.7 | ||||||||||||
Selling, general, and administrative expense | 22.4 | 22.0 | 26.5 | 26.6 | ||||||||||||
Store pre-opening costs | 0.1 | 0.1 | 0.2 | 0.3 | ||||||||||||
Operating income | 14.1 | 14.5 | 10.0 | 9.8 | ||||||||||||
Interest expense | 0.4 | 0.5 | 0.6 | 0.7 | ||||||||||||
Other (income) and expense, net | (0.2 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||
Income before income taxes | 13.9 | 14.1 | 9.5 | 9.2 | ||||||||||||
Provision for income taxes | 5.2 | 5.2 | 3.6 | 3.4 | ||||||||||||
Net income | 8.7 | % | 8.9 | % | 5.9 | % | 5.8 | % | ||||||||
The following table sets forth certain of our unaudited operating data (dollar amounts in thousands):
Fourth Quarter | Fiscal Year | |||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||
Michaels stores (1): | ||||||||||||||||
Retail stores open at beginning of period | 849 | 808 | 804 | 754 | ||||||||||||
Retail stores opened during the period | — | — | 45 | 55 | ||||||||||||
Retail stores opened (relocations) during the period | — | — | 30 | 16 | ||||||||||||
Retail stores closed during the period | (5 | ) | (4 | ) | (5 | ) | (5 | ) | ||||||||
Retail stores closed (relocations) during the period | — | — | (30 | ) | (16 | ) | ||||||||||
Retail stores open at end of period | 844 | 804 | 844 | 804 | ||||||||||||
Aaron Brothers stores: | ||||||||||||||||
Retail stores open at beginning of period | 164 | 158 | 158 | 148 | ||||||||||||
Retail stores opened during the period | — | — | 7 | 10 | ||||||||||||
Retail stores opened (relocations) during the period | — | — | 1 | — | ||||||||||||
Retail stores closed during the period | — | — | (1 | ) | — | |||||||||||
Retail stores closed (relocations) during the period | — | — | (1 | ) | — | |||||||||||
Retail stores open at end of period | 164 | 158 | 164 | 158 | ||||||||||||
Recollections stores: | ||||||||||||||||
Retail stores open at beginning of period | 8 | 2 | 2 | — | ||||||||||||
Retail stores opened during the period | — | — | 6 | 2 | ||||||||||||
Retail stores opened at end the period | 8 | 2 | 8 | 2 | ||||||||||||
Star Wholesale stores (1): | ||||||||||||||||
Wholesale stores open at beginning of period | 3 | 3 | 3 | 2 | ||||||||||||
Wholesale store opened during the period | — | — | — | 1 | ||||||||||||
Wholesale stores open at end of period | 3 | 3 | 3 | 3 | ||||||||||||
Total store count at end of period | 1,019 | 967 | 1,019 | 967 | ||||||||||||
Other operating data: | ||||||||||||||||
Average inventory per Michaels store | $ | 1,010 | $ | 1,045 | $ | 1,010 | $ | 1,045 | ||||||||
Comparable store sales increase | 7 | % | 4 | % | 5 | % | 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 is being managed as part of our Star Wholesale concept. |