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Michaels Earns A Buy On Arts And Crafts, In-Store Sales Prospects

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January 25, 2018 1:41 pm
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After a tumultuous 2017, Michaels Companies Inc (NASDAQ:MIK) is finding comfort in new allies.

The firm earned an upgrade from Goldman Sachs last week and another from Telsey Advisory Group Thursday.

The Rating

Telsey analyst Cristina Fernandez upgraded Michaels from Market Perform to Outperform and increased the price target from $23 to $32.

The Thesis

Fernandez expects Michaels’ decreased tax rate to boost earnings per share, lower operating margins by 20 basis points and drive share repurchases. (See the analyst's track record here.) 

The retailer's ongoing initiatives are expected to sustain same-store sales growth, the analyst said. The firm’s efforts in direct marketing, expansion of everyday value offerings and technology integration are seen to compound the upcoming launch of an online arts and crafts marketplace. 

“Encouragingly, recent strength has been across a number of core categories (paper crafts, seasonal, kids) rather than one trend, and promotional intensity has stabilized,” Fernandez said. 

She expects Michaels to continue drawing consumers to stores, with e-commerce eventually peaking at a single-digit percent of sales.

“While this could ultimately go higher, we believe the shift will be slow as store traffic remains strong and customers have shown a preference for purchasing this category in store given the low ticket value and treasure-hunt aspect of shopping this category."

Price Action

Michaels shares were up 2.27 percent at $27 at the time of publication Thursday afternoon. 

Related Links:

Jefferies On Specialty Retail: Planet Fitness Loses Muscle, Genesco Fits Perfect

Tough Year For Retail: The Stores That Closed In 2017

Photo by Anthony92931/Wikimedia. 

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