Market Overview

The Michaels Companies Reports Record Fourth Quarter and Fiscal 2017 Results

Share:
  • Fourth quarter total net sales increased 8.0%; comparable store
    sales increased 2.5%
  • Fourth quarter diluted EPS of $1.11; adjusted diluted EPS of $1.19,
    excluding one-time charge related to tax reform of $14.6 million
  • Fiscal 2017 total net sales increased 3.2%; comparable store sales
    increased 0.9%
  • Fiscal year GAAP diluted EPS of $2.10; adjusted diluted EPS of $2.17

The Michaels Companies, Inc. (NASDAQ:MIK) today announced financial
results for the 14-week fourth quarter and 53-week fiscal year ended
February 3, 2018. Diluted earnings per share for the fourth quarter of
fiscal 2017 was $1.11, which included a negative impact from one-time
charges related to the Tax Cuts and Jobs Act of 2017 (the "Tax Act") of
approximately $0.08 in diluted earnings per share. Adjusted diluted
earnings per share for the fourth quarter of fiscal 2017 was $1.19, an
increase of 24.0% from adjusted diluted earnings per share of $0.96 in
the fourth quarter of fiscal 2016. A reconciliation of non-GAAP
financial measures to the respective GAAP measures is included in this
release.

"Today, we reported record fourth quarter results driven by a strong
holiday performance. Customers responded well to our efforts to make it
easier to celebrate the season with an expanded offering of new and
exclusive product, more compelling presentations, and strong value
statements," said Chuck Rubin, Chairman and CEO. "In fiscal 2017, we
made meaningful progress against each of our strategic priorities,
including: delivering a more seamless omnichannel shopping experience;
offering trend-right assortments that deliver great customer value; and
increasing customer engagement. As I look back at our financial
performance for the full year, I am pleased that we delivered sales and
earnings growth in-line with the guidance we provided at the beginning
of the year and that we continued to generate strong, consistent cash
flow."

Impact of the 53rd Week

The Company's fiscal year ends on the Saturday closest to January 31st.
Fiscal 2017 ended on February 3, 2018, resulting in an extra week in the
fourth quarter of fiscal 2017 ("53rd week") as compared to
fiscal 2016. The 53rd week contributed approximately $79
million in sales, approximately $27 million in operating income, and
approximately $0.09 in adjusted diluted income per common share.

Fourth Quarter Income Statement Highlights

  • Net sales increased 8.0% to $1,890.6 million, from $1,750.9 million in
    the fourth quarter of fiscal 2016. Comparable store sales increased
    2.5% (2.0% on a constant currency basis) due to an increase in average
    ticket and an increase in customer transactions.
  • Gross profit increased 9.7% to $774.5 million, from $705.8 million in
    the fourth quarter of fiscal 2016. As a percentage of net sales, gross
    profit increased 70 basis points to 41.0% compared to 40.3% in the
    fourth quarter of fiscal 2016. The increase, as a percentage of net
    sales, was due to higher merchandise margin resulting from the
    Company's ongoing sourcing initiatives, occupancy cost leverage
    resulting from the 53rd week of sales, less discounting
    activity during the quarter, and the comparison against $1.1 million
    of net non-recurring, inventory-related purchase accounting
    adjustments and integration expenses related to the acquisition of
    Lamrite West in the fourth quarter of fiscal 2016. These benefits were
    partially offset by higher distribution-related costs, including
    higher freight costs, and higher inventory shrinkage.
  • Selling, general and administrative expense, including store
    pre-opening costs, ("SG&A") increased 13.8% to $420.2 million, or
    22.2% of sales, from $369.2 million, or 21.1% of sales, in the fourth
    quarter of fiscal 2016. As expected, the increase in SG&A was
    primarily due to an increase in incentive-based compensation and
    expenses resulting from the 53rd week. In the fourth
    quarter of fiscal 2016, incentive-based compensation decreased $28.3
    million compared to the fourth quarter of fiscal 2015.
  • Operating income increased 5.3% to $354.3 million, or 18.7% of sales,
    compared to $336.6 million, or 19.2% of sales, in the fourth quarter
    of fiscal 2016.
  • Interest expense increased $4.3 million to $34.8 million, from $30.6
    million in the fourth quarter of fiscal 2016. The increase was
    primarily due to interest expense related to the 53rd week
    and higher interest rates on the Company's term loan credit facility.
  • The effective tax rate was 36.6% for the fourth quarter of fiscal
    2017, compared to 36.2% for the fourth quarter of fiscal 2016. The
    higher effective tax rate was primarily due to one-time charges of
    $14.6 million in the quarter resulting from the enactment of the Tax
    Act. The charge included provisional adjustments of $10.8 million
    related to repatriation taxes for accumulated earnings of foreign
    subsidiaries and $3.8 million related to the revaluation of net
    deferred tax assets, reflecting a reduction in the U.S. corporate tax
    rate from 35% to 21%. These provisional adjustments were partially
    offset by benefits realized from the Company's direct sourcing
    initiatives, a favorable reduction in the annual corporate tax rate,
    and the recognition of $2.1 million of excess tax benefits associated
    with the adoption of a new accounting standard related to share-based
    compensation. Excluding the impact of $14.6 million of one-time
    charges, the effective tax rate for the fourth quarter of fiscal 2017
    was 32.0%.
  • Net income increased 3.9% to $203.0 million, compared to $195.3
    million in the fourth quarter of fiscal 2016. Adjusted net income for
    the fourth quarter of fiscal 2017 was $217.5 million, compared to
    adjusted net income for fiscal 2016 of $195.9 million, an increase of
    11.0%. (See additional information in this release for a
    reconciliation of non-GAAP financial measures.)
  • Diluted earnings per share increased 16.8% to $1.11, from $0.95 in the
    fourth quarter of fiscal 2016. Adjusted diluted earnings per share for
    the fourth quarter of fiscal 2017 was $1.19, compared to adjusted
    diluted earnings per share for the fourth quarter of fiscal 2016 of
    $0.96, an increase of 24.0%. (See additional information in this
    release for a reconciliation of non-GAAP financial measures.) Diluted
    weighted-average common shares outstanding for the quarter were 182.3
    million compared with 203.5 million in the fourth quarter of fiscal
    2016.
  • During the fourth quarter of fiscal 2017, the Company opened one new
    Michaels store and closed one Aaron Brothers store.

Fiscal 2017 Income Statement Highlights

  • Net sales increased 3.2% to $5,362.0 million, from $5,197.3 million in
    fiscal 2016. The increase in net sales was primarily a result of sales
    from the operation of 15 new Michaels stores (net of closures) in
    fiscal 2017 and a 0.9% increase in comparable store sales (0.7% on a
    constant currency basis).
  • Operating income increased 2.8% to $735.4 million, or 13.7% of sales,
    compared to $715.3 million, or 13.8% of sales, in fiscal 2016. The
    increase was due to benefits from higher merchandise margin resulting
    from the Company's ongoing sourcing initiatives, the impact of the 53rd
    week, and the comparison against $11.4 million of net non-recurring,
    inventory-related purchase accounting adjustments and integration
    expenses related to the acquisition of Lamrite West in fiscal 2016.
    These benefits were offset by higher incentive-based compensation and
    higher inventory shrinkage. In fiscal 2016, incentive-based
    compensation decreased $45.6 million compared to fiscal 2015.
  • Net income increased 3.3% to $390.5 million, compared to $378.2
    million in fiscal 2016. Adjusted net income for fiscal 2017 was $405.1
    million, compared to adjusted net income for fiscal 2016 of $389.6
    million, an increase of 4.0%. (See additional information in this
    release for a reconciliation of non-GAAP financial measures.)
  • Diluted earnings per share increased 15.4% to $2.10, from $1.82 in
    fiscal 2016. Diluted weighted-average common shares outstanding for
    the quarter were 185.6 million compared with 206.4 million in fiscal
    2016. Adjusted diluted earnings per share in fiscal 2017 was $2.17,
    compared to adjusted diluted earnings per share for fiscal 2016 of
    $1.88, an increase of 15.4%. (See additional information in this
    release for a reconciliation of non-GAAP financial measures.)
  • During fiscal 2017, the Company opened 17 new Michaels stores and one
    new Pat Catan's store and relocated 12 Michaels stores. The Company
    also closed two Michaels stores and 12 Aaron Brothers stores during
    the year. At the end of fiscal 2017, the Company operated 1,238
    Michaels stores, 97 Aaron Brothers stores, and 36 Pat Catan's stores.

Balance Sheet and Cash Flow Statement Highlights

  • The Company ended fiscal 2017 with $425.9 million in cash, $2.7
    billion in total debt and $716.6 million in availability under its
    asset-based revolving credit facility.
  • Total merchandise inventory at the end of fiscal 2017 was $1,123.3
    million compared to $1,127.8 million at end of fiscal 2016. Average
    Michaels inventory on a per store basis, inclusive of distribution
    centers, in transit and inventory for the Company's ecommerce site,
    decreased 1.9% to $810,000, compared to $826,000 at the end of fiscal
    2016.
  • During the year, the Company purchased 12.7 million shares, or $249.5
    million, under its share repurchase authorization. The total remaining
    authorization for future repurchases is approximately $350.0 million.
    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.

Aaron Brothers Store Closings

The Company has completed its strategic review of Aaron Brothers, a
small, specialty retail chain primarily focused on custom framing,
ready-made frames, wall art and art supplies. In 2018, the Company plans
to close 94 full-size Aaron Brothers stores and reposition Aaron
Brothers as a "store-within-a-store," providing custom framing services
in all Michaels stores. The Company will also rebrand Framerspointe.com,
a company-owned online custom framing website, as AaronBrothers.com.

In fiscal 2017, Aaron Brothers net sales totaled approximately $110
million and had no material impact on the Company's operating income.
The Company expects the after-tax cost of implementing these changes
will be in the range of $37 million to $42 million. The Company
anticipates the vast majority of the cost will be recognized in the
first quarter of fiscal 2018. The Company expects the after-tax cash
impact of the changes to be minimal.

Fiscal 2018 Outlook

"Building on the progress we made in fiscal 2017, in fiscal 2018 we will
reinvest some of the benefits of tax reform to accelerate planned
investments to drive future sales and earnings growth. We will invest to
build a foundation to bring ecommerce fulfillment in-house; offer a more
seamless omnichannel experience for customers; convert approximately 235
stores to our FMA format to create a more consistent, relevant layout;
and strengthen our data analytic capabilities," continued Rubin. "While
this acceleration will result in temporarily elevated levels of
operating expense in fiscal 2018, I am confident these investments will
position us to increase our market share and expand our leadership in
the arts and crafts channel."

The Company's guidance for fiscal 2018 assumes Aaron Brothers stores
were closed as of the start of the fiscal year and excludes any
restructuring charges. For fiscal 2018, a 52-week year, the Company
expects:

  • net sales will be between $5,217 million and $5,293 million;
  • comparable store sales to increase between 0% and 1.5%;
  • to open 19 new Michaels stores and relocate 17 Michaels stores;
  • adjusted operating income will be in the range of $677 million to $710
    million;
  • interest expense will be approximately $144 million;
  • the effective tax rate will be approximately 24%;
  • adjusted diluted earnings per common share will be between $2.19 and
    $2.32, based on diluted weighted average common shares of
    approximately 185 million; and
  • capital expenditures will be between $160 million and $170 million.

For the first quarter of fiscal 2018, the Company expects:

  • net sales will be between $1,139 million and $1,150 million;
  • comparable store sales to increase 0% to 1.0%;
  • to open eight new Michaels stores and relocate nine Michaels stores;
  • adjusted operating income will be between $121 million and $127
    million;
  • interest expense will be approximately $34 million;
  • the effective tax rate will be approximately 24%; and
  • adjusted diluted earnings per common share will be between $0.36 and
    $0.38, based on diluted weighted average common shares of 184 million.

Conference Call Information

A conference call to discuss the Company's financial results is
scheduled for today, March 22, 2018, at 8:00 a.m. Central Time.
Investors who would like to join the conference call are encouraged to
pre-register for the conference call using the following link: http://dpregister.com/10117247.
Callers who pre-register will be given a phone number and a unique PIN
to gain immediate access to the call and bypass the live operator.
Participants may pre-register at any time, including up to and after the
call start time. Investors without internet access or who are unable to
pre-register can join the call by dialing (844) 340-4762 or (412)
717-9617.

The conference call will also be webcast at http://investors.michaels.com/events.cfm.
To listen to the live call, please go to the website at least 15 minutes
before the call is scheduled to begin to register and download any
necessary audio software. The webcast will be accessible for 30 days
after the call. Additionally, a telephone replay will be available until
April 5, 2018, by dialing (877) 344-7529 or (412) 317-0088, access code
10117247.

Non-GAAP Information

This press release includes non-GAAP measures including operating income
excluding net non-recurring, inventory-related purchase accounting
adjustments and integration expenses associated with the acquisition of
Lamrite West ("Adjusted operating income"); net income excluding net
non-recurring, inventory-related purchase accounting adjustments and
integration expenses associated with the acquisition of Lamrite West,
losses on early extinguishment of debt and refinancing costs, less
related tax adjustments and excluding provisional adjustments related to
tax reform ("Adjusted net income"); and diluted earnings per share
excluding net non-recurring, inventory-related purchase accounting
adjustments and integration expenses associated with the acquisition of
Lamrite West and losses on early extinguishment of debt and refinancing
costs, less related tax adjustments ("Adjusted diluted earnings per
share"). The Company has reconciled these non-GAAP financial measures
with the most directly comparable GAAP financial measures in a table
accompanying this release. The Company believes that these non-GAAP
financial measures not only provide its management with comparable
financial data for internal financial analysis but also provide
meaningful supplemental information to investors. Specifically, these
non-GAAP financial measures allow investors to better understand the
performance of the Company's business and facilitate a meaningful
evaluation of its quarterly and fiscal 2017 diluted earnings per common
share and actual results on a comparable basis with its quarterly and
fiscal 2016 results.

In evaluating these non-GAAP financial measures, investors should be
aware that in the future the Company may incur expenses or be involved
in transactions that are the same as or similar to some of the
adjustments in this presentation. The Company's presentation of non-GAAP
financial measures should not be construed to imply that its future
results will be unaffected by any such adjustments. The Company has
provided this information as a means to evaluate the results of its
ongoing operations. Other companies in the Company's industry may
calculate these items differently than it does. Each of these measures
is not a measure of performance under GAAP and should not be considered
as a substitute for the most directly comparable financial measures
prepared in accordance with GAAP. Non-GAAP financial measures have
limitations as analytical tools, and investors should not consider them
in isolation or as a substitute for analysis of the Company's results as
reported under GAAP.

Forward-Looking Statements

This news release includes forward-looking statements which reflect
management's current views and estimates regarding the Company's
industry, business strategy, goals, and expectations concerning its
market position, future operations, margins, profitability, capital
expenditures, share repurchases, liquidity and capital resources, and
other financial and operating information. The words "anticipate",
"assume", "believe", "continue", "could", "estimate", "expect",
"forecast", "future", "guidance", "imply", "intend", "may", "outlook",
"plan", "potential", "predict", "project", and similar terms and phrases
are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. The Company
cannot assure investors that future developments affecting the Company
will be those that it has anticipated. Actual results may differ
materially from these expectations due to risks relating to the effect
of economic uncertainty; substantial changes to fiscal and tax policies;
our reliance on foreign suppliers; regulatory changes; the seasonality
of our business; changes in customer demand; damage to the reputation of
the Michaels brand or our private and exclusive brands; unexpected or
unfavorable consumer responses to our promotional or merchandising
programs; our failure to adequately maintain security and prevent
unauthorized access to electronic and other confidential information;
increased competition including internet-based competition from other
retailers; and other risks and uncertainties including those identified
under the heading "Risk Factors" in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission ("SEC"), which is
available at www.sec.gov,
and other filings that the Company may make with the SEC in the future.
If one or more of these risks or uncertainties materialize, or if any of
the Company's assumptions prove incorrect, the Company's actual results
may vary in material respects from those projected in these
forward-looking statements. Any forward-looking statement made by the
Company in this news release speaks only as of the date on which the
Company makes it. Factors or events that could cause the Company's
actual results to differ may emerge from time to time, and it is not
possible for the Company to predict all of them. The Company does not
undertake and specifically disclaims any obligation to publicly update
or revise any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as may be required
by any applicable securities laws.

About The Michaels Companies, Inc.:

A Fortune 500® Company, The Michaels Companies, Inc. is North America's
largest specialty provider of arts, crafts, framing, floral, wall décor,
and seasonal merchandise for Makers and do-it-yourself home decorators.

As of February 3, 2018, the Company owned and operated 1,371 stores in
49 states and Canada under the brands Michaels, Aaron Brothers and Pat
Catan's. The Michaels Companies, Inc., also owns Artistree, a
manufacturer of high quality custom and specialty framing merchandise,
and Darice, a premier wholesale distributor in the craft, gift and decor
industry. The Michaels Companies, Inc. produces a number of private
brands including Recollections®, Studio Decor®, Bead Landing®,
Creatology®, Ashland®, Celebrate It®, ArtMinds®, Artist's Loft®, Craft
Smart®, Loops & Threads®, Make Market®, Foamies®, LockerLookz®,
Imagin8®, and Sticky Sticks®. Learn more about Michaels at www.michaels.com.

 
 
The Michaels Companies, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
               
Quarter Ended Fiscal Year Ended
February 3, January 28, February 3, January 28,
(in thousands, except per share data)

2018(1)

2017

2018(1)

2017
Net sales $ 1,890,608 $ 1,750,854 $ 5,361,960 $ 5,197,292
Cost of sales and occupancy expense   1,116,072     1,045,093     3,233,171     3,169,476  
Gross profit 774,536 705,761 2,128,789 2,027,816
Selling, general and administrative 419,839 368,960 1,390,400 1,308,052
Store pre-opening costs   407     245     2,999     4,484  
Operating income 354,290 336,556 735,390 715,280
Interest expense 34,810 30,560 129,116 126,270
Losses on early extinguishments of debt and refinancing costs 7,292
Other (income) expense, net   (417 )   (244 )   533     (55 )
Income before income taxes 319,897 306,240 605,741 581,773
Income taxes   116,929     110,922     215,243     203,614  
Net income $ 202,968   $ 195,318   $ 390,498   $ 378,159  
 
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other   6,310     2,032     10,564     7,832  
Comprehensive income $ 209,278   $ 197,350   $ 401,062   $ 385,991  
 
Earnings per common share:
Basic $ 1.12 $ 0.96 $ 2.11 $ 1.84
Diluted $ 1.11 $ 0.95 $ 2.10 $ 1.82
Weighted-average common shares outstanding:
Basic 180,826 202,201 184,281 204,735
Diluted 182,264 203,498 185,566 206,354
 
 
The following table sets forth the percentage relationship to net
sales of each line item of our unaudited consolidated statements of
comprehensive income:
Quarter Ended Fiscal Year Ended
February 3, January 28, February 3, January 28,

2018(1)

2017

2018(1)

2017
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales and occupancy expense   59.0     59.7     60.3     61.0  
Gross profit 41.0 40.3 39.7 39.0
Selling, general and administrative 22.2 21.1 25.9 25.2
Store pre-opening costs   0.0     0.0     0.1     0.1  
Operating income 18.7 19.2 13.7 13.8
Interest expense 1.8 1.7 2.4 2.4
Losses on early extinguishments of debt and refinancing costs 0.1
Other (income) expense, net                
Income before income taxes 16.9 17.5 11.3 11.2
Income taxes   6.2     6.3     4.0     3.9  
Net income   10.7 %   11.2 %   7.3 %   7.3 %
 
(1)The quarter and year ended February 3, 2018 include 14
weeks and 53 weeks, respectively.

 
 
The Michaels Companies, Inc.
Consolidated Balance Sheets
(Unaudited)
       
February 3, January 28,
(in thousands, except per share data)   2018     2017  
ASSETS
Current Assets:
Cash and equivalents $ 425,896 $ 298,813
Merchandise inventories 1,123,288 1,127,777
Prepaid expenses and other 97,830 87,175
Accounts receivable, net 26,207 23,215
Income taxes receivable   3,761     5,825  
Total current assets   1,676,982     1,542,805  
Property and equipment, net 420,020 413,164
Goodwill 119,074 119,074
Other intangible assets, net 21,769 23,702
Deferred income taxes 34,538 36,834
Other assets   27,832     12,061  
Total assets $ 2,300,215   $ 2,147,640  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 483,002 $ 517,268
Accrued liabilities and other 370,457 397,497
Current portion of long-term debt 24,900 31,125
Income taxes payable   79,586     78,334  
Total current liabilities   957,945     1,024,224  
Long-term debt 2,701,764 2,723,187
Other liabilities   150,001     98,655  
Total liabilities   3,809,710     3,846,066  
 
Stockholders' Deficit:

Common Stock, $0.06775 par value, 350,000 shares authorized;
181,919 shares issued and outstanding at February 3, 2018; 193,311
shares issued and outstanding at January 28, 2017

12,206

12,948
Additional paid-in-capital 21,740 233,129
Accumulated deficit (1,539,781 ) (1,930,279 )
Accumulated other comprehensive loss   (3,660 )   (14,224 )
Total stockholders' deficit   (1,509,495 )   (1,698,426 )
Total liabilities and stockholders' deficit $ 2,300,215   $ 2,147,640  

 
 
The Michaels Companies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
       
Fiscal Year Ended
February 3, January 28,
(in thousands)

2018(1)

2017

Cash flows from operating activities:

 

Net income $ 390,498 $ 378,159
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 118,912 115,801
Share-based compensation 24,264 16,506
Debt issuance costs amortization 5,098 6,583
Accretion of long-term debt, net (505 ) (334 )
Deferred income taxes 4,348 4,570
Losses on early extinguishments of debt and refinancing costs 7,292
Losses on disposition of property and equipment 120
Excess tax benefits from share-based compensation (10,027 )
Changes in assets and liabilities, excluding acquired net assets:
Merchandise inventories 5,281 (40,800 )
Prepaid expenses and other (7,785 ) (1,004 )
Accounts receivable (2,992 ) 8,948
Other assets (1,765 ) (711 )
Accounts payable (38,025 ) 38,248
Accrued interest (12,040 ) 7,015
Accrued liabilities and other 3,174 (4,806 )
Income taxes 28,388 37,276
Other liabilities   6,759     1,581  
Net cash provided by operating activities   523,610     564,417  
 
Cash flows from investing activities:
Additions to property and equipment (127,830 ) (114,462 )
Acquisition of Lamrite West, net of cash acquired (151,100 )
Purchases of long-term investments       (1,325 )
Net cash used in investing activities   (127,830 )   (266,887 )
 
Cash flows from financing activities:
Common stock repurchased (253,752 ) (404,971 )
Payments on term loan credit facility (31,125 ) (18,675 )
Borrowings on asset-based revolving credit facility 382,200 42,000
Payments on asset-based revolving credit facility (382,200 ) (42,000 )
Payment of debt issuance costs (11,326 )
Payment of dividends (408 ) (415 )
Proceeds from stock options exercised 16,588 17,252
Excess tax benefits from share-based compensation       10,027  
Net cash used in financing activities   (268,697 )   (408,108 )
 
Net change in cash and equivalents 127,083 (110,578 )
Cash and equivalents at beginning of period   298,813     409,391  
Cash and equivalents at end of period $ 425,896   $ 298,813  
 
(1)The year ended February 3, 2018 includes 53 weeks.

 
 
The Michaels Companies, Inc.
Earnings per Share
(in thousands, except per share data)
(Unaudited)
               
The following table sets forth the computation of basic and diluted
earnings per share:
 
Quarter Ended Fiscal Year Ended
February 3, January 28, February 3, January 28,

2018(1)

2017

2018(1)

2017

Basic earnings per common share:
Net income $ 202,968 $ 195,318 $ 390,498 $ 378,159
Less income related to unvested restricted shares   (605 )   (1,021 )   (1,519 )   (2,323 )
Income available to common shareholders - Basic

$

202,363  

$

194,297   $ 388,979   $ 375,836  
 
Weighted-average common shares outstanding - Basic   180,826     202,201     184,281     204,735  
Basic earnings per common share $ 1.12 $ 0.96 $ 2.11 $ 1.84
 
Diluted earnings per common share:
Net income $ 202,968 $ 195,318 $ 390,498 $ 378,159
Less income related to unvested restricted shares   (600 )   (1,014 )   (1,508 )   (2,305 )
Income available to common shareholders - Diluted

$

202,368  

$

194,304   $ 388,990   $ 375,854  
 
Weighted-average common shares outstanding - Basic 180,826 202,201 184,281 204,735
Effect of dilutive stock options and restricted stock units   1,438     1,297     1,285     1,619  
Weighted-average common shares outstanding - Diluted   182,264     203,498     185,566     206,354  
Diluted earnings per common share $ 1.11 $ 0.95 $ 2.10 $ 1.82
 
(1)The quarter and year ended February 3, 2018 include 14
weeks and 53 weeks, respectively.

 
 
The Michaels Companies, Inc.
Summary of Operating Data
(Unaudited)
               
The following table sets forth certain of our unaudited operating
data:
Quarter Ended Fiscal Year Ended
February 3, January 28, February 3, January 28,
  2018     2017     2018     2017  
Michaels stores:
Open at beginning of period 1,237 1,221 1,223 1,196
New stores 1 2 17 32
Relocated stores opened 12 14
Closed stores (2 ) (5 )
Relocated stores closed           (12 )   (14 )
Michaels stores open at end of period   1,238     1,223     1,238     1,223  
 
Aaron Brothers stores:
Open at beginning of period 98 112 109 117
New stores 1 1
Closed stores   (1 )   (4 )   (12 )   (9 )
Aaron Brothers stores open at end of period   97     109     97     109  
 
Pat Catan's stores:
Open at beginning of period 36 35 35
Acquired stores 32
New stores 1 3
Relocated stores opened 1 1
Relocated stores closed       (1 )       (1 )
Pat Catan's stores open at end of period   36     35     36     35  
 
Total store count at end of period   1,371     1,367     1,371     1,367  
Total selling square footage at end of period (thousands)   23,749     23,539     23,749     23,539  
 
Other Operating Data:
Average inventory per Michaels store (in thousands)(1) $ 810 $ 826 $ 810 $ 826
Comparable store sales 2.5 % -1.0 % 0.9 % -0.5 %
Comparable store sales, at constant currency 2.0 % -1.2 % 0.7 % -0.4 %
 
(1)Excludes Aaron Brothers and Pat Catan's stores.

 
 
The Michaels Companies, Inc.
Reconciliation of Adjusted EBITDA
(Unaudited)
               
Quarter Ended Fiscal Year Ended
February 3, January 28, February 3, January 28,
(in thousands)

2018(1)

2017

2018(1)

2017
Net cash provided by operating activities $ 417,183 $ 427,901 $ 523,610 $ 564,417
Depreciation and amortization (32,680 ) (29,122 ) (118,912 ) (115,801 )
Share-based compensation (6,032 ) (4,622 ) (24,264 ) (16,506 )
Debt issuance costs amortization (1,275 ) (1,275 ) (5,098 ) (6,583 )
Accretion of long-term debt, net 126 117 505 334
Deferred income taxes (3,819 ) 5,536 (4,348 ) (4,570 )
Losses on early extinguishments of debt and refinancing costs (7,292 )
Losses on disposition of property and equipment (64 ) (120 )
Excess tax benefits from share-based compensation 2,542 10,027
Changes in assets and liabilities   (170,535 )   (205,695 )   19,005     (45,747 )
Net income 202,968 195,318 390,498 378,159
Interest expense 34,810 30,560 129,116 126,270
Income taxes 116,929 110,922 215,243 203,614
Depreciation and amortization 32,680 29,122 118,912 115,801
Interest income   (882 )   (299 )   (1,326 )   (820 )
EBITDA 386,505 365,623 852,443 823,024
Adjustments:
Losses on early extinguishments of debt and refinancing costs 7,292
Share-based compensation 6,032 4,622 24,264 16,506
Severance costs 412 3,012 1,274 6,113
Store pre-opening costs 407 245 2,999 4,484
Store remodel costs 372 1,773 895
Foreign currency transaction losses (gains) 394 (27 ) 1,486 667
Store closing costs (740 ) (199 ) 1,382 2,877
Lamrite integration costs (215 ) 7,390
Other(2)   469     983     2,920     3,452  
Adjusted EBITDA $ 393,851   $ 374,044   $ 888,541   $ 872,700  
 
(1)The quarter and year ended February 3, 2018 include 14
weeks and 53 weeks, respectively.

(2)Other adjustments primarily relate to items such as
moving and relocation expenses, franchise taxes, sign on bonuses,
and certain legal expenses.

 
 
The Michaels Companies, Inc.
Reconciliation of GAAP basis to Adjusted operating income,
Adjusted net income and Adjusted earnings per share
(Unaudited)
               
Quarter Ended Fiscal Year Ended
February 3, January 28, February 3, January 28,
(In thousands, except per share)

2018(1)

2017

2018(1)

2017

Operating income $ 354,290 $ 336,556 $ 735,390 $ 715,280
Add: Non-recurring, inventory-related purchase
accounting adjustments(2) 1,095 4,001
Add: Non-recurring integration expenses(3)       (214 )       7,390  
Adjusted operating income $ 354,290   $ 337,437   $ 735,390   $ 726,671  
 
Net income $ 202,968 $ 195,318 $ 390,498 $ 378,159
Add: Non-recurring, inventory-related purchase

accounting adjustments(2)

1,095 4,001
Add: Non-recurring integration expenses(3) (214 ) 7,390
Add: Losses on early extinguishments of debt and
refinancing costs(4) 7,292
Deduct: tax adjustment for above add-backs(5) (339 ) (7,228 )
Add: tax reform - provisional adjustments of
repatriation taxes and revaluation of net 14,557 14,557
deferred tax assets(6)        
Adjusted net income $ 217,525   $ 195,860   $ 405,055   $ 389,614  
 
Earnings per common share, diluted $ 1.11 $ 0.95 $ 2.10 $ 1.82
Adjusted earnings per common share, diluted $ 1.19 $ 0.96 $ 2.17 $ 1.88
 
(1)The quarter and year ended February 3, 2018 include 14
weeks and 53 weeks, respectively.
(2)Excludes non-recurring, inventory-related purchase
accounting adjustments related to the acquisition of Lamrite West.
(3)Excludes non-recurring integration expenses related to
the acquisition of Lamrite West.
(4)Eliminates the loss on early extinguishments of debt
and refinancing costs.

(5)Adjusts for the tax impact of integration costs and
purchase accounting adjustments related to the acquisition of
Lamrite West and loss on early extinguishments of debt and
refinancing costs.

(6)Excludes provisional adjustments related to
repatriation taxes for accumulated earnings of foreign
subsidiaries and provisional adjustments related to the
revaluation of net deferred tax assets resulting from the
enactment of the Tax Act.

 

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