Michaels Stores (MIK 20.72, +0.19), which this morning reported better than expected Q4 earnings and guided FY17 earnings ahead of market expectations, trades about 0.9% higher but makes new intraday lows at the moment.
The Texas-based specialty retailer ended the fiscal year with nearly 1,367 stores in 49 states and Canada under such brands as the namesake Michaels, Aaron Brothers, and Pat Catan’s. This period marked the end of fiscal 2016, with MIK posting full year net sales growth of 5.8% to $5.2 billion for the past 12 months. The company noted the increase was a result of the acquisition of Lamrite West and sales from 19 additional stores (net of closures). Comparable store sales for the year were down 0.5% driven by a decrease in customer transactions, which was partially offset by an increase in average ticket.
Getting back to the Q4 print, MIK reported better than expected earnings per share (EPS) of $0.96 on revenues which rose about 4.1% compared to last year to $1.75 billion. Additionally, gross profit was up 2.6% to $705.8 million versus last year and as a percentage of net sales, gross profit was 40.3%, down 60 basis points. The decrease, as a percentage of net sales, was due to promotional investments; the acquisition of Lamrite West, which has a lower gross margin rate than the Michaels business; and $1.1 million of non-recurring, inventory-related purchase accounting adjustments and was partially offset by improved sourcing and pricing efficiencies and the positive impact of less clearance activity.
Comparable store sales decreased 1.0% driven by a decrease in customer transactions, which was partially offset by an increase in average ticket.
Furthermore, inventory at the end of fiscal 2016 increased $125.2 million, or 12.5%, to $1.1 billion, compared to $1.0 billion at the end of fiscal 2015. The increase in inventory was primarily due to $91.5 million in additional inventory from the acquisition of Lamrite West and $14.8 million in additional inventory associated with the operation of 19 additional stores (net of closures).
Looking ahead, MIK sees Q1 EPS of $0.38-0.40, about in-line with market expectations on comparable store growth of flat to down 1%. For FY17, the company sees better than expected EPS of $2.05-2.17 on revenue growth of 2.5-4.0%, which including the impact of a 53rd week, which is planned to add about $80 million, equates to about $5.33-5.41 billion. Also, comparable store growth for the year is expected between flat to up 1.5%.
With shares down nearly 34.5% since all-time highs from the summer of 2016, today’s report comes as welcomed news to investors of MIK and the retail sector in general. Despite getting out of the gate strong today, the pullback from this morning’s opening highs following earnings leaves the stock nearly flat YTD.