The Michaels Companies to Close Pat Catan Arts and Crafts Stores in Fourth Quarter of Fiscal 2018
IRVING, Texas – (COMMERCIAL THREAD) – The Michaels Companies, Inc. (NASDAQ: MIK) today announced its decision to close all of its Pat Catan’s stores in the fourth quarter of fiscal 2018. Pat Catan’s is a 36-store retail supplier of arts and crafts in Ohio and surrounding states. The company intends to rename up to 12 of the closed Pat Catan’s stores and reopen them under the Michaels banner. The Company has also updated its guidance for the fourth quarter of fiscal 2018, excluding the impact of restructuring charges related to the Pat Catan’s store closures.
“We continue to progress against our long-term strategy to increase our market share and expand our leadership position within the arts and crafts industry. In support of this strategy, in 2016 we acquired Lamrite West, a privately held Ohio-based company with a wholesale division, a small sourcing office in China, and a small retail chain called Pat Catan’s Arts & Crafts Stores, which served as outlets for the wholesale business, âsaid Chuck Rubin, President and CEO of The Michaels Companies. “Over the past three years, we have created value through the significant expansion of our China-based sourcing team and the growth of our wholesale business. However, Pat Catan’s retail business has struggled in the face of headwinds in the industry.
“After a thorough review, we have decided to close all Pat Catan’s retail stores. We plan to rename and reopen up to 12 stores as new Michaels stores in fiscal 2019, and we will continue to maintain a support center and distribution center in Strongsville, Ohio, to support our business of growing wholesale. We believe these changes will deliver more value to customers and shareholders by allowing us to take advantage of a more consistent assortment of merchandise and eliminate duplication of retail operating expenses, âcontinued Rubin. “It was not an easy decision, and I am grateful for the contributions of the Pat Catan team members. As we work on the close-out process, we intend to offer employment opportunities or transition support to all team members. ”
Pat Catan’s net sales for fiscal 2018 are expected to be approximately $ 111 million, with no significant impact on adjusted operating income of the consolidated company, excluding the impact of related restructuring charges at Pat Catan store closings. The Company expects the one-time after-tax cost of implementing these changes to be between $ 44 million and $ 48 million, primarily comprising costs associated with the termination of remaining lease obligations, write-off of fixed assets, liquidation costs and personnel costs. The Company expects the vast majority of costs to be recognized in the fourth quarter of fiscal 2018. The Company expects the one-time after-tax cash benefit from the changes to be in the range of $ 20 million to $ 25 million. million dollars in fiscal 2019.
Fourth Quarter Outlook
Commenting on expectations for the fourth quarter, Rubin continued, âWe are satisfied with our performance this holiday season. For the nine-week fiscal year ended January 5, 2019, comparable store sales decreased 0.2%; on a calendar basis, comparable store sales increased by 2.3%. So far in January, we’ve seen more volatility in consumer buying behavior than we originally anticipated. As a result, we now expect comparable store sales for the fourth quarter to be near the lower end of our previously provided forecast range of -0.5% to 0.5%, which includes an estimated negative impact of 160 to 180 basis points of the calendar shift. , and adjusted diluted earnings per common share for the fourth quarter will be near the lower end of our previously provided guidance of $ 1.42 and $ 1.47, excluding restructuring charges related to Pat Catan store closures .
The Company expects to release its fourth quarter and full year 2018 results on March 19, 2019.
This press release includes expected diluted earnings per share excluding an estimated range for a restructuring charge related to Pat Catan’s store closures, net of income taxes, (âAdjusted diluted earnings per shareâ) , which is a non-GAAP measure. The Company does not provide a range of diluted earnings per share under GAAP nor a reconciliation of the range of adjusted diluted earnings per share to a range of diluted earnings per share under GAAP because, without unreasonable effort, we are unable to predict with reasonable certainty the precise time of recognition. expenses associated with the closing activity. These items are uncertain, depend on various factors and could have a material impact on GAAP EPS in future periods.
When evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in the same or similar transactions with some of the adjustments in this presentation. The Company’s presentation of non-GAAP financial measures should not be interpreted as implying that its future results will not be affected by such adjustments. The Company has provided this information as a means of evaluating the results of its ongoing operations. Other companies in the Company’s industry may calculate these items differently. Each of these measures is not a measure of performance under GAAP and should not be considered 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 view them in isolation or as a substitute for analyzing the Company’s results as presented under GAAP. .
This press release includes forward-looking statements, including those regarding comparable store sales, adjusted diluted earnings per common share, financial results of Pat Catan’s stores and the impact and benefits of store closures, which reflect the opinions and management’s current estimates. regarding the industry, business strategy and expectations of the Company regarding its market position, future operations, margins, profitability, capital expenditures, share buybacks, liquidity and capital resources, and other financial and operational information. The words “anticipate”, “suppose”, “believe”, “continue”, “could”, “estimate”, “expect”, “foresee”, “the future”, “orientation”, “involve”, “Intend”, “may”, “prospect”, “plan”, “potential”, “predict”, “project” and similar terms and expressions are intended to identify forward-looking statements, although all forward-looking statements do not contain these identifying words. The Company cannot guarantee investors that future developments affecting the Company will be those it has anticipated. Actual results may differ materially from these expectations due to risks associated with the effect of economic uncertainty; substantial changes to fiscal and fiscal policies; our dependence 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 adverse consumer reactions to our promotional or merchandising programs; our inability to adequately maintain security and prevent unauthorized access to electronic and other confidential information; increased competition, including internet competition from other retailers; and other risks and uncertainties, including those identified under “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 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 to be incorrect, the Company’s actual results may differ in material respects from those projected in these forward-looking statements.
Any forward-looking statement made by the Company in this press release speaks only as of the date on which the Company makes it. Factors or events that may cause the Company’s actual results to vary from time to time may occur 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 laws on applicable securities.
About Michaels Companies, Inc .:
The Michaels Companies, Inc. is the largest specialty supplier of arts, crafts, framing, floral decor, wall decor, and seasonal products in North America to manufacturers and interior decorators. The Company owns and operates more than 1,200 stores in 49 states and Canada under the Michaels, Aaron Brothers and Pat Catan’s brands. In addition, the Company serves its customers through Michaels.com, consumercrafts.com and aaronbrothers.com. The Michaels Companies, Inc., also owns Artistree, a manufacturer of high quality custom and specialty framing products, and Darice, a leading wholesale distributor in the craft, gift and home decor industry. . For a store listing or to shop online, visit www.michaels.com or download the Michaels app.