EX-99.1 2 tm218586d3_ex99-1.htm EXHIBIT 99.1

Exhibit 99.1

 

 

 

The Michaels Companies Announces Fourth Quarter and Full Year Fiscal 2020 Results

 

IRVING, Texas, March 4, 2021 – The Michaels Companies, Inc. (NASDAQ: MIK) today announced financial results for the fourth quarter and full year fiscal 2020 ended January 30, 2021.

 

Key Financial Results:

 

   13 Weeks Ended January 30, 2021   13 Weeks Ended February 1, 2020   52 Weeks Ended January 30, 2021   52 Weeks Ended February 1, 2020 
Net Sales  $1,916.8M  $1,722.6M  $5,271.1M  $5,072.0M
Comp. Store Sales   12.9%   -2.4%   4.8%   -1.9%
Operating Income  $342.0M  $275.0M  $533.5M  $515.0M
Net Income  $255.1M  $181.7M  $294.9M  $272.6M
Diluted Earnings per Share  $1.72   $1.24   $1.98   $1.78 
Adjusted Operating Income1  $361.0M  $278.6M  $607.6M  $572.6M
Adjusted Net Income 1  $249.3M  $185.1M  $347.0M  $323.8M
Adjusted Diluted Earnings per Share1   $1.69   $1.26   $2.33   $2.11 

 

1 See additional information in this release for a reconciliation of non-GAAP financial measures to the respective GAAP measures.

 

Conference Call

 

Given the recently announced agreement for Michaels to be acquired by funds affiliated with Apollo Global Management, the Company will not be hosting a conference call to discuss its financial results.

 

Non-GAAP Information

 

This press release includes non-GAAP measures including adjusted operating income, adjusted net income, adjusted diluted earnings per share, EBITDA and adjusted EBITDA. 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 2020 results on a comparable basis with its quarterly and fiscal 2019 results.

 

The Company has provided this information as a means to evaluate the results of its ongoing operations. 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. 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.  Other companies in the Company's industry may calculate these items differently than it does.

 

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IMPORTANT INFORMATION

 

The tender offer for the outstanding shares of The Michaels Companies, Inc. (“Michaels”) common stock has not yet commenced. This communication is for informational purposes only and is neither an offer to purchase nor a solicitation of an offer to sell shares of Michaels common stock. The solicitation and offer to buy shares of Michaels common stock will only be made pursuant to the tender offer materials that Magic MergeCo, Inc. (“Merger Sub”) intends to file with the U.S. Securities and Exchange Commission (the “SEC”). Merger Sub is beneficially owned by certain equity funds managed by Apollo Management IX, L.P. At the time the tender offer is commenced, Merger Sub will file a tender offer statement on Schedule TO with the SEC, and Michaels will file a solicitation/recommendation statement on Schedule 14D-9 with respect to the tender offer. MICHAELS’ STOCKHOLDERS ARE ADVISED TO READ THE SCHEDULE TO (INCLUDING AN OFFER TO PURCHASE, A RELATED LETTER OF TRANSMITTAL AND OTHER OFFER DOCUMENTS) AND THE SCHEDULE 14D-9, AS EACH MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE BEFORE THEY MAKE ANY DECISION WITH RESPECT TO THE TENDER OFFER BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION AND THE PARTIES THERETO. Both the tender offer statement and the solicitation/recommendation statement will be mailed to Michaels’ stockholders free of charge. Investors and stockholders may obtain free copies of the Schedule TO and Schedule 14D-9, as each may be amended or supplemented from time to time, and other documents filed by the parties (when available) at the SEC’s web site at www.sec.gov, by contacting Michaels’ Investor Relations either by telephone at 972-409-1393, e-mail at james.mathias@Michaels.com or on Michaels’ website at www.Michaels.com.

 

About The Michaels Companies, Inc.:

 

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. The Company operates more than 1,250 Michaels stores in 49 states and Canada. Additionally, the Company serves customers through digital platforms including Michaels.com and Canada.michaels.com. The Michaels Companies, Inc., also owns Artistree, a manufacturer of high-quality custom and specialty framing merchandise. For a list of store locations or to shop online, visit www.michaels.com or download the Michaels app.

 

Investor Contact:

Jim Mathias

972.409.1393

James.Mathias@michaels.com

 

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The Michaels Companies, Inc. 

Consolidated Statements of Comprehensive Income

(Unaudited)

 

   13 Weeks Ended    52 Weeks Ended 
   January 30,   February 1,   January 30,   February 1, 
(in thousands, except per share data)  2021   2020   2021   2020 
Net sales  $1,916,842   $1,722,608   $5,271,112   $5,072,037 
Cost of sales and occupancy expense   1,106,815    1,076,610    3,315,035    3,199,780 
Gross profit   810,027    645,998    1,956,077    1,872,257 
Selling, general and administrative   447,032    370,803    1,390,620    1,304,280 
Restructure and impairment charges   19,447    —    28,835    48,332 
Store pre-opening costs   1,554    238    3,082    4,608 
Operating income   341,994    274,957    533,540    515,037 
Interest expense   40,209    37,816    152,442    154,090 
Losses on early extinguishments of debt and refinancing costs   —    —    22,044    1,316 
Other (income) expense, net   (124)   (1,671)   (1,550)   1,260 
Income before income taxes   301,909    238,812    360,604    358,371 
Income taxes   46,834    57,161    65,669    85,776 
Net income  $255,075   $181,651   $294,935   $272,595 
                     
Other comprehensive income, net of tax:                    
Foreign currency and cash flow hedges   10,853    85    9,387    (8,273)
Comprehensive income  $265,928   $181,736   $304,322   $264,322 
                     
Earnings per common share:                    
Basic  $1.76   $1.24   $2.01   $1.78 
Diluted  $1.72   $1.24   $1.98   $1.78 
Weighted-average common shares outstanding:                    
Basic   144,598    146,638    146,541    153,134 
Diluted   147,844    146,701    148,531    153,202 

 

The following table sets forth the percentage relationship to net sales of each line item of our unaudited consolidated statements of comprehensive income:

 

   13 Weeks Ended   52 Weeks Ended 
   January 30,   February 1,   January 30,   February 1, 
   2021   2020   2021   2020 
Net sales   100.0%   100.0%   100.0%   100.0%
Cost of sales and occupancy expense   57.7    62.5    62.9    63.1 
Gross profit   42.3    37.5    37.1    36.9 
Selling, general and administrative   23.3    21.5    26.4    25.7 
Restructure and impairment charges   1.0    —    0.5    1.0 
Store pre-opening costs   0.1    —    0.1    0.1 
Operating income   17.8    16.0    10.1    10.2 
Interest expense   2.1    2.2    2.9    3.0 
Losses on early extinguishments of debt and refinancing costs   —    —    0.4    — 
Other (income) expense, net   —    (0.1)   —    — 
Income before income taxes   15.8    13.9    6.8    7.1 
Income taxes   2.4    3.3    1.2    1.7 
Net income   13.3%   10.5%   5.6%   5.4%

 

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The Michaels Companies, Inc.

Consolidated Balance Sheets

(Unaudited)

 

   January 30,   February 1, 
(in thousands, except per share data)  2021   2020 
ASSETS          
Current Assets:          
Cash and equivalents  $1,194,389   $409,964 
Merchandise inventories   1,007,043    1,097,109 
Prepaid expenses and other   56,822    62,287 
Accounts receivable, net   14,039    30,442 
Total current assets   2,272,293    1,599,802 
Property and equipment, net   472,563    430,432 
Operating lease assets   1,594,554    1,610,013 
Goodwill   94,290    94,290 
Other intangible assets, net   57,121    66,417 
Deferred income taxes   19,394    18,201 
Other assets   18,190    18,940 
Total assets  $4,528,405   $3,838,095 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
Current Liabilities:          
Accounts payable  $858,790   $476,298 
Accrued liabilities and other   488,658    347,136 
Current portion of operating lease liabilities   324,238    306,796 
Current portion of long-term debt   16,700    24,900 
Income taxes payable   27,313    41,236 
Total current liabilities   1,715,699    1,196,366 
Long-term debt   2,480,953    2,644,460 
Long-term operating lease liabilities   1,378,394    1,357,821 
Deferred income taxes   54,200    — 
Other liabilities   96,329    85,912 
Total liabilities   5,725,575    5,284,559 
           
Stockholders’ Deficit:          
Common stock, $0.06775 par value, 350,000 shares authorized; 141,608 shares issued and outstanding at January 30, 2021, 146,803 shares issued and outstanding at February 1, 2020.   9,508    9,852 
Additional paid-in-capital   —    4,872 
Accumulated deficit   (1,193,234)   (1,438,357)
Accumulated other comprehensive loss   (13,444)   (22,831)
Total stockholders’ deficit   (1,197,170)   (1,446,464)
Total liabilities and stockholders’ deficit  $4,528,405   $3,838,095 

 

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The Michaels Companies, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

   52 Weeks Ended 
   January 30,   February 1, 
(in thousands)  2021   2020 
Cash flows from operating activities:          
Net income  $294,935   $272,595 
Adjustments to reconcile net income to cash provided by operating activities:          
Non-cash operating lease expense   308,777    325,962 
Depreciation and amortization   130,303    125,499 
Share-based compensation   25,010    22,910 
Debt issuance costs amortization   3,507    4,451 
Loss on write-off of investment   —    5,036 
Accretion of long-term debt, net   1,391    (129)
Restructure and impairment charges   28,835    48,332 
Impairment of intangible assets   3,500    — 
Deferred income taxes   52,114    9,455 
Losses on early extinguishments of debt and refinancing costs   22,044    1,316 
Gain on sale of building   (101)   — 
Changes in assets and liabilities:          
Merchandise inventories   88,183    9,504 
Prepaid expenses and other   4,869    1,671 
Accounts receivable   14,627    29,516 
Other assets   198    (3,562)
Operating lease liabilities   (277,375)   (323,010)
Accounts payable   389,756    (14,787)
Accrued interest   6,978    (2,192)
Accrued liabilities and other   128,671    (36,020)
Income taxes   (5,323)   17,647 
Other liabilities   1,537    (1,019)
Net cash provided by operating activities   1,222,436    493,175 
           
Cash flows from investing activities:          
Additions to property and equipment   (162,004)   (120,545)
Proceeds from sale of building   875    — 
Acquisition of intangible assets   —    (58,000)
Net cash used in investing activities   (161,129)   (178,545)
           
Cash flows from financing activities:          
Common stock repurchased   (91,118)   (107,997)
Payments on term loan credit facility   (545,950)   (24,900)
Borrowings on asset-based revolving credit facility   600,000    23,200 
Payments on asset-based revolving credit facility   (600,000)   (23,200)
Payment of 2020 senior subordinated notes   —    (510,000)
Issuance of senior notes   —    500,000 
Issuance of senior secured notes   375,000    — 
Payment of debt refinancing costs   (26,812)   (8,162)
Proceeds from stock options exercised   12,473    506 
Other financing activities   (475)   — 
Net cash used in financing activities   (276,882)   (150,553)
           
Net change in cash and equivalents   784,425    164,077 
Cash and equivalents at beginning of period   409,964    245,887 
Cash and equivalents at end of period  $1,194,389   $409,964 

 

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The Michaels Companies, Inc.

Reconciliation of Adjusted EBITDA

(Unaudited)

 

   13 Weeks Ended   52 Weeks Ended 
   January 30,   February 1,   January 30,   February 1, 
(in thousands)  2021   2020   2021   2020 
Net cash provided by operating activities  $509,576   $386,808   $1,222,436   $493,175 
Non-cash operating lease expense   (67,737)   (81,704)   (308,777)   (325,962)
Depreciation and amortization   (34,921)   (31,474)   (130,303)   (125,499)
Share-based compensation   (5,251)   (4,246)   (25,010)   (22,910)
Debt issuance costs amortization   (750)   (942)   (3,507)   (4,451)
Loss on write-off of investment   —    —    —    (5,036)
Accretion of long-term debt, net   (911)   (66)   (1,391)   129 
Restructure and impairment charges   (19,447)   —    (28,835)   (48,332)
Impairment of intangible assets   —    —    (3,500)   — 
Deferred income taxes   (52,403)   (19,439)   (52,114)   (9,455)
Losses on early extinguishments of debt and refinancing costs   —    —    (22,044)   (1,316)
Gain on sale of building   —    —    101    — 
Changes in assets and liabilities   (73,081)   (67,286)   (352,121)   322,252 
Net income   255,075    181,651    294,935    272,595 
Interest expense   40,209    37,816    152,442    154,090 
Income taxes   46,834    57,161    65,669    85,776 
Depreciation and amortization   34,921    31,474    130,303    125,499 
Interest income   (144)   (1,172)   (1,570)   (3,185)
EBITDA   376,895    306,930    641,779    634,775 
Adjustments:                    
COVID-19 expense(1)   683    —    19,842    — 
Losses on early extinguishments of debt and refinancing costs   —    -    22,044    1,316 
Share-based compensation   5,251    4,246    25,010    22,910 
Restructure and impairment charges   19,447    —    28,835    48,332 
Darice liquidation charges   (467)   —    45,244    — 
Severance costs   3,435    431    8,972    5,607 
Store pre-opening costs   1,554    238    3,082    4,608 
Store remodel costs   64    94    1,739    337 
Foreign currency transaction losses (gains), net   314    (383)   (8)   276 
Store closing costs   621    313    1,528    (156)
Consultant costs   6,476    —    20,625    — 
CEO transition costs(2)   —    3,668    —    9,236 
Other(3)   4,203    2,173    11,846    6,661 
Adjusted EBITDA  $418,476   $317,710   $830,538   $733,902 

 

(1)Includes costs attributable to the COVID-19 pandemic including hazard pay for team members, costs associated with furloughed employees, certain inventory charges and sanitation supplies. This amount also includes $8.0 million of wage subsidies resulting form COVID-19 relief legislation.

 

(2)CEO transition costs include $5.6 million of severance paid to our previous CEO and a $3.7 million sign-on bonus for our new CEO.

 

(3)Other adjustments primarily relate to items such as moving and relocation expenses, franchise taxes, sign-on bonuses, director's fees, search costs and the support center move.

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The Michaels Companies, Inc.

Reconciliation of GAAP basis to Adjusted operating income, Adjusted net income and Adjusted earnings per share

(Unaudited)

 

   13 Weeks Ended   52 Weeks Ended 
   January 30,   February 1,   January 30,   February 1, 
(In thousands, except per share)  2021   2020   2021   2020 
Operating income  $341,994   $274,957   $533,540   $515,037 
Restructure and impairment charges (a)   19,447    —    28,835    48,332 
Darice liquidation (income) charges (b)   (467)   —    45,244    — 
CEO transition costs (c)   —    3,668    —    9,237 
Adjusted operating income  $360,974   $278,625   $607,619   $572,606 
                     
Net income  $255,075   $181,651   $294,935   $272,595 
Restructure and impairment charges (a)   19,447    —    28,835    48,332 
Darice liquidation (income) charges (b)   (467)   —    45,244    — 
CEO transition costs (c)   —    3,668    —    9,237 
Write-off of investment (d)   —    —    —    5,036 
Losses on early extinguishments of debt and refinancing costs   —    —    22,044    1,316 
Interest on 2020 senior subordinated notes (e)   —    —    —    1,748 
Tax adjustment for above items   (6,358)   (257)   (25,706)   (14,489)
Tax benefit in connection with the CARES Act   (18,374)   —    (18,374)   — 
Adjusted net income  $249,323   $185,062   $346,978   $323,775 
                     
Earnings per common share, diluted  $1.72   $1.24   $1.98   $1.78 
Restructure and impairment charges (a)   0.13    —    0.19    0.32 
Darice liquidation (income) charges (b)   (0.00)   —    0.30    — 
CEO transition costs (c)   —    0.02    —    0.06 
Write-off of investment (d)   —    —    —    0.03 
Losses on early extinguishments of debt and refinancing costs   —    —    0.15    0.01 
Interest on 2020 senior subordinated notes (e)   —    —    —    0.01 
Tax adjustment for above items   (0.04)   (0.00)   (0.17)   (0.09)
Tax benefit in connection with the CARES Act   (0.12)   —    (0.12)   - 
Adjusted earnings per common share, diluted  $1.69   $1.26   $2.33   $2.11 

 

(a)Fiscal 2020 excludes $19.4 million of impairment charges related to the closure of 13 underperforming stores and $9.4 million of impairment charges related to the relocation of our support center. Fiscal 2019 excludes charges related to the closure of our Pat Catan's stores and impairment charges recorded as a result of lower than expected operating performance in our wholesale business.

 

(b)Excludes (income) charges related to the closure of the Darice wholesale business.

 

(c)Excludes $5.6 million of severance paid to our previous CEO and a $3.7 million sign-on bonus for our new CEO.

 

(d)Excludes the write-off of an investment in a liquidated business.

 

(e)Excludes interest paid on our 2020 Senior Subordinated notes during the period between the issuance of our 2027 Senior Notes and when the proceeds from that issuance were used to redeem the 2020 Senior Subordinated Notes.

 

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The Michaels Companies, Inc.

Summary of Operating Data

(Unaudited)

 

The following table sets forth certain of our unaudited operating data:                
   13 Weeks Ended   52 Weeks Ended 
   January 30,   February 1,   January 30,   February 1, 
   2021   2020   2021   2020 
Store open at beginning of period   1,272    1,274    1,274    1,258 
New stores   -    -    6    21 
Relocated stores opened   1    -    8    13 
Closed stores   (18)   -    (25)   (5)
Relocated stores closed   (3)   -    (11)   (13)
Store open at end of period   1,252    1,274    1,252    1,274 
                     
Other Operating Data:                    
Average inventory per store (in thousands)  $800   $816   $800   $816 
Comparable store sales   12.9%   (2.4)%   4.8%   (1.9)%
Comparable store sales, at constant currency   12.7%   (2.5)%   4.8%   (1.8)%

 

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