The Michaels Companies Announces Record Fourth Quarter and Fiscal 2015 Financial Results

  • Fourth quarter comparable store sales increased 3.1%, or 4.7% on a constant currency basis
  • Fourth quarter total net sales increased 4.6% to $1.7 billion, or 6.4% on a constant currency basis
  • Fourth quarter operating income increased 10.3% to $324.2 million; diluted EPS increased 16.0% to $0.87

IRVING, Texas, March 17, 2016 (GLOBE NEWSWIRE) -- The Michaels Companies, Inc. (NASDAQ:MIK) today announced financial results for the quarter and fiscal year ended January 30, 2016.

“I am very pleased with our fourth quarter results.  We improved our in-store shopping experience, increased our customer communications, offered a trend-right holiday assortment, and our customers responded,” said Chuck Rubin, Chairman and Chief Executive Officer.  “Our strong fourth quarter results helped drive our full year success.  We delivered against each of the financial goals we established at the beginning of fiscal 2015, despite stronger than expected headwinds from foreign exchange rates.  I want to thank all of our Team Members who stayed focused on our customers and our long-term strategy and delivered these record results.”

Fourth Quarter Income Statement Highlights 

  • Net sales increased 4.6%, or 6.4% on a constant currency basis, to $1.7 billion from $1.6 billion in the fourth quarter of fiscal 2014.  Comparable store sales increased 3.1%, or 4.7% on a constant currency basis.
     
  • Gross profit increased 3.7% to $687.6 million from $663.1 million in the fourth quarter of fiscal 2014, driven by sales growth.  As a percent of sales, gross profit decreased 30 basis points to 40.9% compared to 41.2% in the fourth quarter of fiscal 2014. The decline was driven by clearance activity as part of ongoing department resets; the negative impact of foreign exchange rates; a shift in sales mix; and investments to improve the in-store environment.  The decrease was partially offset by improved sourcing and pricing efficiencies. 
     
  • Selling, general and administrative expense, including store pre-opening costs (“SG&A”) decreased to $363.4 million compared to $369.1 million in the fourth quarter of fiscal 2014. As a percent of net sales, SG&A decreased 140 basis points to 21.6% versus 23.0% during the fourth quarter last year.  The decline in SG&A, as a percent of sales, was primarily due to lower performance-based compensation accruals and benefits and other payroll-related expenses, lower Canadian operating expenses due to the exchange rate, and leverage on comparable store sales.  In addition, the Company’s Fuel for Growth efforts continue to deliver cost savings and operational efficiencies.  The decrease was partially offset by an increase in expenses associated with operating 25 additional stores (net of closures) and increased advertising expense.  
     
  • Operating income grew 10.3% to $324.2 million from $294.0 million in the fourth quarter of fiscal 2014.  As a percent of net sales, operating income increased 100 basis points to 19.3%. This includes a negative impact to operating income from the stronger U.S. dollar of $15 million, or 58 basis points, in the fourth quarter of fiscal 2015.
     
  • Interest expense decreased to $33.4 million from $39.2 million in the fourth quarter of fiscal 2014 due to the early redemption of $360.9 million of the 7.50%/8.25% PIK Toggle Notes (“PIK Notes”), funded with cash from operations during the fourth quarter of fiscal 2014 and second quarter of fiscal 2015.  Additionally, $2.4 million of losses on early extinguishment of debt and refinancing costs was incurred due to the accelerated amortization expense in the fourth quarter of fiscal 2015 associated with a voluntary $150.0 million principal payment on the Restated Term Loan Credit Facility (“Term Loan”) in December 2015.
     
  • The effective tax rate for the quarter was 36.2% compared to 36.4% for the fourth quarter of fiscal 2014. 
     
  • Net income increased 17.3% to $183.7 million in the fourth quarter of fiscal 2015 compared to $156.6 million in the same quarter last year.  Diluted earnings per share increased 16.0% to $0.87 from $0.75 in the fourth quarter of fiscal 2014. 
     
  • The Company opened one new Michaels store and closed one Michaels store and one Aaron Brothers store during the quarter, compared with two new Michaels stores and one Aaron Brothers closure in the fourth quarter of fiscal 2014. At the end of the fourth quarter, the Company operated 1,196 Michaels stores and 117 Aaron Brothers stores.

Fiscal 2015 Income Statement Highlights

  • For the full year, net sales increased 3.7%, or 5.3% on a constant currency basis, to $4.9 billion.  Comparable store sales for fiscal year 2015 were 1.8% or 3.2% on a constant currency basis.
     
  • Operating income increased 15.0% to $720.6 million from $626.5 million in fiscal 2014. Excluding $37.8 million of IPO related costs and related party/sponsor fees ("adjusted operating income") in fiscal 2014, operating income increased 8.5% to $720.6 million from adjusted operating income of $664.3 million in fiscal 2014. As a percent of net sales, operating income increased 70 basis points to 14.7% compared to adjusted operating income of 14.0% of net sales in fiscal 2014. Fiscal 2015 operating income includes a negative impact from the stronger U.S. dollar of $37 million, or 52 basis points, in fiscal 2015.
     
  • Interest expense decreased $59.0 million to $139.4 million in fiscal 2015 due to debt pay-down in fiscal 2014 and fiscal 2015.
     
  • The effective tax rate was 36.6% compared to 38.1% for fiscal 2014.  The lower rate is primarily due to our decision in fiscal 2015 to reinvest the fiscal 2014 and fiscal 2015 earnings of our Canadian subsidiary into our operations outside of the U.S., which is taxed at a lower rate than the U.S.
     
  • Net income was $362.9 million, or $1.72 per diluted share, for fiscal 2015. Excluding IPO costs, related party/sponsor fees, and second quarter debt refinancing costs, and reflecting the go forward interest expense based on the Company's debt refinancing ("adjusted net income") in 2014, net income increased 19.4% from adjusted net income of $303.9 million, or $1.46 per diluted share, in fiscal 2014.  Fiscal 2015 net income includes a negative impact from the stronger U.S. dollar of approximately $22 million, or approximately $0.11 per diluted share.

Balance Sheet and Cash Flow Statement Highlights

  • The Company ended fiscal 2015 with $409.4 million in cash, $2.8 billion in debt, and approximately $586.8 million in availability under its asset-based revolving credit facility. Subsequent to the end of fiscal 2015, the Company acquired Lamrite West, Inc. and certain of its affiliates and subsidiaries for $150.0 million in cash.
     
  • Inventory at the end of the year was $1,002.6 million compared to $958.2 million at the end of fiscal 2014.  Average Michaels inventory on a per store basis, inclusive of inventory in transit, distribution centers and inventory for our e-commerce site grew 2.9% to $813.5 thousand compared to $790.4 thousand at the end of fiscal 2014. 
     
  • Capital expenditures for the full year were $123.9 million as compared to $137.8 million in fiscal 2014.  The decline in capital expenditures was primarily due to lower investments in technology.  In fiscal 2014, the Company increased investments to support improved disaster recovery efforts.
     
  • The Company generated Free Cash Flow, defined as cash flow from operations less capital expenditures, of $380.1 million in fiscal 2015 compared to $304.2 million in fiscal 2014. 

Capital Allocation Framework

"Michaels has a long history of strong and consistent cash generation, demonstrated in a range of economic environments,” said Chuck Sonsteby, Chief Financial and Chief Administrative Officer. “The guiding principle of our capital allocation strategy is to take a balanced and disciplined approach to our use of cash while maintaining flexibility to invest in areas with the greatest return to stakeholders, including investment in the growth of the business, debt pay-down and share repurchases.”

Reflecting the Company’s capital allocation strategy, on December 29, 2015, the Company paid down $150.0 million on the Term Loan from excess cash flow. At the end of fiscal 2015, the ratio of debt-to-Adjusted EBITDA was 3.2 times. 

In addition, the Board of Directors has authorized the Company to purchase, from time to time, as market conditions warrant, $200 million of the Company’s common stock.  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.

Outlook

"As we look to fiscal 2016, our strategic priorities remain unchanged. We will stay focused on our customer and improving her shopping experience by investing in our stores and simplifying store layouts; offering a relevant and compelling merchandise assortment that is also on-trend; utilizing more effective marketing; and making further progress on our Fuel for Growth program,” concluded Mr. Rubin.  “While we believe many of the headwinds we faced in 2015 will continue in 2016, including pressure from foreign exchange rates and a choppy retail environment, our 2016 sales and earnings outlook reflects the consistency and underlying resilience of the Michaels business.”

The Company’s guidance for fiscal 2016 excludes approximately $10 million to $12 million in integration costs and purchase accounting entries related to the integration of Lamrite West.  For fiscal 2016, the Company expects:

  • Comparable store sales to increase 2.2% to 2.7%, or 2.8% to 3.3% on a constant currency basis; 
  • Total net sales growth, including revenues from Lamrite West, of 8.0% to 9.0%, or 8.6% to 9.6% on a constant currency basis;
  • Approximately 1.3% sales growth from 33 net new store openings, including 3 new Pat Catan’s stores;
  • Lamrite West to generate $225 million to $250 million in revenues;
  • Operating income to be in the range of $761 million to $786 million;
  • Annual interest expense to be approximately $129 million;
  • The effective tax rate to be approximately 37.0%;
  • Diluted earnings per common share to be between $1.88 and $1.96, based on diluted weighted average common shares of approximately 210 million; and
  • Capital expenditures of between $125 million and $135 million.

For the first quarter of fiscal 2016, the Company expects:

  • Comparable store sales growth of 1.9% to 2.4%, or 2.8% to 3.3% on a constant currency basis;
  • Approximately 11 net new store openings, including 1 new Pat Catan’s store;
  • Operating income of $145 million to $153 million;
  • Interest expense to be approximately $32 million;
  • The effective tax rate to be approximately 37.0%; and
  • Diluted earnings per common share of $0.34 to $0.36, based on diluted weighted average common shares of 209.5 million. 

The outlook for fiscal 2016 includes the impact of unfavorable Canadian exchange rates and the Lamrite West transaction, excluding integration costs and purchase accounting entries.

In fiscal 2016, the currency impact of the weaker Canadian dollar is expected to negatively impact sales by approximately $13 million, operating income by approximately $6 million, and diluted earnings per common share by $0.02.  In the first quarter of 2016, the currency impact of the weaker Canadian dollar is expected to negatively impact sales by approximately $7 million, operating income by approximately $3 million, and diluted earnings per common share by $0.01.

The Company expects that the integration of Lamrite West will create near-term pressure on operating margin in fiscal 2016, reflecting the timing of profit recognition of the product Michaels procures through Lamrite West; the incorporation of the wholesale business, which has a lower gross margin rate than the Michaels business; and additional investments needed to integrate and enhance combined capabilities.  The Company expects that the negative impact of these pressures and the seasonality of the Lamrite West business in the first quarter of fiscal 2016 will be approximately $0.01.  Overall, the Company expects Lamrite West will be neutral to slightly accretive to fiscal 2016 diluted earnings per common share, excluding approximately $10 million to $12 million in integration costs and purchase accounting entries.   

Conference Call Information

A conference call to discuss fourth quarter fiscal 2015 financial results is scheduled for today, March 17, 2016, at 8:00 am Central Time. Investors and analysts interested in participating in the call are invited to dial (877) 303-9132, conference ID# 67667008, approximately 10 minutes prior to the start of the call. The conference call will also be webcast at http://investors.michaels.com/. To listen to the live call, please go to the website at least 15 minutes early 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 March 24, 2016, by dialing (855) 859-2056, conference ID# 67667008.

Non-GAAP Information

This press release includes non-GAAP measures including Adjusted EBITDA, operating income excluding IPO and related party expenses (“Adjusted operating income,”) net income excluding IPO, related party fees and refinancing expenses (“Adjusted net income,”) weighted average shares outstanding assuming the IPO shares had been outstanding the entire period (“Adjusted shares outstanding”) and earnings per share excluding IPO, related party, refinancing expenses , free cash flow, and including adjusted shares outstanding (“Adjusted 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 2015 diluted earnings per common share and actual results on a comparable basis with its quarterly and fiscal 2014 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, risks associated with our substantial outstanding indebtedness of $2.8 billion, changes in customer demand, risks relating to 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, risks relating to our reliance on foreign suppliers, risks relating to how well we manage our business, risks related to our ability to open new stores and increase comparable store sales growth, damage to the reputation of the Michaels brand or our private and exclusive brands, and other risks and uncertainties including those identified under the heading “Risk Factors” in the Company’s 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 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.:

The Michaels Companies, Inc. is North America's largest specialty provider of arts, crafts, framing, floral, wall décor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator.  As of February 27, 2016, the Company owned and operated more than 1,340 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 gift and decor industry.  The Michaels Companies, Inc. produces a number of exclusive private brands including Recollections®, Studio Decor™, Bead Landing®, Creatology®, Ashland®, Celebrate It®, Art Minds®, Artist’s Loft®, Craft Smart® and Loops & Threads®. Learn more about Michaels at www.michaels.com.

Investor:
Kiley F. Rawlins, CFA
972.409.7404
Kiley.Rawlins@michaels.com 

ICR, Inc.
Farah Soi/Anne Rakunas
203.682.8200
Farah.Soi@icrinc.com/Anne.Rakunas@icrinc.com 

or

Media:
ICR, Inc.
Michael Fox/ Kristina Jorge
203.682.8200/ 646.277.1234
Michaels@icrinc.com

       
The Michaels Companies, Inc.      
Consolidated Statements of Comprehensive Income       
(in thousands, except per share data)      
(Unaudited)      
                               
    Quarter Ended   Fiscal Year Ended      
    January 30,   January 31,    January 30,   January 31,       
    2016   2015   2016   2015      
Net sales   $     1,682,489     $     1,607,751       $     4,912,782       $     4,738,144        
Cost of sales and occupancy expense         994,854           944,695           2,944,431           2,836,965        
Gross profit         687,635           663,056           1,968,351           1,901,179        
Selling, general and administrative          362,987           368,493           1,242,961           1,233,901        
Related party expenses                                 35,682        
Store pre-opening costs         460           605           4,786           5,067        
Operating income         324,188           293,958           720,604           626,529        
Interest expense         33,438           39,226           139,405           198,409        
Losses on early extinguishments of debt and refinancing costs        2,413           6,332           8,485           74,312        
Other expense, net         423           2,187           594           2,774        
Income before income taxes         287,914           246,213           572,120           351,034        
Provision for income taxes          104,248           89,653           209,208           133,639        
Net income    $     183,666     $     156,560     $     362,912     $     217,395        
                               
Other comprehensive  income, net of tax:                               
Foreign currency translation adjustment and other          (7,432 )         (10,160 )         (10,251 )         (12,003 )      
Comprehensive income    $     176,234     $     146,400     $     352,661     $     205,392        
                               
Earnings per common share:                              
Basic   $     0.88     $     0.77     $     1.75     $     1.07        
Diluted   $     0.87     $     0.75     $     1.72     $     1.05        
Weighted-average common shares outstanding:                               
Basic         207,492           203,612           206,845           203,229        
Diluted         209,409           208,132           209,346           207,101        
                               
                               
The following tables 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      
      January 30,     January 31,      January 30,     January 31,       
        2016         2015         2016         2015        
Net sales         100.0   %       100.0   %       100.0   %       100.0   %  
Cost of sales and occupancy expense         59.1           58.8           59.9           59.9        
Gross profit         40.9           41.2           40.1           40.1        
Selling, general and administrative          21.6           22.9           25.3           26.0        
Related party expenses                                 0.8        
Store pre-opening costs                         0.1           0.1        
Operating income         19.3           18.3           14.7           13.2        
Interest expense         2.0           2.4           2.8           4.2        
Losses on early extinguishments of debt and refinancing costs          0.1           0.4           0.2           1.6        
Other expense, net                 0.1                   0.1        
Income before income taxes         17.1           15.3           11.6           7.4        
Provision for income taxes          6.2           5.6           4.3           2.8        
Net income          10.9   %       9.7   %       7.4   %       4.6   %  
                               

 

   
The Michaels Companies, Inc.  
Consolidated Balance Sheets  
(in thousands, except per share data)  
(Unaudited)  
               
    January 30,   January 31,  
    2016   2015  
ASSETS              
Current Assets:              
Cash and equivalents   $     409,391     $     378,295    
Merchandise inventories         1,002,607           958,171    
Prepaid expenses and other         86,484           84,894    
Income tax receivables         1,231           2,418    
  Total current assets         1,499,713           1,423,778    
Property and equipment, net         378,507           386,372    
Goodwill         94,290           94,290    
Deferred income taxes         40,399           49,010    
Other assets         10,368           7,658    
Total assets   $     2,023,277     $     1,961,108    
               
LIABILITIES AND STOCKHOLDERS' DEFICIT              
Current Liabilities:              
Accounts payable   $     457,704     $     447,165    
Accrued liabilities and other         377,606           391,997    
Current portion of long-term debt         24,900           24,900    
Income taxes payable         44,640           25,570    
  Total current liabilities         904,850           889,632    
Long-term debt         2,744,942           3,089,781    
Other liabilities         97,580           93,220    
Total liabilities         3,747,372           4,072,633    
               
Stockholders’ Deficit:              
Common Stock, $0.06775 par value, 350,000 shares authorized; 208,996 shares issued and outstanding at January 30, 2016, and 205,803 shares issued and outstanding at January 31, 2015          13,979           13,799    
Additional paid-in-capital         592,420           557,831    
Accumulated deficit         (2,308,438 )         (2,671,350 )  
Accumulated other comprehensive loss         (22,056 )         (11,805 )  
Total stockholders’ deficit          (1,724,095 )         (2,111,525 )  
Total liabilities and stockholders’ deficit   $     2,023,277     $     1,961,108    
               
               

 

   
The Michaels Companies, Inc.  
Consolidated Statements of Cash Flows  
(in thousands)  
(Unaudited)  
               
    Fiscal Year Ended  
    January 30,   January 31,  
    2016   2015  
Cash flows from operating activities:              
Net income    $     362,912     $     217,395    
Adjustments to reconcile net income to net cash provided by operating activities:               
Depreciation and amortization         114,756           110,858    
Share-based compensation         15,064           19,387    
Debt issuance costs amortization         8,467           10,333    
Accretion of long-term debt, net         (150 )         (516 )  
Deferred income taxes         8,611           15,282    
Losses on early extinguishments of debt and refinancing costs          8,485           74,312    
(Gains) losses on disposition of property and equipment         (25 )         3,995    
Excess tax benefits from share-based compensation         (14,507 )         (5,081 )  
Changes in assets and liabilities:              
Merchandise inventories         (44,213 )         (60,343 )  
Prepaid expenses and other         (1,150 )         10,613    
Other assets         (34 )         (324 )  
Accounts payable         24,217           76,710    
Accrued interest         1,852           (45,647 )  
Accrued liabilities and other         (23,530 )         14,294    
Income taxes         44,941           1,006    
Other liabilities         (1,649 )         (277 )  
     Net cash provided by operating activities         504,047           441,997    
               
Cash flows from investing activities:              
Additions to property and equipment         (123,920 )         (137,780 )  
Purchase of long-term investment         (5,000 )          
     Net cash used in investing activities         (128,920 )         (137,780 )  
               
Cash flows from financing activities:              
Payment of PIK notes         (184,467 )         (627,142 )  
Borrowings on restated revolving credit facility         45,047           23,000    
Payments on restated revolving credit facility         (45,047 )         (23,000 )  
Borrowings on restated term loan credit facility                 845,750    
Payments on restated term loan credit facility         (174,900 )         (20,650 )  
Payment of 2018 senior notes                 (1,057,239 )  
Issuance of 2020 senior subordinated notes                 255,000    
Issuance of common stock                 445,660    
Payment of debt issuance costs                 (12,363 )  
Payment of dividends         (492 )         (530 )  
Change in cash overdraft         643           (2,075 )  
Proceeds from stock options exercised         22,655           27,211    
Common stock repurchased         (21,977 )         (21,557 )  
Excess tax benefits from share-based compensation         14,507           5,081    
Other financing activities                 (1,932 )  
     Net cash used in financing activities         (344,031 )         (164,786 )  
               
Net change in cash and equivalents         31,096           139,431    
Cash and equivalents at beginning of period         378,295           238,864    
Cash and equivalents at end of period   $     409,391     $     378,295    
                       

 

 
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
    January 30,   January 31,    January 30,   January 31, 
    2016   2015   2016   2015
Basic earnings per common share:                        
Net income    $     183,666     $     156,560     $     362,912     $     217,395  
Less income related to unvested restricted shares         (1,341 )         (626 )         (1,900 )         (835 )
Income available to common shareholders - Basic   $     182,325     $     155,934     $     361,012     $     216,560  
                         
Weighted-average common shares outstanding - Basic          207,492           203,612           206,845           203,229  
Basic earnings per common share   $     0.88     $     0.77     $     1.75     $     1.07  
                         
Diluted earnings per common share:                        
Net income    $     183,666     $     156,560     $     362,912     $     217,395  
Less income related to unvested restricted shares         (1,329 )         (612 )         (1,877 )         (819 )
Income available to common shareholders - Diluted   $     182,337     $     155,948     $     361,035     $     216,576  
                         
Weighted-average common shares outstanding - Basic         207,492           203,612           206,845           203,229  
Effect of dilutive stock options         1,917           4,520           2,501           3,872  
Weighted-average common shares outstanding - Diluted          209,409           208,132           209,346           207,101  
Diluted earnings per common share   $     0.87     $     0.75     $     1.72     $     1.05  
                         

 

   
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    
    January 30,     January 31,     January 30,     January 31,    
      2016         2015       2016       2015      
Michaels stores:                          
Open at beginning of period       1,196           1,166           1,168           1,136      
New stores       1           2           30           32      
Relocated stores opened                       17           13      
Closed stores       (1 )                 (2 )            
Relocated stores closed                       (17 )         (13 )    
Open at end of period       1,196           1,168           1,196           1,168      
                           
Aaron Brothers stores:                          
Open at beginning of period       118           121           120           121      
New stores                               5      
Closed stores       (1 )         (1 )         (3 )         (6 )    
Open at end of period       117           120           117           120      
Total store count at end of period       1,313           1,288           1,313           1,288      
                           
Other Operating Data:                          
Average inventory per Michaels store (in thousands)   $     813     $     790     $     813     $     790      
Comparable store sales      3.1   %         1.4   %       1.8   %       1.7    
Comparable store sales, at constant currency     4.7         2.2       3.2       2.4    
                           

 

   
The Michaels Companies, Inc.  
Reconciliation of Adjusted EBITDA   
(in thousands)  
(Unaudited)  
                           
    Quarter Ended   Fiscal Year Ended  
    January 30,   January 31,   January 30,   January 31,  
    2016   2015   2016   2015  
Net cash provided by operating activities   $     496,554     $     405,495     $     504,047     $     441,997    
Depreciation and amortization         (29,374 )         (28,592 )         (114,756 )         (110,858 )  
Share-based compensation         (5,581 )         (4,788 )         (15,064 )         (19,387 )  
Debt issuance costs amortization         (2,012 )         (2,349 )         (8,467 )         (10,333 )  
Accretion of long-term debt, net         52           33           150           516    
Deferred income taxes         (1,058 )         (10,293 )         (8,611 )         (15,282 )  
                                           
Losses on early extinguishments of debt and refinancing costs         (2,413 )         (6,332 )         (8,485 )         (74,312 )  
                                           
Gains (losses) on disposition of property and equipment         25           (3,995 )         25           (3,995 )  
Excess tax benefits from share-based compensation         468           4,535           14,507           5,081    
Other                 1,223                    
Changes in assets and liabilities         (272,995 )         (198,377 )         (434 )         3,968    
Net income          183,666           156,560           362,912           217,395    
Interest expense         33,438           39,226           139,405           198,409    
Provision for income taxes         104,248           89,653           209,208           133,639    
Depreciation and amortization         29,374           28,592           114,756           110,858    
                                           
Losses on early extinguishments of debt and refinancing costs         2,413           6,332           8,485           74,312    
Interest income         (389 )         (136 )         (615 )         (363 )  
EBITDA (excluding losses on early extinguishments of debt and refinancing costs)           352,750           320,227           834,151           734,250    
Adjustments:                          
Share-based compensation         5,581           4,788           15,064           19,387    
Management fees to Sponsors and others                                 35,682    
Transition costs                 230                   230    
Severance costs         1,240           2,379           2,733           4,123    
Store pre-opening costs         489           618           4,858           5,172    
Store remodel costs         2,412           381           4,554           3,886    
Foreign currency transaction losses          465           1,727           579           2,757    
Store closing costs         (192 )         196           (104 )         1,931    
IPO costs                                 2,134    
Other         1,424           824           4,336           3,267    
Adjusted EBITDA    $     364,169     $     331,370     $     866,171     $     812,819    
                           

 

     
The Michaels Companies, Inc.    
Reconciliation of GAAP basis to Adjusted operating income, Adjusted net income and Adjusted earnings per share    
(In thousands, except per share)    
(Unaudited)    
                             
    13 Weeks Ended   52 Weeks Ended    
    January 30,   January 31,   January 30,   January 31,    
    2016   2015   2016   2015    
Operating income   $   324,188   $   293,958   $   720,604   $     626,529      
Add IPO related expenses (a)       —       —       —         32,348      
Add Related Party (b)       —       —       —         5,468      
Adjusted operating income    $   324,188   $   293,958   $   720,604   $     664,345      
                             
Net income   $   183,666   $   156,560   $   362,912   $     217,395      
Add IPO related expenses (a)       —       —       —         32,348      
Add Related Party (b)       —       —       —         5,468      
Add interest savings, due to debt refinancing (c)       —       —       —         26,083      
Add refinancing costs (d)           —       —         67,980      
Less tax adjustment for above add-backs (e)        —       —       —         (45,360 )    
Adjusted net income    $   183,666   $   156,560   $   362,912   $     303,914      
                             
Weighted average common shares outstanding, diluted       209,409       208,132       209,346         195,578      
Add common stock issued in IPO (f)       —       —       —         11,523      
Adjusted weighted average common shares outstanding, diluted     209,409       208,132       209,346         207,101      
                             
Adjusted earnings per common share, diluted:   $   0.87   $   0.75   $   1.72   $     1.46      
                             
(a) Excludes expenses related to the initial public offering on July 2, 2014     
(b) Removes the related party/sponsor fees related to the management contract that was terminated in connection with the     
       IPO offering     
(c) Adjusts interest expense for refinancing of debt during the second quarter of fiscal 2014, including: (i) the redemption of all     
      outstanding Senior Notes due 2018, (ii) incremental $850M term loan, and (iii) incremental $250M Senior Subordinated Notes.     
      Also adjusts the interest expense related to the redemption of the $439M of the PIK Toggle Notes during the second quarter     
      of fiscal 2014 for all periods reported     
(d) Eliminates the loss on early extinguishment of debt and refinancing costs     
(e) Removes the impact of the IPO, related party/sponsor fees and debt refinancing on taxes     
(f)  Reflects the number of common shares issued with the initial public offering on July 2, 2014, as if they had been available    
      the entire period     


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Source: Michaels Stores Inc.