Exhibit 99.1

The Michaels Companies Announces Third Quarter 2018 Financial Results

IRVING, Texas--(BUSINESS WIRE)--December 6, 2018--The Michaels Companies, Inc. (NASDAQ: MIK) today reported diluted earnings per share for the third quarter of fiscal 2018 of $0.50, an increase of 13.6% compared to $0.44 per diluted share in the third quarter of fiscal 2017. Excluding a $0.04 benefit due to items related to the Tax Cuts and Jobs Act of 2017 (“Tax Act”) and a $0.02 net charge from an unexpected inventory write-down, net of related income taxes, adjusted diluted earnings per share for the third quarter was $0.48. A reconciliation of non-GAAP financial measures to the respective GAAP measures is included in this release.

“Today we reported better-than-expected third quarter results, driven by stronger comparable store sales growth, good expense management and the impact of our ongoing share repurchase program,” said Chuck Rubin, Chairman and CEO. “Supported by a compelling assortment, stronger marketing and a more integrated omnichannel experience, our teams are engaged and excited to serve customers this holiday season, both in stores and online. We have invested significantly this year to create an easier shopping experience for customers, and we believe these improvements will strengthen our leadership position in the Arts & Crafts industry and help us deliver our revenue and earnings expectations for the year.”

Third Quarter Highlights

Net sales increased 2.7% to $1,274.1 million, compared to $1,240.2 million in the third quarter of fiscal 2017. The increase in net sales was primarily due to a 3.8% increase in comparable store sales and the operation of 19 additional Michaels stores (net of closures) during the quarter. The sales increase was partially offset by the closure of all 94 full-size Aaron Brothers stores in the first quarter of fiscal 2018. During the quarter, the Company opened six new Michaels stores, closed one Michaels store and relocated four Michaels stores. At the end of the third quarter, the Company operated 1,256 Michaels stores and 36 Pat Catan’s stores.


Operating income was $137.2 million, compared to $153.9 million in the third quarter of fiscal 2017. As expected, the decrease in operating income was due to lower gross profit and higher selling, general and administrative expense, including store pre-opening costs (“SG&A”). The decrease in gross profit, as a percentage of sales, was due to higher distribution-related costs and higher inventory reserves, including an unexpected inventory write-down of $4.1 million related to a third-party product which did not meet the Company’s quality standards. These factors were partially offset by occupancy cost leverage and benefits from the Company’s ongoing sourcing initiatives. The increase in SG&A was primarily due to an increase in performance-based compensation, higher marketing expenses and increased payroll related expenses, partially offset by a decrease in expenses related to the Aaron Brothers store closures during the first quarter of fiscal 2018. Excluding the $4.1 million inventory write-down, adjusted operating income for the third quarter of fiscal 2018 was $141.3 million.

Interest expense increased $5.0 million to $37.8 million, from $32.8 million in the third quarter of fiscal 2017, due to higher LIBOR rates associated with the Company’s variable rate Amended Term Loan Credit Facility and settlement payments associated with the Company’s interest rate swaps.

The effective tax rate was 15.8% compared to 34.3% in the third quarter of fiscal 2017. The lower effective tax rate was due to benefits recognized related to the Tax Act, including a decrease in the federal statutory tax rate from 35% to 21%; a $4.0 million provisional benefit related to the revaluation of deferred tax assets; and a $3.1 million provisional benefit related to repatriation taxes for accumulated earnings of foreign subsidiaries. Excluding the impact of the $7.1 million of provisional adjustments, the effective tax rate for the third quarter of fiscal 2018 was 23.0%.

Net income increased 5.0% to $83.8 million compared to $79.8 million in the third quarter of fiscal 2017. Excluding the inventory write-down of $3.1 million (net of taxes) described above and the $7.1 million of provisional adjustments related to the Tax Act, adjusted net income for the third quarter of fiscal 2018 was $79.8 million.

Total merchandise inventory at the end of the third quarter increased 2.6% to $1,440.9 million, compared to $1,404.2 million at the end of the third quarter of fiscal 2017. Average Michaels inventory on a per store basis, inclusive of distribution centers, inventory in transit and inventory for the Company’s e-commerce site, increased 1.1% to $1,039,000, compared to $1,028,000 at the end of the third quarter of fiscal 2017.

As previously reported, the Company received 1.7 million shares during the third quarter of fiscal 2018 related to the completion of its previously announced accelerated share repurchase (“ASR”). In addition, the Company purchased 11.1 million shares for $184.0 million under its share repurchase authorization. Subsequent to the end of the third quarter, the Company purchased an additional 1.0 million shares for $17.6 million. As of December 6, 2018, the total authorization remaining for future repurchases is $398.4 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.

Fourth Quarter and Fiscal Year 2018 Outlook:

The Company’s guidance for fiscal 2018 assumes Aaron Brothers stores were closed as of the start of the fiscal year and excludes a restructuring charge related to the Aaron Brothers store closures, provisional tax adjustments, any one-time costs associated with debt refinancing, and the inventory write-down in the third quarter related to product which did not meet the Company’s quality standards.

For fiscal 2018, a 52-week year, the Company now expects:


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

Conference Call Information

A conference call to discuss third quarter financial results is scheduled for today, December 6, 2018, at 8:00 am 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/10126028. 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 https://investors.michaels.com/news-events/events. 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 December 20, 2018, by dialing (877) 344-7529 or (412) 317-0088, access code 10122588.

Non-GAAP Information

This press release includes non-GAAP measures including net income excluding a one-time restructuring charge (net of income from Aaron Brothers operations), net of related income taxes, an inventory write-down related to a third-party product which did not meet the Company’s quality standards, net of related income taxes, losses on early extinguishments of debt and refinancing costs, net of related income taxes, and provisional adjustments related to the Tax Act (“Adjusted net income”); and diluted earnings per share excluding a one-time restructuring charge (net of income from Aaron Brothers operations), net of related income taxes, an inventory write-down related to a third-party product which did not meet the Company’s quality standards, net of related income taxes, losses on early extinguishments of debt and refinancing costs, net of related income taxes, and provisional adjustments related to the Tax Act (“Adjusted diluted earnings per share”); and operating income excluding a one-time restructuring charge primarily related to the closing of 94 full-size Aaron Brothers stores in the first quarter (net of income from Aaron Brothers operations) and an inventory write-down related to a third-party product which did not meet the Company’s quality standards (“Adjusted operating income”). 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 2018 diluted earnings per common share and actual results on a comparable basis with its quarterly and fiscal 2017 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.:

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 owns and operates more than 1,200 stores in 49 states and Canada under the brands Michaels, Aaron Brothers and Pat Catan’s. Additionally, the Company serves 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 merchandise, and Darice, a premier wholesale distributor in the craft, gift and decor industry. For a list of store locations or to shop online, visit www.michaels.com or download the Michaels app.


 
The Michaels Companies, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
             
13 Weeks Ended 39 Weeks Ended
November 3,

October 28,

November 3,

October 28,

(in thousands, except per share data) 2018 2017 2018 2017
Net sales $ 1,274,058 $ 1,240,196 $ 3,482,835 $ 3,471,352
Cost of sales and occupancy expense   795,104     756,088     2,173,990     2,117,100  
Gross profit 478,954 484,108 1,308,845 1,354,252
Selling, general and administrative 340,593 329,298 970,191 970,561
Restructure charge 44,278
Store pre-opening costs   1,196     952     3,995     2,592  
Operating income 137,165 153,858 290,381 381,099
Interest expense 37,798 32,818 109,493 94,305
Losses on early extinguishments of debt and refinancing costs 1,835
Other (income) expense, net   (121 )   (360 )   (2,646 )   950  
Income before income taxes 99,488 121,400 181,699 285,844
Income taxes   15,719     41,640     43,557     98,314  
Net income $ 83,769   $ 79,760   $ 138,142   $ 187,530  
 
Other comprehensive income, net of tax:
Foreign currency translation adjustment and other   3,016     (4,418 )   (3,230 )   4,254  
Comprehensive income $ 86,785   $ 75,342   $ 134,912   $ 191,784  
 
Earnings per common share:
Basic $ 0.50 $ 0.44 $ 0.79 $ 1.01
Diluted $ 0.50 $ 0.44 $ 0.78 $ 1.00
Weighted-average common shares outstanding:
Basic 165,975 180,710 174,949 185,521
Diluted 166,570 181,987 175,851 186,775
 
 
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 39 Weeks Ended
November 3,

October 28,

November 3,

October 28,

2018

2017

2018 2017
Net sales 100.0 %

100.0

%

100.0 % 100.0 %
Cost of sales and occupancy expense   62.4     61.0     62.4     61.0  
Gross profit 37.6 39.0 37.6 39.0
Selling, general and administrative 26.7 26.6 27.9 28.0
Restructure charge 1.3
Store pre-opening costs   0.1     0.1     0.1     0.1  
Operating income 10.8 12.4 8.3 11.0
Interest expense 3.0 2.6 3.1 2.7
Losses on early extinguishments of debt and refinancing costs 0.1
Other (income) expense, net           (0.1 )    
Income before income taxes 7.8 9.8 5.2 8.2
Income taxes   1.2     3.4     1.3     2.8  
Net income   6.6 %   6.4 %   4.0 %   5.4 %
 

             
The Michaels Companies, Inc.
Consolidated Balance Sheets
(Unaudited)
 
November 3, February 3, October 28,
(in thousands, except per share data) 2018 2018 2017
ASSETS
Current Assets:
Cash and equivalents $ 102,670 $ 425,896 $ 176,771
Merchandise inventories 1,440,875 1,123,288 1,404,206
Prepaid expenses and other 100,791 97,830 95,993
Accounts receivable, net 42,997 26,207 30,936
Income taxes receivable   6,544     3,761     5,792  
Total current assets   1,693,877     1,676,982     1,713,698  
Property and equipment, at cost 1,642,838 1,593,683 1,545,004
Less accumulated depreciation and amortization   (1,189,442 )   (1,173,663 )   (1,143,112 )
Property and equipment, net   453,396     420,020     401,892  
Goodwill 119,074 119,074 119,074
Other intangible assets, net 20,591 21,769 22,253
Deferred income taxes 23,367 34,538 36,946
Other assets   28,730     27,832     12,233  
Total assets $ 2,339,035   $ 2,300,215   $ 2,306,096  
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 645,469 $ 483,002 $ 674,222
Accrued liabilities and other 407,684 370,457 400,138
Current portion of long-term debt 240,261 24,900 140,125
Income taxes payable   476     79,586     16,673  
Total current liabilities   1,293,890     957,945     1,231,158  
Long-term debt 2,690,302 2,701,764 2,707,120
Other liabilities   144,694     150,001     100,656  
Total liabilities   4,128,886     3,809,710     4,038,934  
 
Stockholders’ Deficit:

Common Stock, $0.06775 par value, 350,000 shares
authorized; 158,616 shares issued and outstanding at
November 3, 2018; 181,919 shares issued and
outstanding at February 3, 2018; and 181,263 shares
issued and outstanding at October 28, 2017

10,700 12,206 12,159
Additional paid-in-capital 21,740 7,722
Treasury stock (12,168 )
Accumulated deficit (1,781,493 ) (1,539,781 ) (1,742,749 )
Accumulated other comprehensive loss   (6,890 )   (3,660 )   (9,970 )
Total stockholders’ deficit   (1,789,851 )   (1,509,495 )   (1,732,838 )
Total liabilities and stockholders’ deficit $ 2,339,035   $ 2,300,215   $ 2,306,096  
 

 
The Michaels Companies, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
      39 Weeks Ended
November 3,     October 28,
(in thousands) 2018 2017
Cash flows from operating activities:
Net income $ 138,142 $ 187,530
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 89,933 86,232
Share-based compensation 20,780 18,232
Debt issuance costs amortization 3,759 3,823
Accretion of long-term debt, net (385 ) (379 )
Restructure charge 44,278
Deferred income taxes 7,710 529
Losses on early extinguishments of debt and refinancing costs 1,835
Changes in assets and liabilities:
Merchandise inventories (338,260 ) (275,086 )
Prepaid expenses and other (2,886 ) (8,818 )
Accounts receivable (18,269 ) (7,721 )
Other assets (1,314 ) (1,010 )
Accounts payable 150,088 150,947
Accrued interest 7,850 (314 )
Accrued liabilities and other 1,077 12,685
Income taxes (79,258 ) (61,628 )
Other liabilities   734     1,405  

Net cash provided by operating activities

  25,814     106,427  
 
Cash flows from investing activities:
Additions to property and equipment   (119,553 )   (72,640 )
Net cash used in investing activities   (119,553 )   (72,640 )
 
Cash flows from financing activities:
Common stock repurchased (430,509 ) (253,595 )
Payments on term loan credit facility (17,356 ) (18,675 )
Borrowings on asset-based revolving credit facility 307,400 357,200
Payments on asset-based revolving credit facility (89,400 ) (248,200 )
Payment of debt refinancing costs (1,117 )
Payment of dividends (317 ) (408 )
Proceeds from stock options exercised   1,812     7,849  
Net cash used in financing activities   (229,487 )   (155,829 )
 
Net change in cash and equivalents (323,226 ) (122,042 )
Cash and equivalents at beginning of period   425,896     298,813  
Cash and equivalents at end of period $ 102,670   $ 176,771  
 

             
The Michaels Companies, Inc.
Reconciliation of Adjusted EBITDA
(Unaudited)
 
13 Weeks Ended 39 Weeks Ended
November 3, October 28, November 3, October 28,
(in thousands) 2018 2017 2018 2017
Net cash provided by operating activities $ 112,376 $ 110,462 $ 25,814 $ 106,427
Depreciation and amortization (30,879 ) (28,809 ) (89,933 ) (86,232 )
Share-based compensation (8,446 ) (7,675 ) (20,780 ) (18,232 )
Debt issuance costs amortization (1,237 ) (1,274 ) (3,759 ) (3,823 )
Accretion of long-term debt, net 129 127 385 379
Restructure charge (44,278 )
Deferred income taxes (6,940 ) (754 ) (7,710 ) (529 )
Losses on early extinguishments of debt and refinancing costs (1,835 )
Changes in assets and liabilities   18,766     7,683     280,238     189,540  
Net income 83,769 79,760 138,142 187,530
Interest expense 37,798 32,818 109,493 94,305
Income taxes 15,719 41,640 43,557 98,314
Depreciation and amortization 30,879 28,809 89,933 86,232
Interest income   (137 )   (190 )   (2,385 )   (443 )
EBITDA 168,028 182,837 378,740 465,938
Adjustments:
Losses on early extinguishments of debt and refinancing costs 1,835
Share-based compensation 8,446 7,675 20,780 18,232
Restructure charge 44,278
Severance costs 285 902 862
Store pre-opening costs 1,196 952 3,995 2,592
Store remodel costs 1,325 424 5,079 1,401
Foreign currency transaction (gains) losses (149 ) (355 ) (950 ) 1,092
Store closing costs (328 ) 109 3,321 2,122
Other(1)   754     952     2,035     2,451  
Adjusted EBITDA $ 179,272   $ 192,879   $ 460,015   $ 494,690  
 
(1)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.
Summary of Operating Data
(Unaudited)
             
 
The following table sets forth certain of our unaudited operating data:
 
13 Weeks Ended 39 Weeks Ended
November 3, October 28, November 3, October 28,
2018 2017 2018 2017
Michaels stores:
Open at beginning of period 1,251 1,230 1,238 1,223
New stores 6 8 21 16
Relocated stores opened 4 4 20 12
Closed stores (1 ) (1 ) (3 ) (2 )
Relocated stores closed   (4 )   (4 )   (20 )   (12 )
Michaels stores open at end of period   1,256     1,237     1,256     1,237  
 
Aaron Brothers stores:
Open at beginning of period 101 97 109
Closed stores       (3 )   (97 )   (11 )
Aaron Brothers stores open at end of period       98         98  
 
Pat Catan's stores:
Open at beginning of period 36 35 36 35
New stores       1         1  
Pat Catan's stores open at end of period   36     36     36     36  
 
Total store count at end of period   1,292     1,371     1,292     1,371  
 
 
Other Operating Data:
Average inventory per Michaels store (in thousands)1 $ 1,039 $ 1,028 $ 1,039 $ 1,028
Comparable store sales 3.8 % 1.0 % 1.4 % 0.1 %
Comparable store sales, at constant currency 4.3 % 0.5 % 1.4 %
 
1 The calculation of average inventory per Michaels store excludes Aaron Brothers and Pat Catan's stores.

 
The Michaels Companies, Inc.
Reconciliation of GAAP basis to Adjusted operating income, Adjusted net income and Adjusted earnings per share
(Unaudited)
                 
13 Weeks Ended 39 Weeks Ended
November 3, October 28, November 3, October 28,
(In thousands, except per share) 2018

2017

2018

2017

Operating income $ 137,165 $ 153,858 $ 290,381 $ 381,099
Restructure charge and other (a) 43,975
Inventory write-down (b)   4,104       4,104    
Adjusted operating income $ 141,269   $ 153,858 $ 338,460   $ 381,099
 
Net income $ 83,769 $ 79,760 $ 138,142 $ 187,530
Restructure charge and other (a) 43,975
Inventory write-down (b) 4,104 4,104
Losses on early extinguishments of debt and refinancing costs 1,835
Tax adjustment for above items (c) (985 ) (11,979 )

The Tax Act – provisional adjustments for repatriation taxes and
the revaluation of deferred tax assets (d)

  (7,120 )     987    
Adjusted net income $ 79,768   $ 79,760 $ 177,064   $ 187,530
 
Earnings per common share, diluted $ 0.50 $ 0.44 $ 0.78 $ 1.00
Restructure charge and other (a) 0.25
Inventory write-down (b) 0.02 0.02
Losses on early extinguishments of debt and refinancing costs 0.01
Tax adjustment for above items (c) (0.01 ) (0.07 )

The Tax Act – provisional adjustments for repatriation taxes and
the revaluation of deferred tax assets (d)

  (0.04 )     0.01    
Adjusted earnings per common share, diluted $ 0.48 $ 0.44 $ 1.01 $ 1.00
 
 
(a) Excludes the restructure charge primarily related to the closure of 94 full-size Aaron Brothers stores and $0.3 million of operating income in the first quarter of fiscal 2018 from the operation of Aaron Brothers (prior to closing).
 
(b) Excludes an inventory write-down related to a product purchased from a third-party which did not meet the Company’s quality standards.
 
(c) Adjusts for the tax impact of the restructure charge, the inventory write-down and losses on early extinguishments of debt and refinancing costs.
 
(d) Excludes provisional adjustments related to repatriation taxes for accumulated earnings of foreign subsidiaries and the revaluation of deferred tax assets resulting from the enactment of the Tax Act.
 

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

ICR, Inc.
Farah Soi
203.682.8200
Farah.Soi@icrinc.com
or
Financial Media Contact:
ICR, Inc.
Jessica Liddell/ Julia Young
203.682.8200
Michaels@icrinc.com