Quarterly report pursuant to Section 13 or 15(d)


3 Months Ended
May 02, 2020


All expressions of the “Company”, “us”, “we”, “our”, and all similar expressions are references to The Michaels Companies, Inc. and our consolidated, wholly-owned subsidiaries, unless otherwise expressly stated or the context otherwise requires. Our consolidated financial statements include the accounts of The Michaels Companies, Inc. and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 filed with the Securities and Exchange Commission (“SEC”) pursuant to Section 13 or 15(d) under the Securities Exchange Act of 1934. In the opinion of management, all adjustments (consisting of normal recurring accruals and other items) considered necessary for a fair presentation have been included.

We report on the basis of a 52-week or 53-week fiscal year, which ends on the Saturday closest to January 31. All references to fiscal year mean the year in which that fiscal year began. References to “fiscal 2020” relate to the 52 weeks ending January 30, 2021 and references to “fiscal 2019” relate to the 52 weeks ended February 1, 2020. In addition, all references to “the first quarter of fiscal 2020” relate to the 13 weeks ended May 2, 2020 and all references to “the first quarter of fiscal 2019” relate to the 13 weeks ended May 4, 2019. The results of operations for the 13 weeks ended May 2, 2020 are not indicative of the results to be expected for the entire year due to the seasonal nature of our business and the financial impact of the COVID-19 pandemic.

COVID-19 Pandemic

In March 2020, the World Health Organization declared the current COVID-19 outbreak to be a global pandemic. The COVID-19 pandemic has adversely impacted, and is expected to continue to adversely impact, our operations. During the first quarter of 2020, many state and local jurisdictions ordered all but certain essential businesses closed and executed extensive “shelter-in-place” or “stay-at-home” orders, many of which are currently still in place. These orders restricted our business operations and prompted us to temporarily close a significant portion of our stores during the quarter. The Company is taking measures to mitigate the impact of the COVID-19 pandemic including, but not limited to, borrowing $600.0 million under our senior secured asset-based revolving credit facility (“Amended Revolving Credit Facility”) to improve our cash position and preserve financial flexibility, deferring or eliminating discretionary capital and operating costs, improving working capital by renegotiating payment terms with our vendors and landlords and reducing labor costs as a result of the temporary store closures. We also launched additional omnichannel capabilities, including curbside pickup, same day delivery and in-app purchases, to enable us to operate more effectively in the current environment. We will continue to monitor the situation closely and, if necessary, we could implement further measures to mitigate the impact of COVID-19 on our operations.

As a result of restrictions related to the pandemic, over 900 stores were closed at various points during the first quarter and approximately 800 stores were closed as of May 2, 2020. However, a significant number of our closed stores continued to generate sales through our curbside pickup and ship from store programs. As of June 4, 2020, approximately 1,000 of our 1,273 stores were open and fully operational.

Share Repurchase Program

In September 2018, the Board of Directors authorized a new share repurchase program for the Company to purchase $500 million of the Company’s common stock on the open market or through accelerated share repurchase transactions. 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. Shares repurchased under the program are held as treasury shares until retired. During the three months ended May 2, 2020, we did not repurchase any shares under our share repurchase program. As of May 2, 2020, we had $293.5 million of availability remaining under our current share repurchase program.

Restructure Charges

In the fourth quarter of fiscal 2018, we closed all of our Pat Catan’s stores. As a result of the closures, we recorded a charge totaling $3.1 million in the first quarter of fiscal 2019, primarily related to employee-related expenses.

Accounting Pronouncements Recently Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326)” (“ASU 2016-13”) which makes significant changes to the accounting for credit losses on financial assets and disclosures. The standard requires immediate recognition of management’s estimates of current expected credit losses. We adopted ASU 2016-13 in the first quarter of fiscal 2020 using a modified retrospective approach without restatement. The adoption did not result in a material impact to our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. We adopted ASU 2019-12 in the first quarter of fiscal 2020. The adoption did not result in a material impact to our consolidated financial statements.

Recent Accounting Pronouncement Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued. The standard is effective upon issuance and generally can be applied to applicable contract modifications through December 31, 2022. We do not anticipate a material impact to the consolidated financial statements once implemented.