Michaels Companies store sales dip 27% in FQ1 2020

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Michaels Companies store sales dip 27% in FQ1 2020

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Michaels Companies Inc. (NASDAQ: MIK) reported its FQ1 2020 earnings on Thursday, 06 June 2020. The company saw decrease in its store sales as stores closed down due to the spread of the pandemic. The store sales decreased by 27.6% in the quarter, amounting to $799.9 million. The operating loss was recorded at $60.7 million during the quarter.

Ashley Buchanan (CEO of the company) on the release of the report commented, “During an unprecedented time, our teams quickly adapted and executed on key priorities for our business. While temporary store closures negatively impacted our first quarter results, I am proud of the way our team responded to changing market conditions, implementing safety and business continuity measures to protect the health of our associates while continuing to safely service the needs of our customers. This quarter, we significantly accelerated Michaels’ transformation into an omnichannel retailer by introducing a robust set of customer facing digital and fulfillment capabilities. As we reopen stores, we are encouraged by the trends we are seeing. Moving through the rest of the year, we will continue to introduce additional capabilities that enable us to serve customers wherever and however they want to shop. We believe these actions, along with our strong liquidity, will enable us to successfully navigate the current environment and emerge a healthier, stronger and better positioned omnichannel company.”

Response to the pandemic

The company aims at three priorities to overcome this difficult situation and prosper in the future.

  1. Safety & well-being of our employees and customers: Implementation of health and safety measures such as limited hours, increased cleaning, and social distancing protocols. Installation of plexiglass shields at check-out points.
  2. Strengthened Financial Health: Proactive measures in relation to cost and cash management so as to provide liquidity to the business during the times of the crisis. Working capital was effectively managed by renegotiating payment terms with vendors and landlords and reducing labor costs where needed as a result of temporary store closures.
  3. Aggressively Expanded Digital and Omni-Channel Capabilities: Development of  a number of additional customer facing capabilities to be rolled out over the remainder of the year. Introduction of same day deliveries, chatbots, In-App purchases. The company looks forward to increase personalization on the Michaels.com website, improvements to curbside pick-up, contactless
    shopping, as well as the ability to track shipments, initiate returns and more.

Financial Highlights for the quarter 

(Source: Business Quant)

  1. The Gross Profit margin declined by 27.7% and amounted to $221.8 million during the quarter.
  2. The company opened with a cash balance of $410 million during the quarter and ended with $926.8 million.
  3. With the temporary closure of stores as per governmental guidelines, the company opened 11 new online outlets ( a 296% growth in the e-commerce segment) to sustain in the market and earned a revenue of $799.9 million during the quarter.
  4. Repayment of $300 million on the revolving credit facility for the company has helped it retain sufficient unused borrowing capacity. Furthermore, it drew down $600 million under Revolving Credit Facility in March.
  5. Capital expenditures amounted to $21.9 million for the quarter.
  6. Total debt for the firm (including Leases) is calculated at $4.9 billion.

Moving Forward

  1. The company expects to have all of its stores fully operational by the end of June 2020. The company has approximately 1,000 stores that have already been opened as of 04 June 2020.
  2. The company believes to have positive cash flows in the second fiscal quarter of the year. It has sufficient liquidity to fund planned capex, working capital requirements, debt
    repayment and service payments and anticipated growth.
  3. At the end of the quarter, it has announced its intent to close the Darice wholesale operations though it will retain the sourcing-related offices in China. This process is expected to be completed the end of November 2020. It anticipates incurring around $46 million to $52 million in after-tax charges, which would be primarily non-cash in nature.

The company has taken into consideration ways moving forward in the pandemic situation such as opening online stores for customers. The company though has faced decline in its revenues from store sales but has been able to cope up them up to an extent through its online stores. Further, with the re-openings of its stores in the near future the company does not expect any financial crisis for itself. The company would be rebounding strongly with strong financials in the fiscal year.

Investors can look at the company as a good investment option. The company has strong earnings to repay off its obligations and is not over-burdened by debts at any point in time. It is a good debt as well as equity investment option!

 

 

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