Arts and crafts retailer Michaels Companies (NASDAQ: MIK) reported first-quarter results early Thursday morning. The results fell within management's guidance ranges, but some hiccups led to a lower full-year revenue projection. Here's a closer look at Michaels' first quarter.
Michaels Companies' first-quarter results: The raw numbers
| Metric | Q1 2019 | Q1 2018 | Year-Over-Year Change |
|---|---|---|---|
| Net sales | $1.09 billion | $1.16 billion | (6%) |
| Comprehensive income | $32.9 million | $19.8 million | 66% |
| GAAP earnings per share (diluted) | $0.24 | $0.15 | 60% |
Data source: The Michaels Companies.
What happened with Michaels this quarter?
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Comparable store sales declined 2.9% year over year. The average customer ticket increased in value while the number of transactions decreased.
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Michaels opened 17 net new stores over the last four quarters, including four new locations balanced against two store closings in the first quarter alone. Another seven locations were relocated during the reported quarter.
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A selection of "everyday value" products (EDV) was introduced two years ago to much acclaim, and Michaels has been growing the number of items in that program. Notably, the product list was doubled to 4,000 stock-keeping units in the first quarter, up from roughly 2,000 at the end of 2018. That move was a bridge too far, because the EDV products were excluded from Michaels' popular coupon programs and the company heard an abundance of complaints over the shrinking reach of that coupon program. This backlash put pressure on Michaels' top-line sales, and the company has now eliminated the entire EDV program.
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Management is also acutely aware that a recent increase of high-value items in prime in-store real estate, such as the aisle end caps and near the checkout registers, may have boosted the average transaction value but also undercut the public view of Michaels as a value-priced retailer. A larger selection of low-priced items is now back on the shelves in Michaels' end caps and checkout areas.
Michaels is drawing up some new inventory management ideas. Image source: Getty Images.
What management had to say
Interim CEO Mark Cosby took the reins quite recently, and the board of directors is actively looking for his permanent replacement. In the earnings call, Cosby shared this high-level overview of what the first 90 days on the job have been like.
What I've learned in my first 90 days with Michaels has reinforced my belief that we have a significant opportunity to expand our leadership position within the arts and crafts channel and drive stronger growth over the longer term. We are not satisfied with our recent performance, and we are proactively taking steps to improve the results. At the same time, we are pursuing our 2019 priorities and are confident that they will deliver stronger momentum in the second half, and we are working closely with the board to refresh our long-term growth strategy to drive stronger growth in 2020 and beyond.