In a third quarter marked by an impairment charge, Michaels reported a net sales and net income decline, although the retailer said it plans for operational improvements.
Net sales were $1.22 billion in the third quarter of fiscal 2019 compared to $1.27 billion in the third quarter of fiscal 2018. The decrease in net sales was primarily due to a 2.2% decrease in comparable store sales, the closure of the Pat Catan’s stores during the fourth quarter of 2018, and a decrease in wholesale revenue.
Net income was $28.7 million in the third quarter of fiscal 2019, compared to $83.8 million in the third quarter of fiscal 2018. Excluding restructure and impairment charges, losses on early extinguishments of debt and refinancing costs and related tax adjustments, adjusted net income for the third quarter of fiscal 2019 was $60.1 million, compared to adjusted net income for the third quarter of fiscal 2018 of $79.8 million. The company reported diluted earnings per share for the third quarter of fiscal 2019 of $0.19, or $0.40 per adjusted diluted share. This compares to diluted earnings per share for the third quarter of fiscal 2018 of $0.50, or $0.48 per adjusted diluted share.
Restructure and impairment charges in the third quarter totaled $41.4 million and consist primarily of non-cash goodwill and other impairment charges associated with the Darice wholesale business.
“We are moving ahead on bringing our customer-centric, core ‘Maker’ strategy to life, and we are encouraged by the early operational progress being made. Combining this with the sales gains from our recent opportunistic transaction tied to A.C. Moore exiting their retail business, we believe we are on the path to improved, consistent, financial performance over time,” said Mark Cosby, CEO, Michaels. “Our third quarter results did not meet our expectations and were impacted by specific factors which we are addressing. As we implement the initiatives that support our ‘Maker’ strategy, we believe we will improve the trajectory of our business over time. Our strong balance sheet and substantial free cash flow generation provide a solid foundation from which we can reposition Michaels to drive long-term shareholder value.”
As previously announced, subsequent to the end of the fiscal third quarter, Nicole Crafts announced the closure of its A.C. Moore retail operations. As part of this closure, Michaels entered into an asset purchase agreement with A.C. Moore and certain of its affiliates to acquire intellectual property and the right to lease up to 40 store locations for $58 million, subject to certain purchase price adjustments. In connection with the acquisition the Company also leased a distribution facility in New Jersey. The store locations are expected to be reopened under the Michaels brand name in fiscal 2020 and will include the relocation of certain existing Michaels stores.