The Michael’s Companies Inc. (MIK, Financial) said it saw a 4% increase in profits as a result of less discounting activity during the holidays and its integration with an Ohio-based wholesale retailer.
North America’s largest arts and crafts provider merged in February 2016 with Lamrite West Inc., which has allowed it to add over a dozen stores to the brand.
The North Texas-based retailer reported a profit of $203 million, or $1.11 per share, up from $195.3 million, or 95 cents a share, in the prior-year quarter. The amount takes into account a one-time charge under the U.S. Tax Cuts and Jobs Act. Without the charge, fourth-quarter earnings were $1.19 per share.
For the year, Michael’s Companies reported net income of $390 million, or earnings per share of $2.10, compared to $378 million, or $1.82 per share, in 2016. Without the tax charge, full-year earnings were $2.17 a share.
The performance met the company’s 2017 guidance on earnings of $2.05 to $2.17 a share on 2.5% to 4% revenue growth.
The company’s performance met Wall Street’s earnings expectations for the most part. Its net sales of $1.89 billion exceeded expectations.
Even so, its stock price fell to under $20 on a day of market jitters over the Trump administration’s move to impose tariffs on China. The major indexes were down by over 1% in early afternoon trading. Michael's stock is down more than 10% year to date.
Guidance
In 2018, it is projecting earnings per common share between $2.19 and $2.32. It estimates net sales will grow to between $5.22 million and $5.29 million.
In gross profit, as a percentage of net sales, Michael’s saw a 1% increase from 41% compared to 40.3% in the prior-year quarter.
For the fiscal year, the change was 39.7% versus 39% the year prior.
Also in 2018, it expects to open 19 new Michael’s stores and relocate 17 stores.
As of Feb. 3, the company owned and operated 1,371 stores in 49 states and Canada.
The company’s fiscal 2017 ended on Feb. 3. That means its figures include estimates from an extra week in the fourth quarter as compared to fiscal 2016. The 53rd week contributed to about $79 million in sales, $29 million in operating income and about 9 cents a share in diluted earnings per share.
Financial strength
While Michael's has seen a 12-month revenue growth increase, intense competition from online craft stores and other retailers are constantly adding pressure.
EBIDTA per share has been mostly flat over the past several years, hovering at $3 a share. It was $3.99 per share as of April 2017.
GuruFocus gives it a ranking of 4 out of 10 in financial strength and 6 of 10 in profitability and growth. It has market cap of $3.6 billion.
