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Kids Crafts, Jewelry & Bead making perform well at Michaels Stores

27 Aug '08
6 min read

Michaels Stores Inc reported a net loss for the quarter ended August 2, 2008 of $25 million compared to a $44 million loss for the quarter ended August 4, 2007. For the first half of fiscal 2008, the Company reported a loss of $45 million compared to a $67 million loss for first half of fiscal 2007.

Net sales for the second quarter increased 1.0% to $796 million from $788 million last year, with same-store sales declining 2.6%. Sales for the year-to-date period increased 1.0% to $1.643 billion for the six months ended August 2, 2008 from $1.627 billion for the corresponding period of the prior year. Same-store sales declined 2.8% for the year-to-date period.

Brian Cornell, Chief Executive Officer, said, "Overall, the soft economic environment continues to adversely affect the business, particularly with respect to certain high-ticket discretionary items and home-related categories. While a number of our product categories performed well, such as Kids Crafts, Jewelry & Bead making, and Bakeware, sales declines in home-related categories including Floral, Home Décor, and Custom Framing businesses more than offset these increases on a comparable store basis."

Mr. Cornell further noted, "With the Halloween, Fall, and Holiday seasons approaching, our focus will be squarely on the customer. Our goal is to provide a compelling product assortment and excellent execution in our stores while conservatively managing our expense structure and inventory commitments. We will however, continue to invest time and resources towards our key strategic initiatives, such as our consumer insight and category management programs, in order to assure the long-term growth and success of the Michaels brand."

Operating Results:
Total sales for the second quarter increased 1.0% to $796 million from $788 million. The increase is the result of new stores sales offset by a 2.6% decline in same-store sales due to a 1.0% decline in the average ticket and a 1.6% decrease in transactions. For the year-to-date period, total sales increased 1.0% to $1.643 billion for the six months ended August 2, 2008 compared to $1.627 billion for the same period last year.

The increase was the result of new store growth which more than offset the 2.8% decline in same-store sales driven by a 2.2% decrease in transactions, a 0.4% decrease in average ticket, and a 0.2% decrease in custom frame deliveries. A favorable Canadian currency translation offset the decline in average ticket by approximately 0.5% for the second quarter and approximately 0.8% for the first six months of fiscal 2008.

The Company's gross margin rate decreased 190 basis points to 34.9% in the second quarter and decreased 110 basis points to 36.8% on a year-to-date basis for fiscal 2008. Contraction in the gross margin rate was driven primarily by a decrease in merchandise margins as customers have become more value-oriented and a deleveraging of occupancy and distribution costs due to declining same-store sales.

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