Interviews
Kids Crafts, Jewelry & Bead making perform well at Michaels Stores
27 Aug '08
6 min read
Selling, general, and administrative expense in the second quarter increased $4 million to $246 million, or as a percent of sales, to 30.9% compared to 30.7% in the second quarter of fiscal 2007. The 20 basis point increase in selling, general, and administrative expense is primarily due to expenses related to our strategic initiatives and employee severance expense, slightly offset by lower advertising expense.
Year-to-date selling, general and administrative expense increased 90 basis points, to 31.5% of sales from 30.6% for the same period last year, resulting primarily from planned in-store investments, employee severance costs and a deleveraging associated with declining same-store sales.
Operating income was $27 million, or as a percent to sales flat to last year at 3.4%. Year-to-date fiscal 2008 operating income was $75 million, or 4.6% of sales, versus $87 million, or 5.3% of sales for the first half of fiscal 2007.
Interest expense was lower by $19 million and $37 million for the quarter and first half, respectively, due to a lower average interest rate on our floating rate debt and lower average debt levels.
The Company presents Adjusted EBITDA to provide additional information to evaluate its operating performance and its ability to service its debt. Adjusted EBITDA for the second quarter of fiscal 2008 declined approximately $17 million to $73 million, or 9.2% of sales, from $90 million, or 11.4% of sales, for the same period last year.
Year-to-date Adjusted EBITDA was $170 million, or 10.3% of sales, versus $203 million, or 12.5% of sales in the first half of fiscal 2007. Reconciliations of GAAP measures to non-GAAP Adjusted EBITDA presented herein are included at the end of this press release.
Balance Sheet and Cash Flow:
The Company's cash balance was consistent with last year's second quarter ending balance of $45 million. Second quarter debt levels totaled $4.034 billion, down $64 million from the end of fiscal 2007 second quarter balance of $4.098 billion. During the quarter, the Company also made a $5.9 million amortization payment on its Senior Secured Term Loan.
Average inventory per Michaels store at the end of the second quarter of fiscal 2008, inclusive of distribution centers, was down 3.3% to $899,000 compared to $930,000 at the end of the second quarter of fiscal 2007. The decrease in average inventory per store is primarily due to reduced Yarn inventories, ongoing benefits from our Hybrid Distribution model, and lower inventory values associated with our direct sourcing efforts.
Capital spending for the six months ended August 2, 2008, totaled $39 million, with $22 million attributable to real estate activities, such as new, relocated, existing and remodeled stores, and $17 million for strategic initiatives and maintenance activities.
During the first half of fiscal 2008, the Company opened 28 new stores, relocated six stores, and remodeled one Michaels store and closed two Aaron Brothers stores.
Outlook:
Low consumer confidence and increased economic volatility are expected to have a continued adverse effect on the business for the remainder of the year, causing the forecasting of future results with any level of certainty to be difficult. However, we now expect the first half trends for same-store sales, Adjusted EBITDA, net income and cash flow from operations to continue for the second half.
Year-to-date selling, general and administrative expense increased 90 basis points, to 31.5% of sales from 30.6% for the same period last year, resulting primarily from planned in-store investments, employee severance costs and a deleveraging associated with declining same-store sales.
Operating income was $27 million, or as a percent to sales flat to last year at 3.4%. Year-to-date fiscal 2008 operating income was $75 million, or 4.6% of sales, versus $87 million, or 5.3% of sales for the first half of fiscal 2007.
Interest expense was lower by $19 million and $37 million for the quarter and first half, respectively, due to a lower average interest rate on our floating rate debt and lower average debt levels.
The Company presents Adjusted EBITDA to provide additional information to evaluate its operating performance and its ability to service its debt. Adjusted EBITDA for the second quarter of fiscal 2008 declined approximately $17 million to $73 million, or 9.2% of sales, from $90 million, or 11.4% of sales, for the same period last year.
Year-to-date Adjusted EBITDA was $170 million, or 10.3% of sales, versus $203 million, or 12.5% of sales in the first half of fiscal 2007. Reconciliations of GAAP measures to non-GAAP Adjusted EBITDA presented herein are included at the end of this press release.
Balance Sheet and Cash Flow:
The Company's cash balance was consistent with last year's second quarter ending balance of $45 million. Second quarter debt levels totaled $4.034 billion, down $64 million from the end of fiscal 2007 second quarter balance of $4.098 billion. During the quarter, the Company also made a $5.9 million amortization payment on its Senior Secured Term Loan.
Average inventory per Michaels store at the end of the second quarter of fiscal 2008, inclusive of distribution centers, was down 3.3% to $899,000 compared to $930,000 at the end of the second quarter of fiscal 2007. The decrease in average inventory per store is primarily due to reduced Yarn inventories, ongoing benefits from our Hybrid Distribution model, and lower inventory values associated with our direct sourcing efforts.
Capital spending for the six months ended August 2, 2008, totaled $39 million, with $22 million attributable to real estate activities, such as new, relocated, existing and remodeled stores, and $17 million for strategic initiatives and maintenance activities.
During the first half of fiscal 2008, the Company opened 28 new stores, relocated six stores, and remodeled one Michaels store and closed two Aaron Brothers stores.
Outlook:
Low consumer confidence and increased economic volatility are expected to have a continued adverse effect on the business for the remainder of the year, causing the forecasting of future results with any level of certainty to be difficult. However, we now expect the first half trends for same-store sales, Adjusted EBITDA, net income and cash flow from operations to continue for the second half.
Michaels Stores Inc
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