The Michaels Companies to close Pat Catan’s Arts & Craft stores

IRVING, Texas–(BUSINESS WIRE)–The Michaels Companies, Inc. (NASDAQ: MIK) today announced its decision to close all of its Pat Catan’s stores in the fourth quarter of fiscal 2018. Pat Catan’s is a 36-store retail supplier of arts and crafts in Ohio and surrounding states. The Company intends to rebrand up to 12 of the closed Pat Catan’s stores and reopen them under the Michaels banner. The Company also updated guidance for the fourth quarter of fiscal 2018, excluding the impact of any restructuring charges related to the Pat Catan’s store closures.

“We continue to make progress against our long-term strategy to increase market share and expand our leadership position within the arts and crafts industry. In support of this strategy, in 2016 we acquired Lamrite West, a privately-held company in Ohio with a wholesale division, a small sourcing office in China and a small retail chain called Pat Catan’s Arts & Crafts Stores, which was operated as outlets for the wholesale business,” said Chuck Rubin, Chairman and CEO of The Michaels Companies. “Over the last three years, we have delivered value through the significant expansion of our China-based sourcing team and the growth of our wholesale business. However, the Pat Catan’s retail business has struggled in the face of industry headwinds.”

“After a comprehensive review, we have decided to close all of the Pat Catan’s retail stores. We expect to rebrand and reopen up to 12 stores as new Michaels stores in fiscal 2019, and we will continue to maintain a support center and distribution center in Strongsville, Ohio to support our growing wholesale business. We believe these changes will provide more value for customers and shareholders by enabling us to leverage a more consistent merchandise assortment and eliminate duplicative retail operating expenses,” continued Rubin. “This was not an easy decision, and I am grateful for the contributions of our Pat Catan’s Team Members. As we work through the closing process, we intend to provide employment opportunities or transition support for all Team Members.”

Pat Catan’s fiscal 2018 net sales are projected to be approximately $111 million with no material impact on the consolidated Company’s adjusted operating income, excluding the impact of any restructuring charges related to the Pat Catan’s store closures. The Company expects the one-time after-tax cost of implementing these changes will be in the range of $44 million to $48 million, consisting primarily of costs associated with the termination of the remaining lease obligations, the write-off of fixed assets, costs associated with liquidation, and employee-related expenses. The Company anticipates the vast majority of the costs will be recognized in the fourth quarter of fiscal 2018. The Company expects the one-time after-tax cash benefit of the changes will be in the range of $20 million to $25 million in fiscal 2019.

Fourth Quarter Outlook

Commenting on expectations for the fourth quarter, Rubin continued, “We are pleased with our performance this holiday season. For the nine-week fiscal period ending January 5, 2019, comparable store sales decreased 0.2%; on a calendar shifted basis, comparable store sales increased 2.3%. So far in January, we have seen more volatility in consumer shopping behavior than we initially expected. As a result, we now expect comparable store sales for the fourth quarter will be near the lower end of our previously provided guidance range of -0.5% to 0.5%, which includes an estimated 160-180 basis points of negative impact from the calendar shift, and adjusted diluted earnings per common share for the fourth quarter will be near the lower end of our previously provided guidance of $1.42 and $1.47, excluding any restructuring charges related to the Pat Catan’s store closures.”

The Company plans to report fourth quarter and fiscal 2018 earnings on March 19, 2019.

About The Michaels Companies, Inc.

The Michaels Companies, Inc. is North America’s largest specialty provider of arts, crafts, framing, floral, wall décor, and seasonal merchandise for Makers and do-it-yourself home decorators. The Company owns and operates more than 1,200 stores in 49 states and Canada under the brands Michaels, Aaron Brothers and Pat Catan’s. Additionally, the Company serves customers through Michaels.com, consumercrafts.com and aaronbrothers.com. The Michaels Companies, Inc., also owns Artistree, a manufacturer of high quality custom and specialty framing merchandise, and Darice, a premier wholesale distributor in the craft, gift and decor industry. For a list of store locations or to shop online, visit www.michaels.com or download the Michaels app.