Michaels plans 2014 IPO

A 1,500-store market potential and an untapped online opportunity await Michaels Stores in 2014 as the retailer’s private equity owners look to sell a portion of their stake and return the nation’s largest arts and crafts retailer to public ownership.
 
Michaels currently operates 1,259 stores in the United States and Canada and believes future growth will come from the addition of new stores and the sale of products to customers who already engage with the brand online, according to a filing with the Securities and Exchange Commission. During the nine-month period ended Nov. 2, Michaels opened 54 new stores which average about 19,000 sq. ft. and offer 36,000 unique items. In 2014, the company expects to open between 40 and 50 new stores.
 
In addition, next year the company will launch a long overdue e-commerce site that is actually capable of commerce. Michaels had more than 180 million visitors to its website during the past 12 months, but those visitors weren’t able to buy anything. That will change in 2014 which should be welcome news to the company’s 1.5 million Facebook fans, 300,000 Pinterest followers and 100,000 Twitter followers.
 
“We expect our new e-commerce platform will allow us to sell much of our current assortment while also expanding into e-commerce-only products,” the company said in the filing. “Although we expect this channel will produce a more limited sales penetration than more commoditized retail categories, we believe it will augment our multi-channel strategy to broaden our customer base and improve the shopping experience.”
 
The initial public stock offering will mark a return to public ownership for a company that was taken private in late 2006 by Bain Capital Partners and Blackstone Group. The offering will be led by J.P. Morgan and Goldman, Sachs & Co. Upon completion, the private equity concerns will retain control of the company in an offering that will see Michaels receive none of the proceeds from the stock sales. Instead, the $4.4 billion retailer will remain saddled with debt of roughly $3.7 billion but some sales momentum and a host of favorable financial metrics on its side.
 
Sales for the nine-month period ended Nov. 2 increased 4.5% to a little more than $3 million thanks to a 2.1% same-store sales increase and the addition of new selling space. Meanwhile, operating profits of $334 million during the period were essentially flat with the prior year total of $337 while net income increased to $110 million from $95 million. The company boasted an 11.1% operating margin and a 3.6% net margin during the period.
 
Going forward, Michael’s growth strategy as outlined in its registration statement consists of the following:

  • Broadening the appeal of stores to those new to do-it-yourself projects as well as more experienced crafters.
  • Enhancing the store experience with improved signage and open sightlines to make stores more shoppable while developing flexible store formats to address unique market opportunities.
  • Launching an e-commerce platform to become a true omnichannel retailer in 2014 and leverage high levels of existing engagement with customers.
  • Reaching new and existing customers with expanded marketing efforts that include print, digital, direct mail, broadcast and community events.
  • Strengthening merchandising and sourcing capabilities to better identify and source new trends, merchandise and categories that enhance our exclusive brands.

Overseeing the retailer’s growth strategy is Carl Rubin. He joined the company as CEO in March after spending three years as president and CEO of Ulta Salon, Cosmetics & Fragrance since 2010. Prior to that, Rubin spent five years with Office Depot, last serving as president of the company’s North American Retail division and prior to that spent six years with Accenture where he was a partner.