The Michaels Companies announced financial results for the first quarter ended April 30, 2016. Net sales increased 7.5%, or 8.1% on a constant currency basis, to $1.16 billion, from $1.08 billion in Q1 2015.
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The increase was primarily a result of the acquisition of Lamrite West in February 2016 and sales from 24 additional stores (net of closures) during the quarter. Comparable store sales increased 0.9%, or 1.4% on a constant currency basis.
Gross profit increased 5.2% to $464.8 million, from $441.8 million in the first quarter of fiscal 2015. As a percentage of net sales, gross profit decreased to 40.1% compared to 41.0% in the first quarter of fiscal 2015.
Selling, general and administrative expense, including store pre-opening costs, (SG&A) increased 7.3% to $319.4 million, from $297.8 million in the first quarter of fiscal 2015.
Operating income increased 0.9% to $145.3 million, from $144.0 million in the first quarter of fiscal 2015. As a percent of net sales, operating income decreased 82 basis points to 12.5% compared to 13.4% in the first quarter of fiscal 2015.
Interest expense decreased $5.6 million to $32.2 million, from $37.8 million in the first quarter of fiscal 2015 due to the early redemption of $180.9 million of the 7.50%/8.25% PIK Toggle Notes during the second quarter of fiscal 2015 and a voluntary principal payment of $150.0 million on the Restated Term Loan Credit Facility in the fourth quarter of fiscal 2015.
Net income increased 6.0% to $70.8 million, from $66.7 million in the first quarter of fiscal 2015. Excluding net non-recurring, inventory-related purchase accounting adjustments and integration expenses associated with the acquisition of Lamrite West, adjusted net income increased 13.2% to $75.5 million.
Diluted earnings per share increased 6.3% to $0.34, from $0.32 in the first quarter of fiscal 2015. Excluding net non-recurring, inventory-related purchase accounting adjustments and integration expenses associated with the acquisition of Lamrite West, adjusted diluted earnings per share increased 12.5% to $0.36.
During the first quarter of fiscal 2016, the company opened 11 new Michaels stores and one new Pat Catan's store and closed three Michaels stores and two Aaron Brothers stores, compared with ten new Michaels store openings, one Michaels store closure and two Aaron Brothers store closures in the first quarter of 2015. At the end of the first quarter, the company operated 1,204 Michaels stores, 115 Aaron Brothers stores, and 33 Pat Catan's stores.
The Michaels Companies ended the first quarter of fiscal 2016 with $171.9 million in cash, $2,785.9 million in debt and $585.5 million in availability under its asset-based revolving credit facility.
In May 2016, the company entered into an amended and restated credit agreement to amend various terms of its Restated Revolving Credit Facility (Amended Revolving Credit Facility). The Amended Revolving Credit Facility provides for senior secured financing of up to $850.0 million maturing on May 25, 2021.
Inventory at the end of the first quarter increased 7.3% to $1,057.6 million, compared to $985.4 million in the first quarter of fiscal 2015. The increase in inventory was due to $82.0 million in additional inventory from the acquisition of Lamrite West.
Average Michaels inventory on a per store basis, inclusive of distribution centers, in transit and inventory for the company's e-commerce site, decreased 2.8% to $787,000, compared to $810,000 at the end of the first quarter of fiscal 2015.
This decrease in inventory per store was primarily a result of higher inventory in fiscal 2015 resulting from the early receipt of seasonal merchandise in an effort to mitigate the impact of West Coast port issues in early 2015.
Capital expenditures for the quarter were $14.7 million, compared to $35.0 million in the first quarter of fiscal 2015. The decline in capital expenditures was primarily due to the timing of new and relocated stores and the timing of capital investments in existing stores as compared to the first quarter of fiscal 2015.
During the quarter, the company purchased $59.3 million, or 2.3 million shares, under its share repurchase authorization. The total remaining authorization for future repurchases is approximately $141 million. ■