The Michaels Companies announced financial results for the second quarter ended August 1, 2015. Net sales increased by 3.8%, or 5.2% on a constant currency basis, to $984.3 million from $948.2 million in Q2 2014, and reflect the impact of a strong U.S. dollar exchange rate.
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Comparable store sales increased by 1.6% or 2.9% on a constant currency basis. Comparable store sales increased 3.2% in the second quarter of fiscal 2014, which included approximately $14 million in sales of the Rainbow Loom product.
Gross profit increased 20 basis points to 37.9% of net sales compared to 37.7% of net sales in the second quarter of fiscal 2014.
This was primarily related to the timing of distribution expenses, partially offset by a planned increase in costs compared to last year to exit select merchandise as part of our on-going department resets that occurred later in fiscal 2015 due to the West Coast port slowdown and unfavorable shrink expense.
Selling, general and administrative expense, including store pre-opening costs and excluding related party or initial public offering ("IPO") transaction costs ("SG&A") as a percent of net sales improved to 28.1% from 28.7% in the second quarter of last year.
SG&A was $276.7 million compared to $271.8 million in the second quarter of fiscal 2014 with the increase driven by higher costs associated with operating 40 additional stores and incentive based compensation.
Operating income grew 89.8% to $96.6 million from $50.9 million in the second quarter of fiscal 2014. Operating income excluding IPO related costs and related party fees (Adjusted operating income), increased 13.1% to $96.6 million from $85.4 million in the second quarter of fiscal 2014. As a percent of net sales, adjusted operating income grew 80 basis points to 9.8%.
Interest expense decreased to $34.3 million from $60.6 million in the second quarter of fiscal 2014 due to savings from debt refinancing and the pay down of $800 million of the 7.50%/8.25% PIK Toggle Notes (PIK Notes) from proceeds of the IPO during the second quarter of fiscal 2014 and from cash flow from operations.
The final $180.9 million principal payment on the PIK Notes made in May 2015 resulted in $6.1 million of losses on early extinguishment of debt and refinancing costs due to the premium for the early payment and the accelerated amortization expense.
The effective tax rate was 36.6% for the second quarter of fiscal 2015 compared to 37.3% for the second quarter of fiscal 2014. The tax rate was lower than last year due to a tax election change for our Canadian subsidiary.
Net income was $35.7 million in the second quarter of fiscal 2015 compared to a net loss of $48.6 million in the second quarter of fiscal 2014. Adjusted net income which excludes IPO costs, related party fees, 2014 debt refinancing costs and reflects the go forward interest expense based on the company's debt refinancing in 2014 (Adjusted net income) increased to $35.7 million in the second quarter of fiscal 2015 compared to $29.8 million in the second quarter of fiscal 2014.
In the second quarter of fiscal 2015, diluted earnings per share was $0.17 compared to diluted loss per share of $0.26 in the second quarter of fiscal 2014.
Based on the adjusted net income of $29.8 million in the second quarter of fiscal 2014 and assuming an adjusted diluted weighted average share count of 206.9 million, adjusted diluted earnings per share ("Adjusted earnings per share") increased 21.4% to $0.17, including the $.01 cost for the call of the PIK notes in May 2015, compared to $0.14 in the second quarter of fiscal 2014.
The company opened nine new Michaels stores and relocated three Michaels stores during the second quarter of fiscal 2015, compared with opening three Michaels stores, relocating five Michaels stores, and one Aaron Brothers closure in the second quarter of fiscal 2014. At the end of the second quarter of fiscal 2015, the company operated 1,186 Michaels stores and 118 Aaron Brothers stores.
The company ended the second quarter with $70.4 million in cash, $3.0 billion in debt and approximately $564 million in availability under its asset-based revolving credit facility. On May 6, 2015, the final redemption on the PIK Notes was paid. ■