The Michaels Companies announced financial results for the third quarter ended October 28, 2017.
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Net sales increased 1.1% to $1,240.2 million, from $1,227.2 million in the third quarter of fiscal 2016, inclusive of an estimated $10 million in lost sales related to Hurricanes Harvey and Irma.
The increase in net sales was primarily a result of a 1.0% increase in comparable store sales (0.5% on a constant currency basis), and sales from the operation of 16 new Michaels stores (net of closures) in fiscal 2017. As expected, this increase was partially offset by lower wholesale revenues.
Gross profit increased 3.8% to $484.1 million, from $466.6 million in the third quarter of fiscal 2016. As a percentage of net sales, gross profit increased 100 basis points to 39.0% compared to 38.0% in the third quarter of fiscal 2016.
The increase, as a percentage of net sales, was due to higher merchandise margin resulting from our ongoing sourcing initiatives, the timing of distribution-related costs and the comparison against $0.7 million of net non-recurring, inventory-related purchase accounting adjustments recorded in the third quarter of fiscal 2016 related to the acquisition of Lamrite West. These benefits were partially offset by higher inventory shrinkage.
Selling, general and administrative expense, including store pre-opening costs, ("SG&A") increased 3.1% to $330.3 million, or 26.6% of sales, from $320.3 million, or 26.1% of sales, in the third quarter of fiscal 2016.
The increase in SG&A was primarily due to an increase in incentive-based compensation, marketing expenses and healthcare expenses.
The increase was partially offset by a comparison against $1.6 million of net non-recurring integration expenses recorded in the third quarter of fiscal 2016 related to the acquisition of Lamrite West.
Operating income increased 5.1% to $153.9 million, or 12.4% of sales, compared to $146.3 million, or 11.9% of sales, in the third quarter of fiscal 2016.
Excluding net non-recurring, inventory-related purchase accounting adjustments and integration expenses associated with the acquisition of Lamrite West, adjusted operating income for the third quarter of fiscal 2016 was $148.6 million.
Interest expense increased $1.3 million to $32.8 million, from $31.5 million in the third quarter of fiscal 2016 primarily due to higher interest rates on the company's variable rate asset-based revolving credit facility and term loan credit facility. ■