The Michaels Companies announced financial results for the quarter and fiscal year ended January 30, 2016. Q4 net sales increased 4.6%, or 6.4% on a constant currency basis, to $1.7 billion from $1.6 billion in Q4 2014.
Article continues below
Comparable store sales increased 3.1%, or 4.7% on a constant currency basis.
Q4 gross profit increased 3.7% to $687.6 million from $663.1 million in the fourth quarter of fiscal 2014, driven by sales growth. As a percent of sales, gross profit decreased 30 basis points to 40.9% compared to 41.2% in the fourth quarter of fiscal 2014.
The decline was driven by clearance activity as part of ongoing department resets; the negative impact of foreign exchange rates; a shift in sales mix; and investments to improve the in-store environment. The decrease was partially offset by improved sourcing and pricing efficiencies.
Michaels selling, general and administrative expense, including store pre-opening costs (SG&A) decreased to $363.4 million compared to $369.1 million in the fourth quarter of fiscal 2014. As a percent of net sales, SG&A decreased 140 basis points to 21.6% versus 23.0% during the fourth quarter last year.
The decline in SG&A, as a percent of sales, was primarily due to lower performance-based compensation accruals and benefits and other payroll-related expenses, lower Canadian operating expenses due to the exchange rate, and leverage on comparable store sales.
In addition, the company's Fuel for Growth efforts continue to deliver cost savings and operational efficiencies. The decrease was partially offset by an increase in expenses associated with operating 25 additional stores (net of closures) and increased advertising expense.
Operating income grew 10.3% to $324.2 million from $294.0 million in the fourth quarter of fiscal 2014. As a percent of net sales, operating income increased 100 basis points to 19.3%. This includes a negative impact to operating income from the stronger U.S. dollar of $15 million, or 58 basis points, in the fourth quarter of fiscal 2015.
Interest expense decreased to $33.4 million from $39.2 million in the fourth quarter of fiscal 2014 due to the early redemption of $360.9 million of the 7.50%/8.25% PIK Toggle Notes, funded with cash from operations during the fourth quarter of fiscal 2014 and second quarter of fiscal 2015.
Additionally, $2.4 million of losses on early extinguishment of debt and refinancing costs was incurred due to the accelerated amortization expense in the fourth quarter of fiscal 2015 associated with a voluntary $150.0 million principal payment on the Restated Term Loan Credit Facility ("Term Loan") in December 2015.
The effective tax rate for the quarter was 36.2% compared to 36.4% for the fourth quarter of fiscal 2014.
Net income increased 17.3% to $183.7 million in the fourth quarter of fiscal 2015 compared to $156.6 million in the same quarter last year. Diluted earnings per share increased 16.0% to $0.87 from $0.75 in the fourth quarter of fiscal 2014.
The company opened one new Michaels store and closed one Michaels store and one Aaron Brothers store during the quarter, compared with two new Michaels stores and one Aaron Brothers closure in the fourth quarter of fiscal 2014. At the end of the fourth quarter, the company operated 1,196 Michaels stores and 117 Aaron Brothers stores.
Fiscal 2015
For the full year, net sales increased 3.7%, or 5.3% on a constant currency basis, to $4.9 billion. Comparable store sales for fiscal year 2015 were 1.8% or 3.2% on a constant currency basis.
Operating income increased 15.0% to $720.6 million from $626.5 million in fiscal 2014. Excluding $37.8 million of IPO related costs and related party/sponsor fees ("adjusted operating income") in fiscal 2014, operating income increased 8.5% to $720.6 million from adjusted operating income of $664.3 million in fiscal 2014.
As a percent of net sales, operating income increased 70 basis points to 14.7% compared to adjusted operating income of 14.0% of net sales in fiscal 2014. Fiscal 2015 operating income includes a negative impact from the stronger U.S. dollar of $37 million, or 52 basis points, in fiscal 2015.
Interest expense decreased $59.0 million to $139.4 million in fiscal 2015 due to debt pay-down in fiscal 2014 and fiscal 2015.
The effective tax rate was 36.6% compared to 38.1% for fiscal 2014. The lower rate is primarily due to our decision in fiscal 2015 to reinvest the fiscal 2014 and fiscal 2015 earnings of our Canadian subsidiary into our operations outside of the U.S., which is taxed at a lower rate than the U.S.
Net income was $362.9 million, or $1.72 per diluted share, for fiscal 2015. Excluding IPO costs, related party/sponsor fees, and second quarter debt refinancing costs, and reflecting the go forward interest expense based on the company's debt refinancing (adjusted net income) in 2014, net income increased 19.4% from adjusted net income of $303.9 million, or $1.46 per diluted share, in fiscal 2014.
Fiscal 2015 net income includes a negative impact from the stronger U.S. dollar of approximately $22 million, or approximately $0.11 per diluted share. ■