Should Michaels Rethink Its Store Expansion Strategy?
The Michaels Companies' (NASDAQ: MIK) third-quarter earnings, released on Dec. 5, revealed few signs of progress in the arts and crafts retailer's long-awaited turnaround. Michaels reported a 4% year-over-year sales decline to $1.2 billion, and comparable sales slumped by 2.2%. The company also booked an impairment charge of $31 million against goodwill associated with its faltering wholesale business.
Recently Michaels has made a compelling argument that it can revive sales under new CEO Mark Crosby by focusing on "makers," that is, the core crafts hobbyists who are the company's most loyal customers. Crosby has instituted a number of tactical measures under this strategy, which include updating the company's loyalty program, increasing the experiential aspect of shopping at Michaels, and emphasizing products in makers' highest-demand categories of "art, tools and technology, and jewelry." I discussed many of these measures in more detail with my Fool.com colleague Nick Sciple in a Motley Fool Industry Focus podcast recorded in October.
A makers-driven renaissance may take time to execute properly, and in the meantime Michaels' market position will remain vulnerable. According to Cosby, the $36 billion arts and crafts industry is growing, albeit slowly, and by Cosby's own admission in the company's earnings conference call, Michaels' declining sales confirm that its share of the market is shrinking. Market share losses, anemic income under generally accepted accounting principles (GAAP), declining comparable sales, and a high debt load have pressured this consumer discretionary investment since its June 2014 IPO:
Source Fool.com
