Michael's selling???

Handy

MGF, Master Grumble Framer
Joined
Jun 17, 2005
Posts
787
Loc
Manitoba, Canada
ok - so, all you experts out there... - tell us what this means:

IRVING, Texas -- Michaels Stores Inc., an arts and crafts retailer, put itself up for sale yesterday and said its longtime president and chief executive, R. Michael Rouleau, is retiring. Its shares rose nearly 13 percent.
Michaels said its decision to put itself up for sale was part of its broader exploration of its strategic options.
The retailer said it would leave the CEO post vacant and named Jeffrey N. Boyer and Gregory A. Sandfort as co-presidents to succeed Rouleau in that position.
Both will report to chairman Charles J. Wyly Jr. His brother Sam is vice chairman. The Wylys are Texas financiers who took control of Michaels in 1984 and own more than 8 percent of the firm.
The company owns and operates 896 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores, 11 Recollections stores, and four Star Wholesale operations.
Rouleau, a former Lowe's Cos. executive, has been CEO since 1996. Michaels was losing money, but within a few years resumed aggressive expansion and bought a wholesale decorators' company. More recently, it opened stores targeting scrapbooking enthusiasts.
In fiscal 2005, which ended Jan. 28, profit fell 35 percent, to $131 million, despite an 8 percent increase in revenue, to $3.68 billion. Sales at stores open at least a year rose 3.6 percent from the previous year.
© Copyright 2006 Globe Newspaper Company.
 
Before anyone starts thinking that Michaels is in some kind of trouble, here is the Reuters story from this morning's NY Times:
(The bold emphases are mine.)

Michaels Stores May Put Itself Up for Sale

By REUTERS
Published: March 21, 2006

By Reuters

The arts and crafts retailer Michaels Stores said yesterday that it might put itself up for sale and that its chief executive was retiring, sending shares soaring almost 13 percent.

Shares rose after the company said it was exploring strategic alternatives to increase shareholder value and announced a series of management changes, including the departure of its chief executive, R. Michael Rouleau.

"Our decision to explore strategic alternatives is driven by a commitment," the chairman, Charles J. Wyly Jr., said in a statement, "to position the company to expand market share, improve customer service and deliver stronger performance."

Mr. Wyly and his brother, Samuel E. Wyly, a vice chairman, are both in their 70's and may have pushed for the change as they look to increase the share price and spur rapid change at the retailer, two analysts said.

The Wyly brothers owned 7.9 percent of the company's outstanding stock, according to a 10-Q securities filing for the quarter ended Oct. 29, 2005.

An analyst with Wedbush Morgan Securities, Joan Storms, said that the board thought the company was undervalued and that Mr. Rouleau had done a "great job with operations, but maybe taking it to the next level with the merchandising and the marketing is a job for someone else."

A company representative declined to comment further.

Shares closed up $4.39, or nearly 13 percent, at $38.35. Mr. Rouleau, 67, will step down, and the chief financial officer, Jeffrey N. Boyer, and the general merchandise manager, Gregory A. Sandfort, will act as co-presidents, the company said. They will assume the duties of chief executive; Mr. Boyer will remain chief financial officer. Mr. Sandfort will also become chief operating officer.

Michaels, based in Irving, Tex., has grown to a market value of about $4.5 billion this year from some $310 million a decade ago. The company said it had no debt and has more than $450 million in cash and cash equivalents.


This indicates to me that they are well positioned to make some changes to their operations, perhaps incorporating the very elements of customer service and in-store experience that we depend on to distinguish our independent operations from what we like to consider the "schlocky" approach of the BBs. Maybe they will rethink their couponing approach to marketing, but if they upscale the customer experience and really train their staff and find a way to make the BB experience more satisfying, we could have a real challenge on our hands.
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Rick
 
Quick, somebody tell Warren not to sign a check, because this is just the kind of business he likes to buy. That is a dominate company in their niche with experienced staff and no debt and a real easy way to vertically integrate with his frame distribution network. Just say "NO" Warren!!!
 
From the newswire, a few minutes ago...

SAN FRANCISCO (Reuters) - Arts and crafts retailer Michaels Stores Inc. (MIK.N: Quote, Profile, Research) on Friday agreed to sell itself to two private equity groups for more than $6 billion in a deal that attracted many of the world's biggest buyout firms.

The company said Bain Capital and The Blackstone Group would pay $44 per share in cash under the transaction expected to close by the end of the calendar year following regulatory review and shareholder approval.

Michael's stock closed at $41.24, up $3.24 a share on Friday.

The purchase price reflects a premium of nearly 30 percent to the closing price of the stock prior to the company's announcement in March that it would put itself up for sale. At the time Michaels' share price was stuck in the low-$30 range.


The sale attracted a number of private equity firms attracted to the company's market share, cash flow, zero debt excluding leases, and its specialty retail niche.

Private equity funds, which have been buying retail assets in the past year, typically look to make a profit by purchasing a company or controlling stake, restructuring the business, cutting costs, and then selling it.

They finance buyouts using a little of their own cash and leveraging the rest with debt. Buyout firms seek strong cash flows to pay down the debt used to finance the deals.

Bain Capital and Blackstone will own equal stakes in the company that currently operates 900 Michaels stores in the United States and Canada and bills itself as the world's largest specialty arts and crafts retailer.

"Our deep experience in the retail sector reinforces our conviction that Michaels has the best store locations, a broad and attractive assortment of products for crafters of all ages, and a sustainable competitive advantage thanks to smart investments in systems and infrastructure. We look forward to helping Michaels achieve its full long-term potential," Matt Levin, a managing director at Bain, said in a statement.
BB&T Capital Markets puts Michael's estimated three-year earnings-per-share growth at 20 percent.

The deal comes amid an internal stock-options probe at Michaels and after the U.S. Securities and Exchange Commission sent a letter asking the company to preserve documents related to stock option grants.

Federal prosecutors, the SEC and the Internal Revenue Service are investigating dozens of companies over possible manipulation of the grant dates and exercise prices of stock options to boost their value to the executives who received them.

But analysts have said the options probe would not affect the sale of the company, since much of the investigation is focused mainly on the period between 1990 to 2001.

© Reuters 2006. All Rights Reserved.
 
If I was Warren I would have been the first in line.
what an easy way to bring your moulding to the people. They have been linked together in the past, as well as linked with Joann's so why would they not do this? This is a direct line to the customer. This would cut out the middle man...would this be the straw?

PL
 
"has grown to a market value of about $4.5 billion this year"

got to be a goood way to step in on that(I could really use a hefty raise!!!)....If only I knew how
 
I think Warren is rethinking the way this industry has reacted to his heavy-handing of the LJ-JAnnes deal. This industry does not react in the same fasion as other industries because of the very nature of the overwhelming population of 1-3 person stores.

This historically has been a stable growth industry that the "big boys" have had a difficult time to control.

$4.5 billion sounds huge... but I would be more interested in seeing what percent of that was framing.

If you have ever been in a Michael's during one of the 6 "seasons", there are dang few people crowding the framing table.. but long lines of full baskets being pushed through the checkstands.

I'm not going to belittle the impact of Michael's, but I doubt seriously that the average frame department does $500,000 a year... And THAT is what Warren/LJ would be looking at.

Michael's is NOT a clear clean business that is easy to understand. It is a conglomerate of hobbies and framing and art supplies and floral design and . . . and those kinds of muddy businesses Warren stays clear of.

Notice, Warren didn't buy JoAnne's... he bought the supplier that at the time was the major supplier to the entire framing industry.
 
Originally posted by BILL WARD:
got to be a goood way to step in on that(I could really use a hefty raise!!!)....If only I knew how
That is easy Bill:

Increase your store square footage by 8,000% and start stocking 127,000 SKUs of cash and carry. Learn 23 diverse hobbies completely enough to competently order, stock and market them and you too can take home the big bucks and spend it on your ulsers. :D
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Hey Baer-When you doubt that the average framing dept would do $500K annually, you would be correct. It's more like $750K

For all those that hated M's before, they better buy some Tum's, now. Expect a look late Q4 or Q1 '07 that will irritate most
 
Yeah, Baer, I know for a fact the newer concept Michael's stores were expected to be million dollar stores. I worked in one and we were headed that way, don't know if they ever reached the goal or not. I don't imagine they expected the smaller older stores to produce that much.

As to what percentage of the store is framing it is not all that much.....when I was there I seem to remember 10% of biz.
 
In a really uninformed and no knowledge type comment could it be possible that the New managment thinking at Michaels might reconsider the Framing segment of the operation ( is 10% much of a money maker?) and decide to down grade it or even drop it?

I remember Ben Franklins having some of the same problems and in the end they closed up shop. But to my thinking they seemed to be doing OK and they were located just 2 blocks from my shop so I watched as closely as I could.

I also remember Sam Walton having a chain of needle work shops that we thought were a threat and they were closed .We later found out they were operated because Sam's Wife like the craft. But when they didn't pay their own way they were history.

Could some of this be in the for coming?
BUDDY
 
well, our new Michael's store is opening in August from what I've been told.

First though, we were told they would never come here because the population isn't high enough. We've only got a trading area of 40,000.

It does appear to be smaller than the ones in Winnipeg, and we've heard from one of our sources that this one may or may NOT have a framing dept. I'm not going to hold my breath on that one - but if it were true I'd feel a whole lot better!!~

there may be some tough times coming ahead for us framers here - and although I dont' much like some of our competition, I don't wish for anyone (including us) to lose our business because of the big M.
 
Buddy, I should qualify my comments are based on 6 years ago when I worked there. They certainly were on their way to having million dollar frameshops and as busy as they were when I worked there that was before they routinely offered 50% off the full order. They were also in the process of doing all the fancy mat cuts etc from their warehouses. Their goal was to speed up production so they could take in even more. That was the hope with the 50% off entire order roll out. Somebody in Michael's executives was quoted as saying thay want "ALL" the business. Not sure if it worked or not, the frameshops might be a bigger chunk of the pie now.....
 
When I was there a year ago, the GOAL of framing sales was 10%, but few stores actually reached that on a regular basis and I actually saw a declining trend there before I left. I never saw any in our district surpass it. And that was even with the 50-60-70% off sales, which I understand they're thinking of discontinuing.
 
Bob Carter: Hey Baer-When you doubt that the average framing dept would do $500K annually, you would be correct. It's more like $750K.

Bob, where did you get that figure? Our framing dept was in the top 12% of the company and I'm looking at a report right now that was run the day I left there that says its last year's YTD (Christmas eve) custom framing sales were less than $300k.
 
Just for a comparison: I was the frame shop dept head for Joann's in the #5 frame shop with sales of $452K in 2005. The number 1 store did $515K that same year (if I remember correctly.)We had all seen a steady increase of over 10% each year from 2003 - 2005; but in 2006 a decrease of almost 10% occured which was partly attributed to Michael's stronger 50-60-70 sales strategy. Joanns then started wanting more "factory/precut" formula designing so they could use less skilled staff.

After all, "anyone can do framing" as I was told repeatedly.. "we'll get the receiving team to fit & finish..." amazing what happen to my COG's and payroll.
 
Bob, I too would like to know your source. When I refer to the "framing dept." I do not mean the art supply. Just what a frame shop would carry, [custom and ready mades.]

My thought was in the 8-10% of the store average... and took the $4.5 divided by 600 store....

and came out close to what Val is showing.

Now the BIG question comes with "what were the COGs?" And shipping ready cut stuff from a central location can out cost the savings of the centralization of labor.

Which is why there are now "Mini sorts" for FedEx instead of just ship everything to Memphis. Silly to send 3,800lbs of packages from Portland to Memphis to Seattle... when a short-bob can run it in half the time, flip and bring back the versa visa in the same half shift.
 
I am ,as I said, way out of the loop as far as inside info on these big shops spread sheets. But isn't it amazing or maybe strange that those who say they are or where have such varied reports?

IMO there is a lot of difference between 750K and little as 300K ( be it that the difference would make most very happy. LOL)

I find it interesting that Joann's report seemed to be envious of Michael's and Michael's as remembered by Kathy was crying for more business, while MnSue said she had seen the best at 515k but it was decreasing by 10% and Joann's might have attributed that to Michael's successes.

When I worked for GM and contract time came around the union was always told of how GM was losing money .And that ( unlike now) was when they were among the top profit making companies in the world.

I also seemed to remember a post that said that the offer of the sale of Michael's was a ploy to raise the stock prices and not for real.

Seems to me that with all the Bluffing and propaganda no one is really sure where these Conglomerates really are.Does the name Enpro draw any similar comparisons to mind?LOL
BUDDY
 
Hey Baer-Remember that favorite quote of mine about "Without data, we're just a bunch of jerks with opinions"?

Well, my "opinion" comes from no less than the 2005 Annual Report which states that Framing represents 17% of store volume. Average store volume was $4.1 million

And, Val, while I have never worked for Michael's I can say with great certainty that at $300K, your store might be struggling to stay in the bottom 12%. No harm meant, but the numbers are the numbers

Kathy's assesment is much more typical

[ 07-01-2006, 05:53 PM: Message edited by: Bob Carter ]
 
I think the numbers have to reflect what part of the country you are in. When I left Michael's 6 years ago our shop had tipped the 500k mark easy peasy. We were expected to double that and I was told all the new prototype stores would be expected to do the same. We live in the big city. By contrast, the older smaller stores were not projected to do nearly that much. At the time their new concept was to streamline all aspects. As MNSue said, they eliminted the need for skill(that is when I knew it was time for me to go).

Buddy, they weren't crying for more business, they were planning for it. At the time I remember thinking it would be a blast to push through a million dollars worth of business in a year. I came to my senses though........
 
Yeah, Val, those numbers seem really small for a Michael's shop. In fact, I moved from a dinky store doing that much because I wanted to be with the busier store. Unless you are in a huge metropolis I bet those numbers are respectable. Maybe you are looking at zone figures....I used to get zone P&L's so I could see how I stacked up by district.
 
Oops. Read the wrong report. Boy is my face red.
Found the correct one and its 574K. that's the figure for sales that included Michael's mouldings. Would be more if you included sales of framing supplies (glass, matbd, foamcore), ready-made frames and mats, etc. Depending on who's running those reports, they can have different totals, and not really reflect the actual Custom Framing Sales. And the top 12% figure was an average one that was told to me by my store mgr. Now I will consider the source.

My apologies (especially to you, Bob, how dare I question you) and now I will shut up and listen.
 
And the waste!! Their COG must've been outrageous, because of the mistakes made by those off-site warehouses, and we weren't allowed to "fix" anything, just re-order and hope the next one was better. Often I re-ordered the same frame or mat 3 or 4 times before it came in right, or not terribly dinged up. We were not an atypical framing department there. Keep/use no glass/matbd/oops frames, scraps, throw it all away. We could be fired if we did.That just killed me! Plus, ONLY UV glass, acid-free foamboard, matting, etc.

Explanation: That store was only 3 years old, and halfway through the first year, the framing dept. got such a bad reputation in the community, not a huge metropolis, that sales dropped dramatically and the department was considered "broken". I came in on the second-and-a-half year, I was hired to "fix it", as an experienced framer, and it took a good year to gain the reputation of good quality and the sales went back up. Maybe the top 12% figure was the "difference in sales compared to last year" figure. I know I had some months where my comp figure were up 497%+ from the previous year's!

The 300k figure I gave you was for Michael's mouldings-only frame orders. Not orders being fitted into ready-mades, customer's frames, mats-only, sales of ready-mades, matbd, glass,etc. It was from a report designed to show the sales ability of the department, for custom framing sales only. The 547k was for all framing orders. It did not include sales of framing supplies. Big difference, and not the same figures they want the public/share holders to see.
 
Thanks Bob, I didn't doubt you ever, I just wanted to know the source...

I need to learn how to read my annual reports better. Self taught sometimes sucks.

But I did like the 11% bump in my stock.... does this mean I'm getting cashed out... or just new management?
 
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