Michaels declines in return to public markets

Associated Press |

NEW YORK (AP) — Michaels had a tepid return to the stock market Friday, its shares going back and forth between small gains and declines.

The arts and crafts store operator's shares were up 19 cents to $17.22 in midday trading on the Nasdaq, after falling a little over 1 percent earlier.

The lackluster response shows investors are wary of retailing and the fragmented $30 billion arts and crafts industry. The last IPO from a major retailer was The Container Store Group Inc., which made its debut late last year. Its shares have fallen 19 percent and closed at $29.41 Thursday.

The IPO comes amid a market rush. It's the third-busiest week for IPOs since 2000, according to IPO investment adviser Renaissance Capital.

Michaels Cos. Inc., which also runs the Aaron Brothers chain, priced an initial public offering of 27.8 million shares at $17 each, at the low end of its predicted range.

The Irving, Texas, company raised $472 million from the offering.

Private equity firms Bain Capital LLC and The Blackstone Group LP bought Michaels in a $6 billion leveraged buyout in 2006.

Michaels' IPO was delayed two years after its then-CEO John Menzer resigned after a stroke.

Michaels, which was in a sweet spot during the Great Recession when homemade goods gained new currency as people tried to save money, has faced increasingly tough competition. That's coming from discounters — Wal-Mart Stores Inc., for example, recently brought back its fabric offerings — and online king Amazon.com.

Michaels has been late to the online party, launching its e-commerce business only this year.

In an interview with The Associated Press on Friday, Chuck Rubin, who was appointed CEO of Michaels in March 2013, dismissed the market's response. He said he's focusing on long-term opportunities, and that investors will be rewarded.

"This is a marathon, not a sprint," he added.

While there's not a lot of data available on the arts and crafts market, he said Michaels' sales have been growing faster than the industry's annual rate of low-single-digit increases, and it's been taking market share away from other traditional chains, though he declined to give names.

Rubin shrugged off competition from Amazon, saying e-commerce is not as much of a threat as it is to other industries.

"When you sell pieces and parts, we know customers want to come to the brick and mortar stores to see how things come together," he said.

He also noted the average price for an arts and crafts item is $3. "There's no easy showrooming in this industry," he added.

The big opportunity is personalization and taking advantage of social media sites like Pinterest, he says. Michaels wants to focus not only on the crafts enthusiasts but novices as well. Last year, more than 800,000 customers took classes at Michaels stores.

The company, founded in 1973 with one small store in Dallas, said in a regulatory filing that North America could potentially grow to 1,500 Michaels stores. It currently operates 1,263 Michaels stores and 118 Aaron Brothers stores.

Its original debut as a public company came in 2001 on the New York Stock Exchange. It's using the same ticker "MIK," but is now trading on the Nasdaq.

For its latest fiscal year, which ended on Feb. 1, sales rose nearly 4 percent to $4.6 billion. Net income rose to $243 million from $200 million.

The arts and crafts chain plans to use the IPO's proceeds to pay down its debt. It had $3.7 billion of debt as of May 3.

AP Business Reporter Michelle Chapman contributed to this report in New York.

Follow Anne D'Innocenzio at http://www.Twitter.com/adinnocenzio

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer


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