Michaels to close most Aaron Brothers stores in brand repositioning

3/22/2018
The Michaels Companies is pulling the plug on its freestanding stores devoted to framing, wall art and other art supplies.

The retailer on Thursday announced that, following a strategic review of Aaron Brothers, it plans to close all 94 of its 97 full-size Aaron Brothers stores and reposition the brand as a “store-within-a-store” concept providing custom framing services in all Michaels store locations. Michaels will also rebrand Framerspointe.com, a company-owned online custom framing website, as AaronBrothers.com.

In fiscal 2017, Aaron Brothers’ net sales totaled approximately $110 million and had no material impact on the company’s operating income, according to Michaels. The company expects the after-tax cost of implementing these changes will be in the range of $37 million to $42 million, with the vast majority of the cost recognized in the first quarter of fiscal 2018.

Neil Saunders, managing director of GlobalData Retail, said repositioning Aaron Brothers stores as a shop-in-shop concept and online service is both fiscally and operationally sound. He said the brand has been suffering from the rise of online framing services, which has reduced its profitability.

“It makes no real sense for Michaels to invest time and effort into a brand that has little potential as a stand-alone entity,” Saunders said. For more analysis, click here.

Michaels Cos. on Thursday also posted fourth-quarter sales that topped the Street and offered guidance for fiscal 2018 that was below estimates. Net income totaled $202.9 million, or $1.11 a share, in the quarter ended Feb. 3 (which included an extra week), up from $197.4 million, or 95 cents a share, in the year-earlier period. Adjusted per-share earnings came to $1.19, in line with estimates.

Sales rose to $1.89 billion from $1.75 billion, ahead of analysts’ estimates of $1.879 billion. Same-store sales rose 2.5%, also more than expected.

For the full year, Michaels’ net sales increased 3.2% to $5.36 billion. Same-store sales inched up 0.9%.

Chuck Rubin, Michaels chairman and CEO, said in fiscal 2018 the company plans to reinvest some of the benefits of tax reform to accelerate planned investments to drive future sales and earnings growth.

“We will invest to build a foundation to bring ecommerce fulfillment in-house; offer a more seamless omnichannel experience for customers; convert approximately 235 stores to our FMA format to create a more consistent, relevant layout; and strengthen our data analytic capabilities,” stated Rubin. “While this acceleration will result in temporarily elevated levels of operating expense in fiscal 2018, I am confident these investments will position us to increase our market share and expand our leadership in the arts and crafts channel.”

For all of fiscal 2018, the company is expecting sales of $5.21 billion to $5.29 billion, and adjusted EPS of $2.19 to $2.32. Analysts had expected sales of $5.36 billion and EPS of $2.59.

At the end of fiscal 2017, the company operated 1,238 Michaels stores, 97 Aaron Brothers stores, and 36 Pat Catan’s stores.
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