REAL ESTATE

Michaels to shutter one of its retail store brands

BY Marianne Wilson

The Michaels Companies is closing down a regional retailer it acquired three years ago.

The arts-and-crafts giant on Wednesday announced that it will close all of its Pat Catan’s stores in the fourth quarter of fiscal 2018. The retailer plans to rebrand up to 12 of the 36 closed stores and reopen them under the Michaels banner.

The company also updated its fourth quarter guidance to the low end of its forecast, citing “more volatility in consumer shopping behavior” so far in January than it initially expected.

In 2016, Michaels acquired Lamrite West, a privately-held company based in Strongsville, Ohio, with a wholesale division, a small sourcing office in China and a small retail chain called Pat Catan’s Arts & Crafts Stores, which was operated as outlets for the wholesale business.

“Over the last three years, we have delivered value through the significant expansion of our China-based sourcing team and the growth of our wholesale business,” stated Chuck Rubin, chairman and CEO, Michaels. “However, the Pat Catan’s retail business has struggled in the face of industry headwinds.”

Rubin noted that the decision to close Pat Catan’s stores followed a comprehensive review. Michaels will continue to maintain a support center and distribution center in Strongsville to support its growing wholesale business.

“We believe these changes will provide more value for customers and shareholders by enabling us to leverage a more consistent merchandise assortment and eliminate duplicative retail operating expenses,” Rubin said.

Pat Catan’s fiscal 2018 net sales are projected to be approximately $111 million with no material impact on the consolidated company’s adjusted operating income, excluding the impact of any restructuring charges related to the Pat Catan’s store closures. Michaels expects the one-time after-tax cost of implementing related to the changes will be in the range of $44 million to $48 million, consisting primarily of costs associated with the termination of the remaining lease obligations, the write-off of fixed assets, costs associated with liquidation, and employee-related expenses. It expects the one-time after-tax cash benefit of the changes will be in the range of $20 million to $25 million in fiscal 2019.

Michaels updated its guidance, saying it now expects comparable store sales for the fourth quarter will be near the lower end of its previously provided guidance range of -0.5% to 0.5%, which includes an estimated 160-180 basis points of negative impact from the calendar shift, and adjusted diluted earnings per common share for the fourth quarter will be near the lower end of our previously provided guidance of $1.42 and $1.47, excluding any restructuring charges related to the Pat Catan’s store closures.

The Michaels Companies owns and operates more than 1,200 stores in 49 states and Canada under the brands Michaels, Aaron Brothers and Pat Catan’s.

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