Michaels Stores capital structure stumbles on weak 3Q guidance

Breaking News 19 September

Michaels Stores capital structure stumbles on weak 3Q guidance

The Michaels Companies (Michaels Stores) posted second quarter results yesterday after market close revealing EBITDA gained year-over-year, according to three sources familiar with the matter. However, the bottom-line boost was overshadowed by weak third quarter guidance, two of the sources noted.

Adjusted EBITDA for the period ended 29 July climbed 22.2% YoY, clocking in at USD 65.5m compared to USD 53.6m reported in the prior year quarter, benefitting partly from a continued decline in freight charges and other costs, the sources said.

However, the arts and crafts retailer indicated to investors during the earnings call held today that despite Halloween sales doing well so far, the retailer has seen a slow start to 3Q and is increasing promotions, the first source noted. Consequently, EBITDA for the third quarter is estimated to come in roughly flat even as freight costs improve, the same source continued.

On the back of the earnings call today, the issuer’s USD 1.3bn 7.875% unsecured notes due 2029 ticked lower, last changing hands at 68.75, versus 71.625 yesterday, according to MarketAxess. Its USD 850m 5.25% secured notes due 2028 fell to 81 today for a yield of 10.557%, compared to trades at 83.5 yesterday.

Its USD 1.95bn TLB due 2028 was last quoted 92.125/93.042 compared to 93.675/94.525 yesterday and 92.545/93.455 at the beginning of this month, according to Markit.

The Apollo Global Management-owned retailer’s net sales for the quarter fell 5.1% YoY to USD 978.2m compared to USD 1.03bn booked in the prior year period, the sources said. Comparable store sales fell 5.4% in the second quarter and 6.9% for 1H23, the sources went on.

The borrower finished the quarter with USD 57.4m of cash on hand, they noted.

During the first six months of fiscal 2023, Michaels repurchased USD 39.5m face value of its 7.875% unsecured notes for USD 27.3m in cash, the sources noted. Michaels drew down on a portion of its ABL to fund the buy back, the first source added.

Michaels and Apollo did not respond to requests for comment.

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