Sales Slowdown Clouds Picture for Michaels Stores

Michaels this year expects to post its second straight annual profit, following two years of losses totaling more than $50 million. But now, sales growth at Michaels and at some of its rivals is slowing, which has Wall Street nervous about whether Michaels can maintain its resurgence.

And Michaels said this week that the slowdown is continuing. In reporting results for its fiscal third quarter ended Oct. 31, Michaels said it expects its same-store sales--those of stores open at least a year, and retailing's benchmark indicator--to be "flat to slightly down" through the holiday season.

That's the key reason Michaels' stock has plunged 36% so far in 1998, despite the company's earnings gains and the market's overall rebound. The stock closed Friday at $18.56, down 31 cents for the day, on Nasdaq.

"Investors are certainly viewing this company with caution and waiting to see what happens," said Jason Klein, an analyst at Blackford Securities Corp. in Garden City, N.Y.

Worse, no one seems quite sure what's causing fewer shoppers to buy fake flowers, sequins and other craft supplies, and whether it's just a temporary lull or a long-term shift in consumer habits.

Michaels, whose executives declined to comment for this article, and other retailers "seem to be at a loss themselves" to explain it, Klein said.

Unseasonably warm or wet weather in various regions has been cited, but analysts said the problem is nationwide. Also, Michaels and the others are reporting that the dollar amount of their average sale is holding firm or rising. It's simply that they're getting fewer shoppers.

"It seems like no one really has a good answer for it," said Ozarslan Tangun, an analyst at Southwest Securities Inc. in Dallas.

Michaels operates 502 Michaels stores in 46 states, Canada and Puerto Rico--including more than 75 in California. The company also owns the Aaron Brothers art-supplies chain, which has 77 outlets, mostly in California and elsewhere on the West Coast.

The Michaels stores sell a panoply of crafts, silk and dried flowers, frames and other art materials, hobby and needle-craft items and a seemingly endless variety of goods and supplies aimed at specific seasons and holidays. Some 36,000 items fill the typical store.