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Check Out Michaels' (MIK) Probability to Beat Earnings in Q4

Zacks Equity Research

The Michaels Companies, Inc. MIK is slated to report fourth-quarter fiscal 2018 results on Mar 19, before the opening bell.

Notably, the company delivered positive earnings surprise in three of the last four quarters, the average beat being 6.4%.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.43, reflecting more than 20% growth year over year. Estimates remained unchanged in the past 30 days. For revenues, the consensus mark stands at $1,787 million, mirroring a 1.2% increase from the year-ago period.

The Michaels Companies, Inc. Price and EPS Surprise

The Michaels Companies, Inc. Price and EPS Surprise | The Michaels Companies, Inc. Quote

What the Zacks Model Say

Our proven model conclusively shows that Michaels is likely to beat earnings estimates in the fiscal fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Michaels has an Earnings ESP of +0.70% and a Zacks Rank #3.

Factors at Play

Michaels is focused on integrating e-commerce and in-store operations to enhance the omni-channel experience. Evidently, the company is witnessing robust e-commerce sales backed by an enhanced ability to search and expanded assortments. Higher traffic and conversion rates are also aiding its performance. Michaels’ focus on improving capabilities like “Buy Online Pick-up In Store (BOPIS)” and ship-from-store is an added positive.

Additionally, the company is remodeling stores to feature flexible merchandising areas (or FMA), where seasonal and other merchandise are showcased providing better access to customers. Moreover, it is putting together additional data analytics into its supply chain, inventory and marketing programs, which should help expand operating margins.

Solid top-line and comparable-store sales (comps) growth, efficient expense management and the impact of the ongoing share repurchase program have been driving the company’s performance. This momentum is likely to continue in the fiscal fourth quarter.

However, Michaels has been witnessing strained margins due to higher SG&A expenses and other costs. Rise in distribution-related costs and higher inventory reserves dented the gross margin in the fiscal third quarter. Lower gross margin coupled with higher SG&A expenses negatively impacted the operating margin, which remains a concern for the to-be-reported quarter.

Q4 Guidance

In January 2019, Michaels came out with the holiday sales numbers and updated its fourth-quarter guidance. Comps slipped 0.2% for the nine-week period (ending Jan 5, 2019). On a calendar-shift basis, comps inched up 2.3%. Management anticipates fourth-quarter comps to be near the lower end of its prior view of down 0.5% to up 0.5%. This forecast includes an unfavorable impact of 160-180 basis points due to the calendar shift.

Moreover, management envisions adjusted earnings to come close to the lower end of the guided range of $1.42-$1.47 per share.

Further, management’s decision to shut down all of its 36 Pat Catan’s stores in fourth-quarter fiscal 2018 might weigh on the company’s performance. The company had decided to close these stores as the Pat Catan’s retail unit failed to overcome challenges in the industry. Nonetheless, the company plans to rebrand and reopen 12 of these stores under its namesake brand in fiscal 2019. This should slightly offset the loss of sales from these stores in the years ahead.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Darden Restaurants, Inc. DRI has an Earnings ESP of +1.46% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

PVH Corp. PVH has an Earnings ESP of +1.14% and a Zacks Rank #2.

Chipotle Mexican Grill, Inc. CMG has an Earnings ESP of +5.69% and a Zacks Rank #3.

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