Spekulatius Posted January 21, 2020 Share Posted January 21, 2020 I started to look at this. I think they were bought out by private equity and then IPO’d again. They have been consolidating the arts and craft store category (Aaron). lots of debt from private equity heritage (~2.6B), but appears that it can be supported by EBITDA (~$800M). http://www.rocketfinancial.com/Financials.aspx?fID=264862&p=2&pw=8740404&rID=2 Recent negative sales trends seem to have wrecked the stock. My wife likes these stores aNd thinks that Amazon can’t really compete easily because a lot of items are low priced and need to be felt and matched to other items. So, it’s not easy to shop this only. It’s appears that management want to instill more of a sales culture and also foster community and demand through classes/activities. Seems to make sense to me. No position yet, I am just bouncing this off. I think it is a better bet than GME or TLRD , because the business is more defensible. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted January 22, 2020 Share Posted January 22, 2020 I've also looked at this and am starting to DD it. One comment that was made to me is that a lot of Moms go there to get supplies for their children's school projects. Sometimes they need those supplies 1-2 days OR even the night before the project is due. Thus, there is some protection from online sellers. Also, when people are wandering around the store, they sometimes see items that they didn't know they needed. Lots of impulse purchasing also. Link to comment Share on other sites More sharing options...
Okonomen Posted January 22, 2020 Share Posted January 22, 2020 I see it as a clear value trap just like with gamestop and bed bath & beyond. I would not invest no matter the price as I think they will eventuelly go bankrupt. AMZN can easily compete in a lot of their produt categories and so can WMT and other B&M's Link to comment Share on other sites More sharing options...
glorysk87 Posted January 22, 2020 Share Posted January 22, 2020 One key question to ask is how much of their EBITDA is driven by the framing business, and how quickly is that share being eaten by online competitors like Framebridge Link to comment Share on other sites More sharing options...
Gregmal Posted January 22, 2020 Share Posted January 22, 2020 I think Children's Place is a better comparison in terms of the business....but the balance sheet is awful. Link to comment Share on other sites More sharing options...
Spekulatius Posted January 23, 2020 Author Share Posted January 23, 2020 I think Children's Place is a better comparison in terms of the business....but the balance sheet is awful. I agree on the balance sheet, it’s keeping me away from it so far. GME is clearly a dying business, which is not the case with MIK, imo. Link to comment Share on other sites More sharing options...
K2SO Posted January 27, 2020 Share Posted January 27, 2020 I think it's quite well insulated from Amazon, for the reasons outlined above. They are also trying to create a community around their stores (classes, kids parties, etc) which adds to this defensiveness. Remember a few years ago when scrapbooking was all the rage? Michael's was a prime beneficiary. It will only take another fad like this to drive some really good comps. And this is the kind of thing that I believe can happen in a softer economy when people go out less often and entertain themselves at home. That may also be a time when people are more inclined to make items rather than buy them. So there's a counter-cyclical element here. And finally, it's cheap as anything. P/E of 3.5x. Debt is the issue here. Net debt/EBITDA is 5.8x and even though there is still FCF after debt repayment, I'm concerned that this may impair management's ability to invest in their online strategy and in keeping stores fresh. For now they own the category but their position could become vulnerable. The retail downward spiral can happen very quickly and I don't know how much time Michael's has to turn things around. From my perspective, I think it's worth a gamble. Link to comment Share on other sites More sharing options...
voyager Posted January 29, 2020 Share Posted January 29, 2020 One key question to ask is how much of their EBITDA is driven by the framing business, and how quickly is that share being eaten by online competitors like Framebridge All of the online guys are tiny, like less than 5% of the entire category combined. Michael's has ~20% of the category alone. Link to comment Share on other sites More sharing options...
ander Posted January 29, 2020 Share Posted January 29, 2020 I did a lot of research on the business a few years back and do think it is insulated from Amazon and other competitors, but I could not get comfortable with the leverage. I think there's too high of a chance that equity gets wiped if there is a recession / rates go up too much (they had lot of floating rate debt last I checked - some of which was hedged but that only helps for a little bit). So for me, while I agree with K2SO, it was too risky. I think it's quite well insulated from Amazon, for the reasons outlined above. They are also trying to create a community around their stores (classes, kids parties, etc) which adds to this defensiveness. Remember a few years ago when scrapbooking was all the rage? Michael's was a prime beneficiary. It will only take another fad like this to drive some really good comps. And this is the kind of thing that I believe can happen in a softer economy when people go out less often and entertain themselves at home. That may also be a time when people are more inclined to make items rather than buy them. So there's a counter-cyclical element here. And finally, it's cheap as anything. P/E of 3.5x. Debt is the issue here. Net debt/EBITDA is 5.8x and even though there is still FCF after debt repayment, I'm concerned that this may impair management's ability to invest in their online strategy and in keeping stores fresh. For now they own the category but their position could become vulnerable. The retail downward spiral can happen very quickly and I don't know how much time Michael's has to turn things around. From my perspective, I think it's worth a gamble. Link to comment Share on other sites More sharing options...
rogermunibond Posted January 29, 2020 Share Posted January 29, 2020 MIK competitors are all private Joanns, Hobby Lobby, AC Moore just closed all there stores. Online - ETSY sellers have a lot of the same stuff that MIK provides. Without the couponing and discounts MIK probably gets no business. Link to comment Share on other sites More sharing options...
mbreject Posted January 29, 2020 Share Posted January 29, 2020 I think Michaels is the store sellers on Etsy go to buy their supplies-at least on the first purchase. On future purchases(where they already know the exact items they want,) it might make more sense to buy online. Link to comment Share on other sites More sharing options...
rogermunibond Posted January 30, 2020 Share Posted January 30, 2020 Michaels carries only a fraction of the jewelry making, colors, beads, accessories etc that are available. For crafters there are literally millions of beads, finding, etc that can be used for jewelry and crafting. Link to comment Share on other sites More sharing options...
Mephistopheles Posted January 30, 2020 Share Posted January 30, 2020 Anecdotal but I had a negative experience with Michael's recently, and think their inventory management and customer service are awful. I live in NYC and wanted to send a picture frame for a friend in Chicago. Being a value investor I don't automatically navigate to Amazon and instead like to research, read reviews and price compare online. Finally found a frame I wanted for a great price online at Michaels.com and placed the order to be shipped to Chicago. Got the confirmation email and all was good. 15 minutes later I received an email only saying "we regret to inform you that your order has been cancelled". So I chatted online with customer service to figure out what's going on. Apparently, this question went beyond the online person's scope , so they suggested I call in. Frustrated, I called in and spoke to another person and had the same question of my order getting cancelled. I was put on hold for maybe 10-15 minutes and she finally got back to me and said that the online browser didn't record proper inventory and they are out of stock. Then she offered me another frame at approx the same price but this one had a "bulk shipping fee". I asked her why am I being charged the shipping fee when I wasn't charged online. She said the frame for the online order qualified for no shipping but not the one that she is offering over the phone (even though it was the same size and price). The bulk shipping fee was pricey so I told her I will just order for free pickup in Chicago and have my friend pick it up. Again, I was put on hold, for another 20 minutes, as she called the Chicago store to see if this frame was in stock. I grew even more frustrated. She came back on the phone and said that the store has 2 frames available but they're BOTH damaged and offered for me to buy them with a discount due to the damage. I said no thank you, but asked if I can get the shipping waived for ordering over the phone given the inconvenience and damaged frames. She said no. I asked to speak with a supervisor. She said supervisors don't speak with customers but she can go ask someone if the shipping can be waived. Another 10 minutes of holding and she came back and said the supervisor won't waive the fee, and re-iterated that I can buy the damaged frames at a discount. Then she randomly offered for me to pick up the frame in a NYC store. I said, this makes no sense since I am trying to send it to Chicago. At this point I had it and said, ok I am just going to order from Amazon. Surprisingly she said "ok let me go ask another supervisor if he can do something". Another 10 minutes. She comes back on and says: "you already have free shipping for this item since it is >$40 but the fee you are being charged is a 'bulk shipping fee' since it is a large item and needs extra padding for protection". I said that's fine but I'd like that waived. She said it can't be waived since the product NEEDS the extra padding for your protection. I said, yes I understand that, I'm not asking you to NOT protect the product! I am asking to waive the >$10 fee. Again she said that's impossible since she cannot ship the package without the extra padding....... An hour after first placing my order online, I hung up, enormously frustrated, and just ordered from Amazon. My friend was happy with his gift and life went on. Link to comment Share on other sites More sharing options...
hyten1 Posted March 4, 2021 Share Posted March 4, 2021 anyone bum about the MIK deal? taking private right before earnings, initially earning call was cancel (suspicious) now its back on? trading at 7ish forward PE, sure covid helped, but their business is doing well. Etsy is value 5x MIK, if MIK provide an alternative to etsy (which makes perfect sense), given current environment I don't see why this thing can't be worth more than $22. anyone follow and own this? Link to comment Share on other sites More sharing options...
K2SO Posted March 4, 2021 Share Posted March 4, 2021 I own it and am not upset about being taken out. I don't see MIK as an ETSY comparable at all. I thought it was a value retail play that would be insulated from Amazon. It has a nice niche but is in no way a top retailer as the shopping experience there can be mixed. New management seems strong and I would have liked to see where they took the company, including expanding online presence, improving stores, etc. But frankly I had just lost patience with it (have been holding for several years) and happy to book a small profit on it. Link to comment Share on other sites More sharing options...
hyten1 Posted March 4, 2021 Share Posted March 4, 2021 k2so, i agree mik currently is not a etsy competitor, but they could be, given their customer base, given the current environment i am curious how the market would react if mik announce they are allowing their makers to sell their product on mik's platform? etsy is trading at 25bil. i just found this whole thing shady, take private announce right before earning, they obviously know they will beat expectation, and no conference call. we would never know how the market would of reacted to the earnings beat. I own it and am not upset about being taken out. I don't see MIK as an ETSY comparable at all. I thought it was a value retail play that would be insulated from Amazon. It has a nice niche but is in no way a top retailer as the shopping experience there can be mixed. New management seems strong and I would have liked to see where they took the company, including expanding online presence, improving stores, etc. But frankly I had just lost patience with it (have been holding for several years) and happy to book a small profit on it. Link to comment Share on other sites More sharing options...
5xEBITDA Posted March 4, 2021 Share Posted March 4, 2021 Look on the bright side, you will be able to trade Jo-Ann after it IPOs next week Link to comment Share on other sites More sharing options...
hyten1 Posted March 4, 2021 Share Posted March 4, 2021 haha if its at 6x forward multiple like MIK then count me in. Look on the bright side, you will be able to trade Jo-Ann after it IPOs next week Link to comment Share on other sites More sharing options...
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