Things You Must Know Before Michaels’ (MIK) Q3 Earnings

The Michaels Companies, Inc. MIK is slated to report third-quarter fiscal 2019 results on Dec 5, before the opening bell.

Notably, the company delivered a positive earnings surprise of 35.7% in the last reported quarter. Moreover, its bottom line beat estimates by 11.4%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s fiscal third-quarter earnings is pegged at 49 cents, which suggests a 2.1% increase from the year-ago quarter’s reported figure. Notably, the consensus mark has been unchanged in the past 30 days. The consensus estimate for fiscal third-quarter sales is pegged at $1,256 million, indicating a 1.4% decline from the prior-year quarter’s reported number.

Key Factors to Note

Michaels has been witnessing revived momentum on improved in-store performance as well as omni-channel initiatives to deliver robust customer experiences. The company has been steadily gaining from capabilities like “Buy Online Pick Up in Store” (BOPIS), which are cost-effective ways of fulfilling online orders as these eliminate shipping costs. Further, the exit of third-party fulfillment providers for online orders is a major step in the evolution of its e-commerce business. This is likely to have elevated traffic and conversion rate in the quarter under review. The company’s fiscal third-quarter results are expected to reflect robust e-commerce sales.

Further, Michaels has been on track to expand assortments in craft storage, jewelry and art categories. Meanwhile, it has been planning to downsize categories like bakeware, ready-made frames and more traditional paper crafting supplies, which display little customer interest. In the last reported quarter, the company had expected that the aforesaid changes in assortments will boost sales in the second half of fiscal 2019.

Moreover, management has been undertaking initiatives to improve current sales trends and has been progressing well on its fiscal 2019 priorities to build momentum in the second half.

The company’s fiscal third-quarter margins are expected to reflect continued benefits from sourcing initiatives and improved promotion management as well as SG&A expense leverage.

For the fiscal third quarter, Michaels projects comps of flat to up 1%. It anticipates adjusted operating income of $133-$142 million on expectations of flat rates for both gross margin and SG&A expenses, as a percentage of sales. The company estimates gross margin to reflect occupancy deleverage and the impact of tariffs, compensated with sourcing benefits and discount management. Further, it envisions adjusted earnings per share of 46-51 cents for the quarter under review.

However, the company anticipates continued pressures from an uncertain tariff environment to have weighed on its quarterly performance. Further, the ongoing tariff situation has been hurting the company’s inventory per store.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Michaels this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Michaels carries a Zacks Rank #2, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

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

Dollar General Corporation DG presently has an Earnings ESP of +1.23% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Costco Wholesale Corporation COST currently has an Earnings ESP of +1.01% and a Zacks Rank #2.

Big Lots, Inc. BIG has an Earnings ESP of +3.85% and a Zacks Rank #3 at present.

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