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Michaels Soars in 3 Months as Stores Reopen After Coronavirus

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Shares of The Michaels Companies, Inc. skyrocketed 274.6% in the past three months, significantly outperforming the industry and Retail-Wholesale sector’s growth of 66.8% and 34.9%, respectively. The stock’s bullish run on the bourses can be attributable to the company’s store reopening efforts, following temporary store closures led by the coronavirus pandemic.

The company is gradually reopening stores in a phased manner, in sync with the local health guidelines. As of Jun 4, 2020, 1,000 stores have reopened, and the company expects 1,273 stores to reopen by June-end. At the reopened stores, the company is witnessing encouraging trends.

Moreover, its solid online show provided cushion to the top line as stores remained closed for most part of the first quarter of fiscal 2020. Notably, e-commerce sales surged significantly to $118.8 million in the said quarter, driven by new delivery options, including curbside pick-up, same day delivery, expanded ship-from-store and BOPIS capabilities along with in-app purchases. Management foresees e-commerce sales growth to continue in the near term. Also, efforts such as optimizing digital spending, enhancing web capabilities and customizing the website as per consumer preferences bode well.

Apart from these, Michaels remains on track with its core 'Maker' strategy, which aims at building the business better, leveraging digital and data, and repositioning the business. In this regard, it opened its first Maker store in McKinney, TX, which offers personalized assortment, better layout, improved services and a host of omnichannel capabilities. The company plans to open more such stores in fiscal 2020.

Further, it is progressing well to maximize marketing productivity through its media-mix model, wherein it will shift to higher productivity media options such as digital and addressable TV, without increasing the spending. Michaels also implemented a pricing and promotion strategy, which is likely to help optimize discounts and improve customers’ perception of the value it offers through discounts, coupons and other promotional activities.

However, the COVID-19 situation affected the company’s sales in the fiscal first quarter due to temporary store closures. Moreover, management refrained from providing any fiscal 2020 guidance due to the uncertain impacts of the ongoing COVID-19 outbreak. In addition to this, a dismal margin trend anda rise in costs related to COVID-19 impacts act as deterrents.

All said, we believe that strong digital growth and store reopening initiatives are likely to help this Zacks Rank #3 (Hold) stock revive from the COVID-19 crisis soon.

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