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Michaels (MIK) to Report Q2 Earnings: What's in the Cards?

The Michaels Companies Inc.MIK is slated to report second-quarter fiscal 2018 results on Aug 30. The question lingering in investors' minds is whether this operator of arts and crafts specialty retail stores will be able to deliver positive earnings surprise in the to-be-reported quarter. In the trailing four quarters, the company delivered an average positive earnings surprise of 5.5%.

For the to-be-reported quarter, the Zacks Consensus Estimate is pegged at 13 cents, which moved down by a penny over the last 30 days. Further, the estimate reflects a decrease of 31.6% from the year-ago quarter. Management envisions earnings per share to be in the band of 12-14 cents.

The Michaels Companies, Inc. Price, Consensus and EPS Surprise

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

Let's see how things are shaping up prior to this announcement.

Factors at Play

Michaels' store-expansion initiatives to elevate margins and boost profitability are encouraging. Apart from focusing on expanding its store base, the company has been introducing technological advancements to enhance services for its patrons. In the last reported quarter, Michaels introduced six flagship stores, closed one and relocated nine flagship stores. Management intends to open six namesake stores and relocation of eight outlets in the fiscal second quarter.

Store openings will result in higher comparable-store sales (comps) besides capturing market share. In fact, comps have been gaining from higher average ticket coupled with strong e-commerce sales. Management expects comps for the second quarter to be nearly flat year over year. We believe that these moves are likely to prove conducive to the company.

Michaels' strategies such as enhancement of product and brand offerings and building operational infrastructure also look promising. Additionally, the company's shareholder-friendly moves remain noteworthy. Management believes that it has an encouraging pipeline of new accounts and expects wholesale revenues in fiscal 2018 to be higher than fiscal 2017.

However, the company has a dismal sales surprise history, having missed estimates in nine of the trailing 13 quarters. Further, sales growth in the last reported quarter was hampered by decline in wholesale revenues due to the time difference between new customer acquisition and the expected attrition of legacy customers. Going ahead, revenue decline from legacy customers is anticipated to continue. Notably, the consensus estimate for sales is pegged at $1.06 billion, mirroring a decline of more than 1% year over year.

Michaels has also been witnessing higher selling, general and administrative (SG&A) expenses, including pre-opening costs for a while now. This might dent the company's operating margin and overall profitability in the second quarter. Adjusted operating income is estimated to be $65-$70 million for the impending quarter. Further, interest expenses are likely to be about $37 million, with effective tax rate of 24%.

A Look at Zacks Model

Our proven model conclusively shows that Michaels is likely to beat earnings estimates in the second 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 +0.94% and a Zacks Rank #2, thus making us pretty confident of an earnings beat.

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:

Dollar Tree, Inc. DLTR has an Earnings ESP of +2.41% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

American Eagle Outfitters, Inc. AEO has an Earnings ESP of +2.98% and a Zacks Rank of 3.

lululemon athletica inc. LULU has an Earnings ESP of +1.53% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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