The Michaels Companies, Inc. (NASDAQ:MIK) Q3 2018 Earnings Conference Call Transcript

Dec 06, 2018 • 09:00 am ET

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The Michaels Companies, Inc. (NASDAQ:MIK) Q3 2018 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning. My name is Denise, and I will be your conference operator today. At this time, we'd like to welcome everyone to The Michaels Companies' Earnings Conference Call to discuss results for the third quarter of fiscal 2018. All lines have been placed on mute to prevent any background noise. (Operator Instructions) Please note, this event is being recorded.

Thank you. And now I'd like to turn the call over to your host, Kiley Rawlins, VP of IR and Communications. Ms. Rawlins, you may begin the conference.

Executive
Kiley Rawlins

Thank you, Denise. Good morning, everyone, and thank you for joining us today. Earlier this morning, we released our financial results for the third quarter of fiscal 2018. A copy of this press release is available in the IR section of our website at www.michaels.com.

(Forward-Looking Cautionary Statements)

On today's call, we will reference non-GAAP financial measures, including adjusted operating income, adjusted net income and adjusted diluted earnings per share. All adjusted for the Aaron Brothers' restructuring charge and unexpected inventory write-down related to a third-party product which should not meet our quality standards, losses on early extinguishments of debt and refinancing costs, and provisional tax adjustments as applicable. A reconciliation of these measures to the corresponding GAAP measures are detailed in today's earnings release.

We'll begin this morning with highlights from Chuck Rubin, Chairman and CEO; then Denise Paulonis, our CFO, will review our financial results and outlook in more detail. Following our prepared remarks, we will open the call for questions.

Now I'd like to turn the call over to Chuck Rubin. Chuck?

Executive
Carl Rubin

Thank you, Kiley, and good morning, everyone. Happy holidays. This morning we reported better-than-expected third quarter results driven by strong comp sales growth, good expense management and the impact of our ongoing share repurchase program. For the quarter, comp store sales increased 3.8% or 4.3% on a constant currency basis, adjusted operating income was $141 million and adjusted diluted EPS was $0.48. The increase in comp store sales was driven by an increase in average ticket, partially offset by a slight decline in customer transactions. On a calendar shifted basis, comp sales increased 1.1%. The improved trend in comp store sales in the quarter was a result of better merchandising stocks, increased marketing support, and a strong focus on value in key items.

Key events this quarter including back-to-school or fall, lowest price of the season, promotional event and Halloween, all delivered good results. We again produced very strong e-commerce sales this quarter, driven by enhanced searchability and expanded online assortment and increased digital marketing. While still a very small part of our total revenues, online sales in the third quarter were nearly double the online sales in the third quarter last year. This was driven by double-digit increases in traffic and higher conversion rates.

Buy-online-pick-up-in-store or BOPIS continues to perform very well, accounting for roughly a third of our e-commerce transactions in the quarter. From a category standpoint, our seasonal business was very strong this quarter, supported