Michaels Stores says loan amendment executed to increase flexibility

By Jennifer Lanning Drey

Portland, Ore., Aug. 26 - Michaels Stores Inc. has not committed to any specific plans related to the amendment of its credit facility that closed earlier this month but wanted to increase its flexibility to take advantage of potential opportunities, Elaine Crowley, the company's chief financial officer, said Wednesday during its second-quarter earnings conference call held Wednesday.

On Aug. 17, Michaels executed an amendment to its term loan that provides flexibility for reducing the principal balance and refinancing risk, extending maturities and diversifying the company's capital structure, Crowley said.

No other terms of the agreement were affected, including the margin spread over Libor or related debt covenants.

At the Aug. 1 end of the second quarter, Michaels had $36 million of cash and revolver availability of $526 million.

Debt stood at $3.96 billion, representing a $70 million decline from the end of the second quarter of 2008.

During the second quarter, Michaels made a $5.9 million amortization payment on its senior secured term loan.

Cash flow priority

Also during the call, Michaels chief executive officer John Menzer said cash flow is a priority for the company, which has "raised the bar" on evaluating investment decisions.

Menzer said the company has improved inventory management but still sees opportunities to reduce the amount of items it carries, revise space-planning requirements and update its replenishment systems.

The company is also capitalizing on weakness in the commercial real estate market by revisiting lease terms.

For the second quarter, Michaels posted net sales of $807 million, up from net sales of $796 million in the prior year.

Same-store sales for the quarter were down just less than 1%.

Adjusted EBITDA for the second quarter was $85 million, up from $73 million for the same period in 2008 due to the combined effect of higher sales margins and strong expense control, Crowley said.

Michaels Stores is an Irving, Texas, specialty retailer of arts, crafts, framing, floral, wall decor and seasonal merchandise for the hobbyist and do-it-yourself home decorator.

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