Wall Street shows lackluster response to Michaels IPO
06/27/2014 9:01 AM
06/27/2014 9:02 AM
Irving-based Michaels Cos. had a tepid return to the stock market on Friday, with its shares barely rising after being priced at the low end of its sale range.
The arts and crafts store operator’s shares (ticker: MIK) rose 19 cents to $17.22 by mid-day, but closed up just two cents at $17.02 on the Nasdaq.
The lackluster response on Wall Street shows that investors are wary of retailing and the fragmented $30 billion arts and crafts industry. The last IPO from a major retailer was The Container Store Group, based in Coppell, which made its debut late last year. Its shares have fallen 19 percent and closed at $29 on Friday.
Michaels’ IPO comes amid a market rush. It was the third-busiest week for IPOs since 2000, according to IPO investment adviser Renaissance Capital.
Michaels Cos., which also runs the Aaron Brothers chain, priced an initial public offering of 27.8 million shares at $17 each, raising $472 million from the offering.
Private equity firms Bain Capital and The Blackstone Group took Michaels private in a $6 billion leveraged buyout in 2006.
Michaels filed to go public two years agi, but the IPO was delayed after its then-CEO John Menzer resigned after a stroke.
Michaels, which was in a sweet spot during the Great Recession when homemade goods gained new currency as people tried to save money, has faced increasingly tough competition. That’s coming from discounters — Wal-Mart Stores, for example, recently brought back its fabric offerings — and online king Amazon.com.
Michaels has been late to the online party, launching its e-commerce business only this year.
In an interview with The Associated Press on Friday, Chuck Rubin, who was appointed CEO in March 2013, dismissed the market’s response. He said he’s focusing on long-term opportunities, and that investors will be rewarded.
“This is a marathon, not a sprint,” he added.
While there’s not a lot of data available on the arts and crafts market, he said Michaels’ sales have been growing faster than the industry and it’s taking market share from other traditional chains.
Rubin shrugged off competition from Amazon, saying e-commerce is not as much of a threat as it is to other industries.
“When you sell pieces and parts, we know customers want to come to the brick-and-mortar stores to see how things come together,” he said.
He also noted the average price for an arts and crafts item is $3. “There’s no easy showrooming in this industry,” he added.
The big opportunity is personalization and taking advantage of social media sites like Pinterest, he says. Michaels wants to focus not only on crafts enthusiasts but novices as well. Last year, more than 800,000 customers took classes at Michaels stores.
The company, founded in 1973 with one small store in Dallas, said in a regulatory filing that North America could potentially grow to 1,500 Michaels stores. It currently operates 1,263 Michaels stores and 118 Aaron Brothers stores.
For its latest fiscal year, which ended on Feb. 1, sales rose nearly 4 percent to $4.6 billion. Net income rose to $243 million from $200 million.
The arts and crafts chain plans to use the IPO’s proceeds to pay down its debt. It had $3.7 billion of debt as of May 3.
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