8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of report (Date of earliest event reported): November 23, 2004

MICHAELS STORES, INC.

(Exact Name of Registrant as Specified in Charter)

Delaware	001-09338	75-1943604
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification No.)

8000 Bent Branch Drive
Irving, Texas 75063
P.O. Box 619566
DFW, Texas 75261-9566
(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (972) 409-1300

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

	Item 2.02. Results of Operations and Financial Condition.
	Item 9.01. Financial Statements and Exhibits.
SIGNATURE
INDEX TO EXHIBITS
Press Release

Item 2.02. Results of Operations and Financial Condition.

     The information contained in this Current Report on Form 8-K, including the exhibit attached hereto, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. Furthermore, the information contained in this Current Report on Form 8-K shall not be deemed to be incorporated by reference into any registration statement or other document filed pursuant to the Securities Act of 1933, as amended.

     On November 23, 2004, Michaels Stores, Inc. issued a press release announcing, among other things, its financial results for the quarter ended October 30, 2004. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

Item 9.01. Financial Statements and Exhibits.

     (c)     Exhibits.

Exhibit
Number	Description
99.1	Press release issued by Michaels Stores, Inc., dated November 23, 2004.

SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

MICHAELS STORES, INC.
By:	/s/ JEFFREY N. BOYER
	Jeffrey N. Boyer
	Executive Vice President —      Chief Financial Officer

Date: November 23, 2004

INDEX TO EXHIBITS

Exhibit
Number	Description
99.1	Press release issued by Michaels Stores, Inc., dated November 23, 2004.

EX-99.1

Exhibit 99.1

NEWS RELEASE
FOR IMMEDIATE RELEASE

Jeffrey N. Boyer
Executive Vice President -
Chief Financial Officer
(972) 409-1581

Christopher J. Holland
Vice President – Finance
(972) 409-1667

Michaels Stores Announces Record Third Quarter
—EPS Increases 15% —

IRVING, Texas – November 23, 2004 – Michaels Stores, Inc. (NYSE: MIK) today reported record financial results for its third quarter and the nine months ended October 30, 2004. Net income for the quarter was $42.5 million, an 11% increase compared to net income of $38.2 million in the same period last year. On a post-split basis, diluted earnings per share for the quarter were $.31 compared to $.27 in the same period last year, a 15% increase.

     Net income for the nine months was $98.6 million compared to net income of $83.3 million in the same period last year, an 18% increase. Diluted earnings per share for the nine months, on a post-split basis, were $.71 compared to $.60 in the same period last year, an 18% increase.

     Michael Rouleau, President and Chief Executive Officer, said, “We are pleased with our third quarter performance and our progress year-to-date, and we are looking forward to another record year, our eighth in a row.”

Operating Performance

     Total sales for the third quarter increased 6% to $799.9 million from $755.2 million for the same period last year. Same-store sales for the quarter grew 1%. For the quarter, customer traffic was up 2% and average ticket decreased 1%. For the quarter, the Company’s best performing departments were Needlework and Yarn, Impulse, Books, and Kids Crafts, and its best performing zones were the Pacific, Central, and mid-Atlantic.

     Year-to-date sales of $2.209 billion increased 9% from $2.028 billion for the same period last year while same-store sales were up 4% year-to-date. Year-to-date, customer traffic increased 3% and average ticket was up 1%. Year-to-date, the Company’s best-performing departments were Needlework and Yarn, Art, Frames, and Kids Crafts and its best performing zones were the Central, Pacific, and Northeast.

     During the third quarter, the Company opened 22 and relocated eight Michaels stores, opened four and relocated one Aaron Brothers store, and opened three Recollections stores.

     For the quarter ended October 30, 2004, the Company’s operating income increased 14% to $72.8 million or 9.1% of sales compared to operating income of $63.6 million or 8.4% of sales for the same period last year. Operating income year-to-date increased 16% to $172.3 million or 7.8% of sales compared to $148.6 million or 7.3% of sales in the same period of 2003. Year-to-date operating income includes a $4.9 million charge recorded in the second quarter related to the establishment of insurance reserves reflecting the financial difficulties of one of the Company’s insurance carriers. Operating income also includes incremental costs related to previously announced initiatives

8000 BENT BRANCH DRIVE · IRVING, TEXAS 75063

(972) 409-1300

for additional closure costs related to store relocations this year, the distribution center realignment project, and Aaron Brothers’ headquarters relocation to the Michaels corporate offices in Coppell, TX. Expenses related to these projects were $4.9 million in the third quarter and $9.7 million year-to-date.

Balance Sheet

     The Company’s cash balance as of October 30, 2004, the end of the third quarter, was $272.4 million, an increase of $166.9 million over the same period last year. Average inventory per Michaels store at the end of the third quarter, inclusive of distribution centers, decreased 8% to $1.213 million from $1.313 million for the same period last year.

     On a post-split basis, the Company has repurchased 1,451,300 shares of its common stock during the third quarter under its stock repurchase plans at an average price of $27.19 per share. Year-to-date, on a post-split basis, the Company has repurchased 3,590,500 shares of its common stock at an average price of $26.34 per share. As of November 23, 2004, under its repurchase plans, the Company is authorized to repurchase approximately 2.3 million additional shares plus such shares as may be repurchased with proceeds from the future exercise of options under the Company’s 2001 General Stock Option Plan.

     The Company also stated that during the third quarter it amended the terms of its $200 million Revolving Credit Agreement to extend its maturity date from April 30, 2005, to April 30, 2006, and to permit the planned prepayment of its $200 million 91/4% Senior Notes on the first available call date in July 2005.

Outlook

     The Company has adjusted its fourth quarter forecast. Same-store sales are now expected to increase 2% to 3% with November same-store sales expected to be down 2% to 4%. Changes in its Veterans Day promotional event negatively impacted top-line sales performance while delivering stronger than planned gross margins. The Company continues to expect December same-store sales to increase 4% to 6% and January same-store sales to increase 3% to 5%.

     The Company currently expects diluted earnings per share, on a post-split basis, to be at the low-end of its previous guidance of $.74 to $.76 for the fourth quarter and to range from $1.44 to $1.46 for fiscal 2004, inclusive of the $4.9 million charge recorded in the second quarter.

     On a preliminary basis, the Company expects fiscal 2005 diluted earnings per share to increase at least 15% over fiscal 2004 results. Same-store sales are expected to increase 3% to 4% and total sales are expected to increase 7% to 9% compared to fiscal 2004. Operating margin is expected to grow 60 to 80 basis points over fiscal 2004 driven by both gross margin expansion and selling, general, and administrative expense leverage.

     A conference call will be held at 4:00 p.m. CT today to discuss third quarter earnings results. Those who wish to participate in the call may do so by dialing 973-633-6740. Any interested party will also have the opportunity to access the call via the Internet at www.michaels.com. To listen to the live call, please go to the website at least fifteen minutes early to register and download any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available for 30 days after the date of the event. Replay may be accessed at www.michaels.com or by phone at 973-341-3080, PIN 4251275.

     The Company plans to release its November 2004 sales results on Thursday, December 2, 2004 at 6:30 a.m. CT. Any interested party may view the Company’s press release at www.michaels.com.

     Michaels Stores, Inc. is the world’s largest specialty retailer of arts, crafts, framing, floral, wall décor, and seasonal merchandise for the hobbyist and do-it-yourself home decorator. As of November 23, 2004, the Company owns and operates 849 Michaels stores in 48 states and Canada, 164 Aaron Brothers stores, eight Recollections stores, and three Star Wholesale operations.

8000 BENT BRANCH DRIVE · IRVING, TEXAS 75063

(972) 409-1300

     This document contains forward-looking statements that reflect our plans, estimates, and beliefs. Any statements contained herein (including, but not limited to, statements to the effect that Michaels or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004, and in our Quarterly Reports on Form 10-Q for the quarters ended May 1, 2004, and July 31, 2004. Specific examples of forward-looking statements include, but are not limited to, forecasts of same-store sales growth and diluted earnings per share. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, our ability to remain competitive in the areas of merchandise quality, price, breadth of selection, customer service, and convenience; our ability to anticipate and/or react to changes in customer demand; changes in consumer confidence; unexpected consumer responses to changes in promotional programs; unusual weather patterns; the execution and management of our store growth and the availability of acceptable real estate locations for new store openings; the effective maintenance of our perpetual inventory and automated replenishment systems and related impacts to inventory levels; delays in the receipt of merchandise ordered from our suppliers due to delays in connection with either the manufacture or shipment of such merchandise; transportation delays (including dock strikes and other work stoppages); changes in political, economic, and social conditions; commodity cost increases and currency issues; financial difficulties of any of our insurance providers, key vendors, or suppliers; and other factors as set forth in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004, particularly in “Critical Accounting Policies” and “Risk Factors,” and in our other Securities and Exchange Commission filings. We intend these forward-looking statements to speak only as of the time of this release and do not undertake to update or revise them as more information becomes available.

     This press release is also available on the Michaels Stores, Inc. website (www.michaels.com).

– Tables follow –

8000 BENT BRANCH DRIVE · IRVING, TEXAS 75063

(972) 409-1300

Michaels Stores, Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Preliminary and Unaudited)

	Quarter Ended					Nine Months Ended
	October 30,			November 1,		October 30,			November 1,
	2004			2003		2004			2003
Net sales	$	799,905		$	755,246	$	2,208,691		$	2,028,150
Cost of sales and occupancy expense		504,236			479,471		1,395,492			1,282,807
Gross profit		295,669			275,775		813,199			745,343
Selling, general, and administrative expense		220,489			208,474		633,348			589,741
Store pre-opening costs		2,408			3,702		7,534			7,045
Operating income		72,772			63,599		172,317			148,557
Interest expense		5,042			5,049		15,439			15,185
Other (income) and expense, net		(1,077	)		77		(2,743	)		(1,501	)
Income before income taxes		68,807			58,473		159,621			134,873
Provision for income taxes		26,319			20,265		61,055			51,589
Net income	$	42,488		$	38,208	$	98,566		$	83,284
Earnings per common share:
Basic	$	0.31		$	0.28	$	0.72		$	0.62
Diluted	$	0.31		$	0.27	$	0.71		$	0.60
Weighted average shares outstanding:
Basic		135,550			134,622		136,138			134,044
Diluted		138,796			141,698		139,257			139,924
Dividends per common share	$	0.07		$	0.05	$	0.19		$	0.10

Michaels Stores, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
(Preliminary and Unaudited)

	October 30,			January 31,			November 1,
	2004			2004			2003
ASSETS
Current assets:
Cash and equivalents	$	272,406		$	341,825		$	105,477
Merchandise inventories		1,096,400			892,923			1,103,527
Prepaid expenses and other		34,633			29,198			28,979
Deferred and prepaid income taxes		19,471			19,426			20,380
Total current assets		1,422,910			1,283,372			1,258,363
Property and equipment, at cost		863,421			808,230			779,440
Less accumulated depreciation		(469,867	)		(420,313	)		(402,628	)
		393,554			387,917			376,812
Goodwill		115,839			115,839			115,839
Other assets		16,810			14,519			13,603
		132,649			130,358			129,442
Total assets	$	1,949,113		$	1,801,647		$	1,764,617
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	257,023		$	172,708		$	220,349
Accrued liabilities and other		222,248			194,395			189,976
Income taxes payable		6,066			2,377			3,916
Total current liabilities		485,337			369,480			414,241
9 1/4% Senior Notes due 2009		200,000			200,000			200,000
Deferred income taxes		27,550			28,241			21,515
Other long-term liabilities		41,256			36,628			34,004
Total long-term liabilities		268,806			264,869			255,519
		754,143			634,349			669,760
Commitments and contingencies
Stockholders’ equity:
Preferred Stock, $0.10 par value, 2,000,000 shares authorized; none issued		—			—			—
Common Stock, $0.10 par value, 350,000,000 shares authorized; shares issued and outstanding of 135,093,810 at October 30, 2004, 135,995,134 at January 31, 2004, and 135,555,608 at November 1, 2003		13,509			13,600			13,556
Additional paid-in capital		438,850			489,110			503,410
Retained earnings		733,069			660,365			572,511
Accumulated other comprehensive income		9,542			4,223			5,380
Total stockholders’ equity		1,194,970			1,167,298			1,094,857
Total liabilities and stockholders’ equity	$	1,949,113		$	1,801,647		$	1,764,617

Michaels Stores, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Preliminary and Unaudited)

	Nine Months Ended
	October 30,			November 1,
	2004			2003
Operating activities:
Net income	$	98,566		$	83,284
Adjustments:
Depreciation		65,756			61,632
Amortization		294			299
Other		780			844
Changes in assets and liabilities:
Merchandise inventories		(203,477	)		(294,109	)
Prepaid expenses and other		(5,435	)		(10,340	)
Deferred income taxes and other		757			2,435
Accounts payable		84,315			125,585
Income taxes payable		16,917			(6,432	)
Accrued liabilities and other		33,157			14,036
Net cash provided by (used in) operating activities		91,630			(22,766	)
Investing activities:
Additions to property and equipment		(71,663	)		(69,333	)
Net proceeds from sales of property and equipment		60			31
Net cash used in investing activities		(71,603	)		(69,302	)
Financing activities:
Proceeds from stock options exercised		28,944			28,556
Repurchase of Common Stock		(94,582	)		(37,369	)
Cash dividends paid to stockholders		(25,867	)		(13,439	)
Proceeds from issuance of Common Stock and other		2,059			1,766
Net cash used in financing activities		(89,446	)		(20,486	)
Net decrease in cash and equivalents		(69,419	)		(112,554	)
Cash and equivalents at beginning of period		341,825			218,031
Cash and equivalents at end of period	$	272,406		$	105,477

Michaels Stores, Inc.
Summary of Operating Data
(Preliminary and Unaudited)

The following table sets forth the percentage relationship to net sales of each line item of our unaudited consolidated statements of income:

	Quarter Ended						Nine Months Ended
	October 30,			November 1,			October 30,			November 1,
	2004			2003			2004			2003
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales and occupancy expense		63.0			63.5			63.2			63.3
Gross profit		37.0			36.5			36.8			36.7
Selling, general, and administrative expense		27.6			27.6			28.7			29.1
Store pre-opening costs		0.3			0.5			0.3			0.3
Operating income		9.1			8.4			7.8			7.3
Interest expense		0.6			0.6			0.7			0.7
Other (income) and expense, net		(0.1	)		0.0			(0.1	)		(0.1	)
Income before income taxes		8.6			7.8			7.2			6.7
Provision for income taxes		3.3			2.7			2.7			2.6
Net income		5.3	%		5.1	%		4.5	%		4.1	%

The following table sets forth certain of our unaudited operating data (dollar amounts in thousands):

	Quarter Ended						Nine Months Ended
	October 30,			November 1,			October 30,			November 1,
	2004			2003			2004			2003
Michaels stores (1):
Retail stores open at beginning of period		827			780			804			754
Retail stores opened during the period		22			28			45			55
Retail stores opened (relocations) during the period		8			7			30			16
Retail stores closed during the period		—			—			—			(1	)
Retail stores closed (relocations) during the period		(8	)		(7	)		(30	)		(16	)
Retail stores open at end of period		849			808			849			808
Aaron Brothers stores:
Retail stores open at beginning of period		160			157			158			148
Retail stores opened during the period		4			1			7			10
Retail stores opened (relocations) during the period		1			—			1			—
Retail stores closed during the period		—			—			(1	)		—
Retail stores closed (relocations) during the period		(1	)		—			(1	)		—
Retail stores open at end of period		164			158			164			158
ReCollections stores:
Retail stores open at beginning of period		5			1			2			—
Retail stores opened during the period		3			1			6			2
Retail stores open at end of period		8			2			8			2
Star Wholesale stores (1):
Wholesale stores open at beginning of period		3			2			3			2
Wholesale stores opened during the period		—			1			—			1
Wholesale stores open at end of period		3			3			3			3
Total store count at end of period		1,024			971			1,024			971
Other operating data:
Average inventory per Michaels store	$	1,213		$	1,313		$	1,213		$	1,313
Comparable store sales increase		1	%		2	%		4	%		2	%

(1) Opening store counts reflect a reclassification of our Los Angeles combination wholesale-retail store from a Michaels store to a Star Wholesale store. Beginning in fiscal 2004, our Los Angeles wholesale-retail store will be managed as part of our Star Wholesale concept.