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): March 15, 2005

MICHAELS STORES, INC.
(Exact Name of Registrant as Specified in Charter)

Delaware	001-09338	75-1943604
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer 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))

Item 2.02. Results of Operations and Financial Condition.

     The information set forth in Item 8.01 of this Current Report on Form 8-K is incorporated by reference into this Item 2.02.

Item 8.01. Other Events.

     On March 15, 2005, Michaels Stores, Inc. issued a press release announcing that it is making a one-time, non-cash, after-tax adjustment to its results in the fourth fiscal quarter of 2004 to reflect the cumulative impact of a correction of its accounting practices related to leased properties. This correction of accounting practices was made in light of the views of the Office of the Chief Accountant of the Securities and Exchange Commission expressed in a letter of February 7, 2005 to the American Institute of Certified Public Accountants regarding the application of generally accepted accounting principles to operating lease accounting matters. Attached to this Current Report on Form 8-K as Exhibit 99.1 is a copy of the Company’s related press release, which press release is incorporated by reference into this Item 8.01.

Item 9.01. Financial Statements and Exhibits.

     (c) Exhibits.

Exhibit
Number	Description
99.1	Press release issued by Michaels Stores, Inc., dated March 15, 2005.

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: March 16, 2005

INDEX TO EXHIBITS

Exhibit
Number	Description
99.1	Press release issued by Michaels Stores, Inc., dated March 15, 2005.

EX-99.1

Exhibit 99.1

Contact: Jeffrey N. Boyer

Executive Vice President -

Chief Financial Officer

(972) 409-1581

Chris Holland

Vice President — Finance

(972) 409-1667

NEWS RELEASE
FOR IMMEDIATE RELEASE

Michaels Stores, Inc. Revises Previously Announced
Preliminary 2004 Results to Reflect Changes in Lease
Accounting Practices

      IRVING, Texas, March 15, 2005 — Michaels Stores, Inc. (NYSE: MIK) announced today that it is making a one-time, non-cash, after-tax adjustment of $8.0 million to its results in the fourth fiscal quarter of 2004 to reflect the cumulative impact of a correction of its accounting practices related to leased properties. The Company has completed its evaluation, announced in its press release of March 2, 2005, of the impact of the cumulative effect of this adjustment. The adjustment reduces the Company’s previously announced fiscal fourth quarter diluted earnings per share from $0.80 to $0.75 and its fiscal year 2004 diluted earnings per share by $0.06 from $1.51 to $1.45. Of the $0.06 reduction in diluted earnings per share recorded in the fourth quarter, there is no net impact on diluted earnings per share attributable to fiscal years 2004 or 2003. The decrease of $0.06 is attributable to the net impact on diluted earnings per share of prior periods, the majority of which relates to periods prior to fiscal year 2000.

      This correction of accounting practices was made in light of the views of the Office of the Chief Accountant of the Securities and Exchange Commission expressed in a letter of February 7, 2005 to the American Institute of Certified Public Accountants regarding the application of generally accepted accounting principles to operating lease accounting matters. Consistent with industry practices, in prior periods the Company had reported its straight line expenses for leases beginning on the earlier of the store opening date or the commencement date of the lease, which had the effect of excluding the pre-opening or build-out period of its stores from the calculation of the period over which it expenses rent. In addition, amounts received as tenant allowances were reflected in the balance sheet as a reduction to store leasehold improvement costs instead of being classified as deferred lease credits. The adjustment required to correct these practices will not affect historical or future net cash flows or the timing of payments under related leases. The Company believes that the new lease accounting practices will not have a material effect on future diluted earnings per share and is not changing its earnings guidance of diluted earnings per share for fiscal 2005 of $1.74 to $1.81, excluding the anticipated impact of non-cash expense related to the implementation of Statement of Financial Accounting Standards No. 123(R), Share-Based Payment.

      In the past, the Company has followed lease accounting principles using methods that have been common practice in the retail and restaurant industries. In its March 2, 2005 earnings release, the Company stated that it had not made a decision whether to reflect the change in lease accounting practices in the 2004 financial results or in restatements of previously issued annual and interim financial statements. Upon completion of its evaluation, the Company decided to reflect the change in its 2004 financial results. Prior years’ financial results will not be restated as these issues were not material to previously reported results for any prior year.

8000 BENT BRANCH DRIVE · IRVING, TEXAS 75063
972/409 ·1300

      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 March 14, 2005, the Company owns and operates 847 Michaels stores in 48 states and Canada, 165 Aaron Brothers stores, eight Recollections stores, and four Star Wholesale operations.

      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, July 31, 2004, and October 30, 2004. Specific examples of forward-looking statements include, but are not limited to, forecasts of 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: changes in accounting principles; 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 conditions; 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 fluctuations; 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).

8000 BENT BRANCH DRIVE · IRVING, TEXAS 75063
972/409 ·1300

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

	Fourth Quarter						Fiscal Year
	2004			2003			2004			2003
Net sales	$	1,184,560		$	1,063,106		$	3,393,251		$	3,091,256
Cost of sales and occupancy expense		751,442			674,466			2,146,934			1,957,273
Gross profit		433,118			388,640			1,246,317			1,133,983
Selling, general, and administrative expense		265,097			233,420			898,445			823,161
Store pre-opening costs		823			1,026			8,357			8,071
Operating income		167,198			154,194			339,515			302,751
Interest expense		4,995			5,078			20,434			20,262
Other (income) and expense, net		(1,861	)		(1,201	)		(4,604	)		(2,701	)
Income before income taxes		164,064			150,317			323,685			285,190
Provision for income taxes		60,821			55,756			121,876			107,345
Net income	$	103,243		$	94,561		$	201,809		$	177,845
Earnings per common share:
Basic	$	0.76		$	0.70		$	1.49		$	1.32
Diluted	$	0.75		$	0.68		$	1.45		$	1.27
Weighted average shares outstanding:
Basic		135,086			135,288			135,875			134,356
Diluted		138,295			139,662			139,016			139,858
Dividends per common share	$	0.07		$	0.05		$	0.26		$	0.15

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

	January 29,			January 31,
Subject to Reclassification	2005			2004
ASSETS
Current assets:
Cash and equivalents	$	586,231		$	341,825
Merchandise inventories		936,395			892,923
Prepaid expenses and other		26,613			29,198
Deferred and prepaid income taxes		22,032			19,426
Total current assets		1,571,271			1,283,372
Property and equipment, at cost		913,174			808,230
Less accumulated depreciation		(506,193	)		(420,313	)
		406,981			387,917
Goodwill		115,839			115,839
Other assets		17,569			14,519
		133,408			130,358
Total assets	$	2,111,660		$	1,801,647
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	256,266		$	172,708
Accrued liabilities and other		242,682			194,395
Income taxes payable		12,992			2,377
Total current liabilities		511,940			369,480
9 1/4% Senior Notes due 2009		200,000			200,000
Deferred income taxes		30,355			28,241
Other long-term liabilities		72,200			36,628
Total long-term liabilities		302,555			264,869
		814,495			634,349
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 135,726,717 at January 29, 2005 and 135,995,134 at January 31, 2004		13,573			13,600
Additional paid-in capital		451,449			489,110
Retained earnings		826,821			660,365
Accumulated other comprehensive income		5,322			4,223
Total stockholders’ equity		1,297,165			1,167,298
Total liabilities and stockholders’ equity	$	2,111,660		$	1,801,647

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

Subject to Reclassification	Fiscal Year
	2004			2003
Operating activities:
Net income	$	201,809		$	177,845
Adjustments:
Depreciation		105,742			83,472
Amortization		394			397
Other		1,288			1,115
Changes in assets and liabilities:
Merchandise inventories		(43,472	)		(83,505	)
Prepaid expenses and other		2,585			(10,559	)
Deferred income taxes and other		1,806			11,503
Accounts payable		83,558			77,944
Income taxes payable		39,699			13,287
Accrued liabilities and other		69,240			18,007
Net cash provided by operating activities		462,649			289,506
Investing activities:
Additions to property and equipment, net of landlord reimbursements		(125,737	)		(103,110	)
Net proceeds from sales of property and equipment		133			105
Net cash used in investing activities		(125,604	)		(103,005	)
Financing activities:
Cash dividends paid to stockholders		(25,867	)		(20,145	)
Repurchase of Common Stock		(105,099	)		(75,499	)
Proceeds from stock options exercised		35,494			30,724
Proceeds from issuance of Common Stock and other		2,833			2,213
Payment of other long-term liabilities		—			—
Net cash (used in) provided by financing activities		(92,639	)		(62,707	)
Net increase in cash and equivalents		244,406			123,794
Cash and equivalents at beginning of period		341,825			218,031
Cash and equivalents at end of period	$	586,231		$	341,825

Michaels Stores, Inc.
Summary of Operating Data

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

	Fourth Quarter						Fiscal Year
	2004			2003			2004			2003
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales and occupancy expense		63.4			63.4			63.3			63.3
Gross profit		36.6			36.6			36.7			36.7
Selling, general, and administrative expense		22.4			22.0			26.5			26.6
Store pre-opening costs		0.1			0.1			0.2			0.3
Operating income		14.1			14.5			10.0			9.8
Interest expense		0.4			0.5			0.6			0.7
Other (income) and expense, net		(0.2	)		(0.1	)		(0.1	)		(0.1	)
Income before income taxes		13.9			14.1			9.5			9.2
Provision for income taxes		5.2			5.2			3.6			3.4
Net income		8.7	%		8.9	%		5.9	%		5.8	%

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

	Fourth Quarter						Fiscal Year
	2004			2003			2004			2003
Michaels stores (1):
Retail stores open at beginning of period		849			808			804			754
Retail stores opened during the period		—			—			45			55
Retail stores opened (relocations) during the period		—			—			30			16
Retail stores closed during the period		(5	)		(4	)		(5	)		(5	)
Retail stores closed (relocations) during the period		—			—			(30	)		(16	)
Retail stores open at end of period		844			804			844			804
Aaron Brothers stores:
Retail stores open at beginning of period		164			158			158			148
Retail stores opened during the period		—			—			7			10
Retail stores opened (relocations) during the period		—			—			1			—
Retail stores closed during the period		—			—			(1	)		—
Retail stores closed (relocations) during the period		—			—			(1	)		—
Retail stores open at end of period		164			158			164			158
Recollections stores:
Retail stores open at beginning of period		8			2			2			—
Retail stores opened during the period		—			—			6			2
Retail stores opened at end the period		8			2			8			2
Star Wholesale stores (1):
Wholesale stores open at beginning of period		3			3			3			2
Wholesale store opened during the period		—			—			—			1
Wholesale stores open at end of period		3			3			3			3
Total store count at end of period		1,019			967			1,019			967
Other operating data:
Average inventory per Michaels store	$	1,010		$	1,045		$	1,010		$	1,045
Comparable store sales increase		7	%		4	%		5	%		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 is being managed as part of our Star Wholesale concept.