BY JAMES F. PELTZ
Los Angeles Times
The comeback of Michaels Stores Inc., the only nationwide chain in the $10 billion industry of selling arts and crafts, is in danger of unraveling -- or so investors seem to be saying.
Michaels this year expects to post its second consecutive annual profit, following two years of losses totaling more than $50 million. But now, sales growth at Michaels and at some of its rivals is slowing, which has Wall Street nervous about whether Michaels can maintain its resurgence.
And Michaels said late last month that the slowdown is continuing. In reporting results for its fiscal third quarter ended Oct. 31, the retailer said it expects same-store sales -- those of stores open at least a year and retailing's benchmark indicator -- to be "flat to slightly down" through the holiday season.
That's the key reason that Michaels' stock has plunged 38 percent so far in 1998, despite the company's earnings gains and the market's overall rebound. The stock closed at $18.06 1/4 midweek on Nasdaq.
"Investors are certainly viewing this company with caution and waiting to see what happens," said Jason Klein, an analyst at Blackford Securities Corp. in Garden City, N.Y.
Worse, no one seems quite sure what's causing fewer shoppers to buy fake flowers, sequins and other craft supplies, and whether it's just a temporary lull or a long-term shift in consumer habits. The availability of pre-made crafts may be a contributor.
Michaels and other retailers "seem to be at a loss themselves" to explain it, Mr. Klein said.
Unseasonably warm or wet weather in various regions has been cited, but analysts said the problem is nationwide. Also, Michaels and the others are reporting that the dollar amount of their average sale is holding firm or rising. It's simply that they're getting fewer shoppers.
Michaels operates 502 Michaels stores in 46 states, Canada and Puerto Rico. Locally, it operates six stores in Hyde Park, Colerain Township, Westwood, Eastgate, Fields-Ertel, Springdale and Florence. The company also owns the Aaron Brothers art-supplies chain, which has 77 outlets, mostly on the West Coast.
The Michaels stores sell a panoply of crafts, silk and dried flowers, frames and other art materials, hobby and needle-craft items and a variety of goods and supplies aimed at specific seasons and holidays. About 36,000 items fill the typical store.
Michaels had high expectations for 1998, and the company is unquestionably healthier than it was a few years ago.
But Michaels' sales momentum has slowed since summer. The retailer posted a 2 percent same-store sales drop in October and said November's sales will show a single-digit drop as well.
