Michaels Stock Plumbs New Lows Amid Litany of Challenges

(Bloomberg) -- The sell-off in Michaels Cos. Inc. shares accelerated this week, with a two-day drop of as much as 15% leading the arts-and-crafts retailer to a record low Tuesday.

Michaels has been falling hard and fast since late 2018 as issues ranging from a confusing pricing strategy, weak results and forecasts, management changes and uncertainty around the company's long-term strategic direction have rattled investors. The stock has sunk 44% this year, as a broader market rebound lifted the S&P 500 Index 19%.

The latest leg down is probably stemming from concerns about the company's high debt level and the unfavorable terms received in a recent refinancing, Laura Champine, an equity analyst covering consumer discretionary stocks at Loop Capital, said by email. Michaels refinanced $500 million of 5.875% debt at 8%, which was higher than the original price discussions of around 7%, partly because of concern about the potential impact of U.S. tariffs on Chinese imports, Bloomberg wrote last month, citing people familiar with the matter.

“We are in a more punitive market for secularly challenged retailers with China exposure and high leverage,” Wells Fargo anlayst Zachary Fadem said by email.

A spokesperson for Michael's wasn't immediately available to comment to an e-mail inquiry.

The company had long-term debt of $4.1 billion, including long-term borrowings and long-term operating leases, at the end of fiscal 2020's first quarter, according to Bloomberg data.

While the plunge has made Michaels one of the worst-performing retail stocks this year, bears are betting there's more pain to come. About 26% of the shares available for trading are sold short, compared with 16% a year ago, according to data provided by financial analytics firm S3 Partners.

Michaels' fiscal second quarter ends July 31. Results for the period are expected to be released in late August or early September.

To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer, Scott Schnipper

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