Why Michaels Stock Jumped Today

What happened

michaels (MIC) Shares continued to dazzle investors today as the arts and crafts retailer posted another strong quarter of earnings, buoyed by demand for home hobbies during the pandemic and improving of its e-commerce operations.

As of 12:53 p.m. EDT, the stock was up 13.5%.

Image source: Getty Images.

So what

Comparable sales, the most important measure for discretionary retailers like Michaels, surged again, rising 16.3% in the third quarter. That pushed overall revenue up 15.1% to $1.41 billion, just ahead of estimates of $1.39 billion.

What was even more impressive was the company’s performance lower in the income statement, as earnings for the quarter surged. Gross margin fell from 36.1% to 41.4%, showing the company benefited from occupancy costs and had fewer markdowns, and adjusted operating profit climbed 72% to 201, $6 million. Adjusted earnings per share more than doubled from $0.40 to $0.86, easily beating estimates of $0.59.

CEO Ashley Buchanan said the strong performance was “driven by strong consumer demand, better retail execution and continued progress against our strategic initiatives”, and added, “our expanded omnichannel capabilities, our manufacturer-centric branding and increasingly personalized marketing has resonated well with customers.”

Now what

Michaels declined to offer advice, but the company appears well positioned for the holiday season, given its recent strategic investment moves and rising coronavirus cases, which should boost demand for art and handicrafts as well as gifts related to hobbies.

Michaels has been one of the biggest surprise stories in retail this year, but the company is expected to experience some headwinds as the pandemic ends as Americans focus on activities outside the home like travel , dining out and live entertainment. Even with this risk, the stock still looks very cheap, trading at a price-earnings ratio below six. If the company can retain the new customers it attracted during the crisis, it should be well positioned for long-term growth.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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