Will Michaels Companies' (MIK) Strategies Aid Q1 Earnings?

The Michaels Companies Inc. (NASDAQ:MIK) is slated to report first-quarter fiscal 2018 results on Jun 14. The question lingering in investors’ minds is whether this operator of arts and crafts specialty retail stores will be able to deliver positive earnings surprise in the to-be-reported quarter.

The company delivered negative earnings surprise of 1.7% in the last reported quarter. However, it outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average of 4.2%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The Zacks Consensus Estimate for the quarter under review is 38 cents, indicating flat earnings from the year-ago quarter. We note that the Zacks Consensus Estimate for the to-be-reported quarter has been stable in the last 30 days. Analysts polled by Zacks anticipate revenues of $1.15 billion, down 0.4% from the year-ago quarter.

The Michaels Companies, Inc. Price, Consensus and EPS Surprise

The Michaels Companies, Inc. Price, Consensus and EPS Surprise | The Michaels Companies, Inc. Quote

Nonetheless, we note that the stock has outperformed the industry in the past month, reflecting positive sentiment on the stock ahead of first-quarter earnings. The company’s shares have increased 11.7% while stocks in the broader industry recorded growth of 8.8%.

Factors at Play

Michaels Companies has a mixed surprise trend, with earnings beat in three of the last six quarters, while sales lagged estimates in four of the last six quarters. However, earnings and sales improved year over year in fourth-quarter fiscal 2017, due to solid holiday period sales. Comparable store sales (comps) also improved, driven by higher average transaction value and increased foot traffic to Michaels' stores.

Nonetheless, the results for fiscal fourth-quarter 2017 were followed by a modest view for fiscal 2018 and the fiscal first quarter. The company anticipates sales of $1,139-$1,150 million, with comps growth of flat to up 1%. Adjusted earnings per share are estimated to be 36-38 cents per share. The company expects fiscal 2018 to be a year to rebuild and remodel, positioning it for robust growth in 2019 and beyond. The company will continue to remodel stores to standard formats, link e-commerce with store networks by bringing in-house fulfillment of online orders and invest in enhanced data analysis to support retail operations.

Following the progress made on these initiatives in fiscal 2017, the company expects to reinvest benefits from the tax reform into its business to drive sales and earnings growth. However, these efforts are likely to result in elevated operating expenses for fiscal 2018.

What the Zacks Model Unveils

Our proven model conclusively shows that Michaels Companies is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Michaels Companies has an Earnings ESP of +2.63% and a Zacks Rank #3. This increases the predictive power of ESP, thus, making us confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these, too, have the right combination of elements to post an earnings beat:

The Kroger Co. (NYSE:KR) has an Earnings ESP of +2.77% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Darden Restaurants Inc. (NYSE:DRI) has an Earnings ESP of +0.20% and a Zacks Rank #3.

CarMax Inc. (NYSE:KMX) has an Earnings ESP of +3.99% and a Zacks Rank #3.

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