Michaels Companies Inc
Q2 2020 Earnings Call Transcript

Published: 3 Sep 2020

[Operator:]

Good morning. My name is Andrea and I will be your conference operator today. At this time we would like to welcome everyone to the Michaels Companies Second Quarter 2020 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. Please note this event is being recorded. Thank you and now I would like to turn the call over to your host Jim Mathias, Director of Investor Relations. Mr. Mathias you may begin the conference.

[Jim Mathias:]

I'd like to welcome you to our fiscal 2020 second quarter financial results conference call. Presenting on this morning's call are our CEO, Ashley Buchanan, Jennifer Robinson our SVP Finance, and Treasury. Also in the room with us today is Michael Diamond our Chief Financial Officer, and Jim Sullivan, our SVP, and Chief Accounting Officer. Note for today’s call the supplemental slide deck available on our Investor Relations website contains additional financial content to support today's discussion. Before we begin our discussion, let me remind you that the comments made on this call as well as supplemental information provided on our website may constitute forward looking statements that are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended. These forward looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. Information about these risks is noted in our earnings press release and the risk factors in our latest Annual Report on Form 10 K filed with the SEC, as well as in our other SEC filings. These forward looking statements are only as of today, September 3, 2020, and the company assumes no obligation to update these statements, except as required by law. Investors are cautioned not to place undue reliance on these forward looking statements. Also please note that we will reference non GAAP financial measures on today's call. A reconciliation of these measures to the corresponding GAAP measures are detailed in today’s earnings release as well as supplemental slides. I'd now like to turn the call over to our CEO. Ashley?

[Ashley Buchanan:]

Thank you for joining us this morning. We delivered strong second quarter results and are effectively positioning Michaels for the future. As our stores reopen in the quarter we saw an immediate and sustained recovery in demand that largely kept pace with what we have initially seen in May. Our entire store base has been opened since the beginning of July. Now to discuss in a moment, we continue to prioritize the safety of our team members, and our customers, as they return to shop at our physical locations. We were extremely pleased by the demands and trends in our stores and with how well our team members executed. I want to extend my gratitude to our entire team and to our makers for their ongoing commitment and support in this unprecedented environment. I also want to take a moment to welcome Mike Diamond our CFO who joined us officially just a few days ago. I look forward to working closely with Mike, and believe his experience will be valuable in supporting our ongoing efforts to position Michaels for long term success. He is here in the room with us today and he will introduce himself later in the call. I'm sure many of you have an opportunity to speak with Mike and get to know him over the coming months. Back to our results. We believe that COVID 19 is providing some strong tail wins for our business resulting from lifestyle changes such as more time at home, and the need for creative outlets, as well as a same broader macro trends impacting the rest of market. Additionally factors including Federal stimulus are difficult to predict and may introduce some variability as we move forward. I will start today by briefly providing an update on the three key focus areas that I outlined last quarter. First as I mentioned, we remain focused on the health and safety of our team members and customers. The protocols we implemented across our stores earlier this year are still in place. This includes social distancing, increased cleaning, and sanitation measures, plexiglass shields at checkout, mass requirements, and more. Creating a safer environment inside of the stores, so our team members, and customers can work, and shop with confidence remains a key priority for our team. Second, we have solidified and improved our financial position. Based on a strong trajectory of our business in the second quarter, we repaid the remaining $300 million outstanding on our revolving credit facility. With this undrawn and fully available credit facility and a strong free cash flow of over $300 million generated during the second quarter, we ended the period with $1.3 billion of liquidity. I am very pleased to report with the strong cash generation, our total liquidity has increased by approximately $100 million since the beginning of the fiscal year. And third we will continue to expand and improve our digital and omni channel capabilities to provide Makers with a more seamless shopping experience. By taking an agile approach developing and employing new capabilities quickly, we are capturing sales, delivering a high level of customer satisfaction, and building on our earlier progress. During the second quarter, we enhanced curbside to provide an even smoother contactless pickup experience. We optimized our shift from store network, we introduce product for e commerce orders for customers purchasing easier and additionally initial results from our internal testing of the shop and scan are encouraging. We expect our contactless in store shopping experience, powered by the Michaels app to be a huge differentiator for us as customers increasing convenience and safety. And finally in August we launched MichaelsPro as a critical extension of our assortment. This offering allows Makers to purchase competitively priced bulk supplies, for which customer feedback is indicated to be an essential need. This is part of our omni channel strategy to attract new Makers and gain a larger share of wallet. Overall I'm very pleased with this quarter's progress in reducing friction points from the shopping experience. Importantly we have significant runway and will continue to irrupted and innovate in the coming quarters. Next I would provide an update on the pillars that underpin our Maker strategy which include, one, strengthen our retail foundation, two modernizing the omni channel experience, and three establishing our positions as the expert for Makers. Importantly as we work on these pillars we are prioritizing opportunities to expand our value proposition to better serve our Maker customers. We are listening to them. We are executing on their feedback and as a result we are meeting more of their expectations. First with regard to our foundation, we are improving execution across our retail business. The theory is very simple, provide the right product at the right price, where, and how the customers expected. In these efforts we begin to optimize the flow of merchandise from truck-to-shelf to ensure inventory availability, and limit out of stocks. To enhance our in store shopping experience we are improving our regional merchandising, product placement, and pipelines. Our customers also want to engage with team members. We are simplifying in store tasks to increase efficiency for our team members and free of labor hours that we can be redeployed to more customer facing activities. In addition to this foundational retail work we plan to open our acquired AC Moore stores as Michaels stores in 2021 and capitalize on the resulting sales transfer opportunity. Hand-in-hand with improving retail execution, we are rapidly modernizing, and involving our omni channel capabilities to provide an increasingly frictionless customer experience. This evolution is happening far faster than expected and combined with strong demand across our 1270 physical locations, is creating positive tangible results for our business. And finally we are working to position Michaels as the expert brand for our Maker in order to deepen our customer relationships and foster long term value engagement. Our recently introduced marketing campaign Made By You featuring real Makers and their creative works has been well received by our customers. We are doing more ideas, inspiration instruction that encourage creativity and connect the making community to our brand. A significant offering of virtual classes and other interactive content is an important element extending the impact of our branding. With little to no travel to summer and in the absence of in person summer camps and other activities for children, our customers spent increased amounts of time at home and look to Michaels for a positive and inspiring outlets for self expression or simply just to fill up the day. We offered an online kids club camp creativity featuring 21 native free crafting for our many Makers. Our online class content has been very well received and we are increasing that content available offering up to 25 weekly classes in September up from only four in April. Viewership of these classes are growing between parents and kids. Over only a four month timeframe, we recorded over 200,000 signups for online classes. To further foster and drive interest in a cohesive Maker community, we’re also continuing to increase our use of personalized e mails reaching the 70% milestone in July up from only 20% at the end of 2019. Additionally in early August, we launched our revamped Michaels rewards loyalty program, which is designed to create long term engagement with our program members, and help strengthen our relationship across the Maker community. We remain committed to looking for ways to enhance this program to better serve, and engage with our members. And while we’re still very early, we're pleased with the initial results. Now I'll turn the call over to Jennifer Robertson to review our second quarter financial results in greater detail.

[Jennifer Robinson:]

Thanks Ashley. Michaels continues to make great progress against our key initiatives which enabled us to capture strong customer demand in the quarter. Our second quarter results were impacted by several tailwinds including impacts from government stimulus, and the fact that our customers are spending more time at home. Our second quarter revenue was negatively impacted by not having all our stores open until the beginning of July, as well as broader macro uncertainty. For these reasons forecasting remains difficult, but we are encouraged by our second quarter performance, and know that the overall third quarter sales trends observed through today's call remain strong. We will continue to monitor developments across our business closely as we move through the coming weeks and months. For the quarter sales totaled $1.1 billion, an increase of 11% on a year over year basis. Comp store sales grew 12% year over year. The 12% quarterly comp was driven by a combination of existing customers with higher basket size, increase in new customers, and continued strength in e commerce results, even as our stores reopened to strong demand on improving foot traffic. We are particularly encouraged by the new customer additions which were up more than 15% year over year, and we are working to retain and engage with these new customers. Moving down the income statement. Costs related to COVID 19 totaled $9 million and were primarily SG&A related with the majority driven by hazard pay and other employee safety related costs. Gross profit for the quarter was $343 million. The year over year decline was primarily due to the charges related to the closure of our wholesale business as well as a higher mix of e commerce sales, and the impact of tariffs. We will begin to lap the tariff impacts in the second half of 2020. Occupancy cost leverage as a result of higher sales, as well as benefits from our ongoing pricing, and sourcing initiatives offset this decline. Excluding the costs related to our wholesale business gross profit would have been approximately $388 million representing a year over year increase of $21 million or 6%. Rent for the quarter totaled approximately $100 million. SG&A for the quarter was 25.2% of sales and down slightly in absolute dollars year over year. SG&A this quarter benefited from the actions we have taken to rationalize spending across the company. Operating income for the quarter were $53 million, which was ahead of our expectations, and driven by strong customer demand. On an adjusted basis excluding the impact of our wholesale business, operating income was approximately $106 million up over 40% from 2019. Moving to tax. The increase in tax expense in the quarter was due primarily to a change in the estimated impact of the CARES Act and a tax benefit associated with a tax income settlement in the second quarter of 2019. On an adjusted basis, EPS in the quarter was $0.30, up almost 58% versus prior year. Cash flow was strong in the quarter. We generated positive free cash flow of $331 million and ended the quarter with approximately $1.3 billion in total liquidity comprised of a cash balance of $650 million and full availability on our revolving banks facility. We will continue to manage our cash and liquidity while we invest in our omni channel capabilities to meet the growing customer demand. During the first half of the year we significantly changed the working capital profile of our business. And we're seeing the benefits of a shorter cash conversion cycle in these results. Please note that we will still see some volatility in our cash flow generation during the year driven by the underlying seasonality of our business. Importantly with more liquidity now versus at the beginning of our fiscal year we are very confident in our ability to invest for growth, satisfy all debt obligations and generate significant excess cash which gives us additional flexibility. We will talk more about our plans here during our upcoming Investor Day. Finally from an inventory perspective we feel good about our current position as we head into the back half of the year. Now I'll turn the call back over to Ashley.

[Ashley Buchanan:]

Thanks Jennifer as we sit here today are month in to the third quarter I am encouraged by our progress against a backdrop of considerable uncertainty. Our focus remains on executing against our Maker strategy and gain market share as we attract and retain new customers and deepen our connection with existing customers through focused merchandising, marketing and omni-channel initiatives. The significant strides we have made in a short period of time demonstrate that we had the right strategic vision with the right talent and executional capabilities to deliver. We will go into much greater detail on our strategic plans and progress on our Virtual Investor Day on September 24th. On behalf of the Michaels executive team I want to invite you to join as we discuss our addressable market, go forward strategy, future omni-channel plans as well as merchandising priorities. We will provide a longer, term financial out algorithm for Michaels and discuss our capital allocation priorities. There will also being opportunity for you to engage with our management team during a lot of Q&A sessions. Please visit the Michaels Investor Relations website to preregister. Before we go to the Q&A portion of the call I want to take a moment to thank Jennifer Robinson Jim Sullivan and the whole finance team for doing a fantastic job during whole of the very challenging time for the company. Thanks to your leadership and hard work we haven't missed a beat and made considerable progress over the last 8 months. Now I would like to invite our new CFO, Mike Diamond to briefly introduce himself, Mike.

[Michael Diamond:]

Thank you Ashley it is really a pleasure to be here this morning and I'm very excited to be joining the Michaels team as the new CFO. I am looking forward to working with Ashley and the team to further expand on the company's success. Importantly I look forward to meeting and getting to know many of you over the coming months. I firmly believe that Michaels is an exceptional company it is well positioned to win in a rapidly evolving specialty retail industry and I can’t wait to get started. I look forward to seeing everyone in a couple of weeks at our Investor Day, Ashley.

[Ashley Buchanan:]

Thanks Mike, it's great to have you on board, operator, let’s move into the Q&A portion of the call.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Christopher Horvers of JPMorgan. Please go ahead.

[Christopher Horvers:]

Thanks good morning everybody can you talk about the cadence for the quarter including, how [indiscernible] on the basis, how did the store only comps play out of the quarter and it looks like you have percentage of your stores closed during the quarter and then related to that, you mentioned the strong sales quarter to date given what many are reporting as moderation in August on back to school can you talk about what you're seeing thus far relative to what you saw during July?

[Ashley Buchanan:]

Sure, our comps improved throughout the quarter as the stores reopened we ended up with a 12% overall we began June with roughly a 1000 stores open and we're fully open by the beginning of July and that 12% comp is inclusive of the 353% increase in e-comm. We're not going to provide a month to month and analysis just like we did last time, but for the second quarter open store comp including e-comm was North of 20% and to your question on how we are quarter to date August demands remain very strong as we exited Q2 into Q3 in the longer term I believe the foundational structural change that we made they’ll continue to better position Michaels as we go forward to gain share. And on your back to school question, back to school for us is mainly an August event and like I said we're really pleased with the way August is shaping up so far. It's remained strong and we will see but right now we're really pleased with the way we ended the Q2 and the way we're going into Q3

[Christopher Horvers:]

Understood just a follow-up, can you share some thoughts on the gross margin rate outlook going forward how large was the tariff headwind in the second quarter and towards the back half you have some pretty significant markdown you [indiscernible] negative mix promotions if you post a positive comp in the back half could you see gross margin actually expand on a rate basis year-over-year?

[Ashley Buchanan:]

Yeah so first we'll address the questions related to Q2 gross margin for as a reminder the gross margin in Q2 includes $45 million and costs associated with the closure of the wholesale business so after that we would be in the $388 million and from a rate perspective we did see headwinds on rates related to the tariffs as we have indicated would be the case and that subsides significantly as we go into the back half of the year and begin to lap it compared to the first half of the year. Our focus will continue to be on maximizing gross margin dollars soon as e commerce is a larger percentage of our sales we do have dilution there but the company is definitely focused on maximizing dollars and we were profitable across all of our nodes in Q2.

[Christopher Horvers:]

Understood, thank you.

[Operator:]

Our next question comes from Seth Sigman of Credit Suisse. Please go ahead.

[Seth Sigman:]

Hey guys thanks for taking the question nice quarter. I want to talk a little bit more about how you're planning second quarter in this sort of uncertain environment it sounds like things are healthy right now. I think there was a comment that you feel good about our inventory position as you head in to the second half of the year. It does look like inventory is down about 19% so my question is, is that by design is that the effort to clean up the inventory and optimize it or your facing some limitations how are you planning for that and how should we thinking about it?

[Ashley Buchanan:]

That's a good question. We're down 19% but if you take out the Darice wholesale business which we exited is down 15% and a couple of things so we do feel really good about our inventory position as we go into the back half of the year a couple of reasons around that one a lot of our sales are is broad based across all the categories but a lot of it is our functional business which has a shorter lead time the second part is the mix shifts a bit and in Q3 and Q4 and seasonal. And we didn’t really buy down our seasonal business in Q3 Q4 very much and then what we did use this demand period to clean up a lot of the clearance as we got actually less promotional so it mixed out a lot for us so it is the combination of we cleaned up sum clearance Darice it was a portion of it, a mix shift and short of lead time so we feel good about our inventory positions going into the back half.

[Seth Sigman:]

Okay, all right that's helpful and then a follow-up question on e commerce growth it is interesting that it accelerated in the second quarter even as your stores opened. I'm curious did you see that elevated growth continue in the latter part of the quarter when stores were fully opened and running again and just any more color on the behavior that you're seeing the influence of rolling out curbside and ship from store and whether that's accounting for a big portion of the growth and how does that time to profitability as well? Thank you.

[Ashley Buchanan:]

Well we were really pleased with our e-comm business it is over 350%. It was strong throughout the quarter obviously I mean it decelerated just slightly as all the stores reopened as and you would expect as you got 1270 stores right back open, but customers engaged with us in a lot of ways this time whether it was buy online, pick up at store, with that was curbside which we made improvements on. We did ship from store but then we also did same-day delivery and our app obviously had a lot more effectively as we expanded our ability to make commerce through the app. So it’s clear that our customers are interacting with us in multiple ways and we're really pleased with that because our goal has been the same since I started which is I want to meet the customer wherever they want to be met and we're agnostic on which channel they go through like I said we're profitable on all notes, but we want to meet them where they want to be met and we're very pleased with the way that business is trending

[Seth Sigman:]

Okay. Great. Thanks very much.

[Ashley Buchanan:]

Okay.

[Operator:]

Our next question comes from Simeon Gutman of Morgan Stanley. Please go ahead.

[Simeon Gutman:]

Thanks everyone my first question to follow-up on e-comm and the gross margin pressure are you able to isolate the impact from that pressure in the second quarter and then how to think about it for the rest of the year?

[Ashley Buchanan:]

So e-comm as a result of the fulfillment and shipping costs is dilutive to our gross margin rate, however as we have indicated it is definitely gross margin dollar positive for us. The significant amount of sales going through curbside and BOPIS definitely offset that dilution along with the incremental shipping nodes that we opened up with ship from store during the quarter so those things help mitigate the dilution of our e commerce to gross margin.

[Jim Sullivan:]

And I’ll add to that a little bit. Our mix in the way we sell and fulfill e-comm between curbside, same-day delivery and buy online pickup in store obviously is a more profitable node than the direct to home business, but even with the direct to home business we're making significant progress on our cost, reducing splits the topper product AR in the margin structure were selling through that channel so we feel we're making more progress across all the fulfillment channels and nodes that we're using in our e-comm business.

[Simeon Gutman:]

One other item to note in Q2 that was a bit of a headwind is tariffs. As Jennifer mentioned earlier and that headwind will subside as we get into the back half of the year. And then I guess at Investor Day will you quantify the e-comm mix and then how BOPIS or curbside mixes out with inside of that and then my follow-up question unrelated is, you went back the high-low pricing. I don't know how prevalent or representative that could be during the last quarter to the extent consumers were more price taking than bringing coupons but can you talk about the pricing strategy and did you see the percentage of customer's let us say shopping on coupon decline and how that is trending as stores reopened?

[Ashley Buchanan:]

Well I guess to address the first part which was well we have always been a high level retailer we never went to ADLP at any time pre-COVID or during COVID or whatever you want to call we are at right now in the middle of COVID we were less promotional during the quarter by design and I have talked about that last quarter which is we wanted to go from branding perspective to provide more inspiration, more creativity with discounts versus just a discounting brand our customers respond to that greatly with the content we put out and the inspiration we created through our marketing as we were less promotional during that timeframe. What the future holds, we're not giving any future forecast there is too much variability in it but during Q2 we were less promotional.

[Simeon Gutman:]

And the mix of e-comm I guess that, that will be held until Investor Day?

[Ashley Buchanan:]

Yeah will not be breaking out the rate mix of e-comm even in the Investor Day.

[Simeon Gutman:]

Got it okay, thanks Ashley nice quarter.

[Ashley Buchanan:]

Sure, thank you.

[Operator:]

Thank you [Operator Instructions] And our next question will come from Steve Forbes of Guggenheim. Please go ahead.

[Steve Forbes:]

Good morning and this is actually Steve Cobleskill for Steve Forbes. I'll just start with given your strength in e-commerce. Can you speak to your fulfillment plans for the holiday if you see any capacity issues there?

[Ashley Buchanan:]

We don't foresee any capacity issues in Q4, like I said we have multiple ways of fulfilling their product particular that 1270 stores using as many fulfillment centers along with our e-comm fulfillment centers and will have actually converted our regional restrictions interest to shift to e-commerce as well particularly on our MichaelsPro platform so we don't see any capacity issues in the Q3 or Q4.

[Steve Forbes:]

Great, thank you.

[Operator:]

Our next question will come from Cristina Fernandez with Telsey Advisory Group. Please go ahead.

[Cristina Fernandez:]

Hi, good morning and congratulations on the good quarter. I wanted to ask about SG&A, we saw dollars down this quarter with all stores reopen, how does that look for the second half the year? Is this sustainable or should we see a SG&A trend back higher year-over-year?

[Ashley Buchanan:]

As far as to your point from SG&A prospective we did have favorability in the quarter due to the stores being closed and with this significant increase in sales. So somewhat of an anomaly in Q2 that we expect to be back more normalized if you will in the back half of the year. In addition to that, we do have headwinds on SG&A related to performance-based compensation which we had indicated at the beginning of the year would be a headwind for us in 2020 and we do expect that to see that in the back half of the year as well.

[Cristina Fernandez:]

Okay and then as my follow-up, you rolled out two initiatives here in August. I wanted to see if you could share any more color around the revamp Michaels rewards program were you're seeing there and any more color on the test market that were destined in place for a couple of months on and the MichaelsPro initiatives what customers are you targeting and maybe talk about any expectations what expectations you have for that program?

[Ashley Buchanan:]

Sure, you know we had loyalty rewards program in the past, so we have enhanced it. It didn't really provide--I would say any actually rewards associated with this. So, we're testing it into markets last year we were pleased with the results so we rolled out at loyalty program and we did that for the time we’re able to probably engage with them in a better way. So when we rolled out the loyalty program enhanced version this time we're able to communicate with them more effectively with personalized e-mails, with our made value marketing campaign, with a content that we're rolling out for that customer, and along with our digital capabilities we rolled out we felt that was a time to roll out the loyalty program and we were very pleased with the initial response. And then on your second question was on MichaelsPro, it's clear to us that there is a subset of customers that want to buy both products from us as they have either a side business or a side hobby of business or it is a full-time business for them. They wanted really competitive pricing on both products and we view that as a necessary extension to our offerings for that customer and they told us about what they wanted and we delivered and we’ll probably go into much greater detail, we will go into much greater detail during our Investor Day around that initiative.

[Operator:]

Our next question will come from Carla Casella of JPMorgan. Please go ahead.

[Carla Casella:]

Hi, my first question is on Darice and can you give us a sense of how much that contributed to the numbers--the year ago numbers either revenue gross profit or EBITDA.

[Ashley Buchanan:]

So, Darice generally they didn't contribute a whole lot for the bottom line. It was a very low margin business, which is part of the reason why we're getting out of it. We tried to make it work just the business has gotten tougher and tougher which is why we decided to liquidate the business but incrementally it did not generate much for the bottom line.

[Carla Casella:]

Okay, great and then as you have been buying third and fourth quarter inventory are there any disruptions related to COVID in terms of just getting the inventory supplied--you mentioned inventories are clean but I was just wondering is it because you want at the margin you want has there been any cost disruption built in?

[Ashley Buchanan:]

As I said we feel really good about our inventory position, we placed seasonal orders back roughly in March. We did not buy that seasonal business down that much. We never had any disruption to date that product is actually flowing in as scheduled. We have had a large supplier base globally and so we feel good about our ability to fulfill those orders during the seasonal coming up.

[Carla Casella:]

Okay. Great, thank you.

[Operator:]

Our next question comes from Kate McShane of Goldman Sachs. Please go ahead.

[Kate McShane:]

Hi, thanks good morning. Thanks for taking my question. I just had a quick real estate question in terms of how you might be thinking about possibly relocating stores just given the likely disruption that's coming from the pandemic in real estate, is that an opportunity that you see going forward especially as you think about remodeling and merchandising your stores?

[Ashley Buchanan:]

Well, like I said I think in previous calls there is only a very small handful of stores that are cash were negative and that hasn't actually changed due to the pandemic. Secondly, using our network as many fulfillment centers on our ship from store basis, as just enhance that assessment and so we have really no change in our real estate strategy going forward for the foreseeable future.

[Jennifer Robinson:]

The one impact the pandemic did have is, we did aggressively negotiate with our landlords and through Q2 we were able to realize about $12 million in rent abatements in cash received or cash reward received that gets amortized over the term of the leases that's not a credit in Q2 it will be spread out over a number of years but we certainly have worked very hard to get the best terms we can in this environment.

[Kate McShane:]

Thank you.

[Operator:]

Our next question comes from Laura Champine of Loop Capital. Please go ahead.

[Laura Champine:]

Thanks for taking my question this morning, it's on that debt levels so obviously you repaid the revolver and liquidity is in a all time high I think you called out but where does debt pay down stand on your priority list for cash flows over the next few years?

[Ashley Buchanan:]

We will address our capital allocation strategy on our Investor Day on the 24th, but we recognize our leverage is not optimal just like I had said in previous calls and look forward to laying that out in later September for you all.

[Laura Champine:]

Understood and then second question, so we have got a percent of stores that were open basically at the end of May and obviously at the end of June, but at the end of April and what percent of Michaels Stores were open just so we can get a sense of how rapid the bounce back was?

[Ashley Buchanan:]

While the same cycle a long time ago, I actually have to go back and get the number at displayed. I don't even remember what we were in the end of April. I think at the end of April we were pretty much at the trough of the pandemic, so obviously I don't remember. I think it was right at 900 stores that were closed at the time.

[Laura Champine:]

Got it, thank you.

[Ashley Buchanan:]

We just have a bounce back obviously, coming out of the end of April probably 900--we slowly started opening in May, June, and July.

[Jim Sullivan:]

And remember even with the store closed the stores closed at the peak of the closures a lot of our stores we were doing business through curbside pickup and BOPIS, so there was revenue being generated even from most of those closed stores.

[Laura Champine:]

Understood, thank you.

[Operator:]

Our next question comes from William Reuter of Bank of America. Please go ahead.

[William Reuter:]

Good morning, so it's obvious you guys did a lot of initiatives to drive traffic, you got the online classes for kids, you have got loyalty programs, better personalized e-mails I guess when you talk to your vendors how do you expect that the industry performed as a whole and do you think you took share--I guess I am just wondering how is your growth compared to industry growth?

[Ashley Buchanan:]

It's a good question, I think I will address it. It is a large industry but it's really hard to tell where share is, I mean we're the only place a publicly traded art and crafts retailer but what we do feel and believe based on the foundation we've put in place, we believe with our digital capabilities, our MikePro, our retail foundational work that we’re doing within the stores that we have set the foundation for consistent growth over time and our ability to continue to gain share. How much share is really difficult to tell like is said it is a industry--the large industry but share data is not that forthcoming.

[William Reuter:]

Okay. And then just as a follow-up to historically your fourth quarter gross margins are higher than your third quarter ones, which I expect will probably continue. However, given the shipping costs or probably going to be elevated during the fourth quarter should spread between the two of those compresses, we’re thinking about our models?

[Ashley Buchanan:]

Yes, we're not giving any guidance for Q3 or Q4 obviously due to all of the uncertainty and it's really difficult at this point in time to predict how the back half of the year will play out.

[William Reuter:]

Okay, thank you very much.

[Operator:]

Our last question will come from Elizabeth Suzuki of Bank of America. Please go ahead.

[Elizabeth Suzuki:]

All right, thanks very much. Just from a merchandising standpoint what are your expectations for holiday this year and do you think you need to prep the stores for an earlier start for the season and how could that impact the cadence of your sales which is usually pretty heavily skewed to 4Q. I know you're not giving specific guidance, but just thinking about holiday specifically and how this year could be different from previous years?

[Ashley Buchanan:]

Yeah, like I said we're not providing any guidance for Q3 or Q4. I would say historically arts and crafts people tend to buy different times of the year based on whether they are making something or decorating or gifting things. Our Q4 has already started to land existingly, so we're not providing any guidance on Q3 or Q4 on how that mix may play out or how the shopping season may change.

[Elizabeth Suzuki:]

And just as a follow-up. Are noticing any extension of the back-to-school season or just more demand for categories like supplies and organization just given how many students are starting off their school year remote or hybrid, so their parents are providing more of the back-to-school supplies, is that extending the back-to-school period for you guys from August into September?

[Ashley Buchanan:]

Well, like I said ending Q2 and the starting Q3, it's been a broad-based demand across pretty much all our categories. So it's been a broad-based purchasing cycle across pretty much every category at Michaels including back-to-school or any other category out, so we feel very good about the end of Q2 and going into Q3.

[Elizabeth Suzuki:]

Great, thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Ashley Buchanan for any closing remarks.

[Ashley Buchanan:]

I want to thank all of you for attending this morning; we really appreciate it and look forward to talking to you on our Investor Day, thank you.

[Operator:]

The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.