00:00So you told our Bloomberg News colleagues that Michaels had this reputation for basically
00:05being your grandmother's store. And one of the things that you had to sort of engineer when
00:09you took over as CEO in February 2025 was changing that reputation, transforming the brand. So talk
00:17us through how you even start going about something like that. So it's interesting you say
00:22the grandmother's store. What I would say is Michaels is a beloved brand. There isn't a place
00:28that I don't go, our team members don't go, and you say, I work for Michaels, and people
00:32don't say, I love it. What I think was happening is we weren't really living up to our promise
00:36from an in-store experience point of view, from a category point of view. So we embarked
00:41on really a three-point plan. You mentioned changes in the retail sector. Our industry
00:46had some exits, and so we consolidated the space. We moved into some new categories, and
00:51now we've begun transforming that retail experience, culminating in a whole new store concept that
00:56we just launched a few weeks ago in Columbus, Ohio.
00:59Let's talk about some of those exits, because Romain mentioned that timing certainly plays
01:03a role here. And you think about how you have expanded aggressively in balloons when you saw
01:09bankrupt city or party city go bankrupt. You also acquired IP and brands from Joanne as well.
01:15They filed for Chapter 11 a few different times. So, I mean, when you reflect on that,
01:20how much market share do you think that you've been able to take from some of your competitors
01:26and their untimely demise?
01:28So I think about it in a couple ways. With respect to Joanne's, that was a beloved brand
01:32with a very loyal customer following. So we worked really hard at Pace to build out these knit and
01:37sew shops in 1,400 stores in six months. Really unheard of Pace in retail. And I think we're doing
01:43quite well taking share in those categories. Pretty significant share. If you think about the party
01:48city, that was more of an adjacent business to us. So balloons, party supplies, reasonably well-served
01:54market and party supplies. But again, we built the party shop by Michael's in that six-month period.
01:59And I can tell you right now, at least in balloons, we have the most robust, compelling offering in
02:04the country, in North America, I would say. And we're growing quite a bit. So we're very excited
02:09by that.
02:10I am curious about how you structured the stores and you talk about the new concept. And maybe you
02:16can walk us through that. Because this isn't just so much, okay, just find some shelf space and put
02:20this stuff on there. Particularly, I have people in my family that were really into Joanne and they
02:25were absolutely devastated when it went under for the second time. But it gets to this idea of how
02:30you sort of capture the ethos of what Joanne was inside the Michael's umbrella.
02:35Yeah. So a couple of things. So we, as you know, we acquired the IP and there were some brands
02:41in
02:41there, one called Big Twists in the yarn category that we immediately launched within six months,
02:46brought that product out. That was beloved. We then expanded fabric into every store in the chain.
02:52In fact, we're now in the process of going back to existing stores and expanding the assortment.
02:57We likely won't have the same level of assortment in store that Joanne had. But what we've done is
03:02we now have hundreds of thousands of fabric assortment online. And I would hazard a guess to
03:06say the biggest assortment of cut-to-order fabric online in the industry. And so that's how we're
03:11serving that customer. And we branded these departments with Joanne. So really trying to
03:16serve them how they, the products they bought at Joanne's when they were there.
03:20Did most of that product come from the original Joanne vendors? Or did you have to reach out to
03:25new vendors in order to go into that? A bit of both. So one of the things that we did
03:29do is we called
03:30all of the vendors that were former Joanne vendors. And many of them were shared into a big conference
03:36and said, look, we are going to step into this space. These customers are not being served.
03:39Help us get product as fast as you possibly can from in North America, from around the world,
03:45so we can put it on shelf. And that's what we did.
03:47And you were able to do that at a favorable cost?
03:49Yes. Yeah. Yeah.
03:51And so clearly you've found an audience here. And of course you have a loyal following. But I do
03:55wonder, I mean, thinking about the future and sort of expanding your addressable market for
03:59a lot of shoppers, for a lot of consumers, going to Amazon and hitting buy, I mean, that is the
04:05muscle memory. So how do you sort of insulate Michaels from that? How do you Amazon proof your
04:11business going forward?
04:12So one of the great things about arts and crafts and celebration is a very tactile category. The
04:17majority of our sales come through stores. And what I can tell you is we are attracting new
04:22customers and new traffic to our stores. We're attracting them online as well, but we're also
04:26attracting the stores. So how do you go about it? One is having a distinctive assortment.
04:31The majority of what we sell is our own brand or our own brands. We addition, we have some good
04:36national brand partners. You create an inspirational and an experiential experience, things like birthday
04:42parties, events happening in store. And then you work with your team. We have many team members that
04:49are really deep into a particular craft or category that work well with our customers when they come
04:53into the store. So it really favors our environment.
04:56And as we mentioned at the top, you know, Michaels is owned by Apollo. They bought you
05:01five years ago. So five years is typically when PE starts maybe looking for an exit. And I wonder
05:07in your situation, you know, what that might look like. What sort of timeline might you be exploring
05:13here?
05:14I'd say there's no specific timeline. It's obviously, as you mentioned, been some time since Apollo
05:19owned the company. So I'd imagine they'd want to make a return on their investment. But the management
05:23team is squarely focused on building the business, serving customers and wowing them, quite frankly.
05:29I mean, I know you're a private company, so we haven't seen public reports from Mario. But are comp
05:34sales, are they going up? Can you give us a sense here as to what the trend is?
05:38Sales are growing, earnings are growing, and we're attracting millions of new customers.
05:43You are still sitting on something like five times leverage based on Bloomberg reporting. Is there a plan to try
05:49to
05:49reduce the debt load and the debt servicing that you have under you before you make whatever next step
05:54you might make?
05:54Yeah, you may be aware that we refinanced our debt earlier this year. So it was a big commitment by
05:59our
05:59financial partners and a belief in the company. And as our earnings continue to grow, we're able to pay
06:05down debt and we're able to reduce our leverage ratio.
06:07Are you worried at all about any sort of reentrance into this space that could be a competitor of some
06:14type
06:14for another?
06:15I don't, for a couple reasons. One, the fabric craft business is very unique. It's very skew intensive,
06:22hard to serve, and we have some unique capabilities there. We produce 24,000 new skews a year. We have
06:27that capability, so that's difficult to get into. With respect to party and balloons, we're ahead of
06:32our competitors. We expect to stay ahead of our competitors. And we haven't talked about one of the
06:36big trends that I think favors Michaels is the analog, we're calling it the analog revolution or analog
06:41hobbies. There is a back to the future, however you want to describe it, where people want to get off
06:48screens and do tactile things with their hands. They want to celebrate together. Things like analog
06:55hobby searches on our website, girls' night crafts, like these searches are going up through the roof.
07:01And so that favors a business like Michaels.
07:03Yeah, it is pretty wild. It's something I've noticed in my own personal life, sort of the upswell of these
07:08knitting type groups. I do want to go back to the fact that you are PE owned, because I think
07:13it's
07:13really interesting that you have managed to execute this turnaround, you know, still gaining traction
07:18here. And I wonder, I mean, when you reflect on that, what have you been able to do in helping
07:24to
07:24pull that off as a privately held PE backed company versus being a public company as, you know,
07:30some of your peers had been?
07:33I've been asked that question a lot. And I think the answer is we've been able to
07:37work and operate decisively and at speed. So when we made the decision, hey, we are going to go after
07:43these customers. We're going to serve them. We're going to go into these markets. We're going to go
07:47buy hundreds of millions of dollars of inventory to support them. We're going to update our stores.
07:52You know, we had a great partner in Apollo who allowed us to make those decisions quickly and take
07:57that risk.
07:58I do want to ask you about the reimagined stores and that concept, how well it's doing. And does that
08:03become a template for the other thousand plus stores going forward?
08:07Yeah. So our new store is up and running in Columbus, Ohio. We have 10 planned for this year,
08:12plus some remodels will take us up to about 20 different versions of it. Out of the gate,
08:17the customer response to the store has been tremendous. We're very excited about what customers
08:21are saying about it and the sales growth in those stores. And what we will do is there's headroom for
08:27this business. We're going to continue to build new stores this year and, you know, for the foreseeable
08:31future. That will be our new store model. But what great retailers do and what we're doing is we
08:36take the learnings of that, what really resonated with consumers, and then roll that out across the
08:42chain. When you say more stores, does that mean your total footprint? Total footprint is going to
08:45grow. Okay. And we've been investing in our stores and you're going to continue to see our capital
08:50go towards our store network. Well, that's sort of where I was going to go next, because you think
08:54about, you know, the fact that you've been at the helm for 16 months. It's been an eventful 16 months.
08:59What do the next 16 months or so, whatever timeframe you want to pick, what do they look
09:04like? What's the priority? Yeah. So the priorities are the following, and it's pretty straightforward.
09:09Improve the retail experience, primarily through stores, but also improve our digital business as
09:15well and our interaction with consumers. Transform our merchandise, our core merchandise, to continue
09:20to increase relevance. And then services and events are a big part of our proposition. So this is
09:26kids' birthday parties. This is free kids crafting all summer. This is teaching people how to sew.
09:32And so we're continuing to build out that business all on top of a business that's powered by this
09:37analog trend and our entry into these new categories.
Comments