Policy: Economy

Michaels has tepid return to public markets

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Photo - FILE - This Aug. 23, 2006 file photo shows A Michaels store in Philadelphia. The arts and crafts chain's initial public offering on Friday, June 27, 2014, is expected to test investor enthusiasm for the crafts business in light of competition from the Web and big discounters.  (AP Photo/Matt Rourke, File)
FILE - This Aug. 23, 2006 file photo shows A Michaels store in Philadelphia. The arts and crafts chain's initial public offering on Friday, June 27, 2014, is expected to test investor enthusiasm for the crafts business in light of competition from the Web and big discounters. (AP Photo/Matt Rourke, File)
News,Business,Economy

NEW YORK (AP) — Michaels had a tepid return to the stock market Friday, its shares going back and forth between small gains and declines.

The arts and crafts store operator's shares closed up 2 cents to $17.02 in trading on the Nasdaq, after falling as much as 2 percent earlier.

The lackluster response shows investors are wary of retailing and the fragmented $30 billion arts and crafts industry. The last IPO from a major retailer was The Container Store Group Inc., which made its debut in November. Its shares have fallen 20 percent since then and closed at $29 Friday.

The IPO comes amid a market rush. It's the third-busiest week for IPOs since 2000, according to IPO investment adviser Renaissance Capital.

Michaels Cos. Inc., which also runs the Aaron Brothers chain, priced an initial public offering of 27.8 million shares at $17 each, at the low end of its predicted range.

The Irving, Texas, company raised $472 million from the offering.

Private equity firms Bain Capital LLC and The Blackstone Group LP bought Michaels in a $6 billion leveraged buyout in 2006.

Michaels' IPO was delayed two years after its then-CEO John Menzer resigned after a stroke.

Michaels, which was in a sweet spot during the Great Recession when homemade goods gained new currency as people tried to save money, has faced increasingly tough competition. That's coming from discounters — Wal-Mart Stores Inc., for example, recently brought back its fabric offerings — and online king Amazon.com.

Michaels has been late to the online party, launching its e-commerce business only this year.

In an interview with The Associated Press on Friday, Chuck Rubin, who was appointed CEO of Michaels in March 2013, dismissed the market's response. He said he's focusing on long-term opportunities, and that investors will be rewarded.

"This is a marathon, not a sprint," he added.

While there's not a lot of data available on the arts and crafts market, he said Michaels' sales have been growing faster than the industry's annual rate of low-single-digit increases, and it's been taking market share away from other traditional chains, though he declined to give names.

Rubin shrugged off competition from Amazon, saying e-commerce is not as much of a threat as it is to other industries.

"When you sell pieces and parts, we know customers want to come to the brick and mortar stores to see how things come together," he said.

He also noted the average price for an arts and crafts item is $3. "There's no easy showrooming in this industry," he added.

The big opportunity is personalization and taking advantage of social media sites like Pinterest, he says. Michaels wants to focus not only on the crafts enthusiasts but novices as well. Last year, more than 800,000 customers took classes at Michaels stores.

The company, founded in 1973 with one small store in Dallas, said in a regulatory filing that North America could potentially grow to 1,500 Michaels stores. It currently operates 1,263 Michaels stores and 118 Aaron Brothers stores.

Its original debut as a public company came in 2001 on the New York Stock Exchange. It's using the same ticker "MIK," but is now trading on the Nasdaq.

For its latest fiscal year, which ended on Feb. 1, sales rose nearly 4 percent to $4.6 billion. Net income rose to $243 million from $200 million.

The arts and crafts chain plans to use the IPO's proceeds to pay down its debt. It had $3.7 billion of debt as of May 3.

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AP Business Reporter Michelle Chapman contributed to this report in New York.

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Follow Anne D'Innocenzio at http://www.Twitter.com/adinnocenzio

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