Research Update: The Michaels Cos. Inc. Downgraded To 'B-' From 'B' On Operating Performance And Elevated Leverage; Outlook Negative

U.S.-based creative products retailer The Michaels Cos. Inc.'s second quarter performance was weak, with comparable store sales decreasing in the high-single-digit percentage area and freight costs severely hurting profitability. We expect leverage to be very high before improving in 2023 as freight pressure relief is offset by a weaker economic backdrop given our base case assumption of a shallow recession. Therefore, we lowered our issuer credit rating on Michaels to 'B-' from 'B'. The outlook is negative. At the same time, we lowered our issue-level ratings on the company's term loan and senior secured notes to 'B-' from 'B'. The '3' recovery rating is unchanged. We also lowered our issue-level rating on the company's senior unsecured notes to 'CCC' from

...- U.S.-based creative products retailer The Michaels Cos. Inc.'s second quarter performance was weak, with comparable store sales decreasing in the high-single-digit percentage area and freight costs severely hurting profitability. - We expect leverage to be very high before improving in 2023 as freight pressure relief is offset by a weaker economic backdrop given our base case assumption of a shallow recession. - Therefore, we lowered our issuer credit rating on Michaels to 'B-' from 'B'. The outlook is negative. - At the same time, we lowered our issue-level ratings on the company's term loan and senior secured notes to 'B-' from 'B'. The '3' recovery rating is unchanged. We also lowered our issue-level rating on the company's senior unsecured notes to '###' from '###+'. The '6' recovery rating is unchanged. - The negative outlook reflects that we could lower our rating on Michaels over the next 12 months if the company does not demonstrate material improvement and prospects to generate...

Research Update