CFO Is Leaving, but Michaels Stores Rolls On - TheStreet

Updated from 12:43 p.m. EDT

Not even a key executive departure can dampen investors' enthusiasm for

Michaels Stores

(MIK) - Get Report


Wall Street reacted with a shrug Monday when the arts and crafts retailer announced that Brian DeCordova, the company's executive vice president and chief financial officer, would leave the company in the fall. Shares were off just 27 cents at $40.33 about midday, as investors bet the departure would have little effect on the company's impressive turnaround.

The Irving, Texas-based company quietly boosted its performance last year by cutting back in-store promotions and advertising, which improved margins. Michaels stock took off in the wake of Sept. 11, as the company was one of the

few retailers to maintain financial guidance while holding the line on prices. Shares have more than doubled since then and are currently trading near their 52-week high of $42.25.

Weathering the Storms

In a statement, the company said that DeCordova, 45, will stay on until a successor is found. But while acknowledging DeCordova's contribution, most analysts give much of the credit for Michaels' recent stellar performance to Michael Rouleau, Michaels' chief executive.

"Michael Rouleau is the leader in this turnaround," says Joan Bogucki-Storms, who covers the company for Wedbush Morgan Securities. "But Brian was certainly a significant part of that." (She has a buy rating on the stock, and her firm does not have a banking relationship with the company.)

While most analysts who cover the company weren't worried that the departure signals trouble ahead, some were surprised by the move and hoping to get more information from the company on DeCordova's motives.

"I was surprised by the announcement; I thought he was a good CFO," says William Armstrong, an analyst at C.L. King. "But the changing of the CFO doesn't change the outlook." (He has a strong buy rating on the stock, and his firm does not have an investment banking business.)

Belle of the Balls

In the statement the company only said that DeCordova is looking for a "new challenge."

In an interview, DeCordova said he doesn't have a new job lined up. "I really haven't had a chance to measure what is out there," he says.

"We've had such a success here, when I look back at the goals I had, we've achieved most of them," he says. In the two years prior to DeCordova joining Michaels in 1997, the company lost $100 million on an operating basis. The company returned to the black under his watch, and also gained credibility on Wall Street, he says. While the company previously had a following only among smaller brokerages, two big firms, Credit Suisse First Boston and Merrill Lynch, recently picked up coverage.

When he first came aboard, investors used to say "that you can't make money selling little Styrofoam balls," he says. "But you can if you mark them up enough and sell enough of them."

DeCordova earned $256,154 in salary last year and received a $120,000 bonus, according to the company's latest proxy filing, which was released Monday. As of the end of the company's fiscal year, which ended in February, he had about $1.9 million worth of unexercised stock options. In addition, he was given 50,000 options last year with a strike price of $20.99, or about half of the current share price. Because these vest over several years, it appears he will only be able to exercise one-third, or about 16,666 shares, beginning in July.

Michaels, which is scheduled to report April sales on May 9, has been able to boost sales without resorting to markdowns as most retailers did during the recession. For example, same-store sales, which measure activity in shops open at least a year, rose 4% in March, while the average ticket price rose from $16.75 to $17.38, according to figures provided by Wedbush Morgan.

Meanwhile, analysts project earnings will grow at a robust 20% to 25% annual clip over the next five years. The stock, even after the run-up that began last fall, is trading at less than 20 times next fiscal year's estimated earnings, according to Thomson Financial/First Call.

For this reason -- combined with the company's ability to consistently boost sales while also improving margins -- analysts say the stock has plenty of steam left.