Michael's Shares Ends Flat in Trading Debut

This story has been updated from 12:33 pm ET with CEO comments, stock price update.

NEW YORK (TheStreet) -- Shares of Michaels (MIK), the arts and crafts specialty retailer that was taken private in 2006, fell as much as 2% shortly after the company returned to the public markets Friday, but reversed its losses to end the day effectively flat at $17.02.

Late Thursday, Michaels raised $472 million after pricing 27.8 million shares at $17 a share, according to a press release. The price, which was at the low-end of the range given in the company's regulatory filing, had valued the company at roughly $3.45 billion. In 2006, the company was taken private by Bain Capital and Blackstone Group in a transaction valued at about $6 billion. Michaels does not plan on paying any cash dividends in the near future and will instead use earnings to repay part of its $3.7 billion in debt and reinvest in the company. 

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Michael's traded "as if there was a good amount of fluff (overstated demand) in the book," Scott Sweet, senior managing partner of IPO Boutique, wrote in an email to TheStreet earlier in the day. "It opened flat and broke the IPO price very quickly, never a good sign."

In a video interview on Friday, CEO Carl "Chuck" Rubin said that the company is not focused on short-term stock moves but longer-term results. "We know over time that we've got a terrific foundation, a more exciting strategy that's going to lead us forward," Rubin said. "We're much more focused on the long term and doing what's right for our customers, which will then translate into something that's great for investors and less focused on what happened in the first day of trading."

With more than 1,200 stores, Michael's is facing intense competition from mass-market retailers such as Walmart (WMT), Target (TGT) and Amazon (AMZN), as well as smaller chains Hobby Lobby Stores, Jo-Ann Stores and AC Moore. However the trend toward do-it-yourself crafting projects both for personal and for sale has reached ardent fervor thanks to social media sites like Pinterest, marketplace sites like Etsy and the growing online crafting educational platform, Craftsy. The company said in the filing that it plans to open as many as 45 new stores, which includes 10 to 15 relocations in 2014.

"Social media is one of the greatest things for our business because people are seeing things that other people make with their own hands, their own creativity, they see these things posted on Pinterest, Facebook, you see it even in mainstream media like HGTV. We think that's inspiring people to go out and try to make things on their own," Rubin noted. "That will translate into customers, which will translate into sales."

"Over the last 12 months, we have had approximately 188 million visits to michaels.com; we also have approximately 1.8 million Facebook (FB) followers, more than 395,000 Pinterest followers and over 134,000 Twitter (TWTR) followers," according to the filing. "We expect our new e-commerce platform will allow us to sell much of our current assortment while also expanding into e-commerce-only products. Although we expect this channel will produce a more limited sales penetration than more commoditized retail categories, we believe it will augment our multi-channel strategy to broaden our customer base and improve the shopping experience."

Rubin said in the interview that customers "actually want the brick and mortar experience because when you think about what we are selling - we sell pieces and parts of things for a customer to then create out of their own imagination," Rubin exclaimed. "So if you're putting yarn and ribbon and paper and pen and paint together to make something you want to see how all those products blend together. In the digital world, as good as it is, it can't replace the brick and mortar shopping experience. ... We do not view this as a business that gravitates to be online exclusively."

At least one expert isn't overly optimistic about Michaels' long-term strategy. "The problem for the retail sector is it's driven by the fickleness of tastes of consumers," said Anthony Michael Sabino, a securities lawyer and a professor at St. John's University's Peter J. Tobin College of Business. "Arts and crafts has always been a dicey part of the U.S. economy. It's faddish and when the fad dies, the revenue stream dies. Michaels is in the middle of that."

"The one thing I will say for Michaels that is in their favor and its interesting that they [went public] at the end of June ... There will be bated breath for Labor Day and back to school," Sabino noted. "Some investors will be thinking -- and there is a logic to it -- that if they buy in now, theyre looking for [an uptick in the stock] from stronger earnings in the latter part of 2014 due to the back to school rush."

This week has been a busy one for IPOs, with 11 companies pricing this week.

GoPro (GPRO), the video-camera maker popular with zealots of surfing, skiing and other action sports, surged 31% from its IPO price of $24 a share on Thursday, its first day of trading. GoPro raised approximately $427 million. The $24 a share price was at the high end of the expected range of $21 to $24 a share.

On the other hand, ServiceMaster (SERV), a Memphis, Tenn.-based provider of essential residential and commercial services under a portfolio of brands that includes Terminix pest control, American Home Shield home warranties, ServiceMaster Restore disaster restoration, ServiceMaster Clean janitorial services, Merry Maids residential cleaning service and others, also began trading shares on Thursday, priced shares 38.5 million shares at $17, below the expected range of $18 to $21. The stock rose just 5.6% from its IPO price on its first day of trading.

Alibaba, the Chinese e-commerce giant, said on Thursday that it was picking the New York Stock Exchange to list its shares under the ticker "BABA."

--Written by Laurie Kulikowski in New York.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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