NEW YORK (TheStreet) -- Since going public last July, Michaels Companies (MIK) has been able to beat estimates. The company has seen strong underlying trends for arts and craft projects. Crafters are a $30 billion industry; 80% percent of customers are female and have been crafting for more than 10 years. According to the company, 55% of U.S. households participated in at least one craft project in 2012.
Michaels has a number of initiatives to continually improve results. Store renovations, improved marketing, a better e-commerce experience and more personalized service have translated into better-than-expected results.
Back in March, the company lowered guidance for the first quarter mostly because of the strong dollar, unfavorable weather and the port strike. Since 10% of the company's revenue comes from Canada, the foreign currency hit can be overcome, though. The effects of bad weather and the port strike should fade this quarter. I believe Michaels could guide up since pent-up demand could flow into the second quarter.
Investors have been concerned about Michaels high debt levels, but sales have only declined once (a drop of 1.3% in 2008). Since 2008, margins have only increased, in part because the company has proven adept at rolling out private-label products, which carry higher margins.
Although the company only grows revenue in the low single digits (3% to 4%), crafting is getting more popular. Social media is helping to drive sales. According to a company survey, 89% of respondents use the Internet for project ideas. Craftsy.com, a Web site that features do-it-yourself projects, has over 5 million members and has grown 500% in the last two years. Ravelry.com, a knitting and crochet Web site, has grown 33% year over year and boasts over 4 million members. Etsy (ETSY), a site that allows members to sell their crafts, has over $1 billion in transactions and over 40 million members.