We write today to terminate coverage of Michaels Companies (Nasdaq:MIK), after our thesis has fully run its course. In Antrim's early days, before we had decided to pivot towards an exclusive focus on short idea generation and research coverage, we had initiated on two long ideas which we considered to be high conviction, special situations with unique, near term catalysts for price appreciation. Today, we are terminating our coverage of MIK, and moving to a rating of "Not Rated." Our thoughts on the initiation and current state of affairs are elaborated on in our write up.
Despite our ongoing focus on the identification of profitable ideas for our clients' short book, Antrim continues to believe that opportunities exist on the long side in certain special situations and otherwise unique opportunities. We maintain coverage of two long ideas - DESP, which is a deeply undervalued and misunderstood, high quality, emerging market e-Commerce business, and MIK, which is an e-Commerce resistant (though not immune) specialty retailer that is currently benefitting from a coronavirus related improvement in the Arts & Crafts category, and putting investors through a "short squeeze." Since we initiated coverage on these names earlier this summer, both have been in the news. You can find our thoughts on these developments using the link below:
The Michaels Companies is a struggling big-box specialty retailer, specializing in the general arts & crafts category. The shares trade at $7.07 as of Tuesday’s market close, down nearly 80% from a peak of over $30 per share in May of 2016. Despite negative same store sales growth in six of the company’s last eight reported quarters and substantial financial leverage, we believe the market price of MIK dramatically overstates the distress in which the company finds itself, and that current prices offer investors the chance to buy a solvent national retailer specializing in a relatively attractive product category at 3.5x earnings per share, and 4.8x adjusted EV/EBITDAR.
