Michaels : Earnings Presentation Q3 2020

The Michaels Companies

Q3 2020 Supplementary Slides

THE MICHAELS COMPANIES

This presentation contains forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.

While these statements address plans or events which we expect will or may occur in the future, a number of factors could cause actual results to differ materially from our expectations. We refer you to and specifically incorporate the cautionary and risk statements contained in our press release issued December 3, 2020 and in our SEC filings. You are cautioned not to place undue reliance on these forward-looking statements which speak only as of December 3, 2020. We have no obligation to update or revise our forward-looking statements except as required by law, and you should not expect us to do so.

We also reference non-GAAP financial measures, including adjusted operating income, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA. The Company has reconciled each measure to the most directly comparable GAAP measure in the third quarter fiscal 2020 earnings release issued on December 3, 2020 and at the end of this presentation (appendix).

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Contents

Q3 FY20 Performance Overview & Priorities

Q3 FY20 Financial Discussion

Appendix

THE MICHAELS COMPANIES	3

Q3 FY20 Performance Overview,

& Priorities

THE MICHAELS COMPANIES	4

Q3 Fiscal 2020 Financial Performance

Key Financial Metrics	Q3 2020	Q3 2019	Change vs. LY
Net Sales	$1.41 billion	$1.22 billion	+15.1%
Comparable Store Sales	16.3%	-2.2%	+18.5pts
Adjusted Operating Income*	$201.6 million	$117.4 million	+71.7%
Adjusted Diluted EPS*	$0.86	$0.40	+$0.46

*Please refer to appendix for reconciliation of non-GAAP financial measures to the respective GAAP measures.

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Strategic Priorities

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Strengthen our RETAIL FOUNDATION & how we execute

1. Improve retail execution- right product, right price, where and how customers expect it o Store operational efficiencies

Modernize the OMNI-EXPERIENCE for Makers

1. Rapidly evolving the omnichannel experience to transform Michaels into a leading omnichannel specialty retailer

Re-establish our brand position as THE EXPERT for Makers

1. Inspire and drive further customer engagement through marketing and by leveraging CRM, Loyalty and Community

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Q3 FY20 Financial Discussion

THE MICHAELS COMPANIES	7

Q3 Financial Performance

Metric	Q3 Fiscal 2020	Q3 Fiscal 2019
Net Sales
	$1,406.2M	$1,222.0M
Gross Profit	$581.7M	$441.6M
Margin	41.4%	36.1%
SG&A
	$373.2M	$322.8M
Adjusted Operating Income*	$201.6M	$117.4M
Margin
	14.3%	9.6%
Interest Expense
	$37.4M	$38.8M
Effective Tax Rate
	20.3%	22.5%
Adjusted Net Income*
	$129.3M	$60.1M
Adjusted Diluted EPS*
	$0.86	$0.40

*Please refer to appendix for reconciliation of non-GAAP financial measures to the respective GAAP measures.

• Sales increase driven by:
• • 128.0% e-commerce growth (+)
  • Higher basket size (+)
  • Decrease in customer transactions (-)
• Gross Margin increase driven by:
• • Occupancy cost leverage (+)
  • Lower promotional cadence (+)
  • Benefit from ongoing pricing and sourcing initiatives
    (+)
  • Impact of tariffs on inventory purchased from China(-)
  • Change in sales mix to e-commerce(-)
• SG&A increase driven by:
• • Higher incentive compensation (-)
  • Costs associated with strategic initiatives (-)
  • Sanitation and other supply expenses (-)

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Balance Sheet/Cash Flow

Metric	Q3 Fiscal 2020	Change vs. LY or
		FQ3 2019
Cash	$852.0M	+$733.6M
Merchandise Inventory	$1.2B	(17.8%)
Total Debt, Excluding Leases	$2.5B	($174.3M)
Total Debt, Including Leases	$4.1B	($215.0M)
TTM Total Debt/EBITDA	3.4x	No change
Interest Coverage LTM	3.5x	(0.6x)
Cash from Operating Activities	$413.1M	+$304.6M
Free Cash Flow*	$380.0M	+$303.6M
Capital Expenditures	$33.1M	+$1.0M

• Successfully refinanced term loan in September, with maturities extended to 2027.
• As part of that refinancing and as a demonstration of the commitment to de-lever the business over the long- term, paid down $150 million in debt.
• Balanced capital allocation going forward prioritizing growth investments followed by paying down debt, opportunistically repurchasing shares and then potential acquisitions aligned with our growth strategy

* Free Cash Flow defined as cash flow from operating activities less capital expenditures.

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Appendix

THE MICHAELS COMPANIES	10

Reconciliation of non-GAAP financial measures to the respective GAAP measures

THE MICHAELS COMPANIES	11

Reconciliation of non-GAAPfinancial measures to the respective

GAAP measures The Michaels Companies, Inc. Reconciliation of Adjusted EBITDA

(Unaudited)

					13 Weeks Ended			39 Weeks Ended
					October 31,			November 2,		October 31,		November 2,
	(in thousands)				2020				2019			2020			2019
	Net cash provided by operating activities	$	413,111	$	108,475	$	712,860	$	106,367
	Non-cash operating lease expense			(79,498)				(81,397)			(241,040)			(244,258)
	Depreciation and amortization			(31,292)				(31,295)			(95,382)			(94,025)
	Share-based compensation			(6,571)				(6,658)			(19,759)			(18,664)
	Debt issuance costs amortization			(875)				(970)			(2,757)			(3,509)
	Loss on write-off of investment			-				-			-			(5,036)
	Accretion of long-term debt, net			(349)				(67)			(480)			195
	Restructure impairment charges			(9,388)				(41,376)			(9,388)			(48,332)
	Impairment of intangible assets			-				-			(3,500)			-
	Deferred income taxes			(2,690)				10,023			289			9,984
	Gain on sale of building			-				-			101			-
	Losses on early extinguishments of debt and refinancing costs			(22,044)				(161)			(22,044)			(1,316)
	Changes in assets and liabilities			(149,282)				72,131			(279,040)			389,537
	Net income			111,122				28,705			39,860			90,943
	Interest expense			37,370				38,781			112,233			116,274
	Income taxes			28,284				8,324			18,836			28,615
	Depreciation and amortization			31,292				31,295			95,382			94,025
	Interest income			(144)				(297)			(1,426)			(2,012)
	EBITDA			207,924				106,808			264,885			327,845
	Adjustments:
	COVID-19 expense (1)			632				-			19,158			-
	Losses on early extinguishments of debt and refinancing costs			22,044				161			22,044			1,316
	Share-based compensation			6,571				6,658			19,759			18,664
	Restructure charge and impairment charges			9,388				41,376			9,388			48,332
	Darice liquidation charges			(6,775)				-			45,711			-
	Severance costs			667				1,683			5,537			5,175
	Store pre-opening costs			184				1,402			1,528			4,370
	Store remodel costs			1,226				174			1,675			242
	Foreign currency transaction losses (gains), net			8				192			(322)			659
	Store closing costs			96				478			907			(469)
	Consulting costs			9,240				-			14,149			-
	CEO severance costs			-				-			-			5,569
	Other(2)			1,981				1,788			7,644			4,489
	Adjusted EBITDA	$	253,186	$	160,720	$	412,063	$	416,192
	(1) Includes costs attributable to the COVID-19 pandemic including hazard pay for team members, costs associated with furloughed employees, certain
	charges and sanitation supplies.
THE MICHAELS COMPANIES	(2)Other adjustments primarily relate to items such as moving and relocation expenses, franchise taxes, sign-on bonuses, director's fees, search costs	12
	center move.

THE MICHAELS COMPANIES	1
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