Michaels, the arts-and-crafts retailer backed by Apollo Global Management Inc., received a ratings upgrade from S&P Global Ratings. This upgrade followed the company's strategic use of a substantial tariff refund to decrease its debt. Michaels received more than $170 million in IEEPA tariff refunds, including interest, which it then allocated to repurchase $101 million of its 11% second-lien notes. This move helped to substantially improve its financial standing.
The debt reduction had a significant impact on Michaels' leverage. Net leverage fell to 4.8 times earnings, a considerable improvement from 6.3 times just a year prior. The company also reported a boosted adjusted EBITDA of $178 million for the quarter. Without the tariff refund, adjusted EBITDA would have been approximately $94 million. Gross profit was reported at $522 million, representing a 46.6% margin with the refund, compared to 33.1% without it.
Michaels also reported strong operational performance, with comparable sales increasing by 4.5% year over year and total revenue rising by 4.8% to $1.12 billion. Apollo acquired Michaels about five years ago, and the retailer has shown resilience and growth, even acquiring assets from competitors like Party City and Joann. The improved financial health, partly due to this tariff refund and debt repurchase, positions Michaels for potential future strategic moves, with an initial public offering being considered as a likely exit path for Apollo.
