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Michaels, Jo-Ann, and Hobby Lobby: Lower Spirits in 1H22, Higher Spirits in the 2H22?

Thomas Paulson
Sep 30, 2022
Michaels, Jo-Ann, and Hobby Lobby: Lower Spirits in 1H22, Higher Spirits in the 2H22?

  • This week, we've decided to look at another segment that was in fashion during the pandemic: crafting. With folks now away from their kitchen tables and off to in-person experiences, the craft segment is down substantially compared to 2021. Compared to 2019, Michaels has opened 15 net new locations, but its average visits per venue is down 5%. In contrast, Hobby Lobby has opened 51 net new locations and its visits per venue is up 9%. Jo-Ann has closed 19 locations and visits per venue is up +5%. Thus, Hobby Lobby leads the group and Michaels lags. Hobby Lobby drives the most visits per venue, 1.4X more than Michaels and 2.2X more than Jo-Ann.

  • Hobby Lobby’s 985 stores do around $7B (2021) in revenue, or $7.1M per venue and $129 per square foot (assuming 55K square foot stores). The business is still run and controlled by founder David Green, who is 80. David’s son Steve Green is President.
  • Michaels’ 1,158 stores do around $5B (2021) in revenue, or $4.3M per venue, and $237 per square foot (assuming 18.2K square foot stores). As a reminder, Michaels was taken private in March 2021 for $3.3B by Apollo Global Management. Michaels Stores, Inc. also owns Aaron Brothers, which locations are only 5.5K square feet in size. That chain has performed similarly to Michaels.
  • Jo-Ann’s 852 locations do $2.4B (2021) in revenue, or $2.8M per location, and $152 per square foot. Its locations average 22K square feet.
  • Jo-Ann and Michaels have different business and service models. Jo-Ann’s has a 50.6% (2019) gross margin that is similar to Michael’s 50.4% (excluding rent). Jo-Ann’s SG&A (excluding rent) is 30%, compared to 25% for Michaels. (Rent costs for JoAnn is 12% of revenue versus 11% at Michaels.) If one assumes an average ticket of $50 for both, JoAnn’s SG&A cost for that sale is $15.00, whereas Michael’s is $12.50; thus, per sale, JoAnn puts in $2.50 more in service. That higher level of service and potentially higher levels of in-stocks are potential explanations for why Jo-Ann has been able to better retain its customer engagement and sales productivity levels during 2022 as consumers pivoted to out-of-home experiences.
  • For 1H22, Jo-Ann comp-store sales were down 10%. On a three-year CAGR basis, comparable-store sales were flat. Given the increased visits per venue of +5%, that would suggest that a lower ticket and/or lower conversion rates offset that increase. Like all retailers, Jo-Ann has been challenged by higher ocean freight, supply chain costs, and inflationary costs. Those issues severely dented profitability in 1H22 and it would be reasonable to assume that Michaels and Hobby Lobby also suffered similarly. However, the good news is that Jo-Ann’s management expects a significant recovery in profitability in 2H22.
  • Why the stronger performance of Hobby Lobby? Given their status as a privately-held company status, it’s hard to know. Effective marketing, strong execution, or some combination? Whatever it is, it’s working.

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Thomas Paulson

Director of Research and Business Development, Placer.ai

Thomas Paulson spent 20 years as a Wall Street analyst and a member of asset management teams at AllianceBernstein and Cornerstone Capital, representing top-50 ownership positions including Target, Home Depot, Nike, Amazon, Google, and many more.

He brings consumer related expertise and knowledge of enterprises in retail, CPG, financial services, telecom, and entertainment.

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