Michaels Companies is an attractive short because its highest margin business, in-store personalized framing, is being challenged by start-ups offering the service at a fraction of the price, said Keith Rosenbloom, founder of Cruiser Capital Advisors.
Online competitors lik Framebridge and Amazon will continue to cut into Michael’s margins, Rosenbloom said.
Michaels Companies employees are getting ready for the holiday rush for wreathes and tinsel, but one short-seller believes the company is an attractive short, no matter how packed stores get this December.
The Irving, Texas-based arts and crafts brand is imperiled by Amazon and other online options that negate the need to get off the couch to buy items like pipe cleaners and sewing kits, according to Keith Rosenbloom, a portfolio manager at Cruiser Capital Advisors.
Michaels makes 15% of its sales off custom framing done in-store. Those sales represent around 33% of the company’s operating income, according to Rosenbloom’s estimates. Rosenbloom, who spoke at Kase Learning’s Shorting Conference on Monday in New York, has a short position in the company.
But Michaels’ online presence is minimal, Rosenbloom said, with his presentation highlighting how Michaels and its other assorted brands do not come up when searching through Google for custom framing services. Online competitors like Amazon and startup Framebridge will continue to cut into Michaels’ margins, he said.
“There are lots of people offering less expensive online versions of framing, this is their problem.”
Shares of Michaels closed up 2.7% at $17.43
A representative from Michaels was not immediately available for comment.
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Source:: Business Insider