Michael‘s (MIK) Crafted a Strong Quarter in 1Q26

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Michael‘s (MIK) Crafted a Strong Quarter in 1Q26

Idea

June 18, 2026 08:58 PM GMT

Morgan Stanley & Co. LLCMRetail Credit Research | North America Jenna L Giannelli

Credit analyst

Michael's (MIK) Crafted a Strong Jenna.Giannelli@morganstanley.comRoopi Bhangu +1 212 761-4340

Credit Analyst

Roopi.Bhangu@morganstanley.com +1 212 761-1912

Quarter in 1Q26

Michael's reported a strong 1Q with double-digit comps and

SG&A leverage that more than offset tariff pressure. We raise

our FY26 EBITDA estimate to account for the beat, while

watching tougher comps, inventory, and tariff refund amount /

timing. We continue to recommend MIK 2033 1L notes offering

~9% yield. Bonds were up ~0.6pt secured / ~1.3pt unsecured

post the print.

Key Takeaways

Solid 1Q beat, with sales +10.7%, comps +10.3% and Adj. EBITDA +14.4% to

$109.3m vs. our $99m estimate. Gross margin faced tariff pressure, but SG&A

levered significantly on stronger sales.

2Q is off to a strong start, though we expect YoY growth to moderate as the

company begins to lap double-digit comps from last year.

Tariff refunds were filed for $170m, higher than what we had been modeling,

though timing and amount remain uncertain.

Inventory +20% YoY bears watching, though management remains comfortable

and noted the increase supports JOANN / Party City capture opportunities and

reflects tariff-related cost increases.

We continue to recommend MIK 2033 1L notes, which offer ~9% yield and a

stronger position in the capital structure.

Our take on the quarter (+): MIK posted a strong 1Q, with better-than-expected

comps and profitability. Net sales increased +10.7% YoY to $1,132.6mm, driven by

+10.3% comps, with growth broad-based across key categories. Adj. EBITDA

increased +14.4% YoY to $109.3mm, ahead of our $99mm estimate, as sales growth