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Michaels (MIK) Problems Don’t Stop at Coronavirus

Alex Smith

Bernzott Capital Advisors recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of -32.76% (net) for the quarter, outperforming its benchmark, the Russell 2000 Value Index which returned -35.66% in the same quarter. You should check out Bernzott Capital Advisors top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Bernzott Capital Advisors highlighted a few stocks and Michaels Companies Inc. (NASDAQ:MIK) is one of them. Michaels is a provider of arts, framing, crafts,  floral & wall décor, and merchandise for makers and do-it-yourself home decorators. Year-to-date, MIK stock lost 66.1% and on May 13th it had a closing price of $2.74. Its market cap is of $405.2 million. Here is what Bernzott Capital Advisors said:

"Michaels (MIK): After initiating a position in July 2017, we completed a re-underwriting of the company in December 2019 and concluded we made a mistake. MIK faces several structural challenges we did not forsee: lower margins due to increased competition and tariffs; management turnover, including the CEO, EVP Supply Chain and IT, and SVP Marketing; higher debt costs; and a major business model pivot switching customer focus from skilled enthusiasts to novices. The position was sold."

In Q4 2019, the number of bullish hedge fund positions on MIK stock increased by about 8% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with MIK’s downside potential.

Disclosure: None. This article is originally published at Insider Monkey.