Johnson Rice

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Johnson Rice Co. LLC 5th Annual Consumer
Conference
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Jeffrey Boyer EVP, Chief Financial Officer
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Michaels Stores, Inc.Safe Harbor Statement
Certain statements contained herein which are not
historical facts are forward looking statements
that involve risks and uncertainties, including,
but not limited to, customer demand and trends in
the arts and crafts industry, related inventory
risks due to shifts in customer demand, the
effect of economic conditions, the impact of
competitors locations or pricing, the
availability of acceptable locations for new
stores, difficulties with respect to new
information system technologies, supply
constraints or difficulties, the results of
financing efforts, the effectiveness of
advertising strategies, and other risks detailed
in the companys securities and exchange
commission filings.Michaels Stores, Inc.8000
Bent Branch DriveIrving, Texas 75063Contact
Lisa K. KlingerVice President Treasurer
Investor RelationsPhone [phone]
4
Investment Highlights

• Arts and Crafts Growing Category With Strong
  Growth and Favorable Demographics
• The Michaels Experience Helping Consumers Be
  Creative
• Michaels Stores The National Brand
• Significant Investments Made in Operational
  Capabilities
• Many Operational and Economic Benefits Still to
  Come
• Growth Opportunities Available

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Arts CraftsA Growing Industry
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Arts Crafts A Sizable Industry

• 25 Billion Industry
• Benefiting From Trend Toward Home-Based
  Activities
• Nearly 60 of U.S. Households Participate in Arts
  Crafts During the Year

Source Craft and Hobby Association and William
Blair Company
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Core Arts Crafts Market

• Estimated 25 Billion Market

Needle Crafts Cross Stitching Quilting Knitting Ho
me Décor Sewing
General Crafts Scrapbooking Beading Jewelry
Making Rubber Stamping
Painting/Finishing Home Décor Painting Art
Drawing Stenciling Decorative Painting
Floral Crafts Floral Arranging Wreath Making
Source William Blair Company
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Total Addressable Market
Total Market
30 Billion
2 Billion
Ready-Made Frames
4 Billion
Custom Framing
25 Billion
Core Arts and Crafts
Source William Blair Company and Michaels
Stores, Inc. estimates
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Market Remains Fragmented

• Significant Total Market Size
• MIKs Market Share, while 1, is only 11 of
  total
• Significant Opportunity to Continue to
  Consolidate Arts and Crafts Industry
• High barriers to entry with high sku count
  business
• Also a barrier to large discounters like Walmart

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Our Customer Base

• Female
• Young
• 75 under 55
• 50 between 35 and 54
• 25 under 35
• Educated
• 90 High School Grad
• 60 Attended College
• Affluent
• Household Income
• 45 60,000 to 100,000
• 20 100,000

Source Craft Hobby Association and Craftrends
Magazine
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The Category Leader
Silk/Dried Floral
Framing
Wedding
Art Supplies
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Keys to the Business

• Enable Customers to Pursue Activities They Enjoy
• Traditional Crafts
• DIY Home Décor
• Kids Crafts

• Component Business
• Selection, Service, and Convenience
• High Margin
• Low Average Ticket/Great Value

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The Result A Loyal Customer Base

• Average Michaels Customer Shops Twice per Month
  Spending Over 16 per Visit
• Core Michaels Customer Shops Three Times per
  Month Spending Over 28 per Visit

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Michaels Stores, Inc The Leading Industry Brand
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Retail
Michaels Stores
Aaron Brothers Stores
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Michaels Stores Key Statistics
Store data as of October 18, 2005
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Growing Store Base
886 Stores
819 Stores
728 Stores
686 Stores
621 Stores
516 Stores
511 Stores
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Aaron Brothers Key Statistics

• Quality Frames and Art Supplies
• Quality Service
• Upscale Clientele

Store data as of October 18, 2005
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Manufacturing
20
Manufacturing
21
Artistree Keeping Profits in the Company
Fiscal Year ( in millions)
22
Recent Financial Performance
23
Solid Growth in Average Sales Per Store
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Driving Consistent Sales Growth
12 CAGR
Total Net Sales( in Billions)
25
Same-Store Sales Growth Solid
AR / PI
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Increasing Operating Margins
Without Cumulative Adjustments, Corrections, or
One-Time Items
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Generating Strong Earnings Performance
Earnings CAGR of 28!
Earnings Per Share(Adjusted for Stock Split)
Net Income( in millions)
Note Net Income Before Cumulative Effect of
Accounting Change
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Increasing Return on Invested Capital
Note Excluding excess cash
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Solid Cash Flow From Operations
s IN MILLIONS
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Increasing Shareholder Value
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Increasing Shareholder Value

• Improve Performance of Existing Stores
• Sales Productivity
• Operating Profitability
• Inventory Turnover
• Expand Current Format Store Base
• Develop New Store Concepts

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Transforming the Company
Execution Phase
2004 - Ongoing
Re-Building Phase
1998 - 2003
Turnaround Phase
1996 - 1998
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Execution Phase
34
Execution Phase
35
Execution Phase
36
Execution Phase
37
Execution Phase
38
Execution Phase
39
Execution Phase
40
Increasing Shareholder Value

• Improve Performance of Existing Stores
• Sales Productivity
• Operating Profitability
• Inventory Turnover
• Expand Current Format Store Base
• Develop New Store Concepts

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Michaels Stores Inc.
886
1200
166
600
11
250
1067
Current
4
50
2100
Potential
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Compelling New Store Economics
( in thousands)

• Initial Cash Investment of 1.2 Million (Half in
  Inventory)
• First Five Year Average Cash on Cash Return of
  Over 25

43
Increasing Shareholder Value

• Improve Performance of Existing Stores
• Sales Productivity
• Operating Profitability
• Inventory Turnover
• Expand Current Format Store Base
• Develop New Store Concepts

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New Store Concepts

• Star Wholesale 50 Stores

Recollections 200 Stores
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Current Business Trends

• Third Quarter Comps
• Estimated at Flat to 1
• Primary Drivers
• Unseasonably Warm August/September Weather
• High Energy Costs
• Elimination Of September Promotion
• General Improvement During Q3 Relative to Plan
• Generally Pleased With Seasonal Sell-Thru
• Fashion Yarn Sales Up Solidly in October
• Third Quarter Earnings
• Diluted EPS Estimated at .36 to .38
• Representing 16 to 23 over last year.

46
FY 2005 Outlook

• Solid Sales Growth
• Total Sales Up 8 to 10
• Expand Store Base
• Michaels 45
• Recollections 3
• Aaron Brothers 2
• Continue to Expand Operating Margins
• Approximately 150 bps Overall
• Record Profits Expected
• Our Ninth Consecutive Record Year
• 24 to 28 EPS Growth over 1.45
• Continue to Build for the Future
• Test and Rollout New Growth Concepts

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Long Term Goals
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Conclusion - Why Is Michaels Compelling?

• 8 Record Years in a Row!
• Investments in Infrastructure Starting to Pay Off
• AR/PI Implementation Enables Acceleration of
  Sales and Expansion of Margin
• Significant Opportunity Ahead
• Pursuit of The Perfect Store
• Hybrid Distribution
• Sourcing
• Experienced Management Team
• Near Term Strong Earnings Growth Potential
• Long Term All Pieces in Place to Attain 5
  Million Store and World Class Profitability