Net sales for the third quarter decreased 3.0% to $906 million from $934million last year, with same-store sales declining 6.5%. Sales for theyear-to-date period decreased 0.5% to $2.549 billion for the nine monthsended November 1, 2008 from $2.561 billion for the corresponding period ofthe prior year. Same-store sales declined 4.1% for theyear-to-date period.

Brian Cornell, Chief Executive Officer, said, "We continue to facedifficult economic conditions, and the results for the quarter reflect thesoftness in spending on higher ticket items, particularly within theSeasonal and Home Décor categories. However, we were encouraged by therelative strength of our core Arts and Crafts business which declined onlyslightly for the quarter. While our long term strategic initiatives remaina priority, in order to manage through near-term challenges, our immediatefocus is on delivering a value message through our merchandising andmarketing efforts, controlling expenses, and preserving liquidity."

Operating Results

The 6.5% decline in same-store sales for the quarter was the result of a2.8% decrease in average ticket, a 3.9% decrease in transactions, and a0.2% increase in Custom Frame deliveries. For the year-to-date period, the4.1% decline in same store sales was due to a 1.2% decrease in averageticket and a 2.9% decrease in transactions. Canadian currency translationreduced the average ticket for the third quarter by approximately 0.7% andadded approximately 0.3% for the first nine months of fiscal 2008.

The Company's gross margin rate, inclusive of occupancy costs, decreased120 basis points to 35.5% in the third quarter and 110 basis points on ayear-to-date basis to 36.3%. The decline in the gross margin rate for thethird quarter was driven primarily by a deleveraging in occupancy costspartly offset by a 10 basis point increase in merchandise margin. Theyear-to-date gross margin rate decline was primarily driven by adeleveraging in occupancy costs and a 40 basis point reduction inmerchandise margin. The decrease in the Company's year-to-date merchandisemargin rate was principally due to continued clearance and promotionalprograms partly offset by benefits from ongoing product sourcinginitiatives.

Selling, general, and administrative expense in the third quarter decreased$14 million, a 5.4% decrease versus the prior year period, to $247 million,and declined 60 basis points to 27.3% as a percent of sales primarily dueto a reversal of year-to-date bonus accruals. Year-to-date selling, generaland administrative expense increased $7 million, to $765 million. As apercent to sales, selling, general and administrative expense increased 40basis points to 30.0% of sales from 29.6% for the same period last year,resulting primarily from deleveraging of store expenses, incrementalin-store investments and increased corporate payroll and severance expense,which were partially offset by lower bonus expense accruals.

Operating income increased approximately $1 million to $68 million, or to7.5% of sales, in the third quarter of fiscal 2008 from $67 million, or7.2% of sales in the third quarter of fiscal 2007. The increase was dueprimarily to lower selling, general and administrative expense andtransaction expenses, partly offset by the reduction in gross profit.Year-to-date fiscal 2008 operating income was $143 million, or 5.6% ofsales, versus $154 million, or 6.0% of sales, for the same period of fiscal2007. The decrease inyear-to-date operating income was primarily due to reduced gross profit andincreased selling, general and administrative expenses, which werepartially offset by reduced transaction costs.

Interest expense was lower by $18 million and $54 million for the quarterand the first nine months, respectively, due to a lower average interestrate on our floating rate debt and lower average debt levels.

Adjusted EBITDA for the third quarter of fiscal 2008 was $112 million, or12.4% of sales, versus $118 million, or 12.6% of sales, for the same periodlast year. Year-to-date fiscal 2008 Adjusted EBITDA was $282 million, or11.1% of sales, versus $321 million, or 12.5% of sales, in the first ninemonths of fiscal 2007. Reconciliations of GAAP measures to non-GAAPAdjusted EBITDA presented herein are included at the end of this pressrelease.

Balance Sheet and Cash Flow

Third quarter debt levels totaled $4.183 billion, largely flat to lastyear's quarter ending balance of $4.181 billion. During the quarter, theCompany made a $5.9 million amortization payment on its Senior Secured TermLoan. At the end of the third quarter, the Company had $92 million in cashand over $510 million of availability under its revolving credit facilitycompared to $57 million in cash and $509 million of availability under itscredit facility as of the end of the third quarter last year. As ofDecember 1, 2008, availability under the credit facility increased toapproximately $630 million.

Average inventory per Michaels store at the end of the third quarter offiscal 2008, inclusive of distribution centers, was flat to last year'sbalance of $1.02 million for the same period.

Capital spending for the nine months ended November 1, 2008, totaled $66million versus $86 million for the same period last year. Nearly $40million of this year's spend is attributable to real estate activities,such as new, relocated, existing and remodeled stores, with the remainderbeing attributable to strategic initiatives and maintenance requirements.In light of the current economic environment, the Company will beevaluating its capital expenditure plan for 2009 and currently expects itsreal estate activity to be significantly reduced by scaling back the newstore opening program and focusing on the best opportunities available inthe marketplace.

During the first nine months of fiscal 2008, the Company opened 50 newstores, relocated nine stores and remodeled 11 Michaels stores. Inaddition, the Company relocated one and closed three Aaron Brothers storesduring this period.

The Company will host a conference call at 4:00 p.m. central time today,hosted by Chief Executive Officer, Brian Cornell and Executive VicePresident and Chief Financial Officer, Elaine Crowley. Those who wish toparticipate in the call may do so by dialing 973-935-8513, conference ID#9430846. Any interested party will also have the opportunity to access thecall via the Internet at www.michaels.com. To listen to the live call,please go to the website at least 15 minutes early to register and downloadany necessary audio software. For those who cannot listen to the livebroadcast, a recording will be available for 30 days after the date of theevent. Recordings may be accessed at www.michaels.com or by phone at800-642-1687, PIN #9430846.

Michaels Stores, Inc. is North America's largest specialty retailer ofarts, crafts, framing, floral, wall décor, and seasonal merchandise for thehobbyist and do-it-yourself home decorator. As of December 1, 2008, theCompany owns and operates 1,014 Michaels stores in 49 states and Canada,and 163 Aaron Brothers stores.

This news release may contain forward-looking statements that reflect ourplans, estimates, and beliefs. Any statements contained herein (including,but not limited to, statements to the effect that the Company or itsmanagement "anticipates," "plans," "estimates," "expects," "believes," andother similar expressions) that are not statements of historical factshould be considered forward-looking statements and should be read inconjunction with our consolidated financial statements and related notes inour Annual Report on Form 10-K for the fiscal year ended February 2, 2008and in our Quarterly Reports on Form 10-Q for the quarter ended May 3, 2008and August 2, 2008. Specific examples of forward-looking statementsinclude, but are not limited to, forecasts of same-store sales growth,operating income, and forecasts of other financial performance. Theseforward-looking statements rely on a number of assumptions concerningfuture events and are subject to a number of risks, uncertainties, andother factors, many of which are outside of our control, that could causeactual results to materially differ from such statements. Such risks,uncertainties, and other factors include, but are not necessarily limitedto: risks related to our substantial indebtedness; our debt agreementscontain restrictions that limit our flexibility in operating our business;our growth depends on our ability to open new stores; our success willdepend on how well we manage our business; we may fail to optimize oradequately maintain our perpetual inventory and automated replenishmentsystems; improvements to our supply chain may not be fully successful;changes in customer demands could materially adversely affect our sales,operating results, and cash flow; unexpected or unfavorable consumerresponses to our promotional or merchandising programs could materiallyadversely affect our sales, operating results, and cash flow; changes innewspaper subscription rates may result in reduced exposure to our circularadvertisements; changes in consumer confidence could result in a reductionin consumer spending on items perceived to be discretionary; failure toadequately maintain the security of our electronic and other confidentialinformation could materially adversely affect our financial condition andoperating results; our suppliers may fail us; our reliance on foreignsuppliers increases our risk of obtaining adequate, timely, andcost-effective product supplies; product recalls and/or product liabilitymay adversely impact our operations and merchandise offerings; significantincreases in inflation or commodity prices such as petroleum, natural gas,electricity, steel and paper may adversely affect our costs, including costof merchandise; our information systems may prove inadequate; a weak fourthquarter would materially adversely affect our operating results;competition could negatively impact our operations; the interests of ourcontrolling stockholders may conflict with the interests of our creditors;and other factors as set forth in the our prior filings with the Securitiesand Exchange Commission, including those set forth under Item 1A "RiskFactors" in our Annual Report on Form 10-K for the fiscal year endedFebruary 2, 2008. We intend these forward-looking statements to speak onlyas of the time of this release and do not undertake to update or revisethem as more information becomes available.

This press release is also available on the Michaels Stores, Inc. website(www.michaels.com).

Michaels Stores, Inc.

Supplemental Disclosures Regarding Non-GAAP Financial Information

The following table sets forth the Company's Earnings before Interest,Taxes, Depreciation and Amortization ("EBITDA"). The Company definesEBITDA as net income before interest, income taxes, discontinuedoperations, goodwill impairment, depreciation and amortization.Additionally, the table presents Adjusted Earnings before Interest, Taxes,Depreciation and Amortization ("Adjusted EBITDA"). The Company definesAdjusted EBITDA as EBITDA adjusted for certain defined amounts that areadded to or subtracted from EBITDA in accordance with the Company's creditagreements (collectively, the "Adjustments"). The Adjustments are describedin further detail in the footnotes to the table below.

The Company has presented EBITDA and Adjusted EBITDA in this press releaseto provide investors with additional information to evaluate our operatingperformance and our ability to service our debt. The Company uses EBITDA,among other things, to evaluate operating performance, to plan and forecastfuture periods' operating performance, and as an incentive compensationtarget for certain management personnel. The Company uses Adjusted EBITDAin its assessment to make restricted payments, as defined within its SeniorSecured term loan which was executed on October 31, 2006. Contained inthat agreement are limitations on the Company's ability to make restrictedpayments, with the eligibility to make such payments partly dependent uponAdjusted EBITDA.

As EBITDA and Adjusted EBITDA are not measures of operating performance orliquidity calculated in accordance with U.S. GAAP, these measures shouldnot be considered in isolation of, or as a substitute for, net income, asan indicator of operating performance, or net cash provided by operatingactivities as an indicator of liquidity. Our computation of EBITDA andAdjusted EBITDA may differ from similarly titled measures used by othercompanies. As EBITDA and Adjusted EBITDA exclude certain financialinformation compared with net income and net cash provided by operatingactivities, the most directly comparable GAAP financial measures, users ofthis financial information should consider the types of events andtransactions which are excluded. The table below shows a reconciliation ofEBITDA and Adjusted EBITDA to net earnings and net cash provided byoperating activities.

Michaels Stores, Inc. Consolidated Balance Sheets (In millions, except share and per share amounts) (Unaudited)Subject to reclassification November February November 1, 2008 2, 2008 3, 2007 --------- --------- --------- ASSETSCurrent assets: Cash and equivalents $ 92 $ 29 $ 57 Merchandise inventories 1,083 845 1,027 Prepaid expenses and other 83 70 74 Deferred income taxes 30 31 35 Income tax receivable 38 5 78 Current assets - discontinued operations - - 9 --------- --------- --------- Total current assets 1,326 980 1,280 --------- --------- ---------Property and equipment, at cost 1,204 1,155 1,143Less accumulated depreciation (802) (722) (698) --------- --------- --------- 402 433 445 --------- --------- ---------Goodwill 94 94 116Debt issuance costs, net of accumulated amortization of $35 at November 1, 2008; $22 at February 2, 2008; and $18 at November 3, 2007 90 103 107Other assets - 4 7Non-current assets - discontinued operations - - (1) --------- --------- --------- 184 201 229 --------- --------- ---------Total assets $ 1,912 $ 1,614 $ 1,954 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities: Accounts payable $ 274 $ 221 $ 282 Accrued liabilities and other 336 332 333 Current portion of long-term debt 432 122 445 Current liabilities - discontinued operations 1 4 2 --------- --------- --------- Total current liabilities 1,043 679 1,062 --------- --------- ---------Long-term debt 3,751 3,741 3,736Deferred income taxes 5 4 16Other long-term liabilities 76 80 81Long-term liabilities - discontinued operations 1 2 1 --------- --------- --------- Total long-term liabilities 3,833 3,827 3,834 --------- --------- --------- 4,876 4,506 4,896 --------- --------- ---------Commitments and contingenciesStockholders' deficit: Common Stock, $0.10 par value, 220,000,000 shares authorized; 118,376,402 shares issued and outstanding at November 1, 2008; 118,421,069 shares issued and outstanding at February 2, 2008; 118,451,736 shares issued and outstanding at November 3, 2007 12 12 12 Additional paid-in capital 17 12 11 Accumulated deficit (2,996) (2,926) (2,980) Accumulated other comprehensive income 3 10 15 --------- --------- --------- Total stockholders' deficit (2,964) (2,892) (2,942) --------- --------- ---------Total liabilities and stockholders' deficit $ 1,912 $ 1,614 $ 1,954 ========= ========= ========= Michaels Stores, Inc. Consolidated Statements of Operations (In millions) (Unaudited)Subject to reclassification Quarter Ended Nine Months Ended -------------------- -------------------- November November November November 1, 2008 3, 2007 1, 2008 3, 2007 --------- --------- --------- ---------Net sales $ 906 $ 934 $ 2,549 $ 2,561Cost of sales and occupancy expense 584 591 1,623 1,602 --------- --------- --------- ---------Gross profit 322 343 926 959Selling, general, and administrative expense 247 261 765 758Transaction expenses - 8 - 29Related party expenses 4 4 12 12Store pre-opening costs 3 3 6 6 --------- --------- --------- ---------Operating income 68 67 143 154Interest expense 77 95 231 285Other (income) and expense, net 3 (6) 3 (11) --------- --------- --------- ---------Loss before income taxes and discontinued operations (12) (22) (91) (120)Provision (benefit) for income taxes 8 (9) (21) (42) --------- --------- --------- ---------Loss before discontinued operations (20) (13) (70) (78)Discontinued operations loss, net of income tax - (5) - (7) --------- --------- --------- ---------Net loss $ (20) $ (18) $ (70) $ (85) ========= ========= ========= ========= Michaels Stores, Inc. Consolidated Statements of Cash Flows (In millions) (Unaudited)Subject to reclassification Nine Months Ended -------------------- November November 1, 2008 3, 2007 --------- ---------Operating activities: Net loss $ (70) $ (85) Adjustments: Depreciation and amortization 94 94 Share-based compensation 6 4 Deferred financing costs amortization 13 13 Accretion of subordinated discount notes 29 25 Impairment of discontinued operations - 6 Other 1 (1) Changes in assets and liabilities: Merchandise inventories (250) (188) Prepaid expenses and other (5) - Deferred income taxes and other 3 (14) Accounts payable 51 56 Accrued interest (9) 10 Accrued liabilities and other 13 39 Income taxes receivable (37) (52) Other long-term liabilities (5) 13 --------- --------- Net cash used in operating activities (166) (80) --------- ---------Investing activities: Additions to property and equipment (66) (86) --------- --------- Net cash used in investing activities (66) (86) --------- ---------Financing activities: Borrowings on asset-based revolving credit facility 749 793 Payments on asset-based revolving credit facility (439) (578) Repayments on senior secured term loan facility (18) (18) Equity investment of Management - 8 Repurchase of new Common Stock (1) (1) Payments of capital leases (4) (6) Change in cash overdraft 9 (5) Other (1) - --------- --------- Net cash provided by financing activities 295 193 ========= =========Net increase in cash and equivalents 63 27Cash and equivalents at beginning of period 29 30 --------- ---------Cash and equivalents at end of period $ 92 $ 57 ========= ========= Michaels Stores, Inc. Summary of Operating Data (Unaudited)The following table sets forth the percentage relationship to net sales ofeach line item of our unaudited consolidated statements of operations:(Schedule may not foot due to rounding) Quarter Ended Nine Months Ended --------------------- --------------------- November November November November 1, 2008 3, 2007 1, 2008 3, 2007 --------- --------- --------- ---------Net sales 100.0% 100.0% 100.0% 100.0%Cost of sales and occupancy expense 64.5 63.3 63.7 62.6 --------- --------- --------- ---------Gross profit 35.5 36.7 36.3 37.4Selling, general, and administrative expense 27.3 27.9 30.0 29.6Transaction expenses - 0.9 - 1.1Related party expenses 0.4 0.4 0.5 0.5Store pre-opening costs 0.3 0.3 0.2 0.2 --------- --------- --------- ---------Operating income 7.5 7.2 5.6 6.0Interest expense 8.5 10.2 9.0 11.1Other (income) and expense, net 0.3 (0.6) 0.1 (0.4) --------- --------- --------- ---------Loss before income taxes and discontinued operations (1.3) (2.4) (3.5) (4.7)Income tax expense (benefit) 0.9 (1.0) (0.8) (1.7) --------- --------- --------- ---------Loss before discontinued operations (2.2) (1.4) (2.7) (3.0)Discontinued operations loss, net of income tax - (0.5) - (0.3) --------- --------- --------- ---------Net loss (2.2)% (1.9)% (2.7)% (3.3)% ========= ========= ========= =========The following table sets forth certain of our unaudited operating data: Quarter Ended Nine Months Ended --------------------- --------------------- November November November November 1, 2008 3, 2007 1, 2008 3, 2007 --------- --------- --------- ---------Michaels stores: Retail stores open at beginning of period 991 938 963 921 Retail stores opened during the period 22 23 50 43 Retail stores opened (relocations) during the period 3 4 9 11 Retail stores closed during the period - - - (3) Retail stores closed (relocations) during the period (3) (4) (9) (11) --------- --------- --------- --------- Retail stores open at end of period 1,013 961 1,013 961Aaron Brothers stores: Retail stores open at beginning of period 164 167 166 166 Retail stores opened during the period - - - 2 Retail stores opened (relocations) during the period - - 1 - Retail stores closed during the period (1) - (3) (1) Retail stores closed (relocations) during the period - - (1) - --------- --------- --------- --------- Retail stores open at end of period 163 167 163 167 --------- --------- --------- ---------Total store count at end of period 1,176 1,128 1,176 1,128 ========= ========= ========= =========Other operating data: Average inventory per Michaels store (1) $ 1,022 $ 1,023 $ 1,022 $ 1,023 Comparable store sales (decrease) increase (2) (6.5)% 1.9% (4.1)% 0.7% Michaels Stores, Inc. Footnotes to Financial and Operating Data Tables (Unaudited)(1) Average inventory per Michaels store calculation excludes Aaron Brothers.(2) Comparable store sales (decrease) increase represents the (decrease) increase in net sales for stores open the same number of months in the indicated period and the comparable period of the previous year, including stores that were relocated or expanded during either period. A store is deemed to become comparable in its 14th month of operation in order to eliminate grand opening sales distortions. A store temporarily closed more than 2 weeks due to a catastrophic event is not considered comparable during the month it closed. If a store is closed longer than 2 weeks but less than 2 months, it becomes comparable in the month in which it reopens, subject to a mid-month convention. A store closed longer than 2 months becomes comparable in its 14th month of operation after its reopening.Michaels Stores, Inc.Reconciliation of Adjusted EBITDA(in millions) Nine Nine Quarter months Quarter months ended ended ended ended November November November November 1, 2008 1, 2008 3, 2007 3, 2007 --------- --------- --------- ---------Cash flows from operating activities $ (68) $ (166) $ (50) $ (80)Depreciation and amortization (31) (94) (32) (94)Share-based compensation (2) (6) (1) (4)Deferred financing cost amortization (5) (13) (4) (13)Accretion of subordinated discount notes (10) (29) (8) (25)Impairment of discontinued operations - - (6) (6)Other - - - 1Changes in assets and liabilities 96 238 83 136 --------- --------- --------- ---------Net loss (20) (70) (18) (85)Interest expense 77 231 95 285Interest income - - - (1)Income tax (benefit) provision 8 (21) (9) (42)Depreciation and amortization 31 94 31 93Discontinued operations - - 5 7 --------- --------- --------- ---------EBITDA 96 234 104 257Adjustments: Share-based compensation 2 6 1 4 Strategic alternatives and other legal - - 9 31 Sponsor Fees 3 10 3 10 Other 11 32 1 19 --------- --------- --------- ---------Adjusted EBITDA $ 112 $ 282 $ 118 $ 321 ========= ========= ========= =========