"Our first quarter performance so far has been strong, primarily driven by a solid increase in customer traffic and transactions," says Michael Rouleau, the chain's president and CEO. Departments that have performed well include yarn, scrapbooks, general crafts and kid's crafts, he says. The Pacific Southeast and Central regions are the company's best performing.

A Wachovia Capital Markets report reiterated the firm's previous outperform rating for Michaels. "We believe the company continues to benefit from the completion of an important systems upgrade cycle, which includes the implementation of perpetual inventory and automatic replenishment systems, as well as the strong fundamental trends in the Arts & Crafts sector," the report says.

Michaels is currently testing its wholesale-store concept, called Star Decorators Wholesale. The company operates three of those units, with one each in Atlanta, Dallas and Scottsdale, AZ, and plans to take those stores to other cities. The retailer has 850 Michaels stores in 48 states and Canada, 165 Aaron Brothers framing units and eight Recollections scrapbook stores.