How Does The Container Store Look Going Into Its Earnings Report?

Next Tuesday is a big day for The Container Store Group (NYSE: TCS  ) , as it reports its first quarterly results since going public late last year. The company, which sells storage and organization products, went public last November at a price of $18 per share. By the end of 2013, the company's shares jumped to $46.61 as investors anticipate the business can successfully grow from the 60-plus locations it currently has to the 300 that management is aiming for.

However, heading into earnings, what does the company look like and how does it stack up to other specialty retailers like Lumber Liquidators (NYSE: LL  ) , Restoration Hardware (NYSE: RH  ) , and Tile Shop Holdings (NASDAQ: TTS  ) ?

What does Mr. Market expect from The Container Store?
For the quarter, Mr. Market expects The Container Store to bring in revenue of approximately $188.9 million. If accurate, this would mean that management has been able to grow sales by 7.7% from the $175.4 million the company reported for its third quarter last year.

If history repeats itself, the primary driver behind the company's rise in revenue will likely be an increase in comparable-store sales. Between the company's third quarter of 2011 and 2012, comparable-store sales rose 4.3%. This represents a slight decrease versus the 6.3% rise in comparable-store sales The Container Store saw between 2010 and 2011. However, a rise in the number of locations will likely also play a role in any revenue growth.

Looking at earnings per share, Mr. Market doesn't seem to expect much. If analysts are correct, The Container Store will post earnings per share of $0.08. Assuming that the number of shares stays unchanged from the 46.0 million previously reported, this would imply net income in the amount of nearly $6 million. This would mean a 12.7% reduction in net income from the $6.9 million the company earned this time last year and would likely be attributed to the costs associated with additional store openings.

How does The Container Store stack up to its peers?
Over the past three years, revenue growth at The Container Store has been strong but far from spectacular. Between 2010 and 2012, revenue jumped 24.2% from $568.8 million to $706.8 million. This was due, in part, to an 18.4% increase in the number of locations from 49 in the first quarter of 2010 to 58 by the end of 2012, but can also be chalked up to the comparable-store-sales increase the company experienced every year.

In comparison, Lumber Liquidators performed a little better. Over the same time frame, revenue at the lumber retailer rose 31.1% from $620.3 million to $813.3 million. Meanwhile, Tile Shop's revenue has grown even quicker, with sales rising 35% from $135.3 million to $182.7 million. Though both of these are better than The Container Store in terms of revenue growth, Restoration Hardware blows them all away. Over the past three years, revenue at the home-furnishings retailer rose an impressive 54.4% from $772.8 million to approximately $1.2 billion.

Looking at revenue alone would suggest that Restoration Hardware is, by far, the best investment prospect, while The Container Store is the worst. However, the company has paid a steep cost in exchange for growth. During this time frame, the specialty retailer experienced a loss in two out of three years. While it is true that The Container Store performed even worse with a loss in all three years, its bottom line has improved each year and will likely come in positive this year.

In juxtaposition, both Tile Shop and Lumber Liquidators look a lot healthier. Excluding a one-time expense, Tile Shop has seen its bottom line improve every year for the past three years. This is true of Lumber Liquidators as well but to a whole other level. Besides seeing its net income rise 79.1% over the past three years, Lumber Liquidators earned a healthy 5.8% net profit margin and a 12.7% return on equity in 2012.

Foolish takeaway
Heading into the quarter, Mr. Market expects rapid but not unreasonable growth from The Container Store. But, investors should remain cautious due to a few different factors. First, revenue growth has been good over the past few years, but the company can't seem to hold a candle to its peers.

Second, the company's (albeit improving) losses should not be ignored. Its results are improving and net income will likely come in positive this year, but even if analysts are right and the company's 2014 fiscal year earnings per share come in at $0.38, shares will be trading at a very expensive 123 times earnings. This enormous price should weigh on investors' minds when deciding if the company's growth prospects are worth the risk.

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