Will Container Store Earnings Bounce Back?

The organizing and storage retailer suffered a setback last quarter. How will Container Store handle its slow time of year?

Jul 3, 2014 at 10:53AM

Next Tuesday, The Container Store Group (NYSE:TCS) will release its quarterly report, and shareholders are bracing themselves for the storage and organizing products retailer's first quarterly loss since it went public late last year. With Bed Bath & Beyond (NASDAQ:BBBY), Pier 1 Imports (NYSE:PIR), and other home-furnishings companies having struggled with their own recent earnings reports, Container Store needs to demonstrate that it can buck the trend and bounce back from a poor winter quarter in order to sustain the confidence of its investors.

Container Store fills a niche within the home-furnishings space, catering to those seeking to declutter their homes and better organize their belongings. With a more than 35-year history of fighting off potential competitors, Container Store has the experience needed to pull out as much gross margin as possible from its sales. Yet even Container Store is vulnerable to the tough economic conditions that have plagued the entire retail sector lately, and the spring quarter is traditionally a slow one for the company. Let's take an early look at what's been happening with Container Store over the past quarter and what we're likely to see in its report.

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Stats on Container Store

Analyst EPS Estimate

($0.06)

Year-Ago EPS

($0.11)*

Revenue Estimate

$174.21 million

Change From Year-Ago Revenue

9.2%

Earnings Beats in Past 4 Quarters

1**

Source: Yahoo! Finance, S&P Capital IQ. *Adjusted for change in share count since IPO. **In two quarters since IPO.

Will Container Store earnings get organized?
Investors have been concerned about Container Store earnings in recent months, doubling their loss estimates for the May quarter and cutting their full-year projections by about 10%. The stock has done much more poorly, losing 20% since late March.

Container Store's first-quarter earnings were a big part of the reason that the retailer's stock has performed so badly over the past few months. Same-store sales only managed to grow 1.4%, and bad winter weather held back stores in many areas from performing to their full potential, causing adjusted earnings to fail to meet investor expectations. Forward guidance for earnings and comps was also disappointing, with just 3% to 4% rises in same-store sales expected to produce weaker net income than investors were relying on in their projections. Competitors saw similar headwinds, with both Bed Bath & Beyond and Pier 1 disappointing investors and sending their stocks down toward their weakest levels of the year.

Tcs

Source: Container Store.

Yet Container Store executives are much more upbeat about the company's future prospects. CEO Kip Tindell noted that new stores have been performing quite well, and in areas that weren't affected by winter storms, comps were quite strong. Tindell also raised expectations for store growth in the future, with a goal of 12% minimum annual increases in square footage going forward. In particular, middle-market metropolitan areas have been lucrative for Container Store, with savings in overhead costs helping to improve overall margins in those locations.

Moreover, one thing that sets Container Store apart from Bed Bath & Beyond and Pier 1 is its employee culture. Container Store prides itself on paying its workers higher wages than its competitors and spending more on training them for the long run. With the company having made Fortune's list of top companies to work for in 15 consecutive years, Container Store has managed to build a corporatewide mission that helps guide most of its workers' efforts.

In the Container Store earnings report, watch to see whether better weather helped bring some lost business from the previous quarter into the most recent quarter's sales. If it did, then Container Store could give a positive surprise to investors and help the stock rebound from its extensive losses since going public.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond and The Container Store Group. The Motley Fool owns shares of The Container Store Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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