Shareholders in Container Store Group (TCS 2.40%) have had to be patient in their long-term view of the company, as the organizational-goods retailer has failed to live up to the high expectations investors had for it when it went public in late 2013. Coming into Tuesday afternoon's fiscal first-quarter financial report, few market participants had particularly high hopes for Container Store, giving the retailer a golden opportunity to vault over lowered expectations and deliver solid results. That's exactly what Container Store ended up doing, with sales and earnings that raised hopes that the worst could finally be over for the company. Let's take a closer look at Container Store Group and what its quarterly report says about its future.
Container Store cleans up
At first glance, Container Store Group's fiscal first-quarter results didn't look all that impressive. Sales of $169.8 million were down about 2% from year-ago levels, and the company's comparable-store sales for the quarter were down 0.9% from fiscal 2014's first quarter. On the bottom line, Container Store lost $5.2 million for the quarter, working out to a per-share loss of $0.11. Yet investors had expected a wider loss, and even though they were hoping that Container Store would be able to deliver roughly flat sales compared to year-ago figures, the narrow decline in comps was quite a bit better than the 3% to 4% drop that the company itself had predicted in its outlook for the quarter.
Container Store blamed a couple of major factors for the bulk of its declines. Delays from West Coast port traffic problems contributed to the falling results, costing the company about a percentage point of sales and about $0.03 per share in earnings when combined with spending on key strategic initiatives. At the same time, the strong U.S. dollar also continued to play its part in holding the retailer back, with the weaker Swedish krona costing the company about three percentage points of potential sales growth on a currency-neutral basis.
Store openings continue to play a major role in Container Store's overall growth plans, but the first quarter only included a single new store opening, in the Tucson area. Last month, Container Store added another location in the Kansas City suburb of Overland Park, and it anticipates two more openings this quarter and six more by the end of the fiscal year.
CEO Kip Tindell praised Container Store's resiliency, noting that the first quarter's results were better than what it had forecast. With the company typically posting a net loss during the seasonally slow time of year, Container Store has shown some encouraging results from its strategic plan execution, with Tindell pointing to "the start of the 'snowballing effect' on the results" of its three key initiatives.
What's next for Container Store?
In particular, the rollout of TCS Closets, Contained Home, and the Perfectly Organized Perks loyalty program have all helped contribute to Container Store's overall success recently. Tindell pointed to big increases in comparable-store sales increases at stores that have had either TCS Closets or Contained Home for the longest period of time, with Dallas-area stores seeing a three percentage point bump in comps from TCS Closets alone. Clearly, a business strategy that brings in high-ticket-value customers has a lot of potential to drive sales and margins higher, both through its own sales and the resulting follow-on business that usually results from building a strong customer relationship.
Container Store didn't make any changes to its guidance for the year, keeping relatively conservative estimates for $800 million to $815 million in revenue for the year and comparable-store sales expected in a range of 0% to -2%. The retailer still expects to earn between $0.30 to $0.38 per share, and for the most part, investors have built those figures into their expectations for the year.
From looking at the way Container Store Group shares responded in after-hours trading, it's clear that many investors were expecting less favorable results from the retailer. The stock jumped more than 6% in the first hour following the announcement, and shareholders seem ready to believe that the company's efforts to build up its business might finally produce stronger results. It'll take time for Container Store to fully convince its investors that a turnaround is truly in place, but this quarter's results were a much-needed step in the right direction.
