What: Shares of specialty retailer The Container Store (TCS -9.39%) slumped 19% in October, according to S&P Capital IQ data. The company's fiscal second quarter earnings report, released on Oct. 5, was a disappointment, with both revenue and profit coming up short of expectations.
So what: The Container Store reported quarterly revenue of $195.5 million, up 1.2% year-over-year but about $2 million shy of the average analyst estimate. Comparable-store sales increased by just 0.1% year-over-year, with the rest of revenue growth coming from new stores.
This seemingly lackluster result was better than the company expected, with CEO Kip Tindell saying, "Our sales performance in the second quarter exceeded our expectations with positive comparable store sales, a result of even more strategic customer engagement and service initiatives, coupled with the 'snowballing effect' of our major initiatives."
The Container Store's profits declined significantly during the second quarter. Net income came in at $0.06 per share, down from $0.11 per share in the year-ago period and a penny short of analyst expectations. The company's key strategic initiatives reduced EPS by $0.02, but even excluding these costs, earnings declined substantially.
Now what: The Container Store's guidance for the full year was in line with analyst expectations. Revenue is expected to be between $800 million and $815 million, while comparable-store sales are expected to shrink by 1% at worst and be flat at best. Earnings per share is expected to be between $0.30 and $0.38.
Shares of The Container Store have collapsed since the company went public in late 2013, falling from the low $40 range at the beginning of 2014 to around $12.40 per share today. The company has had trouble increasing sales in its existing stores, and while it has returned to comparable-store sales growth, investors weren't impressed.
Even after the stock has fallen by so much, shares still trade at about 33 times the high end of The Container Store's full-year guidance. The company either needs to boost sales growth considerably or become far more profitable, in order to justify its valuation. I wouldn't be surprised to see the stock price continue to fall in the coming quarters.
