Container Group CEO notes 'retail funk' in Q1 results

Coppel, Texas -- The Container Store on Tuesday posted a 0.8% decline in same-store sales in the first quarter, its first decline in the metric in 16 quarters.



“We thought our sluggish sales were all because of weather and calendar shifts that began last November and continued into the spring, but now we’ve come to realize it’s more than weather and calendar. Consistent with so many of our fellow retailers, we are experiencing a retail ‘funk,’” said Kip Tindell, chairman and CEO.



Net sales in the company’s retail business were $149.7 million, up 8.9% over the year-ago period, with the increase primarily driven by new store sales. Total net sales were $173.4 million, up 8.6% over last year.



Tindall said while the company is confident customer enthusiasm for the brand and employee morale are at all-time highs, the chain continue to experience slight traffic declines in a “surprisingly tepid” retail environment.



“While consumers are buying homes and automobiles and even high ticket furniture, most segments of retail are, like us, seeing more challenging sales than we had hoped early in 2014 – so we’re not alone in this,” Tindall said.



The Container Store opened three new stores in the first quarter — in King of Prussia, Pennsylvania, , a second store in the Seattle area and its first Rhode Island store located, in the Providence area. The company announced the location for an additional store in the Phoenix market that will contribute to its 12% minimum square footage growth in fiscal 2014.



“Last quarter we announced we're accelerating our annual square footage growth from 10% to 12% and we’re excited we’re able to add an eighth new store to achieve that 12% minimum square footage growth even in this fiscal year,” Tindall said. “Our average first year, four wall Adjusted EBITDA margin on new stores has averaged 23% and our invested capital has seen a payback of about 2 ½ years.”



The Container Store announced that it will launch a new, higher-end custom solid drawer and shelving closet solution this year. The new product will feature custom-built solutions crafted from the highest quality materials and with a variety of choices in wood grain finishes and extras including lighting and storage options for shoes, jewelry and handbags. It will pilot late this fall in seven stores in the Dallas/Fort Worth metroplex, with planned rollout to chain wide beginning in the spring of 2015.



Additionally, The Container Store has expanded the rollout of its AtHome personalized in-home organization and design service beyond the Texas market, having just launched the service in its Manhattan locations. The company plans to expand the program to additional markets such as Los Angeles, Chicago and the Washington, D.C., market by the end of this calendar year, with rollout to the rest of its stores in 2015.



The retailer also said that, as of July 9, it will have completed the launch of its new customer engagement program POP! (Perfectly Organized Perks) in all of its stores.



Looking ahead, Tindall predicted a slight improvement in the second and third quarters.



“But we are very much looking forward to the fourth quarter as we comp against the worst weather we had in our history last year and believe we will see marked improvement in our sales trends. Looking ahead, historically over 60% of our profitability has been derived in the fourth quarter, so from a profitability perspective fourth quarter is very important for us,” he said.