Is the Container Store back on track?

The Container Store may have cleared the low bar it set for itself in the first quarter, but reporting a loss and another quarter of negative same store sales can’t feel good.

Total sales declined 2.1% to $169.8 million in part because of a $5.2 million foreign exchange headwind. Same store sales declined for the fifth consecutive quarter, dropping 0.9% compared to a prior year first quarter decline of 0.8%. West Coast port delays were said to have cost the company about 1% point of comp growth. The company had forecast a more severe decline of 3% to 4%.

In terms of profits, Container Store executives had forecast a loss during the company's seasonally weakest period and took some comfort from the fact that the loss was less severe than expected and not as bad as analysts forecasts. The company lost $5.2 million, or 11 cents a share in the first quarter compared to a loss of $3.6 million, or seven cents a share the prior year.The company had forecast a loss between 12 cents and 14 cents and analysts pegged the number at 13 cents.

“Our first quarter financial performance exceeded our expectations, as we delivered better than forecasted comparable store sales and improved gross margin,” said Kip Tindell, chairman and CEO. “The implementation of our three major strategic initiatives – TCS Closets, Contained Home and POP! – remains on track, as planned, and we’re encouraged by the start of the ‘snowballing effect’ on their results. As we expected, we’ve seen that, in general, our stores with the strongest comparable store sales increases are the ones that have had TCS Closets and Contained Home the longest. In fact, if we isolate our seven Dallas-area stores, TCS Closets alone added three percentage points of incremental comparable store sales to those stores in the first quarter of fiscal 2015. We remain confident in, and are maintaining, our previously stated sales and EPS outlook for the fiscal year.”

The company opened its first of 10 planned stores for fiscal 2015 – in Tucson, Ariz. – to end the quarter with 71 stores compared to 66 units in operation at the end of the first quarter the prior year. More recently, a new store opened in Overland Park, Kan., with other new stores planned for Columbus, Ohio, Yonkers, N.Y., Milwaukee, Wis., Phoenix, Ariz., Christiana, Del., Oxnard, Calif., Sacramento, Calif., and Alpharetta, Ga.

In addition to store openings, Container Store’s optimism stems from three key initiatives the company contends are gaining traction. Foremost among them is a custom closet business called TCS Closets. Launched in 2014, the in-home closet program was in 36 stores at the end of the first quarter and is expected to be added to all stores by the end of 2015. The initiative has the potential to seriously impact sales growth due to a high average transaction size. Since launching last year, the average ticket has exceeded $10,000, substantially higher than the average in store ticket amount of $60. Due to a longer sales cycle the company cautioned that the most meaningful impact to sales from the closet program won’t come until 2016.



After TCS Closets, an in home, customized design and organization service is expected to contribute to sale growth. The average transaction size for the in home service is more than $2,500 and the company plans to extend the service chainwide by the end of the year from the 47 stores where it is currently offered.



Another fairly new initiative expected to gain traction is a loyalty program called POP!, an acronym for Perfectly Organized Perks. Launched in July 2014, two million customers have been enrolled at a clip of about 25,000 people each week.



The company needs its new initiatives to generate more meaningful results to satisfy disappointed investors. The company went public on Nov. 1, 2013 and priced its shares at $18. After more than doubling in price over a several month period, the company’s sales trends began to deteriorate and the share price sank below the IPO level in early 2014. Same store sales were negative throughout 2014 with a 0.8% first quarter decline followed by a 0.4% drop in the second quarter followed by a more severe 3.5% drop in the third quarter. The company sought to temper the negative performance by noting that the fourth quarter was off to a strong start, but by the time the quarter ended results had turned negative, dropping 0.8%.