Home Container Store Faces Q2 Headwinds but Pushes Initiatives
November 2, 2022

Container Store Faces Q2 Headwinds but Pushes Initiatives

Posted In: Retail Articles

Container Store made adjustments and advanced store and holiday initiatives in the second quarter even as macroeconomic challenges pressured results.

As it announced its financial results, the company announced a new architecture for its offering of custom spaces and a new product line dubbed Preston.

The move allows Container Store to push beyond the confines of custom closets and continue to deliver on its promise to transform lives through the power of organization, the company asserted. What was known as The Container Store Custom Closets is becoming The Container Store Custom Spaces to provide a clear understanding that the company can transform more than closets through its custom and wholly-owned product lines. A refresh of all 95 stores will put The Container Store Custom Spaces Studio in front of customers by November’s end.

In the second quarter, consolidated net income was $15.7 million, or 31 cents per diluted share, the company announced versus $27.2 million, or 54 cents per diluted share in the 2021 period. Adjusted for one-time events, net income per share was 27 cents versus 54 cents in the year-before quarter.

Container Store beat a Zacks Investment Research-published analyst consensus of 24 cents per adjusted share.

Comparable store sales slipped 0.8% from the previous-year quarter, Container Store reported, with the company’s Custom Spaces+ operations up 7.1%, contributing 230 basis points to comps, offset by general merchandise categories, down 4.6%, negatively impacting comps by 310 basis points.

Consolidated net sales were down 1.2% to $272.7 million versus the prior-year quarter including 110 basis points of negative impact from foreign currency translation, Container Store stated. Net sales in the retail business were $259.9 million, up 0.2% from the year-earlier period. Elfa International AB’s third-party net sales were $12.8 million, tumbling 22.8% in the quarter year over year. With the impact of foreign currency translation excluded, Elfa’s third-party net sales slid 5.3% in the quarter year over year. Income from operations was $25 million versus $39.8 million in the year-past period.

Container Store president and CEO Satish Malhotra in a conference call characterized the second quarter as one when the company delivered bottom-line results above expectations despite a shortfall in sales performance as consumers changed their discretionary spending patterns. Container Store refreshed impulse items located near checkout with a selection of cleaning products, many non-toxic, plant-based and not available at other major retailers, Malhotra pointed out.

For the holiday period, Malhotra maintained, the company has invited its highest-tier experts to an exclusive online event hosted by professional organizer Cas Aarssen as a way to help Container Store’s most valuable customers get their homes ready for the holidays. The front of stores in the holiday season will feature a kitchen spotlight showcasing solutions to help customer holiday prep with products including new private label pantry bins and essentials from Chicago Metallic Bakeware. As planned, Container Store’s holiday shop features high-quality wraps, ribbons, bags and tags and coordinating themes, with 48% exclusive to the company. Available gifts and stocking stuffers include som 130 new products this year

A recent Container Store back-to-college event delivered average daily sales double that of the promotion last year, Malhotra said, with an average ticket 33% higher than was the case in 2021. Moreover, he noted that a third of Container Store’s back-to-college customers were new to the company.

Malhotra added that the Container Store loyalty program, Organized Insider, saw more than 126,000 customers tie up in the second quarter as the company continued to see a higher average ticket for loyalty members versus non-loyalty members. 

In introducing the financial results, Malhotra said, the better-than-expected bottom line results emerged “despite a shortfall in topline performance in our general merchandise categories that was partially offset by continued strength in our Custom Spaces business. With the continued rise of inflationary pressures, coupled with increasing interest rates, we have seen customer traffic soften during the second quarter, and we expect these trends to continue until these external pressures subside. However, we remain committed to our strategic initiatives to support our long-term growth and $2 billion revenue goal.”

He added that a key element in Container Store’s strategic initiatives constituting “our Path to $2 billion in revenue is new store growth. In the second quarter, we opened our first smaller format store in Colorado Springs, and it is exceeding our sales productivity expectations. We are also on track with the opening of our second smaller format store in Salem, NH, this winter. In addition to new store growth, we are also focused on bolstering our Custom Spaces offering. The rollout of our Preston line is complete, and we are pleased with the customer pipeline and nearly complete with the full branding expression of our Custom Space offering online and in stores. The near-term macro backdrop notwithstanding, we have a very attractive growth opportunity and remain focused on capitalizing on the $20 billion addressable market for home storage and organization, including Custom Spaces.”

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