TCS - Earnings call transcript Q3 2019 | Container Store Group, Inc.

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Operator

Greetings, and welcome to The Container Store Third Quarter Fiscal Year 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Caitlin Churchill, Investor Relations.

begin. may You

Caitlin Churchill

and Container everyone, results joining today us call. Good third thanks quarter The Store’s earnings fiscal for afternoon, for year conference XXXX

Speaking open Melissa and Executive have made and Chief Reiff, remarks, and to Jodi today we questions. formal Jodi will Financial After and call Taylor, Chief Officer. Administrative their are Melissa the Officer; Chairwoman

results may you plans, Before both Reform and we Such anticipated such constitute uncertainties the subject from regarding our risks made SEC our on issued strategies during are are statements. made XX-K, and Those goals comments to XX, statements on statements important in pursuant and with forward-looking financial begin, Securities harbor release XXXX. I of to within Annual forward-looking performance Store’s known of that press need differ are Report and Container the Litigation to this certain Form XXXX. the in factors of today, Private The to the materially our and remind cause unknown provisions and actual to referred Act call and safe that meaning May could filed

does statements to and of this as The The today any update undertake the of Container date made forward-looking their are forward-looking Store not obligation call, statements.

of refer be www.containerstore.com. in page Investor financial issued press release available to also today’s measures the Finally, visiting Store’s non-GAAP obtained the financial comparable adjusted the non-GAAP measures website A reconciliation by the Container may certain is today. the measures speakers of A press or most to of may at on this Relations copy schedule call. The GAAP release directly

over call Melissa? will turn I Melissa. not to the

Melissa Reiff

our and who are Caitlin, call of you you, thanks those Thank today. to joining

financial about our progress our by begin highlights will the in talk discuss our key then and me more Let I’d outlook. then and on strategic like review to results Jodi detail fiscal QX initiatives. our of performance sharing

and million sales of of quarter, net increase third reported we a For X%. comp sales $XXX.X the store

up excluding sales Our impact X.X% foreign when Elfa of flat year third-party prior to the but the translation. dollars, were U.S. in currency

adjusted $X.XX year. We EPS delivered also $X.XX QX compared in last of to

results $X.XX incremental the Closets per cost second or of with distribution net Custom associated opening $X and our marketing. include Our share center approximately million of

Prior that and we released strategic and approximately preliminary half attended sales key our to store last performance that remains I was a the which and business, ICR strength Custom driven our us. continued Conference Jodi our share by month, sales QX for results Closets comp in of priority represents

store up basis to entirely XXX by our Closet than represents our which This XX% growth sales, close Custom our XX.X%, of our contributing X% X.X% QX delivered driven to was in to a points our sales comp. but decline categories contributed of X% more of other sales negative as QX We less a comp quarter sales. product three decreased reminder, our which, of third departments, than holiday Sales annual sales.

store holiday our holiday percentage These performance. set down learnings at the last comp down to scaled back and investment in and XX.X% us QX points we costs ICR departments store to planned our we we up departments three year. commented these for As two sales were be which three inventory had Conference, incorporating from

have pleased our that and on made from executed We and we perspective have team, fresh assortment holiday already buying with already changes the curated. based XXXX really for a fiscal I’m

than successful that and more prove efforts more to everyday I to offset during be am department’s on and our pleased selling weakness. our holiday the solutions organization also storage QX focus

quarter and excited growing We our relocated seeing we we the opened business another for and have online recently are XX.X. of are performance performance, proud with up quarter our in that of made with delivered online-only results and strong sales comp sales this growth online new also our store the stores. progress We I’m

a we during online months $XX this testing, of to made prior lower we move for a shipping encouraging free several the performance results $XX. and saw prior quarter. threshold the decision time are sales threshold during quarter strong from of limited the the The After versus our

We for will to we from continue periods to as XX and anticipate time of perform our that positive we run during long will testing results as free year currently test. shipping continue certain the see

branded With have the brand-new store, to positive experience. to a fabulous is, Market The – store in in word, reaction. we which and store Custom relocated Closets initial which is Dallas regards our Galleria we our similar beautiful, our container December opened stores, customer to Farmer's recently and store believe customer a XX store LA, we on now and provides

customers. on this name of Custom the and would ensure category for suggest, Closets-focused a closet over of collection solution our the offerings the with store building provide the a edited is the complete we product to front XX displays As other that strategically

years that to we will closely. two productively key will we our together that of footprint we Dallas We Market couple at to Custom provide their store from believe that can and have in the changes learnings our apply learnings we as Northpark the Farmer's future, monitor well ago. smaller these from continue brings Custom all store stores the at a learnings the taken store This store as made an Closet-branded even Closet performances

let priorities improvements marketing and review on growth, our investments. and to me distribution stores regards online new with and center with key Along other our our focus strategic

began I all new Aberdeen, before, distribution as shipping Maryland, November, time new the up on on time, to said and is from was Our and and running, Dallas. at and will At Aberdeen from shipments planned month. expect the come through By center next to of up we budget. have DC our XX% and of continue direct-to-customer that here center XX% will shipments in direct ramp stores, end distribution our

DC. of to ship total direct-to-customers XX% XX% Aberdeen Dallas Overall, volume about unit stores our and our out expect of and for we about of DC out

expenses a reminder, see $X.X as fiscal And to distribution will expect in XXXX. customer savings we new improvements service for and incurred during our we Jodi faster during net customers second share, from considerable As center. million delivery, this of approximately QX

been sharing, to been marketing, share new with Custom Closets addressable Closets and an we line gain in brand the Custom to capabilities. regards awareness have Custom as in With market, of April, estimated launch to Closets Avera our our in of $X incredible the opportunity investing we've billion marketing build offerings

million enrollments Stars. over program finished POP! POP! Our with we continue grow, QX to and X.X

part those of increased Our our loyal our targeted most shop this key frequently. POP! extensive with Stars marketing provides critical sales, strategy our the effectiveness. strategic program driver customer majority and generate and a marketing The a customers us of and is us data of

to our program. ambassadors with continue success great and also We see influencers brand

influencers. For example, and through sales of generated we our had great fun, attracted storage many new sneakerhead shoe our customers meaningful

organizing and buzz, Additionally, of the sales. is an social new Home team, important continues product A-List Edit, and social exclusive media customers partnership celebrity The generate lots to that

expand this we During around even will collection this products XXXX, at and The storage We year. show to also to solutions. organization plan Netflix and show fiscal of is our be exclusive that Edit, awareness the more and Home sure forward build believe category launching of their look to

sharing maintain shared our last earnings May. We our as we We're fiscal be and that very outlook will call QX we quarter, to are our outlook addressable XXXX capitalize fiscal looking in focus our on attractive forward and detailed to fiscal XXXX XXXX number continuing with Closets, for billion on savings the the freight distribution harvesting anticipate priority. this as one center large and $X second to our Custom strategic on market from we continued pleased

fourth And sale annual underway. are Elfa well XXXX lastly, and our quarter fiscal

in and our QX when in when in quarter January, Up period on show last shared Kondo's launched product we've other last January As categories time of is strong a experienced Marie X. sales Tidying particular, January Netflix we

so we and some are encouraged our in well the categories QX quarter, full pressure fiscal While far, about expectations within we've these seen year. and early in our

will more and now financial in go results outlook Jodi over detail.

Jodi Taylor

other third for retail and $XXX in good afternoon, sales from financial sales by Custom We results business, segment, Container department holiday cover decline I'll increased The sales. Store increased $XXX.X sales XX.X% now business a to our Melissa, were X.X% new Thank everyone. down saw million. well across as reflecting our driven comp discussed, X%, as strength was a than categories, Melissa our X% which of while net in By store products increase more Consolidated stores. sales million, Closets up detail. X.X% year-over-year more entirely you, XX.X%, to contribution our quarter as

third-party at foreign net quarter. were of $XX.X negative Elfa's flat sales million to impact the due currency during the translation

a profit From foreign up Excluding year-over-year. third-party X.X% gross dollars million. to consolidated sales the $XXX.X profitability X.X% impact translation, perspective, of currency Elfa were increased

down marketing to drove XX Gross business Consolidated to points successful that offset gross basis retail and Container margin basis and partially efficiencies. The XX year currency margin Store was a higher to at by campaigns gross from was primarily due prior points, increased increased primarily merchandise period, basis XXX service mix Elfa's production year-over-year. This of sales points direct lower foreign tailwinds. due costs material by the margin XX.X%.

SG&A as sales year payroll occupancy offset costs the to marketing drove percentage leverage expenses. as last Custom of was incremental and the net flat a with our we Closets

to expense in lower primarily senior prior to principal quarter with $X year balance million facility. rates lower term the third of Our to period, in our XXXX lower XX.X% decreased the net interest due $X.X secured the from loan fiscal million interest on combined

of approximately compared third center increased increase last $X.X is opening to was due for to million our XX.X% QX to fiscal of $X.X effective the Galleria $XXX,XXX of million tax with during relocated primarily quarter to The the incurred of last as Dallas the net opening costs associated well the distribution the XX.X% year. negative in as rate of costs as to The compared QX related costs quarter Preopening XXXX year. in second store.

as earnings. In fiscal $X.X the on tax onetime result we the million the benefit recorded transition a of tax quarter foreign finalization XXXX, of third of a

The an deductions mix QX XX.X%. due rate in was was effective On to jurisdictional our the basis, income tax and our related tax year-over-year to additional last increase rate adjusted of tax year compensation. for stock-based effective

million $X.X last as items per in compared basis, at real year, the GAAP Our income share and for a or tax-related the onetime which included share certain million $X.XX or of $X.X disposal net estate to quarter a our net on per of on $X.XX Elfa. GAAP the of third quarter, was gain income

for adjusted income XXXX those quarter per third $X.XX share. or $X.X net fiscal million Excluding items, was

in QX EPS million represented new we our together quarter. approximately we $X.X as net marketing a investments release, center $X.XX approximately pretax As incurred in to our distribution drag to related pretax the $XXX,XXX costs of in as in outlined which well press in

was Adjusted in EBITDA quarter last $XX the third this million $XX.X QX year. year compared to million in

outstanding the hand on cash availability of combined Turning to million our balance quarter sheet, in million. million facilities on $XX.X we with cash, and credit $XX and borrowings ended $XXX.X revolving

in resulted a balance As a up reminder, the at accounting we million. of adopted the of our growth $XXX lease which approximately standard fiscal new by this beginning sheet year,

expected, our line inventory of from consolidated grade Custom second increase is due ended related new almost the and well XX.X%. held The to new Closets the core inventory as with including or new we distribution product in as center As quarter inventory $XX.X new alpha. introductions to Avera million entirely

new a be more normalized levels excluding centers, On the fiscal last still the with distribution center X.X%. up our ownership inventory were yet We our by consideration consideration year per owned – that the distribution associated store of to when expect inventory into our of year. stores inventory basis, operational position our products and after fully taking is end the into new taking inventory not

year outlook, XXXX fiscal we as established our for the maintaining Melissa shared. Regarding our outlook are

fiscal expect to store ranges sales to X% respectively. XXXX million provided to to slightly X% be to and continue and $XXX $XXX We our at million previously of above up consolidated sales comp

fiscal be end expect shares of LIBOR to EPS and outlook expense expect now continue We adjusted rate our on approximately and rates weighted to XX% the annual of of be $X.XX our GAAP a low to our the to million for full be diluted $XX also average tax $X.XX We approximately prior $XX forward to interest outstanding. towards using XXXX million.

to in share to of our we original $X.XX spend. per addition, our due $X $X marketing expectations Custom per or the be our now of share, marketing overall impact incremental or $X.XX fiscal Closets compared of to million approximately focused estimated XXXX million expect efficiency In the

second the or a period shipping and for originally direct-to-customer we share. with We the original are to headwind $X hiring estimate fiscal updating over the distribution get million net approximately associated million be XXXX per the or per expectations the as holiday fourth now much also did ramp our benefits from not $X.XX $X quarter to our share distribution We running as center as up center compared timing $X.XX outlook expenses for for at forecasted. of to second savings of our employee realized

fully as distribution fiscal of our by still second shipping end center out XXXX. We of the planned be expect to

combined the million the a per now XXXX is approximately related to As distribution fiscal $XX and result, marketing center headwinds second incremental $X.XX in share. or

given in fiscal to the per realized approximately of for compared addition, distribution XXXX. In direct-to-customer savings or XXXX higher the benefit of updated EPS benefits shipping $X expectations second fiscal million freight we share center now savings, timing to the from $X.XX expect from

outlook to fiscal the announced of continues include Our impact currently from all China. XXXX tariffs

helped incremental year. specific order to And expect last $X Netflix expect the supporting as low tidying support efforts, the over million a net line. marketing in of approximately second to the are distribution to brands expenses fourth expect be sales X.X% launch product QX, dollars quarter see to our Custom also few which during marketing spend we QX, up the we last of Closets including store launch down One, center. to related the Three, million drive in $X Container to in single to outs. approximately January, year QX we QX Two, Avera there our to Store comp we of call an comp digits continue last cycle on

to a As anticipate be slightly result, EPS currently QX. in we up

In hold. performance investments a has year XXXX the beginning operating these well of we be continue this to and are Fiscal benefits summary, with strategic future, take initiatives already to year. important been that of the up our us see set for we pleased

fiscal our next call. year look the and on goals full earnings progress our you updating well for are We on to and forward to year deliver on QX positioned our

Thank you.

Now the I’d operator the like open call to back lines questions. Darryl? to turn can the over that so for we

Operator

your Thank Our Securities. first of of Instructions] with you. Forbes questions. Please from questions proceed Steve of line Guggenheim [Operator set come the

Steve Forbes

Good afternoon.

Melissa Reiff

Steve. Hi,

Jodi Taylor

Hi, Steve.

Steve Forbes

just given right, e-commerce maybe understand the points? the better implications that channel, wanted basis the right, just especially on to the change, the performance, potential right, XX free start in comment And TCS the to help segment? down change with the can maybe strength I quarter shipping in likely threshold third you the how channel, that margin, gross impacted us within just

Jodi Taylor

shipping the our that are and test holiday, steady to threshold versus continuing $XX $XX. this we've one profitability over we Yes, what lower even in with the Steve. the Hi, in so using lower the of far, remained seen been the test at more competitive, all including one And ticket everyday have is we've average threshold.

and insights with we So to testing, we're but pleased the our utilize early forward how test what that we've gathered continue go as XXXX. we much to into from and this we'll determine learn and will level

Steve Forbes

Similar Can others, and a down potential I Given in And are of the as categories. the just right, level the Or right? two? guidance help subcategories? quarter Elfa the the sort between of goes? fourth then disparity she the sale other maybe comp those with of Custom just sort mean, of so Custom growth digits, the what single between on expectation understand quarter Closets versus – follow-up forth? steady you sort what fourth performance, us just of low Closets? is you it guys Is the for two expecting of right split,

Jodi Taylor

that sales Steve, think we our I product the categories. department, Kondo part part Custom of Marie remember that store Closet us, of I Also also, you year, Yes. important the recall argue is in for last could it's in was was saw QX include effect. the other most what to does pressure think during comp which where Closets

core our in expect Elfa annual lines, than where pressure four would Custom later sales, ends selling the categories our without this month. have Closet period we to the of we being which see those particularly So more in

Melissa Reiff

again, my in expectations. Steve, I pressure And our remarks, that in those just seeing to they categories reiterate as also, said it are within we some are

So the and we're encouraged quite full QX about year.

Steve Forbes

you. Thank

Jodi Taylor

Thank you.

Operator

next of Please from Zakaria proceed your line of come Our the questions Tami questions. JPMorgan. with

Tami Zakaria

taking for questions. my you so much thank Hi,

any details Edit The can in about the of the your The it and talk So product Home you you can show show? categories that highlight this project? expect And in you other share? by that involvement Netflix to timing year?

Melissa Reiff

Sure. will show. Tami, SKUs, this our and very this currently don't to The is but this yes, year. exclusive with air Edit. very Home we about yet, We're excited adding to be exactly also we're We excited have partnership know exclusive their collection the about We – XX going when it's will Netflix year. it air sometime

love, time that last and we will the of these So we Tami, pursuing are we be that similar. partnerships, type other about opportunities talked

Tami Zakaria

seem of the $X.XX Got this $X.XX versus center previously. expenses separately, it. modeling then from you're And That's year drag does it distribution helpful. like

So you this you and the that? expect what's then really XXXX – savings remind from of in And next cadence can driving that? also the

Jodi Taylor

first to because of executed hi. Sure Tami, let on-time distribution initiative of this side very, Well, very and open cost of and we up Maryland proud center just second it's that this in on-budget. are our running say teams huge all, that and Aberdeen, in me came the us for the

very for done others So we're them big know their toes projects. because very proud thankful stubbed hard work certainly on these of and types we've we have the of

know, project. move will expected freight it with us savings that as give we you As this forward considerable it's

a experienced benefits XXXX. direct-to-customer So means simply to you're shipping fiscal side slower the fiscal the than to talking be into savings XXXX, be from cost had for happened freight will hiring about more portion fiscal the with bit what just we holiday transferred that the is, expected, that associated as during period, specific the we which for XXXX

than of had in expected, in then XXXX. more benefits QX those less fiscal receive initially we'll but So we

fully the expectations. be At center, end And by to are store trucks we in The well on realized. November, ship had of of distribution purely due feeling said, it's And we're were So and that a quarter, the schedule out they've ship third to that to side of be to just our came fully do the as I up shipping expected our challenges ramped in position direct-to-consumer all always of had out cost we're timing with. we portion shipments exactly replenishment benefits. of at within benefits still caught like to rate in like started some intend anticipated we slower than a this that facility, now gradually to planned we but planned. hiring

Aberdeen terms where fiscal we the with the half. of which we of operational, of cut still out in service takes about XXX% customer the expect some improvements And half expect the expect targets year, time for customer the our facility to in in facility by to half ship direct-to-customer coming will has and end at about of being of that fully hit ultimately, orders be Dallas, it our and an order to out received a literally be because tremendous we we

go will a From do this anticipate that – from cost right. to you're cost year the saying range the from of million $X perspective, we've the been million. up We $X

year, next $X go million will see we to see we million. to are that expect However, from – the we saying benefits $X

of again, kind $X just fiscal two years. transfer between the a really million So it's

Melissa Reiff

Timing. you meant mind. And you when Tami, just wanted about that, Home one don't if I other about thing asking Edit that share The to I to were

great that a really and example this it's think customers. is partnership to customer new important us younger engage and super of with engagement, it to I allowing note is

as really part and pleased that been just well, of the strategy So we've was

Tami Zakaria

you so Thank it. Got much.

Jodi Taylor

you. Thank

Operator

back end to over reached for of the remarks. turn the management question-and-answer We any session, will the closing call have I

Melissa Reiff

will I full call you our our Jodi where call very look we very next and XXXX today. Thank QX much. year. much May, forward very our to report all fiscal and for in on And Thanks joining will

Jodi Taylor

Bye-bye.

Operator

This conference. concludes today's

you your this at for Thank participation. You may your disconnect lines time.

Container Store (TCSGQ) 4 Feb 202019 Q3 Earnings call transcript