Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to The Container Store First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded.

pleasure your my Caitlin now is to host, introduce Churchill. It you. Thank

begin. You may

Caitlin Churchill

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

Malhotra, Speaking After we Officer. Jeff will Chief today the and are Executive and to Chief Satish formal Jeff their made call Officer; have open Financial Miller, remarks, Satish questions.

conference plans to would that business future certain risks objectives in are today's Before future the everyone matters relating subject statements management's remind we call like begin, and forward-looking to financial and the I for performance to events, are company uncertainties. discussed the and of that

The from in and The results that are may differ materially these with in release public on in updated as results XX-Q risk our Store's today XX, issued those Container report XX-K Actual our annual press with and factors Form statements. filings SEC forward-looking the Commission. affect and could on May to on XXXX, the anticipated referred Securities quarterly Exchange Form other reports by filed U.S.

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

may on refer adjusted Finally, the financial measures certain speakers non-GAAP this or to call.

copy www.containerstore.com. by be non-GAAP the of today's reconciliation available may GAAP A Investor measure release press at the in press deck financial is release the investor obtained The of A of schedule most Relations the today. website issued also to and measures directly comparable visiting Container page Store's

over turn now call the Satish. will I to

Satish Malhotra

up our financial by of call discussion discuss today. to all by our our Jeff will details open today's then I questions. the our which begin and first first Caitlin, Thank performance. thank call you joining we'll After followed quarter quarter you, reviewing outlook. results, highlights from the will for

the impact strategic discussed while fiscal deepening on environment it macro control with focus control we their challenging. relationship we capabilities. of expectation and customers, would And priorities remain with call focus our customers our entered on and in we can XXXX our reach May, that spending, our we cannot on our strengthening and year-end our As the our the has our remains steadfast expanding

relentless discipline long-term believe of in will annual $X enable advance We and cost to in focus us management goals sales. this our billion

plan we cutting While from kept implemented NPS us have experience. our a call, store high an customer the delivered actions exceptional cost our on action cost of year-end shared QX, XX. delivering we record In not

deliver line to our the us will customers. by with we inform for this and our as unlock with For quarter, first line deepening on fueled our our key position learnings plans and tests test These expectations, increased to promotional although delivered year. activity better we relationship performance in from promotional our objective approach sales top focus go-forward continue that learn on

when results created and urgency shop the will. us, saw believe a We the Therefore, with better provide durations types. we in offer various they We we with for promotions quarter with when customers a first of reason customer. sense we tested to

better six-day a one, XX% than ran performed offer. per get we XX-day a For buy basis one offer a example, that on off day

belt to and across reason summer, of we are Another we this infusing new traveling is bags, our and functional both products In giving like effort have shop customers customers our example our put and aesthetic [ph]. Tubi travel fresh all ongoing to of expectations. our duffel the with newness bags, laptop of into light are category innovation backpacks These with CalPak, and which gave and carry-on a a luggage, Rains life exceeding assortment. on-the-go include brands

will of products to QX, Container new continue And accounted In customers on to for to pleased we see XX% we focus note, like that Store growth. travel bringing with for The potential products customers. are are new To new categories sales. new

another identified growth we College area potential. with was

in décor re-imagined and college stores off Dormify. QX with in with a online dorm destination Our and kicked alongside expanded campaign annual online our product partnership assortment

While college enhancements a off the year. back-to-school season, [ph] start of result made as shelves have a to in we are still early the this strong

brands We of products with core our is enhance to anticipated companies, goods The introduce Citizenry, XXXX. Dormify X,XXX online the also throughout who expect expectations. coming partners, exceeding and vendor sought our dropship In conscious several launched home socially Like Container assortment. artisans' are crafted program other part which SKUs to fiscal new we QX, will The after that Store

innovation this evergreen fall to campaign product a and and transform innovative plan solution-oriented embark products drive how our help our to newness, curated, showcase We and lives. on bold can of awareness

with pleased to and and to are re-condo extent these we're jewelry. We [ph] the than the traditional our a While believe collection, are drop-front are box in in sales category, delivering, newness offset declines expected response greater Edit macro closet categories by symptomatic in lesser of in we by results declines the greater than current declines are we than more seeing the expected incremental shoe more driven the Home environment. and storage

custom expanding With we our softness spaces. have non-premium respect reach, seen in pleased to our space continue spaces, while premium to results with be we our within

home, beautifully superior strength looking Preston elevate enhancements Preston with innovation the European pair we to to offering Preston We are the that compatible further. well line, believe door diamond the more with we innovative assortment in by new these forward the will even continue weave colors. inserts as line mesh smart lighting as Given introducing in see

in-person spaces XX% all accounted spaces, completed and specialists design specialists custom previous enhance knowledge. their Preston in market. of These Regarding which of design sold and year, represents XX% Avera and who a skills quarter. majority compared Preston premium in significant space and by the XX% successfully $X same in-home a the XXX on quarter are the to billion last selling specialists to primarily focused In for Avera in-home custom premium QX, reminder product sales a space services, we training design multi-day, technical design as have have

As offering we an is custom previously our we expand. of shared, opportunity identified garage area to

excited solutions our overall new garage closed Garage+ Preston by features stores and garage lighting, enhancements full-extension to which are and plan on enhancements all options, new drawers, we're developed out our will current we we and to including customer Elfa classic freestanding our to Informed year. the deep cabinet, premium feedback We this by These workbench. a truly Elfa, announce later and elevate launch rolling garage offering. soft-close

New to purchase payment, agreement, online customers installation. and to from and track spot intuitive a to inspiration their experience. customers custom sign and space our launched Spaces a to their space design, our with status We manage the the their custom portal portal centralized will soft provide differentiate give tools experience. Custom smooth the My of elevate This continue lifecycle review

addition, or in-store, on recently launched get virtual they're when enhanced In online we a appointments design. started for in-home on website our ready an easily space scheduler to design make customers to

As is it continued relates category, us of service score our points from XXXX and X to on spaces that an confidence net to by customer of QX our custom our innovation increased making XX. impact. focus satisfaction promoter This gives

expect fiscal new and our Mateo, Woodland whitespace. existing see where XXXX Maryland open increase and This open to California; we count Gettysburg, Hills, key to Huntington, We by Jersey, and stores New open in San California; this will next spring Miami, over Turning in new store coming track fall, stores our significantly small-format six This to market an New XXXX. to York a Princeton, remain winter; year's the store in pathway Florida years. and on still we followed see of new plan.

governance of I note want make throughout our capabilities, by our recognized of I'm United we publication our continue highlight to our One fiscal company's environmental, for report Finally, which XXXX. in green to Environmental proud is continued wind States strengthen use the as strategy progress QX, of social being annual Protection we sustainability second Agency to the the outlines have power. and against

are at include emissions our X that partner with greenhouse emissions, chain. teams Scope our new also indirect help supply Our which measure hard of work gas us will a

forward assessment, the ways learning can reduce and of we footprint. one look we are embark to which on further first carbon our the retailers this to We in

anticipated, To it was difficult a year. to challenging summarize, a we as start

current the X we're in in position remain The our in seeing The job, QX. for backdrop we path Container outlook revised reflect annual Store customer focused experience that to initiatives trends revenue. growth on profitable to executing our and our have We the our business notwithstanding, strategic long-term billion to against on in

as environment. optimism position all hard I and for that dynamic I'm we to the this their recovery taking it today in want steps demand we work to the our on when capitalize us navigate thank of well are team occurs. unrelenting confident

over Jeff. it to hand now I'll Jeff?

Jeff Miller

afternoon, good and you, Thank Satish, everyone.

expectations. Satish line top line As our in our quarter performance with was first reviewed,

lower lesser discipline environment, with were customers Offsetting than activity, results call. by we learn commitment management, an effective ongoing expense to as however, engage events planned different line with to rate. to bottom to continue our was extent, a our actions However, impacted last the of and the some discussed this including a and test tax experiment our expected current on we promotional negatively pressure, in

basis sales categories, For impacted The the our Container inclusive business points. to first XXX.X segment, last driven compared comp decrease Store sales of for XX.X%, year-over-year negatively in sales were million, by XX.X% retail primarily quarter, consolidated XXX.X XXX.X to decline The XX.X% of net by store million. million a comp store By sales net decrease X,XXX year. a XX.X% decrease is merchandise the general which decreased

negatively sales in store year-over-year. up sales third stores points, basis XXX last XX.X% from points. sales compared by of net by year-over-year, declined basis The and comp offset impacted the to discontinuation decline partially XX.X% year TCS C-Studio XXX store the party remaining sales sales spaces Custom comp total new made

versus in decreased that revenue fiscal customer of to in XX.X% year. QX curbside by million last which to online sales this the and For XXXX, XX.X% compared in of a pickup we QX experiencing. QX website to our the total sales, net are decreased year in Website decreased first includes XX.X% XX.X% last spending pullback generated Unearned XX.X generated million driven sales year, XX year. compared channel represented last our quarter TCS year-over-year

XX.X% Elfa third XX million decreased first of to quarter compared the XXXX. party fiscal sales of net

environment of decline in Nordic Elfa and inflation Excluding continued and increasing due regions decline challenging markets. reflects translation, rates. third the to the in in the XX.X% sales macroeconomic other foreign year-over-year, sales The interest Elfa high currency due in to Nordic a the sales net party impact party primarily third decreased

costs. margin to our last gross XX.X% last higher in compared promotional were shift XX.X% product and unfavorable From discounting, points sales for and a to XXX and associated basis offset activity QX profitability driven mix, TCS by decreased decreased compared an more partially test mix primarily freight of costs of online segment, year, to discussed, XXX due learn services and which to the previously year. By by decreased points all shipping basis standpoint, consolidated gross margin

decreased Elfa Consolidated primarily gross last million material XXX.X last margin XXX SG&A compared year. X.X% in or decreased due to million to dollars costs. basis to year, QX to XX.X million XXX.X compared direct points higher

increased is primarily increase As and a costs percentage year-over-year to due to and by fixed occupancy, net marketing of points sales, compensation other The offset SG&A benefits XXX partially sales, on of XX.X%. lower decreased basis costs. deleverage

severance in million announced associated We in and distribution with center, this of expense reduction recorded support the our previously center force year operations. store QX at X.X

term the compared year. X.X due loan. fiscal higher XXXX interest to to quarter increased a interest net Our of million our primarily increase The year-over-year X is expense to in rate last million on first

was the loss The effective XXXX on effective decrease fiscal discrete was compared first in of for pre-tax to XX.X% of XXXX. fiscal in the related the the quarter primarily first first as quarter the to in rate items a year. compared of tax to tax in The income the last pre-tax quarter rate quarter impact XX.X%

or compared compared GAAP per net million last first share. GAAP the $X.XX $X.XX Net of or of or $X.XX million XX.X quarter income XX.X share or Adjusted net loss as per to share per last diluted to XX.X adjusted as year's per income share on for was year. quarter basis a million was the million diluted $X.XX in a net XX.X loss

quarter to compared million year Our in adjusted QX in X.X EBITDA the at this first decreased million last XX.X year.

total our Turning total with XX.X the facilities million. credit sheet. We availability including in balance to in XX.X ended quarter and million of on XXX.X million liquidity, debt cash, revolving

as macro actions inventory environment. to costs and the first expect year-over-year given as our purchases we are X.Xx. well challenging a of customer year. the current and the to with a consolidated Our freight down ratio ended the pullback prudent is XX.X% reduce The We leverage see was given experiencing compared quarter spending to to decline result and continue last inventory inventory lower quarter

in Capital pullback million fiscal first XX.X which of expenditures the of reflects X.X planned in XXXX, XXXX. in fiscal capital QX spending were the of versus million quarter XXXX fiscal

continuing was the and million are stores year. of of a in to quarter our a last flow in We first million use XX.X XX.X Free use invest of technology. primarily cash versus in this year QX

outlook. our for Now

second sales net mid expected For sales decline ticket. million primarily The fiscal quarter to the to store customer XX% of we be range. comparable of to traffic $XXX the driven of store the low average second in terms expected $XXX a a in by consolidated approximately sales slower is reflective XXXX, expect quarter in comparable million, to than and start decline

sales third strategic are also of consolidated for expected XXX third sales point continued party party Elfa impact the our declines discontinuation C-Studio of The revenue inclusive headwinds. basis and

the headwinds. impact these store offset sales of to are partially New expected

in We The operating to to implied quarter the fixed to the expect by lower loss is share for the driven of per $X.XX. margin second entirely than year-over-year second expected SG&A sales. deleverage on be be adjusted in more $X.XX to cost net due quarter decline range

gross second moderate rates. be for Interest in interest expected approximately to to the tailwinds product margin by quarter margin driven higher quarter. be the freight is perspective, expense second a mix to From million, are X.X expected and favorable gross

million expect second by income quarter. discrete primarily in of in expense driven range tax to the We X tax items the XXX,XXX,

to of As to XX%. be the rate our these range negative is of a items, XX% result in expected tax effective discrete positive

teen of and XXXX, first given sales consolidated expectation driven quarter million, range million we net With primarily store the the for quarter, declines sales second performance our high the expect fiscal to percent now comparable $XXX to by $XXX in range. respect in

significant planned from easing of less the introductions, expect in cadence planned and comp by of campaign prior to product comparisons in year, sales driven the the continue half comparable year. the We fiscal declines store our new the cadence second

sales point new Elfa This outlook a the to headwinds. related partial party also sales assumes of of benefit continued C-Studio the and impact to offset our of basis party inclusive due a discontinuation XX strategic third stores, third

margin a freight in gross moderate to mix by and fiscal gross are promotional offset XXXX, to perspective, From be margin partially tailwinds favorable expected increased product activity.

assumes a million. range therefore profit of XXX outlook million Our gross XXX to

As a marketing a a to at reduction payroll-related keep expense year. costs, quarter proactive effort other we in approximately XX% to our SG&A reduce along result as with sales percent actions the the full took is of for workforce and the first of goal fiscal our

by are quarter year, million These compared last actions expected to reduce overall XX expense being approximately the fourth total savings SG&A per higher. with to dollar quarter slightly

fiscal reductions total year. to million expected when last are to the For full almost be compared SG&A year, XX

for X.X% margins expected to Our profit. XX by driven million XX of outlook operating approximately interest assumes million in expense is approximately Interest rates. X.X%, to to operating million XXXX XX be fiscal higher or

income be is with fiscal expiration tax recorded in tax to stock in XXXX. expected granted our discrete of This third public approximate rate of related an million offering in be XXX%, expected XXXX. tax certain in expense quarter discrete is the of the effective range expense options given to Our XXX% X.X initial to of the connection to

net million net well We share aforementioned discrete of X.X the in per $X.XX. $X.XX. range million the share as range to expense, be as for XXXX be adjusted previously expect income expense in to income severance of After diluted in expect fiscal mentioned of $X.XX adjusting the to $X.XX we estimated loss X.X to the tax per

expenditures related fiscal fiscal XX approximately be expenditures to our million. fiscal still positive cash be XX are to planned stores new free And we in capital outlook, Almost in to million or this flow planned be to half open are XXXX Capital of XXXX. in expected with to XXXX. aim still

lesser We in are to fiscal technology stores The second extent, a to planning and in XXXX. to of remaining the fiscal three primarily open projects is capital and half and maintenance. infrastructure six new related software in stores XXXX investment e-commerce,

remarks. our concludes the to to the begin operator Q&A prepared it turn I'll over This session. now

Operator

Thank you.

Instructions]. be conducting a now session. will We question-and-answer [Operator

Our proceed. Forbes Steven Guggenheim first with question is Please Securities. from

Steven Forbes

is I to with the Hope Jeff. Good evening, well. during wanted and around you quarter. start activity the learnings Satish mentioned that promotional all

expand in in terms satisfied the a get whether if understanding during better of or Just maybe and to the back curious what depth it planning on trying breadth business the gross with of you're the for you were the sort can you year, and of doesn't experience you're you a pressure back profile Just of seem did quarter because customer what unsatisfied on like half to severe half. as the planning margin response?

Satish Malhotra

said for why QX question. some remarks This Steve. in line there I as expectations, sales our Thanks Look, in takeaways. Satish. key the Hi, with were Yes. our prepared delivered in we definitely is

quarter, We out. For drive right the that's around profitable can results. that promotion found promotions. is the worth pointing One

As promotional to duration rates, we essentially given learn in still different results. it driving take higher environment interest the what to and with we while customers, of would current stated, our experimented economic engage profitable levers both percentage off

more success drove than So off. we sales percentage a urgency and BOGOs straight a had much profitable campaigns, shorter campaigns of did much better and better that sense longer with than

what resistance storage plans and customers, learned for of deal a customers. to given we terms promotions they're it that will to actually engage our organization the of It's with. that will noting also current inform go-forward mind to take especially help and our worth promotional dealing great pricing top offset So any to everything that serve in bring

that for is point to also working newness think promotions I outside of out us. worthy is really

quarter, assortment bringing are prior and in back and the travel we're mentioned all reimagined doing to new and I fragrances which over dropship new this assortment college customers. program also well, and plant-based XX% refreshed grew very our cleaners, seeing introduction our sales results of actually positive home the from and before, quarter As collectively from

all of why really what's out the a the lesser environment. is think, to performance And for important just declines conclude, during in operation our categories. with ability, of they innovation coming in found of definitely well spaces, really engaging was quite look, off, really exceptional QX so newness? learned that's worthy that is compatible door of look service. than we closet Preston our customer us really our deliver with the QX, about organization pointing is last with Preston, excited we win and the facing So I big of in of Marie But function for lining doing the macro new smart additional mix What new promotions? learning to really the challenges as our positive with kind it storage of seeing the then, custom which our customers of current that we pleased relates and kind Edit, right with to some to an see pleased and of even and a we're out And environment, that sales with are declines we're tee this expected more as to to And with particular, extent, Avera year, I inserts. traditional Kondo in with what learning to QX premium it homes well both mesh we're European and line the our cadence our think with another category. as again, storage Home

scores for to XX able So with XX hard when them, really strong to store, NPS we're custom convert work spaces. for in, come also and customers them deliver do

best of able So think we on in I terms come our are customers all bodes that in deliver where of foot kind to forward. well of when

Steven Forbes

with And for promotional sort just because sort around right a frame quarter easier. calling these seems second almost in an the guiding it the on inflection But follow you're I get got of half activity. compares to can, learnings because better contextualize second then guidance, up full for I or like year, and just know that, I'm guidance if of trying you

You holiday right? time the have You period. have newness,

strategic that that priority-driven? is macro around but inflection right the visible, it's also And more is key half message related, whether the is the second sort outlook, so of becoming all

Satish Malhotra

probably add a is, would I we believe July, say little definitely travel I in think bit correct. on And of season. What to so it we softness you categorize QX, peak primarily more. let Yes, I'll due particularly Jeff saw as some

to customers. to So thought talked products kind [indiscernible] planned home bode Citizenry got special about our something sourced Plus, goods revise ethically that our we Elfa. fruition, will anniversary that, well really of ton relative think that. exciting was customers the from an with have our is we of Having to it around we've launching XXth to that's we guidance world the coming of like prudent celebrate a for we with said new really

prudent categorize And back compares the well, we have So the as it happened in think easier QX our guide. we were that what quite to then a that's all reasons respect bit have it as last one to some the relates with about excitement we year, planned. of do we you as and half, and newness

Steven Forbes

you. Thank

Satish Malhotra

Great. Thank you.

Operator

you. Thank

next Meyers from is Ryan Capital. question with Our Please proceed. Street Lake

Ryan Meyers

Yes. Thanks my Hi, taking guys. questions. for

of kind for stores the one how you of if me some comment on and highlight could performing? just newer First are curious

Satish Malhotra

Ryan. How you? Hi, are Yes.

Ryan Meyers

you. doing well. I'm Thank

Satish Malhotra

us Good. Look, we've new of attract is, XX% to I shopping customers, that our we relative We continue are new what would stores three new. to over stores, see customers the opened. say new

degree We as also And almost spaces a NPS the relates penetration across actually all score at XXs of them around of it rather, higher XX%. our mid are our XX. in see to custom XX,

we're consumer to So opening. that the we are great seeing new doors response

said they and that. But the with three immune Now we seeing dealing we that, current still are They're or are across contending not climate. with stores. those having what generally pleased are macro to

great really locations. you suit are As Half planned we've to got new actually 'XX for still and built know, fiscal six them locations. of up coming some stores

means on much economic tremendous and are still the still believe a have committed store CapEx growth to expansion current So we the very that helps of climate. given it really we And amount new us whitespace, front.

and moderate smart to around positive we we and we keep generating we've cash as our ensuring based open before, goal However, be may will that particularly times flow, the plans doors that. free many on accordingly of that we stated

Ryan Meyers

Great, that good. sounds

for Just me. you. one question Thank

Satish Malhotra

you. Thank great. Okay,

Operator

Thank you.

question Kate proceed. Sachs. from is Please next Our McShane Goldman with

Kate McShane

question. Hi. travel a of premium We and Satish, seems is by services. they prioritization consumer also dollars focus both seeing is like the maybe taking than custom had of what much view Thanks in our on holding you a as macro the It wondered, on versus the spaces and how for if better non-premium, up potentially in store. you're

we talk more that wondered could So if a little bit well. to as you

Satish Malhotra

Kate. as you. It's resistance Yes. Hi, to I Thank a great relates stated our ability question. to Definitely, on it spaces. seeing win some premium we're as

contend softness them. are those well there. customer and committed Elfa. excite are We with able particular Non-premium to with a the are spaces we and do They purchases, in seeing to

Although I to few actually early last too we've say tell. it still improve, of elements but would days, starting the to seen

to start introducing do the obviously return of we look continuing a given much a as that's that geared getting and travel excited newness or are for with those are are we We And things right interest all our with largely the rates, level on that's consumers, the back we -- think expect at now are right I what very uncertainty about, they distracted, with for half. going normalize. up either now. and back. And

Kate McShane

you're out noted and the by by our on what was I basis down unit XX% could Thank the end what if wondered you. was or on was year? Okay. where know inventory. store parse in guiding in of the where just it And you follow-up basis quarter Jeff the it range. down inventory be should then a question We

Jeff Miller

question driven Kate, relatively a over is From XX%. unit on perspective, call this flat. the as inventory. Inventory really a it's Thanks is by And little for basis I that's Jeff. the stated been down in freight.

as to costs down continue to freight projections that basis we average right on of result current a the we're we inventory down. year, expect cost just year-over-year now, be our So move a as the through freight savings are seeing. But to to continue

Kate McShane

think Satish. linked sneak you in you comments. in, this into I if in Okay. to one of line too about much Thank just mentioned I data more If some else all at program you. for the sales anything that And don't with help wondered the question expectations just maybe we or QX? with quarter your your with could loyalty prepared

Satish Malhotra

we Yes, in Kate. how you we still We anything continues almost have our talked historically. be level higher tell to well Xx remarks. I enthusiasts. program mention spending relative Hi, prepared XX%. than our our our that up not our do will Sure. than do non-loyalty see about loyalty they're loyalty still we But our it incredibly entry baskets And more still baskets, see experts to

of calls, So we're we've to a prior data on of it's again, stated loyalty as program. that great level able out get our

to be which and be then custom are get into mine that to really to able the spaces. best data could which customers third one We then category in storage, journey along and to them category, could understand kitchen from the how bring for example, category into another

here is of our very proud Container all work how still at Store So loyalty great that program and commencing performing. is The of

Kate McShane

Thank you.

Operator

Thank you.

today's no this teleconference. you As participation. questions, Thank there concludes further are for your

lines. your disconnect now may You

Container Store (TCSGQ) 2 Aug 232023 Q1 Earnings call transcript