TCS - Earnings call 2 2024 | Container Store Group, Inc.

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Operator

Greetings, and welcome to The Container Store Second Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caitlin Churchill of Investor Relations. Thank you.

You may begin.

Caitlin Churchill

Good afternoon, everyone, and thanks for joining us today for The Container Store's Second Quarter Fiscal Year 2023 Earnings Results Conference Call.

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

XXXX, certain like Before I statements. relating financial the anticipated results obligation to plans call forward-looking with made press XX-K to not business that risk matters our quarterly as management's this report statements and issued release forward-looking discussed the The and events performance objectives remind are to in statements and Actual Container we reports materially date on subject statements. forward-looking may in on Store's today Form would everyone and company begin, filed are future and any that conference our update today's in Exchange future that public Securities SEC results for does The uncertainties. are Form the referred of could of in XX-Q from filings annual and of affect XX, updated those the the Container call, and risks with other to differ by to U.S. these factors Store today our forward-looking are May on The Commission. The as undertake the

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

Satish Malhotra

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

As purchased call, pressures, quarter spending we our what in that overall last a value-oriented decline cadence our sales long-term July, especially moderate in which Those on a increased being categories. The was essentially year-over-year units continued primarily customer inflationary on rates substantially summer by And and monthly consumer and customer and steepest more expected by traffic decline declines is of uncertainty. distraction slightly and travel. core saw fewer we we discussed interest challenging September. impacted our we did our market attribute to in August with them, in

XXth planned earlier anniversary adjusted the event, we Elfa end of us delivering which in our the of from Additionally, EPS benefited expectations. assisted start our and than above high sales

profit lower look gross second are with driving the changes be expect challenges we over to of expectations, our in we sales and expenses, year, of mix and now the by revenue year as in SG&A Jeff go to will had shortly. contending outlook, fiscal which However, half to slightly all we driven full which

customer with was our of and relationships, reach how organization of execution above remained and headwinds our our to the deepening delivered QX, to away prior learning margin the The million. were driven gross am not a profitability allow our pleased withstanding, has partially adjusted the our expanding high The share priority QX tailwinds and a expected margin significant we XX.X% expectations general period by end shorter on of year overall executing net SG&A of promotions, $XXX.X income down [indiscernible] we sales consolidated capabilities. our driven of strengthening which was million, SG&A freight $XXX.X focused the offset standpoint, I gross compared For plan. . took reduction by From across leading deleverage, strategic per expansion, merchandise This $X.XX. primarily our sales run to expansion

to are outsized normalizes. ourselves gains We for the share when aiming market position

me accomplishments notable in provide QX. our some most on Let now highlights key

proud marks we it and service, customer receive to experience high store for relates this our to As are area. efforts in

Our quarter. goal our to efforts extends in testament demonstration providing for store a second store specialists. specialized Their This Score and strong the areas. of new dedicated remained premium the is conducting at respective Net service XX% expertise exceptional our their product from to educational of Promoter knowledge

our journey and more our deepening inside the of than key numbers. ticket Our XX% to enthusiast members. organized tail a ongoing higher are average insiders through than non-loyalty our spending members our In relationships we storytelling. Xx enhanced loyalty Experts, with the program highest customer loyalty than more remains QX,

joins organizing that our ensure all we an Now them offer received with the customer when transformational us. to they engaging solution. and Custom in-home spaces they understand their have about program, a to in educational journey communication services

also well. On as believe front, we us which only [ we enrich our the premium to and not ] with positively new existing by product was received more continue upscale items, customers customers to with solvent shop but drove

customer premium shop In that our beautification products they to one-stop The needs. Store organizational us that customers Container reasons a as for giving home and fact, shop more recent are their see new intercept and validated with both

and we customers each college we recap the our compelling To could and example, stops stores great which saw a us success an pop-up annual purchases. parents college offtake XXXX with and For campaign, ran opportunity to and online up milestone during with to nationwide. college campus categories sign shop XX% back-to-college with where effort, college existing college in engage in XX receive our complete activated new offer year. a new bookstores gives our Curated important students and

XX% success in sales brought college our an underbed to in last to to assortment. as offer attribute pride shop and positioning and food sign-up increase college [indiscernible] storage compared our XX% we in multidirectional enhanced a [indiscernible], year. new and increase drove from X-door charging expanded a From innovative Container The one-stop Store XX% for cart with the to campaign's a customers, saw Our

innovative uncontained categories that coverage offerings, launched growth strategic core expansion during our across entertaining, exceeded home on-the-go spotlight. our dining, textiles. in We travel, categories our than introduced the introduction and complement we and upscale sales and travel addition, product homegoods us new This which original expectations. capital, does more September. ongoing come complement otisyn-made have margin, in spaces. Though branding like it and some [ at campaign custom including for that core X into the decor premium confidence Unlike barware. supports campaign and In introductions, for we known those these products premium sales general to product is gives of more lower be our of XX% bringing new brands merchandise includes product XXX over a in We this have gross consider break-resistant this conscious said, volume, a other particularly focus This solutions, value-oriented our magnetic premium Cadence, and for our category. a offers civically ] the and its in [indiscernible] more but and mature direction new our socially product tailwind, on larger

While we mix we do updated expect margin. to more of year have our to on new products, improve impact outlook over profile the time, these our reflect full premium lines this of gross current margin the

to shop. during assortment new decor book. introduced holiday limited Digital mail online X,XXX is direct half customers by Approximately remainder products including it of giving elevated premium, almost and The into assortment offering, yet. supported more believe we XX% are products month, gift-giving traditional as shop of than part had move reasons with periods, along seasonal new see is more our an an will key in-store than curated We Earlier holiday year, us. is or premium best and seasonal the more and exclusive our XX% we of time more during and and this opportunities, ever marketing, assortments period. them this Store. the holiday to As look with considered this is distribution we've Container There

artisan-crafted trends, will For that collection festive example, Home stoneware, complement a holiday ]. our and arrangements for customers [ decor including discover of table

customers gifting timeless from like holiday premium wrapping, so brands premium Table opportunities and more. ], storage [ leather Quala essentials Additionally, Hidden, much explore like gift and elevated travel pet essentials exclusive and innovative can and

do general With quality from strength side, in with XX%, which our reflected into we is customers which performance. Net than and are is our up trend positively, putting line rates investing compared in in spaces being service lead points to XX% on spacing quarter more of their focus we are to reasons challenging on the more sales high the coupled intentional very with spaces offering. We could strengthening cutting of our interest are, ended homes Avera we the XXX to continued our who improving Promoter spaces one premium contact custom premium customer see effort are QX. Preston growing we benefit the despite Score [indiscernible] selling an increase have fewer environment. and in relative homes as to we merchandise from time, The they On continues the market, QX. our as believe premium designers in-home X focused in with

are XXXX we the incremental investment customer lead of generation. support in an Additionally, fiscal second to in half awareness marketing base adding and overall

enclosed with forward look pairs bridges entry-level gap plus to in Garage launching between Classic start strategically we a our lighting market are we policies like competitive features bay, cabinet customers want and to garage price. fully the garage said, Alpha It previously Preston heavy-duty and With offerings. bringing which Alpha As at wall work merchandise. our rolling by our November, premium the general and

new to Moving on stores.

shopping reach San with average new our of in QX our just We are with our and California customers us Hills, expanding ago. of these locations. before successfully a California locations Mateo, over opened new week over location XX% the end We an Woodland

with continue XX% format per of which store. customer We sales productivity small our stores. the pleased specifically is the to be of faster with averaging of spaces, adoption

Promoter strong In at format incredibly our Score XX%. remained for Net addition, stores small the

year, fiscal to for format to the of of a ahead open remainder small Looking total stores X. expect more the we X

Mine their higher for effective are Like X. to believe annual growth. many company to inflation, our is this of this people remaining and October said of increase all create AI-generated the the technology its [ an To are we and and contending be our with people firmly pay online due will everyone, QX, delays. other reinstatement recognizing was ] employee lifeline have testing employees highlight construction started to on XXXX our efficiencies one to in based announced and website is previously experience initiatives now pages to content Our fiscal search This product shifting customer finally, the reasons location personalize our to for even reach capability. And customers. of improving prompts our announced we times, the to greatly I've our increase more do. contribution buy pay and we empty. in and incorporate providing in them compelling that and automatically reviews, employees cost display as sophisticated their long-term pressures, allows of living QX, In eligible right content us that on critical stability Investing generated enhance thing content economic contribute partner our

back We also payroll decisions. some reflects these and revised hours store added now our SG&A outlook

pay launched every we appreciate. a facilitates company's to the team new our Additionally, foundation program that TCS recognition celebration ways acknowledge to members This principles exempted program, by our day. paid

our to in Before serve believe I gains turn reiterate to deliver the strategy homes consumers want well market conviction over investments that Jeff. and their share we call in normalize. when begin our I prioritizing and us conditions will

balance hand a We will Jeff. it and that, strong believe strengthen Jeff? our now ensuring in we while have discipline today's are with we to competitive sheet environment navigating position. With further over exceptional place I

Jeffrey Miller

good and Satish, you, Thank everyone. afternoon,

we industry pressures contend our impacted with a tough macro backdrop As quarter and continue second that Satish to performance. reviewed,

our exceed guidance results However, did ranges. our

total compared by year-over-year, and spaces decreased retail is more new year impacted sales sales categories, points. comp business impacted sales increase by store C year. For stores Container sales negatively which third-party offset the million million, XX%, which decline million. store XX.X% year-over-year decrease net sales the to our merchandise general inclusive declined compared XXX XX.X% second net basis XX.X% comp TCS comp by a the benefited sales basis points. segment, store negatively of quarter, basis By decrease the $XXX.X last than comp X,XXX The sales for of to from $XXX.X Studio consolidated driven were Store The by of sales primarily in XX.X% net store to Sales last XX points. Custom $XXX.X discontinuation

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

decline consolidated Elfa due to XXX basis macroeconomic third-party as primarily impact the planned points activity other points higher profitability to decreased primarily quarter. margin primarily million related in anniversary margin had gross products for sales the unfavorable to million third-party TCS cost than of to dollars to primarily gross markets. decreased to reflects to event. Elfa compared costs, year, general to the last QX of in to By to XX continued and was which year. actions the QX in mix unfavorable to management and XX.X% XX.X% The we last compared year-over-year, XXth reflects points last the and increases. merchandise Nordic custom increased by XX.X% sales XXX first mix was spaces interest translation, to in quarter year, promotional rates. From price currency Nordic compared Elfa our regions million promotional standpoint, shift a year, compared Consolidated due basis the our start increased lower offset net sales The due decline earlier primarily the inflation in foreign Excluding challenging partially last or during activity. taken increased environment freight a mix basis a margin sales $XXX.X related SG&A and margin to increased X.X% $X.X gross due lower increased an $XXX.X segment, in the Elfa in

associated XXX to The year-over-year XX.X%. basis of second percent the costs lower deleverage due primarily quarter XXXX. sales, points increased net to increase fixed is SG&A sales margin fiscal with a of in of As

from net QX legal settlement. spend onetime benefit Additionally, SG&A in last included million year $X.X a a

goodwill we During $XX.X total assets unit of was goodwill quarter, of of TCS reporting there in and amount noncash and completed million. impairment concluded the the impairment a and test the indefinite-lived intangible

fiscal share quarter last as year. fiscal noncash the Our lesser share in is a $XX.X our X.X% year. Adjusted share Net as effective to effective per or XXXX loss share. was a last credit compared a on to adjusted income compared rate to net net $X.X income compared in quarter. The interest primarily or second a second diluted the per the was million revolving the of $XX.X $X.XX borrowings rate $X.XX increase expense per second income last last second in of in the facility related to million was charge compared net $XX.X decrease the quarter primarily quarter or on per $X.X diluted a $X.XX and $X.XX or quarter year. of of as to the million to fiscal to of in rate of of goodwill the tax income to loan the the XXXX quarter due on for compared XX.X% million basis higher pretax tax interest during quarter quarter XXXX. pretax The discrete the $XXX,XXX GAAP negative net second year's of increased to million loss year-over-year The million term impairment higher the impact inclusive was on for in extent, $XX.X GAAP items

Our adjusted to million EBITDA this QX second in $XX to the quarter year million last decreased in compared year. of $XX.X

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

versus result X.X% X.Xx. primarily freight costs Our second of quarter current reflects and million to is consolidated planned the inventory the the $XX fiscal fiscal $XX spending leverage We the pullback capital first XXXX. in The inventory decline ratio million fiscal in of last which of quarter year. XXXX year-over-year. Capital lower is first XXXX, in with ended compared the were half down expenditures in half the

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

our for Now outlook.

have impacting the certain and to, outlook I our Satish discuss. bottom we will to alluded reflect line updated items As that top

extremely continue and alignment simultaneously our in plans. strategic prudent be capital we macro investing growth with campaigns, our and initiatives longer-term our inventory, disciplined in planning making backdrop while to in our expenses the allocating remains managing While tough, investments

the XXXX, than is sales to Elfa quarter expect store third continued which reflective third compared fiscal and of to value-oriented consolidated are sales be more to decline the to to revenue The core million. million be outlook. of store headwinds, approximately expected expect inclusive $XXX of driven a we mid- primarily new previous in a For offset comparable we products sales comparable store pullback third-party The net of our consolidated sales. $XXX quarter low teens. by in declines our decline by in expected

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

quarter increased mix. to unfavorability and primarily Our is SG&A the offset partially last within freight in still comparison be margin in pay increases perspective, in include spend the third to our expectations year, have payroll, our previous investments quarter by tailwind and gross marketing. From for expected margin third a general a outlook product incremental store merchandise from to gross

higher Our the products. expectation product our approximately from drive merchandise is $X.X Interest primarily interest margin be rates. higher pressure will core to driven merchandise million, outlook and third by reflects greater general our seeing also our we for expense continue new that while general sales expected to quarter increased on

million, items expense $X.X is to options driven certain to of connection quarter. the This primarily in granted related income tax expect with We of public expiration primarily the XXXX. third our stock discrete initial million tax the offering in in tax in expense discrete range $X by

our of lower sales expected XX% $XXX million XXX%. With are We net result to current versus of consolidated to a to of our million, [ release changes the now our prior rate negative be As the as outlook. items, or discrete follows: these ] press range tax effective expect outlook, respect XXXX, our in range previous to is than the million negative outlines in $XXX key fiscal $X

in new in in of fiscal forward high in the could product headwinds store related our XXXX promotion to continue from to pull to implied the as be third low comparison and product year. declines declines quarter Elfa campaigns second campaign Elfa store line cadence compared significant is by and We prior XXXX. less on of planned space expect of the there to the fiscal teens the in sales during half year. Elfa sales more fiscal sales custom due year, primarily planned fourth introductions in The cadence year. We time more to fourth to quarter compared comp easing fiscal our the last fiscal product the XXXX comparisons are sales believe one comparable driven to to be our comparable quarter planned

points projection and 'XX, basis believe increased margin will a in merchandise activity our be dynamics margin margin continue category. tailwind mix the freight about fiscal partially fiscal in offset to gross the general reduced by have by within for our promotional gross gross we We XXX updated projection, Embedded year. to

is our which perform premium product, better value-oriented has lower expected of general performed than to expected. general merchandise and while higher-margin We lower-than-expected core originally products, merchandise is new are more seeing our and sales margin,

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

incremental further the our the estimate revised savings The $XX primarily change to have for to investment levels to in customer SG&A of team eligible maintain important lifeblood approximately payroll in are to related service store million. superior versus who previously X/X our approximately increases pay We $XX this $XX introductions. We expect is We've of expectation million the planned business for the incremental million quarter savings is for year and our fiscal to to believe savings employees. operations. now recognize our also investment We and in SG&A fourth year to culture the the XXXX, anticipated new product awareness dollar with second half investments our space the custom by of compared in total of reduce and fiscal decline. half second of expense marketing support almost contributing overall and the made additional

million goodwill of Our of be rates. outlook to million QX million $XX impairment expense that in higher of negative is driven assumes in operating X% fiscal operating interest not our charge inclusive to X% or prior loss for expected negative to was the margins million, $XX reflected by $XX.X approximately outlook. Interest $XX.X noncash XXXX approximately

is tax XXXX. quarter of to rate the be negative the discrete in approximately mentioned tax be of during million $X.X expense expected range X% of to previously effective X Our third expected income fiscal in recorded primarily the to

for to expect share million GAAP loss share $XX.X After the per fiscal discrete we per We the $X.X expense of the severance in noncash be range new charge, in of during approximately still related the expected the net this opened goodwill in million to to to be Almost net fiscal million of aim expenditures of flow are diluted XXXX first the to slightly our $XX loss million. to impairment $X.XX neutral And to incurred fiscal $X.X quarter planned be be in free adjusted we range in with adjusting expense, in and stores be expect $X.XX. tax $X.XX or planned XXXX. are XXXX. XXXX now fiscal cash to half to positive expenditures million capital to $XX outlook, $X.XX. Capital income

open construction the remaining begin stores is new a concludes we to session. e-commerce, of to projects related at it extent, planned lesser and, X in investment result technology and to XXXX now our now to fiscal infrastructure a the store maintenance. This I'll XXXX. over As Q&A to are and capital operator our prepared fiscal turn remarks. software stores X location, planning in The small-format delays in new Miami, Florida

Operator

McShane line with [Operator the Instructions] Our Goldman of first question Sachs. comes from Kate

Unknown Analyst

then this so this detail last far year? on This Kate. on holiday, how for Gosh more if promotional around wondering were compare could provide is might you and activity your expectations year We promotions Emily to for

Satish Malhotra

obviously end around demonstrate our to how a expectations. above clearly for promotions. quarter And lot manage high our of QX, We our promotional adjusted learned you our and the sales think question. our to in delivering about QX levers Thank during ability EPS the

So just being similarly, to a normal be cadence change there did like don't with anticipate significant promotional we LY promotion year. have relative other fact half our into at we holiday, a about as of than do level that in that Elfa looking We back have and think the we'll our scrutiny we the we every QX.

Operator

end session. today's we [Operator Instructions] and Thank Ladies with question-and-answer teleconference. you. And have of our reached gentlemen, the that, conclude this will

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

Container Store (TCSGQ) 31 Oct 232024 Q2 Earnings call transcript