The Container Store Group (TCS) Misses Q2 EPS by 4c, Slight Miss on Revenues; Reaffirms FY18 EPS/Revenue Outlook

The Container Store Group (NYSE: TCS) reported Q2 EPS of $0.10, $0.04 worse than the analyst estimate of $0.14. Revenue for the quarter came in at $224.5 million versus the consensus estimate of $225.08 million.

• Consolidated net sales were $224.5 million, up 2.8%. Net sales in The Container Store retail business (“TCS”) were $208.9 million, up 3.3%. Elfa International AB (“Elfa”) third-party net sales were $15.6 million, down 3.1% due to foreign currency translation.
• Consolidated net income and net income per share (“EPS”) were $3.2 million and $0.07 compared to net loss of $0.9 million and ($0.02), respectively, in the second quarter of fiscal 2017. Adjusted net income per share (“Adjusted EPS”) was $0.10 compared to $0.12 in the second quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table). EPS and Adjusted EPS in the second quarter of fiscal 2018 includes $0.02 per share of incremental interest expense, and $0.03 per share in incremental marketing expense related to the brand campaign launch, when compared to the second quarter of fiscal 2017.
• Adjusted EBITDA, which excludes losses on extinguishment of debt and Optimization Plan costs, among other adjustments (see Reconciliation of GAAP to Non-GAAP Financial Measures table), was $24.3 million compared to $26.5 million in the prior year period. Consolidated gross margin expansion of 30 basis points was offset by a 150 basis points increase in consolidated selling, general and administrative expenses (“SG&A”) resulting primarily from the expected 100 basis points increase in marketing expense related to the second quarter brand campaign launch.

“We continued to make progress against our key strategic initiatives in the second quarter and also completed a debt refinancing that extends the maturity of our credit facility while generating approximately $0.07 per share in annualized interest savings,” said Melissa Reiff, Chief Executive Officer. “To Own Custom Closets is our number one strategic priority and we saw continued momentum in our Custom Closets sales in the quarter, along with strong omni-channel growth and effective digital marketing campaigns. However, elements of our merchandise campaign test and learn efforts, mostly around our other product categories, did not resonate with customers as well as we expected, curtailing our comparable store sales and earnings performance for the quarter.”

Reiff added, “Once we cycled the merchandise campaign changes, we were pleased to see our other product categories return to positive comparable store sales territory and based on our year-to-date financial and operational performance, we are reiterating our full year outlook.”

GUIDANCE:

The Container Store Group sees FY2018 EPS of $0.41-$0.51, versus the consensus of $0.46. The Container Store Group sees FY2018 revenue of $885-895 million, versus the consensus of $886.14 million.

For earnings history and earnings-related data on The Container Store Group (TCS) click here.

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