The much-awaited first earnings results of The Container Store Group, Inc. (TCS) failed to cheer investors' moods and dragged shares down by about 8.3% in the after trading session on Tuesday, Jan 7. The downward movement continued on Wednesday as shares fell 14.8% from the prior-day closing to end the session at $39.01.
Although the company reported strong third-quarter fiscal 2013 bottom-line result, wherein adjusted earnings of 11 cents per share surpasses the Zacks Consensus Estimate by 3 cents per share, the market reacted negatively to the company’s weak sales forecast for fiscal 2013 and soft customer traffic trends.
The Container Store expects its fiscal-2013 earnings and sales to come in at 40 cents per share and $754 million, respectively. While the company’s earnings guidance is above estimates, analysts remain cautious over its sales expectation, which lags estimates.
Currently, the Zacks Consensus Estimate for earnings and sales is pegged at 38 cents per share and $757 million, respectively. Moreover, the company is projecting comparable-store sales (comps) growth of 3.4% for fiscal 2013, which is lower than the third-quarter figure.
Further, the customer traffic trends for the industry remain challenging as most retailers are experiencing a decline in traffic for several years. Management at The Container Store remained tight lipped on the customer traffic trends at its store last quarter. The company registered a 4.7% rise in its comps, mainly benefiting from the 5.8% increase in average ticket. Thus, we infer that the implied 1.1% fall in customer traffic contributed to the fall in share prices.
The market’s reaction was not surprising as there was much speculation surrounding the storage products retailer’s earnings, given the stock’s rally of 26.5% since it was listed on Nov 1, 2013.
We believe that The Container Store possesses tremendous growth potential. Presently, the company operates 63 stores in 22 states and intends to operate over 300 stores across the country in the long run. However, there is still a long path to tread and investors are more concerned about the company’s current performance rather than reacting too much on future projections.
Furthermore, we have to wait and watch how the company performs in the future, as it will counter stiff competition from major home-furnishing retailers such as Wal-Mart Stores, Inc. (WMT), Bed Bath & Beyond inc. (BBBY) and Target Corp. (TGT).
Currently, The Container Store carries a Zacks Rank #3 (Hold).
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