The Container Store Group - Q1 2022

Transcript

Speaker 0

Greetings, and welcome to The Container Store's First Quarter 2022 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Caitlin Churchill of Investor Relations.

Please proceed with

Speaker 1

your question. Good afternoon, everyone, thanks for joining us today for The Container Store's Q1 fiscal year 2022 earnings results conference call. Speaking today are Satish Malhotra, Chief Executive Officer and Jeff Miller, Chief Financial Officer. After Satish and Jeff have made their formal remarks, we will open the call to questions. Before we begin, I would like to remind everyone that certain matters discussed in today's conference call our forward looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.

Actual results could differ materially from those anticipated in these forward looking statements. The risk factors that may affect results are referred to in The Container Store's press release issued today and in our annual report on Form 10 ks filed with the SEC on June 2, 2022, as updated by our quarterly reports on Form 10 Q and other public filings with the U. S. Securities and Exchange Commission. The forward looking statements made today are as of the date of this call The Container Store does not undertake any obligation to update their forward looking statements.

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

Speaker 2

Thank you, Caitlin, and thank you all for joining our call today. I'll first discuss our fiscal 2022 Q1 performance, followed by an update on our growth initiatives. Jeff will then review our financial results in more detail and discuss our outlook. Our first quarter results reflect a solid start to fiscal 2022 as they exceeded our expectations on the top and bottom line. I'm proud of our team's agility and performance.

They continue to successfully navigate a dynamic consumer environment while staying focused on our long term objective of reaching $2,000,000,000 in sales by the end of fiscal 2027. For the Q1, consolidated net sales were $262,600,000 an increase of approximately 7.1% compared to the prior year, the outperformance versus our expectation was fueled once again by Custom Closets. From a profitability perspective, we delivered adjusted EPS of $0.21 compared to $0.36 in the prior year as we absorb higher freight and commodity costs, restored expenses that were pulled back during the height of the pandemic and investments to support our path to $2,000,000,000 in sales. Our strong Q1 results reflect the strength of our actions as we reacted to the ongoing dynamic consumer environment. This environment particularly impacted our general merchandise business as customers returned to more normalized summer activities and continued with increased inflationary pressures.

Despite today's reality, our teams did well pivoting and delivering smart and engaging promotional campaigns that still drove profitable growth. As I mentioned, Custom Closets performed above our expectations, and we were pleased with the customer response to our Avera Premium Closets event, which helped deliver strong sales at lower promotional rates than the prior year, the Avera event was an organized insider event, requiring customers to be part of our loyalty program to be eligible for a discount. Additionally, we tiered this discount so that our most loyal customers, whom we call experts, received a higher discount. Total sales for the Avera event were nearly 9% higher than last year and further demonstrated our ability to sell premium spaces over $2,000 as the average space value was above $7,000 up 22% for last year. The tiered discount approach led to an average discount for the event that was less than 20% compared to a discount of more than 25% the prior year.

Shortly after the Avera event ended, we continue to see strong engagement in Custom Closets through our More Space, More Savings Alpha event, and I look forward to sharing details of that event, which ended in mid July in our Q2 earnings call. Within general merchandise, despite a tough compare in closet and storage categories over last year, we were pleased with the strength we saw in our kitchen, office and bath category. Within our kitchen category, the Home Edit product sales increased over 50% compared to Q1 of last year. However, we were most encouraged by the growth of our private label everything organized the collection, which saw a triple digit increase over last year. Our back category also benefited from sales of the home added products, which were up nearly 40% in Q1 compared to last year.

In May, we introduced a new way of both sustainable and elevated KonMari products in a variety of categories, our office department benefited from these new products as well as from our private label multipurpose bins, which were recently introduced in new colors. As we look ahead, we have recently launched a compelling collection of premium home fragrances, free shrink candles and diffusers from LAFCO, PURA, Capri Blue and more. Early results indicate this is a highly productive use of space in our stores, which is why we plan to take it a step further and refresh our impulse products located near checkout with a selection of carefully curated and eco friendly consumables. Our results this quarter also benefited from our new loyalty program Organized Insider, which is a key priority given our focus on deepening our relationship with our customers. Since the launch in late March, we have seen over 100,000 customers tier up, progressing either 1 or 2 tiers.

We are seeing a higher average ticket over 60% for loyalty members compared to non loyalty members. When it comes to our top tier members, our experts, we are seeing them spending 5 times more than our 1st tier enthusiasts and are visiting twice as frequently. We're also seeing that our kitchen category is resonating most with our enthusiasts, whereas Alpha is resonating most with experts, we intend to capitalize on the opportunity to not only add new members to our loyalty program, but also to increase engagement and spend with existing customers so they can move up in their tiers. We've also made progress on expanding outreach through the strength in Custom Closets and through our robust pipeline for new store growth. At the close of Q1, Preston displays were installed in 60 of our 94 stores with plans to complete the rollout during the Q2.

As a reminder, Preston is our custom wood based system that replaced our former offering, Laren. Preston offers built in luxury in 11 premium finishes with a variety of door, hardware, lighting and accessory options like a hamper, pull out ironing board and wine racks. This premier offering is suitable not only for closets, but for all areas of the home, including pantries, offices and living spaces. Since launching Preston, we have built a strong pipeline of designs with a healthy average ticket of over $8,500 in Q1. As we laid out on our last call, we see significant white space to grow our store base.

We are on track to open our 1st small format store in Colorado Springs, Colorado in the Q2 of fiscal 2022, and we plan to open a second small format store later in the winter. As previously mentioned, we plan to open 76 new stores by the end of fiscal 2027, we anticipate 1 third of these new stores to open by the end of fiscal 2024 we have these locations targeted and active in our pipeline. As we continue to strengthen our capabilities, we are very encouraged with the momentum we are seeing with our mobile app, which launched in Q4 of fiscal 2021, over 80% of our mobile app users are loyalty members the app is converting at a rate double that of mobile web and with an average ticket of over 30% higher. While the app makes up just 5% of our web generated e commerce sales at present, it provides superior customer experience compared to mobile and serves as an opportunity to reengage lapsed customers. Additionally, we were pleased with website generated sales, which were up 2.2% for the quarter as consumers are pulling back from pure online shopping I'm returning to stores.

Given this consumer shift, we are strategically encouraging and incentivizing customers to buy online and pick up in store, which helps save on freight costs. Our results reflect a solid Q1 performance despite some periods of Softness primarily around holidays when consumers were enjoying summer activities or traveling. As we look to the rest of the year, we are revising our outlook to reflect the impact of inflationary pressures across our business, including higher interest rates. Despite this environment, we believe a continued focus on our objective and executing our initiatives will position us to achieve our fiscal 2022 goals and make progress on our path to $2,000,000,000 in sales. As we plan for Q2, we will be intently focused on back to college.

We've created a compelling can't miss Colley shop at the front of our store showcasing must have products for dorms and apartments. We've also teamed up with Domify, a direct consumer brand to showcase their bedding, headboards and lamps in 10 of our stores located in key college markets. This partnership and the product showcase help round out our college offering. To add to the success of our kitchen category, we have also launched a new and exclusive product line with New York Times Bestselling Author and YouTube Star, Rosanna Pansino. The Rosanna Casino collection by iDesign includes clear storage bins, canisters, mixing bowls, turntables, a cake dome and more.

These products are made of sustainable materials, including 100% recycled clay plastic and tallerweena wood. The collection is a fresh take on some of our best selling kitchen products and we look forward to seeing how our customer and Rosanna's audience respond. With the current economic backdrop, we also see our kitchen category as a great resource for families who are cooking more at home. We're also looking forward to launching our new Custom Spaces branding in Q2. We are strategically moving our branding beyond custom closets to custom spaces to help educate our customers that our metal and wood based systems go beyond closets and that they are also meant for everyday living spaces such as entertainment centers and garages.

We'll continue to see a significant opportunity to drive results and gain market share in custom spaces. Finally, we are pleased to publish our 1st sustainability report this past June, reviewing key areas such as our product lifecycle and environmental impact, emissions and energy and diversity, equity and inclusion initiatives. We look forward to continuing to update our stakeholders on our progress with this work on an annual basis. Before I close, I want to thank our teams for their impactful contributions in delivering a solid start to the fiscal year and for their continued commitment as we navigate a dynamic environment, we will stay focused on our long term goals while remaining nimble and flexible to the changing consumer environment. I will now turn the call over to Jeff to review our Q1 performance in more detail.

Jeff?

Speaker 3

Thank you, Satish, and good afternoon, everyone. As Satish said, we are pleased with our solid fiscal Q1 performance with top and bottom line results that exceeded our expectations. Consolidated net sales increased 7.1 percent year over year to $262,600,000 by segment, net sales for The Container Store Retail Business were $246,800,000 a 7.9% increase compared to $228,700,000 last year. The 7.9% increase is inclusive of a comp store sales increase of 5.1%. The increase in comp store sales was driven by Custom Closets sales, which were up 14.7% compared to fiscal 2021 and contributed 4.5% of the 5.1% year over year increase in comp store sales.

Other product categories were up 0.8% in Q1 and contributed the remaining 0.6 percent of our comp store sales increased year over year. The sales from recently acquired ClosetWorks and new stores contributed the remaining 2.8% to this 7.9% TCS net sales growth year over year. I'd like to reiterate a reminder from our Q4 call. Historically, when we have referred to Custom Closets, we have included the general merchandise closet department. However, starting this quarter, when we refer to Custom Closets, we will exclude the general merchandise closet departments from the amounts and only include the results of our Custom Closet product and service offerings.

We are making this change due to the importance of Custom Closets on our path to $2,000,000,000 and a desire to provide more transparency to the Custom Closet product and service offerings, please refer to the Q1 2022 Investor deck for revised quarterly historical information regarding the mix of Custom Closets and general merchandise product categories based on this new definition, for the Q1 of fiscal 2022, our online channel decreased 0.9% year over year. However, when including curbside pickup, our website generated sales in Q1 increased 2.2% compared to last year. Website generated sales represented a total of 21.3 percent of TCS net sales in Q1 of fiscal 2022 compared to 22.5% in Q1 last year, reflecting the expected normalization of traffic patterns across channels following the pandemic driven surge in digital channel performance. We had unearned revenue of $24,700,000 this year versus $21,600,000 last year, driven by the increase in Custom Closets orders taken but not yet installed associated with the successful start of the More Space, More Savings Alpha event that ended on July 11. Alpha third party net sales of $15,900,000 decreased 4.4% compared to the Q1 of fiscal 2021 And reflects the significant strengthening of the U.

S. Dollar to the Swedish krona. Excluding the impact of foreign currency translation, alpha third party net sales increased 11.9% year over year. From a profitability standpoint, our consolidated gross margin for Q1 was 57.1% compared to 59.6% last year, with the decrease driven by the higher mix of TCS segment sales, combined with lower gross margins at our TCS segment. By segment, gross margin at The Container Store decreased 140 basis points compared to last year, primarily due to higher freight costs, which was partially offset by favorable product mix.

Elfa gross margin was flat at 36.6% compared to last year, primarily due to direct material cost increases offset by favorable customer mix and price increases. Consolidated SG and A dollars increased 10.7 percent to $121,900,000 compared to $110,100,000 in Q1 last year. As a percent of net of sales, SG and A increased approximately 150 basis points year over year to 46.4 percent due to increased compensation and benefit costs and increased marketing costs, reflecting the restoration of expenses that were pulled back during the height of the pandemic and additional investments into the business to support our growth of $2,000,000,000 in sales by the end of fiscal 2027, the compensation and marketing increases were partially offset by leverage of occupancy costs on higher sales year over year. Our net interest expense in the Q1 of fiscal 2022 remained consistent year over year at 3,200,000 the effective tax rate for the quarter was 28.8% compared to 24.3% in the Q1 last year. The increase in the effective tax rate is primarily related to the tax impact of share based compensation on lower pretax income in the Q1 of fiscal 2022 as compared to the Q1 of fiscal 2021.

Net income for the quarter on a GAAP basis was $10,500,000 or $0.21 per diluted share as compared to a GAAP net income of $17,700,000 or $0.35 per diluted share in the Q1 of last year. Adjusted net income was $10,500,000 or $0.21 per diluted share as compared to last year's adjusted net income of $18,200,000 or $0.36 per diluted share. Our adjusted EBITDA decreased 15.9 percent to $28,200,000 in the Q1 this year compared to $33,500,000 in Q1 last year. Turning to our balance sheet, we ended the quarter with $23,200,000 in cash, $187,100,000 in total debt and total liquidity, including availability on our revolving credit facilities of approximately $115,500,000 Our current leverage ratio is 1.1 times. We ended the quarter with consolidated inventory up 31.5%, which reflects increased freight and commodity costs across our organization year over year.

On a unit basis, our TCS on hand inventory is down slightly year over year. We have been and plan to continue employing multiple methods to help mitigate the impacts of higher costs, which include vendor negotiations, actively managing our supply chain, along with adjusting our retail pricing and promotional cadence, CapEx was 17,600,000 in the Q1 of this year versus $7,600,000 in Q1 last year, with the increase related primarily to investments in technology and our stores. Free cash flow in the Q1 this year was a use of 14,400,000 we've seen a use of $3,800,000 in Q1 last year. Now for our outlook. For the full year, we are prudently considering the current promotional environment for our general merchandise categories and that the current sales trends continue through the remainder of the year.

With that said, we still expect fiscal 2022 consolidated net sales of approximately 1,125,000,000 driven by a low single digit increase in comparable store sales and 2 planned store openings. While we still expect operating margins to be in the high single digit range, we now expect over 50 basis points of incremental operating margin pressure as compared to our previous guidance, which excludes the benefit of an expected one time legal settlement gain of $2,600,000 from SG and A in the Q2 of fiscal 2022, approximately 2 thirds of the operating margin pressure is related to additional SG and A deleverage and the remaining 1 third is related to gross margin pressure. As it relates to SG and A, we have factored in additional inflationary cost pressures into our guidance such as increased outbound transportation costs. The incremental gross margin pressure is related to higher than expected promotional cadence as well as additional expected commodity and freight cost increases. Fiscal 2022 interest expense is now expected to be approximately $14,000,000 as a result of higher rates and our effective tax rate is still expected to be approximately 28%.

As a result, we estimate full year adjusted earnings per share to be approximately $1.10 to $1.20 per share with 51,000,000 assumed diluted shares outstanding. Our adjusted EPS estimate does not include the expected $0.04 earnings per share benefit associated with a legal settlement occurring in the Q2 of this fiscal year. For Q2 of fiscal 2022, we expect consolidated sales growth to be in the low single digits, Driven primarily by comparable store sales at TCS, which is in line with our Q2 to date trends. Excluding the impact of a one time legal settlement benefit of $0.04 per share, we expect adjusted EPS in the second quarter to be in the range of $0.20 to $0.25 per diluted share. As a reminder, the Q2 of fiscal 2021 was the most profitable quarter of the fiscal year as a result of better than expected gross margins and lower SG and A costs, our better than expected gross margin was associated with less promotional cadence in anticipation of higher commodity and freight costs.

The lower SG and A costs were a result of expense savings from pandemic related cost reductions that were reintroduced starting late Q2 and into the remaining two quarters of fiscal 2021. In Q2 of fiscal 2022, we expect our operating margin to be in the high single digit range with 2 thirds of the expected year over year profitability decline driven by SG and A deleverage associated with costs that we brought back into the business in fiscal 2021. The expected SG and A deleverage excludes the benefit of a one time legal settlement gain of 2,600,000 the remaining expected profitability decline is associated with gross margin pressure as a result of freight and commodity cost increases compared to Q2 of fiscal 2021. Also as Satish mentioned earlier, we are on track to open our 1st small format store in Colorado Springs, Colorado in the Q2 of fiscal 2022. Capital expenditures for the full year fiscal 2022 we're still expected to be approximately $60,000,000 to $65,000,000 for technology infrastructure and software projects, new stores and existing store merchandising and refresh activities.

Given our strong balance sheet and in anticipation of generating positive free cash flow for the remainder of fiscal 2022 and into the future, as well as our commitment to delivering shareholder value, our Board has recently approved our first stock repurchase program, which includes an authorization for up to $30,000,000 Stock repurchases may be made in the open market or could be negotiated purchases with the amount and timing determined at the company's discretion, we do not expect to incur additional debt as a result of these stock repurchases. This concludes our prepared remarks. I'll now turn it over to the operator to begin the Q and A session.

Speaker 0

Thank you very much. At this time, we will be conducting a question and answer session. It may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for the first question comes from Steve Forbes from Guggenheim Securities. Please proceed with your questions, Steve.

Speaker 4

Thank you and good afternoon. Satish, I wanted to start with the planned completion of the rollout of Preston to all stores during the current quarter. So just curious if you could help frame the cadence of the rollout, when will it be completed? Maybe what space is it replacing in store? Is it consistent within region?

And whether the updated outlook assumes Any productivity assumption from that space as we update our models here?

Speaker 2

Sure. Thanks, Steve. Thank you for the question. So I'm actually pleased to announce we have now completed the rollout of Preston throughout our stores, we just completed that. There's some minor tough jobs that need to happen, but they are now all in stores.

And as I mentioned in my prepared remarks, we're really pleased with the pipeline that we are seeing with these designs with the average ticket of over $8,500 so the reaction from the customers has been quite pleasant. They're amazed with not only the quality of the offering, but also of all of the additional features that come with it. We're really excited to be able to get that into our customers' home as quickly as we can.

Speaker 4

Yes, go ahead, Jeff.

Speaker 3

Yes, Steve, just a follow on that. The Preston Product lines that are going into our stores are replacement of the Laren lines that we have today. So and we do factor in, into our outlook, the ramp up of that Preston line in our stores through the remainder of the year have been doing so as part of the original budgeting process.

Speaker 4

Thank you. And then just a quick follow-up. As we think about the commitment to the openings Really through 2024, I think it's 2024. So, can you provide just some additional color on how the pipeline is coming along? I think you mentioned right that the real estate is you're sort of in the search process here, but How are the lease signings coming along and how should we expect that sort of pipeline to build here as we look out over the next 12 months?

Speaker 2

Yes, I'll answer it first and then Jeff can chime in as well. Look, we're really pleased actually at our ability to locate we negotiate some really great leases. As we look at not only 2023, but also 2024 2025, we have an amazing real estate team and they are they have boots on the ground, really securing these great places In locations that we're very, very proud of. And so it's still very much fluid in terms of our ability to not only negotiate the leases, but also sign them, but we're pleased with what we've been able to identify so far and our pace of opening them.

Speaker 3

Yes, just to add to that, again, we're expecting 1 third of the 76 stores through 2024. And while we do have a pipeline actively working, like Sify said, there's a lot of factors that come into play. I will say looking into 2023, we haven't announced anything yet, but we do have a very solid pipeline as we're looking into 2023 and we're building 1 for 2024. So at this point in the process, I think the real estate team has done a great job working on our ambition of that growth of additional 76 stores and we're looking forward to sharing more in the coming months.

Speaker 4

Thank you. Best of luck.

Speaker 0

Thank you. The next question comes from Kate McShane from Goldman Sachs. Please proceed with your question, Kate.

Speaker 5

Hi, good afternoon. Thanks for taking our question. I wondered if you could talk a little bit more about what is being assumed in your guidance for promotions this fiscal year? I know that this is something that you've been pulling back on. As you mentioned in your prepared comments, I think your markdown rate was lower for one of your annual sales versus the year before.

But just how you're thinking about the promotional environment in the context of a tougher macro backdrop and just a promotional environment across the board in retail?

Speaker 2

Yes, sure. Thank you. As we said earlier, we're definitely navigating a very dynamic consumer environment And also not only contending with customers who are really enjoying finally enjoying their summer activities and travel and then there that are also kind of looking for and expecting more value given current inflationary pressures. With that said, we really are proud of the fact of the way that we are delivering smart and engaging promotional campaigns. We kind of do that in 3 ways.

We do it through our loyalty program. We do it through some of our spend more, save more events And also through our amazing private label assortment, which not only delivers on quality and innovation, but also on value. And so the recent examples of that was the Avera event. As we mentioned, sales were up 9% over was less than 20% versus 25%, which was what we experienced last year. We also did it within our general merchandise.

We held a limited Time only buy more, save more event in early June with the Home Edit and that really drove some significant growth in kitchen and bath. Again, where customers are spending more, they have the ability to save more. And we currently have a very compelling back to college campaign where customers have the opportunity to save in a variety of different ways. And so it's really been smart of engaging that customer, so that they can see the value in what we're offering, but while we're doing it in a very profitable and mindful manner.

Speaker 5

Thank you. If I could just ask a second question about back to college. Could you maybe characterize for us what you're expecting in terms of the demand for back to college versus last year? Would you have this defined last year as a normal year for back to college or are we still lapping what might be still some easier compares when it comes to that particular season.

Speaker 2

Sure. We're really excited about our back to school offering this year. Last year, I think we were kind of playing into it, engaging with customers. And this year with we've made significant improvements in the way that we come across with our expression. So we have our front of store spotlight, as I mentioned earlier, And a dedicated online landing page showcasing some really amazing products like our 3 tier rolling cart, under bed storage, notebooks, planners and most famous Elfa printer fridge card.

And that really is engaging with our customers. We also we partnered with Domify in 10 of our stores, really delivering on a more complete experience. We also went on campus for the first time engaging with local schools so that we could really get the awareness out there that The Container Store really competes in back to school and have recently just rolled out an amazing reusable shopping tote, which is an instant hit with customers. So I think for us, we're now playing Much more strongly in back to school. We will continue to play strongly in back to school and really encouraged with the results that we're seeing over LY so far.

Speaker 0

Thank you. Thank you. The next question comes from Ryan Myers from Lake Street Capital Markets. Please proceed, Ryan.

Speaker 2

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

Speaker 3

First one for me, I wonder if

Speaker 2

you could just kind of highlight what Store traffic has looked like maybe in the Q1 and kind

Speaker 3

of how it's tracking so far in Q2?

Speaker 2

Yes. Ryan, hey, great to hear from Our store traffic, it is slightly down as what we are seeing. There have been pockets in particular during the holidays that we've seen it down even more. But it is absolutely more than offset by whether it's a combination of our conversion rate or our average ticket. And so it's our ability to really engage with customers and get them to add on to their purchase.

I think our specialists in our stores just do a brilliant job we're really spending quality time now with those customers that are coming in, so they can understand the projects that they're Are taking and so that they can give a full level of service to them. Great. No, that's helpful. That's all I had. Thank you.

Speaker 4

Sure.

Speaker 0

Thank you. The next question comes from Chris Horvers from JPMorgan. Please proceed, Chris.

Speaker 6

Thanks. Good evening. So I had a first question on Preston and then a couple model follow ups. So The first on Preston, could you talk about how expansive the change in the line was relative to the prior line? Sort of how many incremental finishes there were, so maybe how much store space in the store it's taken up now versus what it did currently, Maybe a number of SKUs.

Speaker 2

Yes. What I will tell you, Chris, is that today we offer 11 premium finishes now and which was more than I believe we had with our Laren line. But I tell you what is really that the consumers are really paying attention to is the customization of our product. So we're able now to offer a far more customization, whether it's our draws. We obviously have the 360 revolver that has Being a great hit with our customers as well, lighting, hardware, a variety of different accessories that come with it.

So the expansiveness actually is quite big. As our customers choose whether or not, for example, they want to have back panels On their designs or not, whether or not they want to have glass and we have a variety of different glasses we can offer, whether it's frosted or see through or opaque glasses. And that's really what's exciting for customers to engage in. And when I look at what we've been able to do just The month of July alone in Preston, it's far surpassed what we did in Q1 alone. So clearly, we're seeing a huge pickup in the demand for Preston and we'll I would tell you we're just getting started with that line.

Speaker 6

Got it. Makes sense. A lot more customization. And then on the in reference to the prior question that was asked in Q and A, maybe Could you delve into sort of how the cadence of the quarter looked when you talk about some moderation around the times of holidays and presumably That's a July 4 sort of impact. Is that are you referencing that?

And maybe what are you seeing at the category level? Is it more on the general merchandise that where you see the sort of that air pocket of demand? Is it also showing up on the Elfa and the Custom Closets side?

Speaker 2

Yes. When it comes to holiday, it was definitely some of it was Memorial Day, more so And a bit of that during July 4 for sure. And in terms of categories, it was softer on the general merch Then our Custom Closets side of the business that continues to deliver as you saw double digit growth of Rail Y and seen great performance not only with Avera but also with Alpha, very pleased with our ability to continue to win in the above $2,000 in space. As you know, that's where we see significant upside in our growth potential and our path to hit $2,000,000,000 in sales. Specifically within general merch, you're very pleased with what we saw in kitchen in particular and in bath And in office, great categories doing well for us.

We have some tough compares in particular around closet And storage, and that's because we were essentially anniversarying a pretty big promo event that we had last which is our closet essential sale that ran from what mid April to the end of May. And so that's what we were trying to anniversary This time period.

Speaker 6

Got it. And then just one quick modeling one. On the gap between the sales total net sales growth and the comp growth, is that wholly made up Of ClosetWorks and so within that sort of low single digit outlook, should sales be sort of at the high end of that and Then the comps more towards the midpoint of that?

Speaker 3

Chris, are you talking about the Q1 GAAP? Between comps and yes.

Speaker 6

Yes. And how to think about it going forward?

Speaker 3

Yes. So, you're correct. The difference that 2.8 percent between comp store and the full was primarily related to ClosetWorks' historical business, they had the dealer network and that we had a backlog that we're working through. As we move forward, going forward as we're now offering that Preston line exclusively in our stores and no longer within that dealer network, we would expect the impact of the ClosetWorks historical backlog to follow-up sharply starting in Q2.

Speaker 6

Got it. Makes sense. Thanks so much.

Speaker 0

Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Satish for closing remarks. Thank you, sir.

Speaker 2

Well, thank you again for joining us today and for continuing to follow The Container Store's growth story. I look forward to when we can discuss our Q2 results. Until then, thank you and good night.

Speaker 0

Thank you. This concludes today's conference call. You may disconnect your lines at this time and thank you very much for your participation.