The Container Store Group - Q2 2022

Transcript

Speaker 0

Greetings, and welcome to The Container Store Second Quarter 2022 Earnings Conference 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 would now like to turn the conference over to your host, Kaitlyn Churchill, Investor Relations, The Container Store.

Please go ahead.

Speaker 1

Good afternoon, everyone, and thanks for joining us today for The Container Store's Q2 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 Are 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 10Q 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 the highlights of our fiscal Q2 performance and then update you on our strategic initiatives. Jeff will then review our financial results in more detail and discuss our outlook. For the Q2, we delivered bottom line results above our expectations despite a shortfall in our sales performance. We continue to navigate a challenging consumer environment as we have seen customers change their discretionary spending patterns.

We've also had a negative impact of 110 basis points in sales growth headwinds from foreign exchange. While consolidated net sales declined 1.2% compared to the prior year, we delivered adjusted earnings Per diluted share above our expectations at $0.27 compared to $0.54 in the prior year. As discussed on the last earnings call, we expected the year over year earnings decline as we continued to absorb Higher freight and commodity costs, restored expenses that were pulled back during the height of the pandemic and made investments to support our path to $2,000,000,000 in sales. Our teams did a phenomenal job at maintaining a strong cost discipline Despite these headwinds and continued to execute with excellence, it is encouraging to see the continued strong performance of our custom spaces business and initiatives despite the softness in our general merchandise categories. We remain committed to our strategic initiative to support our long term growth and $2,000,000,000 revenue goal.

As reflected in our updated guidance, which Jeff will review in more detail, we expect many of the macro headwinds we faced in Q2 related to the continued inflationary pressures and rising interest rates to persist. While we recognize the more promotional environment we are in, We have experimented with our promotional cadence with varying success. Our expectation is to continue to manage profitability and top line growth thoughtfully. Additionally, we continue to remain disciplined on the cost front, prudently managing and allocating expenses, while staying committed to our long term growth plans. The near term external headwinds notwithstanding, I'm very encouraged by the continued strength we have seen in our retail Net Promoter Score of 78 for the quarter and the progress we continue to make against our key strategic priorities, which include expanding our reach, Strengthening our capabilities and deepening our relationship with our customers.

We are as focused as ever on deepening our relationship with our customers. In Q2, we wrapped up a successful back to college event to help our customers and their students Get organized for the new school year. As a reminder, we created a compelling college shop at the front of our stores and online, Partnered with direct to consumer brand Domify to enhance our offering and we had campus ambassadors in key college markets. We are pleased with the results of this event and see an opportunity to add new products to our assortment next year in addition to starting the event earlier. Average daily sales for the event was double that of last year, with an average ticket 33% higher than last year.

More than a third of our back to college customers were new to The Container Store and we enrolled them in our loyalty program Organize Insider. We see back to college as an opportunity to drive additional growth in the years ahead. Turning to our loyalty program, Organized Insider, We are pleased to see over 126,000 customers tier up in Q2, progressing either 1 or 2 tiers. As we continue to see a higher average ticket for loyalty members versus non loyalty members at 61%. In Q3, we plan to invite our highest tier experts to an exclusive online event hosted by professional organizer, Kas Arsen, to help our most valuable customers get their homes ready for the holidays.

Also in Q2, we refreshed our impulse products Located near checkout with a selection of cleaning products, many of which are non toxic and plant based and are not available at other large retailers. Some of the brands include LAVANT, Times, Noshinku, Koala Eco and Common Good with products ranging from counter sprays, hand and dish soap and much, much more. We are also proud that several of the brands we're carrying are female owned. Early results indicate strong customer interest in our new offerings. As we look to the remainder of the year, we are delighted With our curated holiday products and how the offering has been brought to life online and in stores.

The front of our stores will feature a kitchen spotlight showcasing solutions to help customers with their holiday prep. Some key products will include our new private label pantry bins And entertaining essentials from our Rowan, Acacia collection and bakeware essentials from Chicago Metallic Bakeware. We will also have a holiday shop of high quality wraps, ribbons, bags and tags in coordinating themes and excited to offer our customers an assortment that is 48% exclusive to The Container Store. We also have an expansive assortment of gifts and stocking stuffers with over 130 new products this year. Also new this year, customers can choose from a variety of ready to give gift sets, boxed in themes from our stocking stuff assortment.

Finally, to encourage sales during this time period, our customers will enjoy a limited edition reusable tote in holiday red When they purchase $100 in gift wrap and or stocking stuffers. With regards to expanding our reach, We continued to see strength in custom spaces this quarter with comp store sales performance up 7% compared to last year, which partially offset the pullback in general merchandise we saw during the quarter. The customer response to our new premium wood baseline Preston Began to accelerate in the Q2. With Preston now offered in all stores, our teams are fully certified in design And sales activities and we look forward to adding to our sales pipeline through our first ever Preston event earlier this month. This introductory offer is part of our strategy to gain market share in spaces over $2,000 We are excited about the opportunities we see ahead for Preston and are investing to expand the product line with new wood grain and super matte finishes And the furious decorative accents, including reclaimed leather, glass countertops and frameless mirror doors.

All these product additions align with leading industry design trends. Additionally, we recently participated in Kipps Bay Decorator Show House Dallas, in which we demonstrated the incredible capabilities of Preston. In partnership with 2 accomplished designers, we Brought 2 primary closets to life that featured glass front cabinets, warm LED lighting used both vertically and horizontally And a floating credenza wrapped in cold crocodile recycled leather with push to open drawers. Both spaces received high accolades from the interior design community. In addition to our focus on Preston, today we launched new branding, Custom Spaces, which moves our offering beyond closets and naturally aligns with key areas of the home, including closets, living and garage spaces.

Customers can learn more about Custom Spaces through a new section on our website or in the Custom Spaces studio in any of our stores. Online, we also added chat capabilities that not only support customers, but also allow for enhanced lead integration for future sales opportunities. We also continuing to invest in custom spaces through a new design tool And I've added talent across the business in technology, engineering and sourcing to name a few areas. Lastly, we have also begun to pilot our own in home installation teams in both the Chicago and Dallas markets, inclusive of branded vehicles. By bringing this service in house, combined with our Dallas pilot for in home organizing, We will be able to deliver a comprehensive and unmatched customer experience comprised of organizing solutions, custom spaces and in home services.

I believe we are well positioned to capitalize on the sizable growth opportunity ahead. At the end of August, we also kicked off Our Alpha Savings for Every Space event, which concluded in mid October. The event was a spend more, save more offer available only to our loyalty members, While our customer engagement for this event was only slightly down year over year, we noted that our customers purchased fewer spaces At a higher average base value, reflective of the softening of customer traffic and spend as a result of inflationary pressures and rising interest rates. Despite the current softness, we remain focused on long term growth and are developing new and innovative premium alpha product that we plan to launch throughout next year. These offerings will span multiple spaces and will include elevated features.

Turning to our store expansion plans. During the quarter, we opened our 1st smaller format store in Colorado Springs. Initial customer response has exceeded our sales productivity expectations, in total and in particular for Custom Spaces. We remain on track to open a store in Salem, New Hampshire this winter and are excited to announce plans for the opening of our next location in Thousand Oaks, California in early spring 2023. As previously stated, we plan to open 76 stores by the end of fiscal 20 27.

We anticipate 1 third of these new stores to open by the end of fiscal 2024, and we have these locations targeted and active in our pipeline. Lastly, we continue to make progress related to strengthening our capabilities. We are leveraging technology across the organization, And it is elevating the customer experience of our multi channel customer. As it relates to Custom Spaces, we not only launched Our new experience online, but also enhanced the lead platform to better understand a customer's omni channel journey from lead to conversion. We also began rolling out mobile point of sale in stores for express checkout and assisted selling to help our customers more efficiently find solutions Sign up for our loyalty program from 3 d views in our online custom spaces design tool To an improved VOPUS experience and piloting an AI powered chatbot on our site and app, we believe our technology initiatives enhancing the customer experience.

Looking ahead, we will remain focused on execution of our near and long term objectives. We are mindful of the macro backdrop and the prospects of a recession. However, we have spent the last few years paying down debt and fortifying our balance sheet. And we enter this period from a position of financial strength. Even as we tighten our spending And more closely manage our costs, we plan to continue to prudently invest in our strategic growth initiatives that support our path to $2,000,000,000 in revenue.

With that, I will now hand it over to Jeff to discuss our results and outlook in more detail. Jeff?

Speaker 3

Thank you, Satish, and good afternoon, everyone. As Satish reviewed, We are pleased to have delivered 2nd quarter earnings above our expectations despite the shortfall in sales. Consolidated net sales decreased 1.2% year over year to $272,700,000 By segment, Net sales for The Container Store retail business were $259,900,000 a 0.2% increase compared to $259,400,000 last year. The increase is inclusive of a comp store sales decrease of 0.8%, driven by the 4.6% decline in our general merchandise categories, which negatively impacted comp store sales by 3 10 basis points. The performance in general merchandise was partially offset by the increase in custom space sales, which were up 7.1% compared to fiscal 2021 and contributed 230 basis points to the comp store sales.

The sales from recently acquired ClosetWorks and new stores Contributed the remaining 100 basis points to the 0.2% TCS net sales growth year over year. As a reminder, beginning in Q1, we changed our definition of custom spaces to exclude general merchandise, caustic departments and only include results of our Custom Spaces product and service offerings. This change Was driven by the importance of Custom Spaces on our path to $2,000,000,000 and a desire to provide more transparency to the Custom Spaces product and service offerings. Please refer to the Q2 2022 investor deck for revised quarterly information regarding the mix of custom spaces and general merchandise product categories based on the new definition. For the Q2 of fiscal 2022, Our online channel decreased 0.7% year over year.

However, when including curbside pickup, Our website generated sales in Q2 increased 5.4% compared to last year. Website generated sales represented A total of 20.9 percent of TCS net sales in Q2 of fiscal 2022 compared to 19.9% In Q2 last year, unearned revenue decreased slightly to $22,100,000 in Q2 this year versus $22,400,000 last year. Elfa third party net sales of 12,800,000 decreased 22.8% compared to the Q2 of fiscal 2021, primarily due to the negative impact of foreign currency translation. Excluding the impact of foreign currency translation, Alpha 3rd party net sales decreased 5.3% year over year, primarily due to stopping sales in the Russian market. From a profitability standpoint, Our consolidated gross margin for Q2 was 56.6% compared to 59.3% last year, with a decrease driven primarily by commodity and freight increases.

By segment, TCS gross margin decreased 130 basis points compared to last year, primarily due to more promotional discounting and freight costs, partially offset by favorable product and service mix. Alpha gross margin decreased to 26.2% compared to 31.8% last year, primarily due to higher direct material costs. Consolidated SG and A dollars increased 4% to $118,700,000 compared to $114,100,000 in Q2 last year. SG and A spend in Q2 this year includes a 2,600,000 Net benefit from a legal settlement. As a percentage of sales, SG and A increased approximately 220 basis points year over year to 43.5%.

The increase is primarily due to the normalization of SG and A cost post pandemic combined with the deleverage of fixed costs associated with lower sales and partially offset by the legal settlement received in Q2. Our net interest expense in the Q2 of fiscal 2022 increased 18.7% year over year to 3,800,000 due to higher interest rates. The effective tax rate for the quarter was 25.9% compared to 25.7% in the Q2 last year. The increase in the effective tax rate is primarily related to the tax impact associated with share based compensation on lower pre tax income in the Q2 of fiscal 2022. Net income for the quarter on a GAAP basis was $15,700,000 or $0.31 per diluted share As compared to a GAAP net income of $27,200,000 or $0.54 per diluted share in the Q2 of last year.

Adjusted net income was $13,800,000 or $0.27 per diluted share as compared to last year's adjusted net income of $27,200,000 or $0.54 per diluted share. Our adjusted EBITDA decreased 24.8% to $35,900,000 in the Q2 of this year compared to $47,700,000 in Q2 last year. Earnings on our balance sheet. We ended the quarter with $19,800,000 in cash, dollars 174,200,000 in total debt In total liquidity, including availability on our revolving credit facilities of $123,200,000 Our current leverage ratio is 1.1 times. We ended the quarter with consolidated inventory up 9.8%, which reflects increased freight and commodity costs across the business year over year.

On a unit basis, Our TCS on hand inventory is relatively flat year over year. However, we anticipate increasing unit levels in the second half of the fiscal year In advance of the previously mentioned new Elfa product offerings expected to launch next year, as well as increasing safety stock on key SKUs to ensure positive customer experiences. Capital expenditures were $32,000,000 in the first half of fiscal twenty twenty two versus $14,600,000 in the first half of last year with the increase related primarily to investments in technology and our stores. Free cash flow in the first half of this year was a use of 5,300,000 versus $7,900,000 generated in the first half of last year. As announced on our Q1 earnings call, Our Board has approved a stock repurchase program, which includes an authorization for up to $30,000,000 After the end of the second fiscal quarter, The company repurchased approximately 940,000 shares for $5,000,000 under a Rule 10b5-1 plan.

We have $25,000,000 remaining of the original $30,000,000 authorization for share repurchases. Additional 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. Now for outlook. For Q3 of fiscal 2022, we expect consolidated sales to be approximately $240,000,000 to 250,000,000 driven primarily by a comparable store sales decline of high single digits.

We expect earnings per share in the 3rd quarter to be in the range of $0.02 to $0.07 per diluted share. The implied year over year operating margin decline is expected to be driven primarily by SG and A deleverage associated with fixed cost deleverage on lower sales. While we have taken action to pull back on certain corporate expenses and have reallocated spend due to the current economic environment, We plan to continue prudently investing in our strategic efforts. As Satish reviewed, while profit dollar maximization is a priority, We do expect some headwinds to Q3 gross margins associated with the more promotional environment. And freight and commodity cost headwinds, while abating a year ago remain elevated compared to historical trends.

However, we do expect a favorable product mix to serve as a partial offset

Speaker 2

to these headwinds.

Speaker 3

Interest expense for the Q3 is expected to be $4,400,000 driven by higher rates And our effective tax rate is expected to be 30%. Our 3rd quarter outlook reflects the expectation that we will continue to navigate a Given the economic uncertainty, we are withdrawing our previously issued full year guidance. That said, we believe a prudent scenario would reflect trends not dissimilar to our Q3 expectations for the remainder of the fiscal year. In this scenario, where we continue to experience comparable store sales declines of high single digits for the remainder of fiscal 2022, We would expect to achieve operating margins in the mid single digits with the decline on a year over year basis, primarily result of SG and A deleverage In the back half of the year and to a lesser extent gross margin pressure, interest expense for the full fiscal year now expected to be $15,900,000 driven by higher interest rates and the effective tax rate for the year is expected to be approximately 27%. Before I close, I also want to reiterate our confidence in the plans and the ability to deliver on our longer term sales target of $2,000,000,000 While the duration of the current macro headwinds may impact our originally contemplated timeline For achieving those goals, we are focused on the long term opportunity.

With a strong balance sheet in place And continued focus on operational disciplines, we believe we are well positioned to navigate the ongoing dynamic macro environment. 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. At this time, we will be conducting a question and answer We request to restrict to one question and one follow-up. One moment please while we poll for questions. We have a first question from the line of Steven Forbes with Guggenheim Securities. Please go ahead.

Speaker 4

Good evening, Satish and Jeff. I wanted to start with the chain wide merchandising reset Yes, the migrations are here to selling spaces. So curious, Satish, if you can provide some high level commentary on how you see your customer today, Both a loyal one and a non loyal one as you define them. How are they engaging with the Preston How many baskets do you sort of see that engagement factor in as a percentage? And any initial thoughts on how you sort of can begin to contextualize the potential impact of this strategic shift To the business' secular growth algo.

Speaker 2

Hey, Steve, thank you for the question. Let me first say, As I think about the current consumer sentiment that we're definitely navigating a challenging Consumer environment, obviously, with continued inflationary pressures and rising interest rates. We see our customers continuing to engage. They are changing their discretionary spending patterns due to these external headwinds. They're spending more but fewer items And in some cases, fewer spaces.

And they're definitely more intentional about their visits to us and hence the softness in our traffic. Having said all that though, I'll point to a few factors that we are very pleased with and speak a little bit more around Custom Spaces in general. We were delighted with the success we had with our back to college event. Definitely shows they are able to engage with us when we have a compelling offering. And we were able to attract more than a third customers that were new to TCS.

That was extremely encouraging to see that event. We also saw great results with our summer event as well, where average space values continued to be over $6,000 and that too with a slightly lower average discount. And finally, we're seeing great excitement and momentum around our So as I kind of look forward, as I've stated a couple of times, we really believe we have an opportunity To win in custom spaces in particular over the $2,000 space. Today, we do well under $2,000 but It represents less than 15% of the $6,000,000,000 market addressable market that's out there in terms of value. And that's why we've been consistently focusing our attention to more towards the more premium lines, whether it be Avera and Preston.

You saw that we delivered plus 7 comp store sales performance over LY. We've also continued to invest in the number of in home designers that we have. We've now gone we're actually over 100 and plan to get to 140 by Q3. We've certified our designers to make that's a very comfortable understanding and selling more of our premium lines. We've got a dedicated section now on our website.

If you go check it out, you'll see it's completely reenvisioned in terms of how we talk about custom spaces, including enabling an online chat. We've completely elevated the in store expression as well with our new branding. We are also excited about introducing new finishes That we are now focused on whether it's in wood grain or super matte adding decorative accents as well. All things that our customers have told us that they're interested in And that we are able to provide for them. And it was underscored by having just a really successful Kipps Bay Dallas event with the interior design community.

So I really see great strength and success in our Custom Space business. It Represents around 35% of our sales today for TCS and I believe it will continue to penetrate even more As we look to grow and get towards the $2,000,000,000 I'm also really pleased with the way that our A new store opened up in Colorado Springs, which as you know is a smaller store, it's only 12,000 square feet. And while it's got a much Curated down assortment within general merchandise, it has an uncompromised expression of Custom Spaces and the productivity For both Custom Spaces and the store overall is doing incredibly well. And that bodes a lot of confidence as we look to open more of these More format stores in the way that we believe we can drive incremental growth and higher productivities out of our stores as well.

Speaker 4

Super helpful, Satish. Maybe just a quick follow-up here for Jeff. I don't know I don't think you guys updated the CapEx guide for The year, but I'm not sure if you can help us frame where you sort of see current spending for 2022. And then as we look out here, is that 5% to 6% of sales the right target to still be thinking about As we look out for to that path to $2,000,000,000

Speaker 0

Yes, Steve.

Speaker 3

We're still projecting CapEx for fiscal 2022 to be in that $60,000,000 to $65,000,000 range. And as we talked about in our path to $2,000,000,000 financial model, we still have that as 5.5%, 6.5% Total sales as part of a planned CapEx spend. Certainly, the current environment Could impact the timing and duration of our path to $2,000,000,000 But we think right now it's a little too early To rerun the numbers until we get a better understanding of how long the current environment is going to Take us. So more to come on that, but at the end of the day, we still feel really good about the specific strategic objectives and activities that we're doing to get us to that path to $2,000,000,000 whether it's store growth, the focus on custom spaces as Satish just outlined, Our focusing online and our organized insider program, Just engaging the customer. So still feel really confident on that front and looking forward to continue to grow the business.

Speaker 4

Thank you.

Speaker 0

Thank you. We have next question from the line of Ryan Mayers with Lake Street Capital Markets. Please go ahead.

Speaker 5

Hey guys, thanks for taking my question.

Speaker 0

First one for me, just kind of

Speaker 5

wondering if you can unpack some of the commentary that you gave surrounding elevated ticket prices. Is a lot of this coming From higher price increases, or how much are you seeing customers just spending more on higher ticket items, whether it's more customizable Products or whatever it might be, I think that'd be helpful to understand.

Speaker 3

Hey, Ryan, it's Jeff. I can take that and Satish, You can add on if possible. When you take a look at the different areas of the business from a general merchandise perspective, average ticket is related to more Pricing and promotional activity, we're not necessarily seeing more units per transaction. So more challenge on that front as we talk about customer pullback. On the space front, when you look at an average ticket, While the average space value has gone up, could be related to maybe a larger space, could be related to pricing, But they are purchasing less spaces.

So from an overall average, it does have quite a bit of headwind on that front.

Speaker 5

Got it. Makes sense. And then just second one for me. Is there any strength that you guys want to call out Certain product categories, more specifically in the general merchandise, as consumers are maybe shifting their buying preferences a little bit?

Speaker 2

Yes. Hi, Brian. What we have seen some strength in is within particular our kitchen area, In particular, when we have it focused on the spotlight, it's doing incredibly well. Our private label business continues to penetrate really well, in particular with Our organizers that we have, we have called everything organized as a private label Franchise that we have and that's doing exceptionally well as well. And we typically see when new customers Coming in, they gravitate towards the our kitchen department as they get to understand what the container store has to offer.

And then we see them graduate into storage and we get to see them into our Alpha or grab and goes And eventually into our custom spaces. So we're obviously working on the consumer mapping, the journey to understand how best to move customers along As they enter us. But overall, I would say Kacin is doing quite well for us.

Speaker 5

Great. That's helpful. Thanks, guys.

Speaker 0

Thank you. We have next question from the line of Chris Horvers with JPMorgan. Please go ahead.

Speaker 6

Thanks. Good evening, guys. Can you maybe talk about when you saw the consumer change In terms of cadence over the quarter, was it was there a certain I don't know, when did things start to change? Was there any Regionality to that change and with the high single digit decline for the Q3, is that what you're seeing in October?

Speaker 3

Yes, Chris, this is Jeff. Listen, as part of the Q1 call, we were actually seeing we based our guidance Q2 based on the current quarter trends. And so, we had finished out the month of July In line with that. And then once early August hit, we started seeing traffic declines, pretty significant traffic declines And all the while comping on the general merchant side, a customer favorites promotion period that we did not Introduced in the current year. Since August though, we did we have seen traffic Moderate back, although still down, but not to the same levels that we saw in August.

But Based on where we're seeing current traffic trends through the end of September and end October, we based our Q3 outlook and guidance based on what we're seeing in the current trend perspective.

Speaker 6

Got it. And then in terms of That's very helpful. And then in terms of the was there any sort of regional change that was observable to you? And As you think about general merchandise being weak, obviously, it's very promotional out there in the home decor category Across the board, but how is there any other than regionality, are you seeing anything in terms of the customers' willingness to take on some of these Bigger ticket spending around Custom Closet or in Custom Space?

Speaker 2

Yes. We didn't really see much of a difference in terms of the regionality. I will tell you that the customers that are committed to getting custom space done Are engaging in getting it done, hence the success that we had with the Avera event that we had for the summer. It did quite well for us. Again, Customer spending average space is over $6,000 and we're seeing great traction and acceleration with our Preston line and Actually affected today, we've introduced that with a promotion and we're hopeful about the way that that Introduces this beautiful luxurious new line to our customers, which is very customizable and can play the gamut in terms of pricing.

So Essentially, what I would tell you is that, as I said earlier, the customers are more intentional around their visits and their willingness to spend. And then we are able to capitalize on that and hence the high NPS scores that we have with 78 and that's what We are continuing to work through. Yes, we've seen some softness in general merch, but we're pleased with the performance we're seeing with Custom Spaces.

Speaker 6

Got it. And then one last question, just in terms of the SG and A, the performance that you had in The Q2, is that right sort of the right baseline to think about from as we think about just the seasonality of the business, is the 120 ish The right number to build from going forward?

Speaker 3

Well, given the fact, Chris, that some of our SG and A is variable in nature depending on the quarter, it could fluctuate. But when you look at it from a Q3 perspective, Q3 is our 2nd lowest quarter historically from a trend standpoint on the top line and Q4 is of our stronger. So I think from a cadence standpoint, it could fluctuate at or above the Q2 numbers.

Speaker 6

Got it. Very helpful. Thanks very much.

Speaker 3

Hey, Chris, one other thing I should remind you is that in Q2 This year we had $2,600,000 benefit from a legal settlement.

Speaker 6

Right. Okay. Understood. Very clear. Thank you.

Speaker 0

Thank you. Ladies and gentlemen, this concludes our question and session. And I'd like to turn the call back over to Satish Malhotra, CEO for closing remarks. Over to you, sir.

Speaker 2

Great. Thank you once again for joining us today and for continuing to follow The Container Store's growth story. Hope you have a great night.

Speaker 0

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.