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Container Store Group, Inc. (TCS)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 FY2025 net sales were $181.9M, down 12.2% YoY, while consolidated gross margin expanded 300 bps to 58.3% on lower freight, reduced promotions, and favorable mix; GAAP diluted EPS was -$0.30 and adjusted diluted EPS was -$0.26 .
  • Custom Spaces comps turned positive (+1.9%), driven by Garage+ and Decor+ by Elfa launches and record Preston orders, partially offset by broad weakness in general merchandise (-21.8%) and online sales (-25.6%) .
  • Management reiterated suspended guidance amid an ongoing strategic alternatives review, but expects “stable to modestly expanding” FY gross margins and maintained FY2024 capex plans of $20–$25M; liquidity ended at $95.4M with leverage at ~3.8x .
  • Narrative catalysts: positive mix-driven margin expansion and Custom Spaces traction vs. macro pressure, promotional discipline, and strategic/financing overhang (reverse split approved in Aug-2024; board continues to evaluate strategic alternatives) .

What Went Well and What Went Wrong

What Went Well

  • Custom Spaces comps grew +1.9% with strong customer response to Garage+ and Decor+ by Elfa and “the best sales order quarter” ever for Preston; CEO: “We attribute this change in sales trajectory to the strength of our Garage+ and Decor+ by Elfa launches… Preston… had the best sales order quarter in its history” .
  • Gross margin expanded 300 bps to 58.3% (TCS +340 bps; Elfa +470 bps) on lower freight, reduced promotional activity, and favorable mix; pricing aided Elfa margins .
  • Store growth continues: 103 stores at quarter-end; post-quarter opening in Ashburn, VA; plans to open two more new stores and close one in FY2024; “All new and relocated stores in fiscal 2024 are build-to-suit” .

What Went Wrong

  • General merchandise remains the primary headwind: comps -21.8% (driving -1,440 bps of comp impact); online sales -25.6% YoY and website-generated sales -19.2% YoY .
  • SG&A deleverage: dollars -5.4% YoY to $105.4M, but SG&A rose to 57.9% of sales (+410 bps) due to fixed cost deleverage and increased marketing .
  • Profitability pressure: adjusted EBITDA fell to $1.7M (from $2.9M), and net interest expense rose to $5.5M on higher revolver borrowings and term loan rates; net loss widened to -$14.7M .

Financial Results

Quarterly trend (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Net Sales ($USD Millions)$214.9 $206.0 $181.9
Gross Margin % (Consolidated)58.3% 59.4% 58.3%
SG&A ($USD Millions)$111.8 $107.0 $105.4
SG&A as % of Sales52.0% 51.9% 57.9%
GAAP Diluted EPS ($USD)-$0.13 -$1.24 -$0.30
Adjusted Diluted EPS ($USD)-$0.08 -$0.04 -$0.26
Adjusted EBITDA ($USD Millions)$12.8 $15.35 $1.72

Year-over-Year (Q1 FY2025 vs. Q1 FY2024)

MetricQ1 FY2024 (prior year)Q1 FY2025
Net Sales ($USD Millions)$207.1 $181.9
Gross Margin % (Consolidated)55.3% 58.3%
GAAP Diluted EPS ($USD)-$0.24 -$0.30
Adjusted Diluted EPS ($USD)-$0.21 -$0.26

Segment and mix (Q1 FY2025)

Segment/MetricQ1 FY2025YoY Change
TCS Retail Net Sales ($USD Millions)$171.5 -12.1%
Elfa Third-Party Net Sales ($USD Millions)$10.3 -13.7% (ex-FX -12.4%)
Comparable Store Sales-13.7% n/a
General Merchandise Comps-21.8% (−1,440 bps impact) n/a
Custom Spaces Comps+1.9% (+70 bps impact) n/a

KPIs and balance sheet (Q1 FY2025)

KPIQ1 FY2025Reference
Online Sales YoY-25.6% YoY change
Website-Generated Sales YoY-19.2% YoY change
Website-Generated Sales Mix22.2% of TCS sales Share of sales
Unearned Revenue ($USD Millions)$16.6 vs. $17.0 prior year Level
Liquidity ($USD Millions)$95.4 Cash + revolver availability
Cash ($USD Millions)$44.1 Balance
Total Debt ($USD Millions)$216.7 Balance
Leverage Ratio~3.8x As reported
Consolidated Inventory YoY-7.5% YoY change
TCS On‑Hand Inventory Units YoY-10.8% YoY change
Adjusted EBITDA ($USD Millions)$1.7 Profitability
Net Cash Used in Operating Activities ($USD Millions)-$8.1 Cash flow
Free Cash Flow ($USD Millions)-$16.7 Cash flow

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Financial Guidance (overall)FY2024Suspended due to strategic alternatives (May-2024) Guidance remains suspended Maintained
Consolidated Gross MarginFY2024“Stable to modestly expanding” expected (Q4 call) Reiterated “stable to modestly expanding” Maintained
Capex ($USD Millions)FY2024$20–$25 $20–$25 Maintained
Store Openings/ClosuresFY20244 new, 1 relocation, 1 closure planned Opened Ashburn post‑Q1; plan 2 more new stores and 1 closure in remainder of FY2024 Progress update (plan intact)
Tax RateQ1 FY2025n/aEffective tax rate 23.4% (reported) n/a

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2024; Q-1: Q4 2024)Current Period (Q1 2025)Trend
Custom Spaces momentumSequential improvement in Custom Spaces comps; premium lines resilient; plan to grow Custom Spaces from ~40% to ~60%; designer capacity and tools emphasized Positive comps (+1.9%); Garage+ and Decor+ launches; record Preston orders Improving
General merchandise headwindsOngoing pressure; comps -20.4%; promotional discipline; value-focused consumer; bundling with Custom Spaces strategy Comps -21.8% driving comp decline; reallocation to core SKUs; private label push Still pressured
Gross margin driversFreight tailwinds; mix shift; promotional learnings; expected stability to modest expansion FY2024 +300 bps YoY; reiteration of stable/modestly expanding FY margins Stable/modestly up
Marketing & awarenessShift to integrated messaging; event calendar optimization; efficient spend; full‑funnel campaigns Campaigns around Garage+/Decor+; vendor partnerships; increased marketing in Q1 Intensifying
Store footprint strategyNew small-format openings; relocation plans; selective closure due to rent; build-to-suit to reduce capital 103 stores; open Ashburn; 2 more new stores planned; one closure; all build‑to‑suit Executing plan
Financing & strategic reviewNot answering questions on strategic review; maintaining liquidity; aim for neutral/positive FCF; monitoring freight risks Legal/pro fees tied to review; leverage ~3.8x; refinancing work ongoing; no timing Ongoing
Digital/onlineWebsite‑generated sales down; online down; still 20%+ mix; appointment scheduling and SEO upgrades Online -25.6% YoY; website‑generated sales -19.2% YoY; 22.2% of sales Weak

Management Commentary

  • CEO, on Custom Spaces: “We attribute this change in sales trajectory to the strength of our Garage+ and Decor+ by Elfa launches, and our premium wood-based line Preston, which had the best sales order quarter in its history” .
  • CFO, on margin and capex: “Despite freight cost pressure… discipline in our promotional activity and… favorable business mix, should result in stable to modestly expanding consolidated gross margins for the full year… Capital expenditures are expected to be approximately $20 million to $25 million” .
  • CFO, on liquidity and leverage: “We ended the quarter with $44.1 million in cash, $216.7 million in total debt and… liquidity… $95.4 million. Our current leverage ratio is 3.8x” .
  • CEO, on macro: “Our customers continue to contend with elevated interest rates, inflation, rising living costs… We have observed strong customer engagement during promotional events… time‑limited events drive sales more profitably” .

Q&A Highlights

  • Space reallocation to core storage: management reallocating endcaps and seasonal space to core, expanding premium assortments, and bundling private label solutions with Elfa to improve productivity .
  • Seasonal mix: seasonal remains focused on back‑to‑college and holiday; no major mix shift beyond tighter focus .
  • Store portfolio: one closure tied to non‑renewal; ongoing evaluation of fleet; post‑quarter openings showed robust customer demand .
  • Refinancing: working with financial partners; no timing disclosed .
  • Competitive/pricing: consumer under pressure; competitors more promotional; TCS favoring time‑bound promotions and value messaging, with private label expansion to address price sensitivity .

Estimates Context

  • We attempted to pull S&P Global (SPGI/Capital IQ) Q1 FY2025 consensus for revenue and EPS but could not retrieve due to missing SPGI mapping for TCS; as a result, consensus comparisons for Q1 FY2025 are unavailable. If needed, we can re-run once the mapping is updated [SpgiEstimatesError from GetEstimates].
  • Given estimates unavailability, we highlight operational comps: revenue -12.2% YoY; GAAP EPS -$0.30; adjusted EPS -$0.26; gross margin +300 bps YoY .

Values would normally be retrieved from S&P Global.

Key Takeaways for Investors

  • Mix shift toward Custom Spaces is gaining traction (positive comps), supporting margin despite top‑line pressure; sustained product innovation (Garage+, Decor+, Preston) is a key lever .
  • General merchandise and online remain weak, driving SG&A deleverage and limiting EBITDA; continued merchandising, private label, and bundling efforts are critical to stabilize .
  • Margin outlook constructive: freight tailwinds and disciplined promotions underpin “stable to modestly expanding” FY gross margins, even as macro remains adverse .
  • Liquidity adequate near‑term ($95.4M), but leverage (~3.8x) and higher interest costs (net interest $5.5M) keep refinancing and strategic review in focus for equity and credit holders .
  • Capex discipline ($20–$25M) and build‑to‑suit stores mitigate cash needs; store plan progressing (new openings, targeted closures) to support brand reach .
  • Strategic alternatives and reverse split (effective Sept‑2024) remain overhangs but could catalyze re-rating depending on outcomes; management will not comment further until necessary .
  • Near‑term, watch comp pacing, promotional cadence, and Custom Spaces conversion metrics; medium‑term, thesis hinges on scaling Custom Spaces to ~60% of sales and stabilizing general merchandise mix .