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Container Store Group, Inc. (TCS)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 net sales were $214.9M (-14.8% YoY), GAAP EPS was -$0.13 and adjusted EPS was -$0.08; consolidated gross margin expanded 140 bps to 58.3% driven by a higher Custom Spaces mix .
  • Guidance was reduced: Q4 net sales now $200–$205M and FY 2023 net sales $842–$847M vs prior $870–$885M; Q4 comps expected down mid-20s amid weather impacts and non-promotional Elfa periods (prior FY guide from Q2 was higher) .
  • Management is leaning into Custom Spaces (Preston/Avera/Elfa), aiming to grow category penetration to ~60% over time; new product launches and designer expansion are key growth levers .
  • Liquidity remained solid ($99.6M including revolver availability), inventory was managed lower (~14.3% YoY decline), and SG&A dollars fell 8% as cost controls offset weaker top line .

What Went Well and What Went Wrong

  • What Went Well

    • “We maintained a strong discipline with respect to our promotional strategy and expense management to deliver adjusted loss per share of $0.08, which was within our original range of expectation.” — Satish Malhotra .
    • Sequential improvement in Custom Spaces comps vs Q2, with premium Preston showing relative strength; new premium products outperformed internal expectations and discovery categories (travel, fragrances) grew double digits .
    • Gross margin expanded 140 bps to 58.3% on higher Custom Spaces mix; TCS gross margin +40 bps helped by lower freight costs .

  • What Went Wrong

    • Broad demand weakness in core general merchandise: TCS comps -16.8% with GM -20.4%; online sales -26.3% YoY .
    • Fixed-cost deleverage on lower sales: SG&A as % of sales rose 380 bps to 52.0%; net interest expense +17% YoY .
    • Q4 setup challenging: January abnormal weather and non-promotional Elfa period expected to pressure comps and top line; gross margin guided “relatively flat” YoY due to general merchandise mix and promotions .

Financial Results

MetricQ1 FY2024 (Jul 1, 2023)Q2 FY2024 (Sep 30, 2023)Q3 FY2024 (Dec 30, 2023)
Revenue ($USD Millions)$207.1 $219.7 $214.9
GAAP EPS ($)-$0.24 -$0.48 (incl. $23.4M goodwill impairment) -$0.13
Adjusted EPS ($)-$0.21 $0.01 -$0.08
Gross Margin (%)55.3% 57.6% 58.3% (vs 56.9% last year)
Adjusted EBITDA ($USD Millions)$2.9 $17.0 $12.8
Vs. S&P Global ConsensusN/A – S&P Global consensus unavailableN/A – S&P Global consensus unavailableN/A – S&P Global consensus unavailable

Estimates disclaimer: S&P Global consensus estimates were unavailable due to data mapping limitations; no comparison provided.

Segment breakdown

Segment Net Sales ($USD Millions)Q1 FY2024Q2 FY2024Q3 FY2024
TCS (Retail)$195.1 $208.5 $202.5
Elfa third-party$12.0 $11.2 $12.4

KPIs

KPIQ1 FY2024Q2 FY2024Q3 FY2024
Comparable Store Sales (%)-19.9% -20.0% -16.8%
General Merchandise Comps (%)-20.5% -20.4% -20.4%
Custom Spaces Comps (%)-18.6% -19.3% -9.2%
Online Sales YoY (%)-15.8% -21.7% -26.3%
Website-Generated Sales (% of TCS)——21.8%
Unearned Revenue ($USD Millions)——$17.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated Net Sales ($)FY 2023$870–$885M $842–$847M Lowered
Comparable Store Sales DeclineFY 2023High teens Low twenties Lowered
GAAP Net Loss per Diluted ShareFY 2023($0.10) to $0.00 ($0.97) to ($0.94) Lowered
Adjusted Net Loss per Diluted ShareFY 2023($0.24) to ($0.13) ($0.40) to ($0.37) Lowered
Effective Tax RateFY 20230% to (4%) 6% to 5% Raised
Capital ExpendituresFY 2023$45–$50M $40–$45M Lowered
Consolidated Net Sales ($)Q4 FY2023—$200–$205M New/Updated
Comparable Store Sales DeclineQ4 FY2023—Mid twenties New/Updated
Adjusted Net Loss per Diluted ShareQ4 FY2023—($0.12) to ($0.09) New/Updated
Effective Tax RateQ4 FY2023—21% New/Updated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3 FY2024)Trend
Custom Spaces vs GM mixQ1/Q2: Custom Spaces underperformed YoY; heavy macro headwinds and promotional tests pressured margins Sequential improvement in Custom Spaces comps; premium Preston robust; leaning into category Improving mix toward Custom Spaces
Promotional cadenceQ1: promotional test learnings; margin pressure Disciplined promotions; Q4 includes Elfa event; awareness push More targeted, category-specific
Freight & supply chainQ1/Q2: lower freight aided margins Freight tailwinds persist; limited Red Sea exposure (<1% routes); ~85% shipments under contract Tailwind with watchlist for geopolitics
SG&A and cost actionsQ1/Q2: SG&A dollars down; deleverage on lower sales SG&A -8% YoY; implied Q4 SG&A savings up to $15M; total potential $45M FY savings Ongoing cost discipline
Weather/macro impactsQ2: macro-driven demand weakness Q4 guide reflects January abnormal weather; continued GM pullback Near-term headwind
Inventory & working capitalQ1/Q2: inventory optimization underway Inventory down ~14.3% YoY; focus on working capital in FY2024 planning Tightening and optimizing

Management Commentary

  • “We maintained a strong discipline with respect to our promotional strategy and expense management to deliver adjusted loss per share of $0.08, which was within our original range of expectation.” — Satish Malhotra .
  • “We believe we can grow [Custom Spaces] penetration to approximately 60% of sales over time,” supported by assortment expansion (Garage+ by Elfa, Décor overhaul), premium Preston options, and growing in-home designer capacity .
  • Capital allocation: “We are not committing to the timing of future store growth beyond 2024… done in conjunction with our goal of sustained positive free cash flow” .
  • Q4 setup: “We expect… a comparable store sales decline in the mid-20s… weather challenges… and pull-forward headwind” from Elfa anniversary sale .

Q&A Highlights

  • Event calendar and conversion: Management will separate Custom Spaces events by line (Elfa vs Avera/Preston) to optimize performance; Elfa conversion “extremely high,” premium lines improving with designer training .
  • Free cash flow levers for FY2024: Pullback on capex beyond 2024 openings, inventory/working capital optimization, ongoing expense efficiency to target neutral-to-positive FCF .
  • Marketing spend: Focus on integrated messaging to raise Custom Spaces awareness; dollars to “work harder,” implied SG&A savings up to $15M in Q4 and $45M FY potential .
  • Q4 comps guide drivers: High/low ends reflect normalization vs January trends; weather impact “6x more store impacts” YoY in January; non-promotional Elfa periods lower responsiveness .
  • Freight risk: Limited exposure to Red Sea/Suez (<1% of freight routes), ~85% shipments under contract; monitoring spot rates but tailwinds continue for now .

Estimates Context

  • S&P Global Wall Street consensus EPS and revenue estimates were unavailable for TCS due to data mapping limitations; we could not provide beat/miss comparisons for Q3 FY2024. Values typically retrieved from S&P Global were not accessible in this case.

Key Takeaways for Investors

  • Custom Spaces mix shift is the key margin lever; sequential improvement and premium Preston strength support a thesis of mix-driven stabilization even amid GM weakness .
  • Near-term headwinds persist: Q4 comps guided to mid-20s declines with weather disruption and Elfa non-promotional periods; positioning is defensive with tighter cost control .
  • Freight tailwinds and contracting mitigate supply chain risks; watch geopolitical developments but exposure is limited and mostly contracted .
  • Cost discipline credible: SG&A dollars down; implied Q4 savings and FY potential indicate levers to cushion operating deleverage while preserving marketing efficiency .
  • Liquidity and inventory management reduce risk: $99.6M liquidity, inventory down ~14.3% YoY, lowering carrying costs and improving flexibility .
  • Strategic focus: Raising Custom Spaces penetration (~60% target) via assortment innovation and in-home designers could re-accelerate if macro improves, offering medium-term upside .
  • Trading lens: Watch for confirmations on Q4 weather normalization, promotional intensity in GM, and any update to FY2024 capex/store growth stance; narrative turning points likely around Custom Spaces demand and margin trajectory .