The Container Store’s swings to profit in Q2, but earnings miss Street

Despite launching a merchandising campaign that missed the mark among customers, The Container Store still increased revenues and sales during the second quarter.

The home storage products retailer reported net income of $3.2 million for the period ended Sept. 29, compared to a net loss of $0.9 million a year ago. Earnings per share were 10 cents, which missed analyst estimates of 14 cents.

EPS and adjusted EPS in the second quarter of fiscal 2018 includes 2 cents per share of incremental interest expense, and 3 cents per share in incremental marketing expense related to the brand campaign launch, when compared to the second quarter of fiscal 2017.

Net sales increased 2.8% to $224.5 million, compared to $218 million a year ago. This also missed analyst estimates of $225.2 million. By division, The Container Store retail business jumped 3.3% to $208.9 million. Elfa International AB third-party net sales were $15.6 million. This was a 3.1% decline, due to foreign currency translation.

“We continued to make progress against our key strategic initiatives in the second quarter and also completed a debt refinancing that extends the maturity of our credit facility while generating approximately $0.07 per share in annualized interest savings,” said Melissa Reiff, CEO, The Container Store.

“To Own Custom Closets is our number one strategic priority and we saw continued momentum in our Custom Closets sales in the quarter, along with strong omnichannel growth and effective digital marketing campaigns,” she added. “However, elements of our merchandise campaign test and learn efforts, mostly around our other product categories, did not resonate with customers as well as we expected, curtailing our comparable store sales and earnings performance for the quarter.”

Once the company executed the merchandise campaign changes, “we were pleased to see our other product categories return to positive comparable store sales territory and based on our year-to-date financial and operational performance, we are reiterating our full year outlook,” Reiff said.

This outlook includes a full year EPS of 41 cents to 51 cents, versus the consensus of 46 cents. Fiscal year revenue is expected to be between $885 million and $895 million, versus the consensus of $886.14 million.