A tough quarter
Management at The container store (NYSE:TCS)a specialty retailer focused on closets and general storage needs, tried to put its best foot forward when it reported results after the Feb. 8 close. For example, he pointed out that sales for the third quarter of fiscal 2021 increased by almost 17% compared to the same quarter of fiscal 2019. Earnings per share of $0.27 were well above earnings per share. $0.05 share in the same quarter of 2019.
But the market chose to focus on the fact that sales were down 3% from the third quarter of fiscal 2020. Earnings, meanwhile, were down from $0.42 per share. one year ago. These two different periods are important. Basically, when people have been forced to stay home to work or just socially distance, they seem to have taken on certain home improvement projects, including things The Container Store focuses on, like remodeling of cupboards. This resulted in exceptional sales and profits in fiscal year 2020. Now that the world is starting to return to a more normal environment, business is starting to calm down.
Wall Street has a history of taking things to extremes, so it’s no surprise the stock rallied sharply when selling benefited from pandemic-related buying. And, now that the profit is starting to fade, investors are selling. The stock is down more than 50% from its early 2021 highs, including today’s price drop of more than 20% in early trading. But is this a fair assessment of the company’s prospects?
TCS data by YCharts
More pain in the short term
In some ways the answer is probably yes, but it depends on the time period you are considering. For example, The Container Store warned that its fourth-quarter fiscal 2021 sales would be 6% lower year-over-year, benefiting from an additional week in fiscal 2020. earnings are expected to be around $0.24 per share, down sequentially from the current quarter and the $0.71 per share it reported a year ago. Clearly this is not good news.
Nothing goes up or down in a straight line, however, and the roughly $400 million market-cap retailer is still in growth mode. Notably, it is working to integrate its recently announced acquisition of Closet Works, which expands its reach into high-end wood closet transformations. And it is looking to add at least 100 more stores to its current count of 94 stores. While this includes new, smaller store formats, which may have different profit profiles from its current locations, The Container Store is essentially looking to double in size over the longer term. This should keep revenues, and hopefully profits, up for a period of years.
Image source: Getty Images.
Two ways to think about it
The buy or sell question here really comes down to what you hope to get from owning The Container Store. If you bought it thinking it would benefit from efforts to slow the spread of the pandemic, you should probably bail out, because that story seems to be over. If you’re thinking long term and want to own a growing retailer with a unique niche, this might be for you. This doesn’t mean the stock is about to reverse and skyrocket, but a growing business should, over time, bear a rising stock price, especially if The Container Store can pull off the plan. more than double its number of stores.
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Reuben Gregg Brewer has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
