What happened
Shares of The container store ( CDS -0.78% ), a wardrobe and storage retailer, fell dramatically in the first few minutes of trading on Feb. 9, rapidly losing 24% of its value. The big news was the company’s third quarter 2021 earnings release, which hit the headlines on February 8. Clearly, Wall Street didn’t like the update.
So what
Sales for The Container Store were $267.3 million in the third fiscal quarter of 2021. That was down 3% from the same quarter of 2020, but up nearly 17% from 2019, before the coronavirus pandemic hit. It would therefore be difficult to suggest that the retailer is in trouble, given that it has experienced notable growth in uncertain times. But there is a caveat, given that social distancing efforts and working from home have likely led to increased demand. This upside may be over as sales of its custom closet business remained flat in the quarter. Facilitating closet makeovers is one of the most important business activities.
Image source: Getty Images.
Meanwhile, ultimately The Container Store posted adjusted earnings per share of $0.28, notably down from the $0.42 per share it inked in the third quarter of 2020 and up. compared to the $0.05 earned in 2019. Again, it looks like the retailer is doing well compared to pre-pandemic, but also as if the huge boost it experienced during the fiscal year 2020 was a thing of the past. One of the big issues is that shipping and material costs have risen, an issue investors have been paying close attention to in the retail sector. Basically, sales are leveling off or falling (see below), just as The Container Store is dealing with the negative impact of inflation on its profit margins. It doesn’t look like investors wanted to hear that, especially since the company didn’t hit the $0.30 per share in earnings that analysts were looking for.
So what
All of this provides a backdrop for the company’s fiscal forecast for the fourth quarter of 2021, which calls for earnings of $0.24. That’s down from the quarter just ended and is expected to be driven by a 6% year-over-year sales decline (adjusted for an additional week the last year). It’s no wonder investors today have a half-empty view of things.
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