What happened
Home Storage Retailer Stocks The container store (NYSE:TCS) rose a rapid 11.5% in early trading on January 3, the first trading day of the new year. The likely reason was a press release issued before the market opened, describing a closet acquisition.
So what
If you’ve ever been to a container store, you know that the company’s proprietary Elfa closet organization system is a big part of its business. During the second fiscal quarter of 2021 (ended Oct. 2), the company’s overall sales increased 11.2% year-over-year. However, this was driven by a 22.1% increase in “custom closets”, which is essentially Elfa, and only 3.1% in “other” product categories. The cupboards are obviously an important growth driver for the retailer.
Image source: Getty Images.
That’s probably why The Container Store’s announcement that it had agreed to buy Closet Works for $21.5 million was so well received. Elfa is largely a metal-based system. Closet Works’ products are wood-based, essentially expanding The Container Store’s products more aggressively into a new, highly complementary space. A key part of the transaction is the addition of Closet Works manufacturing facilities, which will allow The Container Store to control the entire sales process from manufacturing to installation. Other important goals of the acquisition are to increase garage sales and more expensive closet upgrades, especially those costing more than $2,000.
Now what
The Container Store is looking to “double sales over time,” according to the press release, which is an ambitious goal. That said, follow-on acquisitions like the one announced today could go a long way toward achieving that goal. Investors are probably right to love the company’s first big move in 2022.
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