What happened
Home storage retailer actions The container store (NYSE: TCS) rose rapidly by 11.5% at the start of 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 an acquisition in the closet.
So what
If you’ve ever been to a container store, you know that the company’s proprietary Elfa Closet Organization System is an important part of its business. In the fiscal second quarter of 2021 (ended October 2), the company’s overall sales increased 11.2% year-over-year. However, this was due to an increase of 22.1% in “personalized closets”, which are primarily Elfa, and only 3.1% in “other” product categories. Closets are obviously an important growth engine for the retailer.
Image source: Getty Images.
This is probably why The Container Store’s announcement today 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 to add the manufacturing facilities of Closet Works, 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 improve higher priced closets, especially those over $ 2,000.
Now what
The Container Store is looking to “double our sales over time,” according to the press release, which is an ambitious goal. That said, complementary acquisitions like the one announced today could go a long way towards achieving this goal. Investors are probably right to appreciate the company’s first big move in 2022.
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Reuben Gregg Brewer has no position in the stocks mentioned. The Motley Fool owns and recommends The Container Store Group. The Motley Fool has a disclosure policy.
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