What happened
Shares of The container store (NYSE:TCS), a retailer of housewares largely tied to storage, rose sharply on the first trading day of 2021 and was up as much as 16% at one point this week according to data from S&P Global Market Intelligence. That said, he gave back some of the lead to start Friday, Jan. 7, up a still impressive 13.5% or so. The big news was an acquisition.
So what
Normally, when a company announces that it is buying another company, the acquirer’s stock drops as they need to find the funds to close the deal. That was obviously not the case here, with shares of The Container Store rising after the premarket announcement on Jan. 3, the first trading day of the new year, that it was spending $21.5 million to buy Closet. Works. This company manufactures wood-based closet organization systems.
Image source: Getty Images.
This is a complementary product line to The Container Store’s Elfa range of metal-based closet organization systems. This is a very significant business for the retailer, noting that closet systems accounted for 16.9 percentage points of the company’s 30.3% sales increase in the first six months of the year. fiscal 2021, ended October 2, 2021. In other words, Elfa essentially drove more than half of the company’s growth in the first six months of fiscal 2021. Investors clearly believe that the increasing this activity with wood-based products is a good idea. Notably, the purchase of Closet Works will include production assets, giving The Container Store complete control of the sales process from production to installation. And, having these strengths can also make it easier to integrate wooden components into the Elfa range. So there are multiple benefits that could help the company achieve its goal of doubling sales over time. No wonder investors were so optimistic about the news.
Now what
It certainly looks like The Container Store made a strategic decision in agreeing to buy Closet Works. If you are a shareholder or considering investing in The Container Store, you should probably be happy. And while it’s quite unusual for a company’s stock to rise after an acquisition announcement, investors seem to be taking a long view here and have rewarded The Container Store for its strategic investment in this follow-on transaction. Indeed, it looks like The Container Store has found a pretty good way to ring in the calendar year 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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
