What happened
Actions of The container store (NYSE: TCS) fell sharply on Thursday, losing up to 15% earlier in the session, ultimately ending the day down 14.6%.
There doesn’t appear to be any company-specific news that brings the organization and storage product retailer down, but evidence suggests that comments made by the executive at another homeware retailer have also brought down The Container Store.
So what
Bed bath and beyond (NASDAQ: BBBY) released its second quarter financial results after the market closed on Wednesday, and the results were dismal. The company missed analysts’ consensus estimates on upper and lower earnings. While this is bad enough, the home furnishings retailer has also cut its full-year profit forecast.
Image source: Getty Images.
On the second quarter earnings conference call, management cited “unprecedented supply chain challenges” caused by “external disruptive forces.” Bed Bath & Beyond also blamed an increase in COVID-19 cases in three key states – Florida, Texas and California – as negatively impacting income. “It’s gotten a lot harder over the last couple of months – at the end of the quarter,” said CEO Mark Triton.
So what does all of this have to do with The Container Store? In a nutshell, the challenges presented by Bed Bath & Beyond could be true for many retailers. The results show that freight costs eat away at the company’s profit margins, a paradigm that is likely to spill over to other retailers in the same situation.
The Container Store has yet to release its second quarter results, having ended its fiscal first quarter on July 3. If the timeline that Triton cites is correct, it suggests The Container Store could experience the same issues reported by Bed Bath & Beyond, but investors won’t know for sure until its report in early November.
Now what
The all-important holiday season is just a few months away and retailers are already feeling the effects. We’ve been hearing about freight costs and supply chain issues for some time now. Investors fear that The Container Store will be overtaken by the same challenges.
That said, for investors with a long enough horizon, disappointing results in just one quarter – if they materialize – shouldn’t change The Container Store’s investment thesis.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
