Dive Brief:
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Net sales at The Container Store tumbled 19.4% year over year in its second quarter, reaching $219.7 million. The company’s retail business fell 19.8% to $208.5 million, while its Elfa International third-party net sales fell 12.5% to $11.2 million.
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Store comps fell 20%, with a 20.4% general merchandise decline siphoning 1,320 basis points and a 19.3% Custom Spaces+ decline siphoning 680 basis points, per a company press release.
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Lower freight costs helped push The Container Store gross margin up 10 basis points to 56.9%, partially offset by unfavorable product and services mix and promotions. Elfa gross margin expanded 500 basis points thanks mostly to price increases.The company swung to a $23.7 million loss in the period, from its $15.7 million net income a year ago.
Dive Insight:
The Container Store is in the midst of a turnaround centered on boosting engagement with customers, testing a smaller store format and expanding its Custom Spaces products and services (formerly known as Custom Closets).
But progress has been slow, and the retailer has landed on a Retail Dive bankruptcy watch list. Consumers have been cautious about spending, and over the summer had other priorities, CEO Satish Malhotra told analysts Tuesday.
“The monthly cadence of our sales decline was steepest in July, which we primarily attribute to customer distraction with summer travel,” he said. “Those declines did slightly moderate in August and September.”
The company’s smaller store format is getting high marks from customers, with Custom Spaces sales nearly reaching 40% in those locations. Two stores opened recently, and three more are scheduled before the end of the year.
Malhotra characterized the second quarter as one of progress despite ongoing headwinds. Its loyalty revamp is paying off, as members’ average ticket is more than 45% higher than non-members, and those in the higher tier spend five times more than the lower one, he said.
The company, he said, is expanding its assortment, with a focus on higher-priced categories and items. Early in the quarter more than 400 new products in on-the-go travel, dining, entertaining, home decor and textiles were introduced, and earlier this month more than 1,000 products arrived part of the seasonal holiday offering.
Malhotra posited that the tight housing market and high interest rates could benefit the company as people invest more in their existing homes. So far this year, though, those challenges have held back furniture and home goods retailers, as consumers avoid bigger-ticket purchases. Many homes were also updated during the height of the pandemic and aren’t getting as much attention as budgets have tighted up, analysts say.
