Dive Brief:
- The Container Store has adopted a limited duration stockholder rights plan — also known as a poison pill — effective immediately, the company said in a Tuesday press release. The plan will last for one year.
- Following a single stockholder’s recent “rapid and significant accumulation of the company’s common stock,” the poison pill strategy is intended to limit a large stockholder’s influence over the company.
- If any person or group acquires 20% of the company’s shares, all other shareholders can buy additional shares at a 50% discount, effectively diluting the power of the largest stockholder. The adoption of the poison pill provision follows the company’s decision last month to approve a 1-for-15 reverse stock split.
Dive Insight:
While the stockholder rights plan won’t affect daily operations or what people see in stores, it will create more discussion about The Container Store’s management and performance, Neil Saunders, managing director of GlobalData, said in emailed comments to Retail Dive.
“The company has under performed for a long period of time and has a number of strategic and financial issues it is grappling with,” Saunders said. “The stockholder rights plan has reduced the share price and that makes it incumbent on management to ensure it has a very clear plan and retains the confidence of investors.” According to a filing with the U.S. Securities and Exchange Commission, investor Amit Agarwal owned 621,400 shares or just over 18% of The Container Store’s shares as of Monday.
“I've basically been the only buyer of this security for a couple months now, and that has been — they've effectively blocked me from putting more of my capital in this company. And so if they have an idea or two how to unlock shareholder value, then, yes, that will remain to be seen,” Agarwal said in a Wednesday phone interview with Retail Dive.
Under the rights plan, any person who currently owns more than the triggering percentage may continue to own shares of common stock but they may not acquire any additional shares without triggering the poison pill. Agarwal confirmed he will not make any further stock purchases as a result of the rights plan’s constraints.
“I obviously like the business or I wouldn’t be buying it ... In my view, they hit a perfect storm with inflation, with the housing situation, and with just some element of demand pulled forward into Covid,” Agarwal said. “Anyone who reads just any chart, any table, of their revenues will easily see what happened during Covid to this company.”
CEO Satish Malhotra said during a recent earnings call that his vision is to grow the retailer’s custom spaces business with its Elfa, Preston lines, and to stabilize the general merchandise business, which has struggled in recent quarters. The company has about 100 stores nationwide and has recently expanded its footprint with new locations.
“If I personally had $4 billion, I’d buy this company outright, [but] I don't have that [money]. So the wager I’m making is that I placed an evaluation on the enterprise and then back out into the fair value for the stock. And that's what I did, and that's why I've been buying at the level that I've been buying at,” Agarwal said.
The Container Store’s consolidated net sales for the 2023 fiscal year fell 19% from the prior year to $847.8 million. Sales for the company’s namesake segment were down 19.2% year over year, falling to $801.4 million. More recently, first quarter net sales fell 12.2% year over year to $181.9 million. Net sales for the retail business fell 12.1% to $171.5 million.
The company said in May that it was initiating a formal review of strategic alternatives. The Container Store’s poison pill provision also follows a May delisting warning from the New York Stock Exchange after the company’s share price fell below $1.00 for over 30 consecutive trading days. The company said it intended to regain compliance.
