Dive Brief:
- After lowering its Q3 sales guidance in January, The Container Store said Tuesday its Q3 net sales fell nearly 15% to about $215 million, down from $252 million last year. Net sales for The Container Store’s retail business fell 15.4% to $202.5 million and comparable sales declined nearly 17%.
- Third-party net sales at Elfa International, the company’s custom storage business, fell 4.2% year over year to $12.4 million.
- The company posted a $6.4 million net loss for the quarter versus net income of $4.2 million in the year-ago period and reported $179.3 million in long-term debt, up slightly from $178.4 million a year ago.
Dive Insight:
CEO Satish Malhotra acknowledged third-quarter results missed the company’s expectations. He attributed the sales declines to ongoing challenges in the company’s core general merchandise category.
However, despite declines in that segment, “we did see a positive reception to the introduction of new products to our assortment, with sales more than doubling against our expectations for these new products,” Malhotra said, according to a call transcript from Seeking Alpha.
The Container Store introduced new offerings to its Custom Spaces product lines in October. Customers can meet with design specialists in stores or virtually to create custom spaces with products like smart-home-compatible LED lighting. It’s part of a larger strategy to engage shoppers through personalization.
Malhotra said in-home designing drove about 90% of Q3’s premium-based sales. He said the company currently has about 140 in-home designers focused on selling premium products. Later this year, The Container Store plans to do a significant overhaul of its Elfa Decor line, and the company also plans to expand its Preston line.
Over the last year or two, retailers in the home sector and furniture segments have been pressured as consumers constrain their discretionary spending as they grapple with increased costs for essentials like groceries. The industry also has faced supply chain pressures. The Container Store has suffered a string of sales declines as a result of the challenged sector and landed itself on Retail Dive’s bankruptcy watchlist in October. The retailer at the time had a FRISK score of 2 from CreditRiskMonitor, which indicates a 4% to 10% chance of bankruptcy within 12 months.
Analysts with Wedbush, led by Seth Basham, said in a note last month that while category retail sales haven’t yet bottomed out, declining mortgage rates and pent-up demand could lead existing home sales spending turnover — a leading indicator for furniture demand — to improve in the coming months.
The Container Store lowered its full-year outlook for its fiscal year, which ends March 30. The company now forecasts net sales ranging from $842 million to $847 million, down from its previous guidance of $870 million to $885 million. The company also expects a comp decline in the low 20s versus an earlier forecast of a high teens decline.
The company’s store footprint grew to 100 as of Dec. 30, with the opening of two new stores. Looking ahead, the retailer said it plans to open four new built-to-suit locations in fiscal 2024, relocate its San Francisco store in June and close a store in Los Angeles due to a rent increase. Additionally, as a result of the current economic environment, Malhotra said the retailer will not commit to the timing of future store growth beyond 2024.
“While we continue to see significant opportunities to expand our national presence, it will be done in conjunction with our goal of sustained positive free cash flow,” Malhotra said. “Despite the current macroeconomic difficulties and the obstacles encountered within our core general merchandise categories, we remain optimistic about the growth opportunities we have identified.”
