What happened
Shares of The Container Store (TCS 29.10%), a retailer of closet and storage items, fell dramatically in the first few minutes of trading on Feb. 9, quickly losing 24% of their value. The big news was the company's fiscal third-quarter 2021 earnings release, which hit the newswires on Feb. 8. Clearly, Wall Street did not like the update.
So what
Sales at The Container Store came in at $267.3 million in the fiscal third quarter of 2021. That was down 3% versus the same quarter of 2020, but up nearly 17% compared to 2019, before the coronavirus pandemic hit. So it would be hard to suggest that the retailer is struggling, given that it has grown notably during uncertain times. But there's a caveat, given that people's social distancing efforts and working from home likely led to a boost in demand. That benefit could be over, as sales in its custom closets business were flat in the quarter. Facilitating closet makeovers is one of the company's most important businesses.
Image source: Getty Images.
Meanwhile, on the bottom line, The Container Store posted adjusted earnings per share of $0.28, down notably from the $0.42 per share it inked in the third quarter of 2020 and up from the $0.05 earned in 2019. Again, it seems like the retailer is doing well compared to pre-pandemic levels, but that the huge boost it experienced in fiscal 2020 is in the past. One big problem is that costs for shipping and materials have been going up, an issue investors have been paying particularly close attention to in the retail sector. Basically, sales are flattening out, or falling (see below), right when The Container Store is dealing with inflation's negative impact on its profit margins. It doesn't look like investors wanted to hear that, noting that the company also fell short of the $0.30 per share in earnings analysts had been looking for.
So what
That all provides a backdrop for the company's fiscal fourth-quarter 2021 guidance, which calls for earnings of $0.24. That's down from the just-ended quarter and is expected to be driven by a 6% year-over-year sales decline (adjusting for an extra week in the prior year). It's little wonder that investors took a glass-half-empty view of things today.
