Container Store Group Shares Skyrocket After Earnings Beat

Container Store Group Inc (NYSE: TCS) shares are up over 30% ahead of the bell, after the company reported its fourth quarter and full-year fiscal 2016 financial results yesterday. The company beat the Street’s expectations, and provided guidance for the 2017 fiscal year. Moving on, let’s examine the Container Store Group’s 4Q and FY 2016 financial results, fiscal 2017 guidance, statistics, and why some traders may be long or short.

Container Store Group Financial Results

The Container Store Group reported net income of $8.4M, or 17 cents per share. According to FactSet, the analysts surveyed by the firm, on average, expected earnings of 9 cents per share. TCS reported consolidated net income per share of 7 cents in the same period in the prior fiscal year, and consequently, the company grew its EPS by an immense 143% year over year. Additionally, the company reported consolidated net sales of $221M, while the consensus estimate was $213M. That in mind, the company’s earnings and revenue beat were some of the reasons why the stock is trading significantly higher today. Although the company’s revenue growth was not as spectacular as its EPS growth, it was still able to grow its revenue 5.3% year over year.

 

Container Store Group Inc Fiscal 2017 Outlook

According to The Container Store Group Inc Chief Financial Officer, Chief Administrative Officer and Secretary, Jodi L. Taylor, “For fiscal ’17, we expect consolidated net sales to be in the range of $830 million to $850 million based on a comp sales decline in the low single digits. We expect EPS to be between $0.25 and $0.35 per share on a weighted average of 49 million shares outstanding. We expect TCS and consolidated operating margins to improve, driven by our SG&A savings and efficiency program of which some benefits will be realized in fiscal ’17…”

Taylor added, “This is inclusive of full-time position eliminations at TCS, organizational realignment at Elfa International and ongoing savings and efficiency efforts that are expected to benefit both gross margin and SG&A rate in fiscal ’17. The costs associated with these actions are included in our outlook and are expected to be approximately $9 million to $11 million on a pretax basis or an EPS headwind of $0.12 to $0.14. We estimate annualized pretax benefits associated with the 4-part optimization plan to be approximately $20 million or around $0.25 per share, of which $12 million to $15 million pretax or approximately $0.15 to $0.19 per share is estimated to be realized in fiscal ’17 and is contemplated in our fiscal ’17 outlook.”

What You Need to Know About TCS

  • TCS reported 4Q and FY 2016 financial results, and topped Wall Street estimates. The company is moving on with an optimization plan, which could continue to help the company save cash and increase efficiency.
  • As of May 23, 2017, the Container Store Group had a trailing 12-month (TTM) price-to-earnings (P/E) of 37.7, while the industry average was 42.6. That in mind, TCS could be considered undervalued, in relation to some of its peers, when looking at just the P/E.
  • TCS had a price-to-book ratio of 1.0, which was well below the industry average of 9.1, which could be another indication that the stock is undervalued in comparison to its peers.
  • The company had a TTM price-to-sales ratio of 0.30, while the industry average was 2.3.
  • TCS shares have been down nearly 35% year to date.

Check out TCS on the daily chart.

Container Store Group Inc

Source: TradingView

Bull Case

TCS had a massive earnings beat, and was able to grow its EPS by over 140% year over year, and this might cause some traders to get long the stock. The stock is also trading at attractive valuations, in comparison to the industry average, and consequently, some traders might see this as a value play. Not only that, but the stock has been trading sideways, but built some support around its 52-week lows, and could mean revert and break out higher. That said, this might also be one reasoning for traders to be bullish on TCS.

Bear Case

TCS shares have been trending lower and down nearly 35% year to date, and some traders might see this as a momentum play. The company is going through some drastic changes, and it might take some time for any results to materialize, and some traders might be looking for management to fail to deliver on the optimization and cost-cutting plans.

Final Thoughts

The Container Store Group Inc. shares are up over 30% during the pre-market, following the company’s earnings beat last night. Now, the company is looking to cut costs and increase efficiency, which could help the company increase its profitability in the 2017 fiscal year.

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