The Container Store Group Inc (TCS) Third Quarter 2014 Earnings Call Transcript

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While we were not satisfied with our comparable store sales in the third quarter, specifically our traffic trends, and we are vigorously working to fix it. We are passionately emerged in looking under every rock to improve our store traffic. It is the traffic that has been the culprit. We are, however, pleased with our many other third quarter metrics like our stable gross margins, disciplined expense management and our comparable store average ticket increase of almost 2%.

While we still have much of our wonderful annual elfa sale in front of us, we are particularly encouraged by our fourth quarter to date comparable store sales, which include a 620 basis point improvement over the third quarter. Our fourth quarter to date comparable store sales gains consists of both an average ticket increase and an increase in traffic. Given the scope of the change in momentum between the third quarter and the fourth quarter to date as well as the importance of our fourth quarter to our annual results, which is not a share of this interim quarterly sales information with you today, but we do not intend to make this a common practice.

Our three key initiatives that are designed to increase traffic and average ticket, POP!, Contained Home, and TCS Closets continue to rollout through the end of 2015. As with every major merchandising, marketing, and customer service-oriented initiative that we have introduced throughout our history, each month, each quarter, and each year that they mature, these initiatives become more and more impactful to our business.

Melissa, why do not you talk a little bit more about store operations in general and particularly those initiatives?

Melissa Reiff, President, COO and Director, The Container Store
You bet. Thanks, Kip. Hi, everyone. Thanks so much for joining our call today. I had the privilege this past year of visiting each of our wonderful 69 stores, and it really was an amazing experience, listening, and learning so much. Our VP of stores and I held a 2.5 hour very interactive early morning meeting with each store team. We answered questions. We shared perspective. We also met with each store management team. We walked the entire store from a visual aspect and reviewed every store task [inaudible] operationally. Oftentimes, we even worked with customers, too, which of course was really fun. My point is, we were very pleased to confirm that employee morale and customer enthusiasm for our solutions-based selling and high quality service is truly at an all-time high.

I am also excited that we identified with our store teams some great areas of opportunity to increase efficiencies and further heighten the customer experience. For example, we discovered some back of house efficiencies that will allow us to reallocate more customer-facing hours to our sales floor, hours devoted to providing even better service for our customers.

Then with regard to scheduling, we recognized the importance of reinforcing even more so that our scheduling system is a great tool that helps ensure we are staffed at the right levels and at the right times for our customers. When we combine that with a thorough understanding of our employees’ wants and needs and our managers’ intuition and judgment, we are able to create schedules that optimize our business, make our employees happy and therefore, of course our customers happy. We class and customize our business tools to support our employee-first culture in order to ultimately benefit the business.

Then as it relates to delivery, we recognize that we needed improved system support and communication between our delivery partner and our stores to improve scheduling and on time service to our customers 100% of the time. We have been able to implement systems integration with our delivery partner and immediately have already improved our communication, time limits, and customer satisfaction.

Then on the marketing side, we are digging even deeper into our database and are executing a shift in evolution in our direct mail strategy. We believe this will impact traffic positively by more efficiently and effectively touching, communicating with yet even hugging more often our top 30% of our customers who give us 83% of our sales. Then we are also looking at additional branding opportunities to communicate more to our customers that The Container Store can deliver the promise of an organized life to them, what that really looks like and feels like, because we know that that’s what our customers need and so desperately want the deserve. As Kip said, we are looking under every rock, as we always have, to improve our comp store numbers, specifically traffic. We know that some of these opportunities, initiatives and enhancements are already making a difference in our fourth quarter and will continue to have even more of an impact throughout 2015 and beyond.

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