COPPELL, Texas - Although The Container Store reported an increase in overall 3rd quarter net sales of 1.7 percent, driven in part by an increase in its closet business from TCS Closets, its third-party net sales from the Swedish Efla closet line were negatively impacted by a strong U.S. dollar, resulting in a decrease of 5.2 percent from the prior year's period.
Net sales in TCS were $199.1 million, up 2.3% as compared to the third quarter ended January 2, 2016, primarily due to new store sales, partially offset by a 3.9% decrease in comparable store sales. Elfa International AB (“Elfa”) third party net sales were down compared to the third quarter ended January 2, 2016 due to the impact of foreign currency translation during the quarter, which reduced third party net sales by 5.8 percentage points.
Also TCS gross margin declined 110 basis points to 57.0%, primarily due to an increased mix of lower-margin product and service sales as well as increased promotional activities during the third quarter of fiscal 2016. Elfa gross margin declined 90 basis points to 37.8% primarily due to increased direct materials costs and higher freight costs associated with changes in customer sales mix, partially offset by improved production efficiencies.
"Our custom closets business, specifically Elfa sales and TCS Closets, drove incremental sales and profit; however, holiday department sales were disappointing during the quarter," said Melissa Reiff, Chief Executive Officer. "Our Annual Elfa Sale was impacted by fewer selling days combined with Christmas and New Year’s Eve holidays falling on weekends.”
The Container Store says it is nearing completion of its new long-term plan outlining the company's goals and priorities as well as its roadmap for achieving them. Key aspects of the plan include implementing new strategies to achieve top-line sales growth and maximizing the productivity of its stores by aligning marketing, merchandising, in-store and online experience with customer expectations.
“Given our top and bottom-line performance for the first nine months of fiscal 2016, we now expect to deliver results at the lower end of our previously provided annual comparable store sales and earnings outlook ranges, and consolidated sales modestly below our previously provided annual outlook range,” Reiff added.
New and existing retail stores
The Container Store also plans to open locations in Cleveland, Ohio, Albuquerque, New Mexico, Livingston, New Jersey, and Staten Island, New York, as well as relocate its Chestnut Hill, Massachusetts store. The Albuquerque store will be the first of the company’s new mid-size store format as part of its test-and-learn effort to optimize its stores and improve efficiency and productivity.
added Reiff. “While we believe that new stores are important to our future and that our runway for growth remains strong with only 86 stores, for fiscal 2017, we plan to point a significant portion of our capital allocation toward our existing store remodels and enhancements," Reiff said. "This will allow us to properly support the expansion of our custom closets business, as well as explore new store formats.”