Storage products retailer The Container Store (NYSE: TCS)
shares have languished throughout 2020 falling with the benchmark S&P 500 index (NYSEARCA: SPY)
but not participating in the rally back to -pre-COVID levels until recently. The market is questioning whether TCS is a pandemic benefactor due to its 93 brick and mortar stores but is reconsidering the utility of products during lockdowns and the efficiency of their online commerce. Risk tolerant investors should pay closer attention to the basing for potential breakouts on this overlooked retail comeback story.
Q4 FY 2020 Earnings Release
On May 12, 2020, TCS released its Q4 fiscal 2019 financial results for the quarter ending Mar. 28, 2020. The Company reported Q3 revenues of $241.3 million, down (-4.7%) year-over-year (YoY) primarily impacted by COVID-19. TCS estimates comparable store sales to decrease (-3.6%) but Custom Closets sales to increase by 1.5%. Stores were closed starting near the end of March under lockdown restrictions and 51 stores were closed at least 1-day in the quarter. The Company highlighted how its products accommodate the stay-at-home trend. As consumers spend more time at home, TCS items help organize space and time as they shift marketing efforts to underscore this point. They also enhanced its online tools and services including virtual in-home design services from their Custom Closets services.
In an effort to combat and soften the effects from COVID-19 spread and isolation mandates, the company drew down $50 million of its credit revolver leaving an outstanding balance of $78 million. The cash balance at the end of the quarter was $67.8 million with total debt of $335 million and remaining liquidity including cash of $96.4 million. To continue cost-cutting and cash preservation, the Company also reduced base salaries up to 45% of executives and certain employees. Executive bonuses for 2019 were also deferred. TCS stopped or reduced all discretionary spread across all areas of business, lowered CAPEX spend to essential items, and extended payment terms for most goods and services. They also reduced merchandise purchases and lowered inventory levels.
May 2020 Update
The Company gave an update as of the close of Q1 on March 28, 2020 to April 25,2020. Due to store closures, retail sales were down (-45%) YOY, which doesn’t include $11 online sales not yet delivered due to surge in demand. Combined sales indicate TCS is maintaining 76% of YoY sales for the same period. They do stress that the online orders must still be distributed to customers in order to collect the revenues. The takeaway here is that online sales are strong, but distribution has been the issue due to shutdowns of brick and mortar stores. Fast forward to July 2020 and all 93 stores are up and operating. This is what investors should be keeping an eye on. The online sales were strong, but their distribution channels are re-open due to the lifting of isolation mandates.
The Container Store Price Trajectories
Using the rifle charts on monthly, weekly, and daily time frames provides a broader view of the landscape for TCS stock. The bullish monthly market structure low (MSL) triggered above $3.19 hitting a ceiling at the $4.10 Fibonacci (fib) level. The weekly stochastic formed a bullish stochastic mini pup up through the 20-band making an oscillation to the 60-band before stalling out as shares slipped back under the monthly 15-period moving average (MA) at $4.30. What makes this spike unique is that it formed at the bottom of the monthly stochastic enabling it to not only cross back up but also form a mini pup. The caveat here is that the monthly stochastic is still under the 20-band. This means it’s relatively still priced cheap but is also vulnerable for a rejection at the 20-band to cross back down if the weekly stochastic crosses back down. Opportunistic pullback entry levels is at $3.57 fib, $3.38 weekly 5-pd MA, $3.19 monthly MSL trigger and the $3.01 fib. The weekly Bollinger Bands (BBs) may be starting its expansion phase as the upper envelope turns up and lower envelope turns down. The upside trajectories on this one point to the $5.21 super fib, $6.22 fib and $7.37 fib. If the monthly downtrend is turned around, then further upside to $8.36 super fib would be possible which is the June 2019 levels. The Company is set to report earnings in early Aug 2020. Shares have recently spiked on no news so best to get an opportunistic pullback to scale into.
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