Shares of The Container Store (NYSE: TCS)
rallied sharply to highs if $9.72 since bottoming off its pandemic lows at $1.80 in Q1 2020. We highlighted this stock in the $3-$4 range in a MarketBeat Original article on July 13, 2020
as an overlooked restart play building steam for a breakout. Shares have since surged over 200% to outperform the benchmark S&P 500 index (NYSEARCA: SPY)
. The stock is overstretched at these levels and prudent investors should consider ringing the register to locked in some profits into opportunistic exit levels as it heads into earnings season.
Q1 FY 2020 Earnings Release
On July 28, 2020, The Container Store released its fiscal first-quarter 2020 results for the quarter ending June 2020. The Company reported an earnings-per-share (EPS) loss of (-$0.34) excluding non-recurring items versus consensus analyst estimates for a loss of (-$0.14), missing estimates by (-$0.20). Revenues fell (-27.6%) year-over-year (YoY) to $151.69 million missing consensus analyst estimates by (-$12.32 million). Online sales grew 192.3% YoY. The fiscal Q1 was operating through the pandemic peaks from April, May and June calendar 2020. The Company generated $21.7 million free cash flow for the Q. SG&A expenses shrank by (-20.9%) from reduced payroll, transportation and marketing costs.
Conference Call Takeaways
The Container Store CEO Melissa Reiff noted that The Container Store “saw out-performance from Custom Closets in Q1, largely driven by sale of do-it-yourself of Elfa.” Reiff elaborated “We certainly experienced customer very interested in buying Elfa during this pandemic as they focused even more on getting their homes organized, accomplishing those project that perhaps they had not been able to accomplish prior to COVID-19.” This plays into the home improvement trend spawned by the pandemic combined with stay-at-home mandates as customers opted to buy Elfa products and install themselves rather than using a professional installer. As of July 28, 2020, all Container Store locations have reopened and operating at “close to normalized levels.” Stores are capped at maximum 50 customers at a time. Retail sales have recovered to approximately 90% of prior year sales for the month of July reflecting a surprisingly fast snap back. The Company improved unfulfilled online sales from approximately $11 million in Q4 fiscal 2019 to $5 million in Q1 fiscal 2020.
The Home Edit Show on Netflix
Expanding on the Elfa Closet Line, the Company launched new products with graphite finish and continues to generate social media buzz with their exclusive product offerings with The Home Edit Show. The collection has grown to 52 products with recent addition of refrigerator and freezer collection. Further buzz is anticipated with the launch of The Home Edit Show launched on Netflix (NASDAQ: NFLX) on Aug. 27, 2020. The Company also plans to announce another collaboration later in the year.
Getting Ahead of Itself
The spike in TCS shares has been rewarding for prudent investors that stepped in under $5 per share. However, this is a case of too far too fast ahead of fiscal Q2 2020 earnings due out in November. The brand awareness created by The Home Edit Show is a plus but as restarts continue to accelerate, the do-it-yourself headwinds may lose steam. The Company did hint at another potential media opportunity that may be announced in the next earnings report. With share prices trading ahead of itself, a sell-the-news reaction is a very real possibility with the bar set so high. Prudent investors may consider trimming down positions and locking in profits ahead of the release at opportunistic exit levels.
TCS Opportunistic Exit Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for TCS stock. The monthly rifle chart triggered a stochastic mini pup on the market structure low (MSL) buy at $3.20 in May 2020. The monthly 5-period moving average (MA) support is at the $5.21 Fibonacci (fib) level. The monthly upper Bollinger Bands (BBs) sit at $9.97 to $10.51 fib range. The weekly rifle chart indicates a high band mini pup climax thrust which investors can unwind into opportunistic exit levels at the $$8.36 fib, $9.02 fib, $10.15 fib, and $10.51 fib. Since the shares have spiked so quickly, it’s crucial to keep a downside profit stop if shares fall $7.37 fib. The bar is set high heading into Q3 earnings in November 2020 which sets up a potential sell-off reaction unless the Company can provide strong forward guidance.
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