To Our Valued Shareholders,
Over the past year, we have been living out our mission to transform lives through the power of organization and have built a strong foundation for The Container Store’s next chapter of growth. We accomplished a great deal in fiscal 2021 as we maintained our focus on our three strategic pillars: Deepening our relationship with customers, expanding our reach and strengthening our capabilities. These accomplishments include:
- Highest full-year sales in our company’s history with consolidated net sales of $1.1 billion, up 10.5% compared to fiscal 2020 and up 19.5% compared to fiscal 2019.
- Enhancement of our in-store experience with the addition of store greeters, product spotlights and demonstrations.
- Fortification of our position in the $6 billion-dollar market for custom spaces through the acquisition and integration of Closet Works.
- 50% increase in the number of in-home design specialists focused on designing and selling premium spaces, with at least half of the designers selling more than $1 million in fiscal 2021.
- Significant strides in e-commerce including improving site speed across our category and product pages by 45%.
- Shipment of 90% of orders in two days in fiscal 2021, compared to only 38% in fiscal 2020.
- Launch of our first-ever mobile app to meet customers where they are already shopping.
- Launch of a new tier-based loyalty program, Organized Insider, to not only attract new customers, but also to reward a deeper level of engagement with existing customers.
- Launch of a new branding campaign, Welcome to The Organization, and a fully reimagined new company logo on 2/22/22, which resulted in a record-breaking sales day.
- Identification of key areas of focus for our Environmental, Social and Governance strategy.
- Alignment of our merchandising assortment to customer interests and values, including offering over 1,600 sustainable products, an increase of 60% over last year.
- Increase of our hourly minimum wage to $15 per hour to further solidify our company as an employer of choice.
- Expansion of product sourcing from diverse vendors through our newly established Supplier Diversity Program.
As I reflect on my first full fiscal year as CEO, I am in awe of what our teams have been able to accomplish in record time. Our people are the lifeblood of this great company, and they are executing our strategy brilliantly. I am immensely grateful for their contributions, and I am energized for the year ahead.
For fiscal 2021, despite a dynamic macro environment, we delivered sales of $1.1 billion and adjusted EPS of $1.65. This compared to sales of $990.1 million and adjusted EPS of $1.24 in fiscal 2020, which was a 53-week year. We also ended fiscal 2021 with a strong balance sheet of approximately one times debt leverage.
While fiscal 2022 will be a unique year as we all contend with the current macro environment, we will continue to stay focused on the long-term opportunity we have ahead of doubling our business. Underpinning our growth expectations is our leadership position in the home storage and organization space, along with our three strategic pillars.
Today, The Container Store represents approximately 5% of the $20 billion-plus total addressable market for home storage and organization providing a long runway for growth and market share gains, which our strategies are focused on driving.
While others have entered our highly fragmented category, no other retailer or custom space provider delivers on the full experience. With a focus on solutions, The Container Store provides the largest breadth and depth of products dedicated to storage and organization, offers affordable and premium custom spaces in both metal and wood, and delivers specialized in-store and in-home services and solutions. As we look ahead, it is this strong foundation that will support our growth.
As stated in our Q4 fiscal 2021 earnings call, our sales goal is $2 billion in fiscal 2027, which represents low double digit average annual growth. When inflationary pressures subside, our profitability goal is to deliver low double-digit operating margins even with planned investments in infrastructure, people and technology. These targets will continue to be powered by our three strategic pillars:
- Deepening our relationship with customers
- Expanding our reach
- Strengthening our capabilities
We aim to deepen our relationship with customers through our compelling product assortment, impactful branding, and enhanced loyalty program.
First, as it relates to product, in fiscal 2022 and beyond, we aim to build on the success we have achieved from growing our sustainable product offering, leveraging our powerful collaborations, and by introducing new and innovative products. For example, we plan to expand the number of sustainable SKUs within our assortment from 15% to at least 35% by the end of fiscal 2027.
We also believe we can expand our strong private label assortment, which is made up of exclusive quality products designed and developed by The Container Store, and enjoy higher gross margins. Expansion of our garage category is another focus where we are currently underpenetrated.
Regarding our powerful collaborations, we have found influencer partnerships to be effective methods to showcase the life-transforming benefits of organization. We will continue to forge impactful collaborations with influential partners to expand our target customer base, and look forward to the launch of a new sustainable product line in the summer of 2022 with Rosanna Pansino, a YouTube personality, TV host and best-selling author, with more than 13 million subscribers on YouTube.
With regards to branding, we will continue to support our new campaign Welcome to the Organization as it is an open invitation to all to start their organizational journey. As of April 2022, unaided awareness for The Container Store was only 10% whereas aided awareness was 73%. By deploying an always on branding campaign, we aim to increase both unaided and aided awareness in the coming years.
Finally, in the fourth quarter of fiscal 2021 we launched our new tier-based loyalty program, Organized Insider. With a 26% active rate in our previous loyalty program, we believe there is a significant opportunity to better engage with our customers and provide rewards for their visit frequency and level of spend. Organized Insider is the glue that connects us to our customers, and we look forward to sharing more as the program advances.
Moving to our second pillar, expanding our reach. As we look forward, a greater emphasis will be placed on expanding our store network, strengthening our e-commerce business, and expanding our focus beyond custom closets to custom spaces.
We have spent a lot of time evaluating and maximizing the productivity of our existing store network and format. Based on our learnings this past fiscal year, going forward, we plan to primarily open smaller format stores ranging from 10k to 15k selling square feet at a targeted first year average sales productivity of at least $400 per selling square foot. These smaller format stores will have an uncompromised custom space offering and a curated general merchandise assortment of our most compelling products within each category.
We are excited to target an additional 76 new stores by fiscal 2027 for a total of 170 locations, focusing primarily on existing key markets. As we ramp up store expansion capabilities and increase our pipeline, we currently expect approximately one-third of the 76 new stores to open in the next three years, with the remaining stores to come by the end of fiscal 2027. We are eager to open our first small-format store in Colorado Springs, CO in the fall of 2022, followed by another planned small-format store in Salem, NH in the winter of 2022.
Fiscal 2021 was a foundational year in improving our e-commerce capabilities and experience. We have introduced several digital initiatives to drive online growth, including enhanced payment methods such as AfterPay and PayPal, delivery transparency and fulfillment with Narvar and Instacart, and improved our overall website experience.
With these foundational investments, along with a continued focus on digital marketing strategies and social commerce opportunities, we believe we can achieve an online sales CAGR in the high teens, which results in an online sales penetration of almost 20% in fiscal 2027.
When it comes to custom spaces, we own a small share of the estimated $6 billion total addressable market presenting a significant opportunity for share gains. We expect market share growth here to be margin accretive as we now own the manufacturing capabilities for all our custom space lines.
Looking ahead, we expect to expand our manufacturing capabilities and plan to open two additional wood-based manufacturing facilities by fiscal 2027 to support the meaningful growth of our custom space business.
Additionally, we continue to see business-to-business (B2B) sales as another area of growth. Earlier this year, we brought our B2B team in-house to better position us to capitalize on this opportunity as we target multiple end markets including apartments, townhomes, retirement communities, hotels and offices. With the acquisition of Closet Works, we are a one-stop shop for both metal and wood space builds, while meeting the unique needs of each space and market.
Last, but not least, our third strategic pillar, strengthening our capabilities. As we enter this new phase of store growth and expansion, we will be intently focused on scaling operations while still improving operational efficiencies and effectiveness.
From a technology perspective, our investment plan includes disaster recovery, cloud migration and enhancements to customer experience.
In addition to the opening of the two wood-based manufacturing facilities, we also plan to open a new distribution center by fiscal 2027.
As stated earlier, our people are the lifeblood of this great organization, and we plan to invest in them to ensure we have the talent necessary to fuel the path to $2 billion. We believe culture is important to our organization, and we strive to be an employer of choice.
I want to reiterate how excited and confident we feel about leveraging the many attractive opportunities to drive meaningful long-term sales and earnings growth. Our teams have the flexibility and tenacity required to operate in this dynamic environment, while executing our mission and strategy, and delivering on our financial and operational goals.
Satish Malhotra,
CEO and President of The Container Store