Investor Relations
NYSE: TCS 4.36 -0.18(-3.96%) Market Open: 4.47 Market Close: 4.54 52 Week High: 37.80 52 Week Low: 3.50 Nov 08, 2024 04:00 PM (Prices delayed 20 mins)

Fellow Shareholders,

Last year, I shared with you how our teams continually impressed me with their optimism and ability to flex despite the challenging macroeconomic environment, and fiscal 2023 was no different. Once again, we asked for tremendous support from each team member, and they continued to impress. Together we made important progress on positioning The Container Store for long-term success, while navigating ongoing headwinds.

For fiscal 2023, we delivered sales of $847.8M and ended the year with $6.9M in positive free cash flow.† Customers continue to contend with macroeconomic pressures affecting their consideration of spend in the home improvement and organization categories, and challenges in our general merchandise categories remain elevated. However, we are being thoughtful and disciplined across all areas of the business to position ourselves to capitalize on the significant opportunities we expect during a more normalized backdrop.

We believe that there is a strong consumer need for The Container Store and the comprehensive, solution-oriented offering only we provide in the market. In a survey we conducted earlier this year of 2,000 homeowners in the United States, 40% shared that they are afraid of facing the clutter in their home and more than 70% feel overwhelmed when their homes are untidy. We are uniquely equipped with the expertise, solutions and services to solve the challenges these potential customers have across all areas of the home.

With this in mind, we made significant progress towards helping our customers realize the many benefits of living an organized life. Highlights from the 2023 fiscal year include:

Enhancing our Custom Spaces offering to give our customers more solutions for their homes with innovative additions like integrated European lighting, new, on-trend finishes, and mesh door inserts to our premium, wood-based Preston line and diversifying our Elfa offering with Garage+.

Developing our in-home design service to make it convenient for customers to transform their spaces with more than 100 highly trained designers. These designers are focused on selling premium spaces and drove 87% of premium spaces sales for the year.

Delivering newness and innovation across our assortment with the introduction of compelling new brands and discovery categories like Cadence, which offers original, magnetic travel capsules, Calpak, which has brought modern luggage options to our assortment, and Fortessa known for its innovative break-resistant barware. These new brands and categories have resonated well with customers and complement our core offering so customers don’t have to go anywhere else to complete their spaces.

Strengthening our internal product sourcing and development capabilities. This enhancement enables us to create supply chain efficiencies and supports the expansion of our Everything Organizer Collection, which complements our Elfa Custom Spaces line.

Expanding our accessibility through the opening of 5 new small format stores including our 100th store location in Princeton, New Jersey - a milestone for
our company.

The positive progress we made on deepening our connection with our customers and expanding our reach is demonstrated by strong net promoter scores across all areas of the business including existing and new stores, Custom Spaces, BOPIS and ecommerce. In addition, we made impactful improvements to our online experience and saw strength in our B2B business throughout the fiscal year. While we have achieved significant progress in our initiatives, we also gained valuable insights over the past fiscal year that we have incorporated into our planning for fiscal 2024.

As it relates to Custom Spaces, we expect fiscal 2024 to be a big year for Elfa. Our marketing launch of the Garage+ by Elfa line kicked off in April and we are gearing up for our Decor+ marketing launch in September. We firmly believe the ways in which we are elevating our customer-favorite Elfa offering further differentiate us from the competition. Additionally, there is continued innovation and newness coming to our premium Preston line and we are committed to enabling our designers to drive meaningful improvement in their conversion rates - an area where we see significant opportunity and are making strides in being better positioned for success.

Our general merchandise business saw a greater impact from the macro environment and changes in customer spending behavior throughout fiscal 2023 compared to Custom Spaces. Our goal is to stabilize performance in this area of the business in fiscal 2024. The Container Store has always stood for the best selection and quality and that will not change, but we also recognize the need to have various price points across our core storage and organization assortment. To deliver this, we plan to expand our private label offering and more closely collaborate with our vendor partners on pricing. By leveraging our newer product innovation and sourcing capabilities, we believe we are better positioned to effectively compete without compromising our reputation that is synonymous with quality and continue to provide complementary solutions that complete our Custom Spaces offering.

Connecting Custom Spaces and general merchandise leads me to our marketing plans. We have tremendous untapped potential on the brand awareness front, specifically as it relates to our Custom Spaces capabilities. Building this awareness is an important area of focus for us this year, and our teams have already put significant effort into pursuing this objective. To name a few, we launched a full-funnel marketing campaign in May in five key markets connecting custom spaces and general merchandise, installed permanent Elfa fixtures at the front of our stores that will be refreshed throughout the year, have executed and planned for “buzzworthy” partnerships to support key initiatives, like our Jason and Kylie Kelce Garage+ transformation, and reintroduced our Brand Ambassador program, significantly scaling the number of micro-influencers sharing about our brand online. Together, I am confident these efforts and others will keep The Container Store top of mind and drive awareness of our full, solution-oriented offering.

 Regarding store growth, we remain on target with our previously shared plans for fiscal 2024. We have successfully opened two new stores in Virginia, relocated our San Francisco location and closed one Los Angeles location due to a significant rent increase and low productivity. Finally, we plan to open two locations in Florida in Q3. Our new stores are built to suit, with design and construction meeting our specifications before we take possession, and therefore requiring less capital spend.

We believe that the long-term market share potential within the over $20 billion home storage and organization category remains as compelling as when we first outlined our growth objectives two years ago. The Company’s Board of Directors along with the management team do not believe the Company’s current market value is reflective of its intrinsic value and are committed to acting in the best interests of the Company and its stakeholders. As announced with our fiscal 2023 full year results, the Board of Directors, as part of its commitment to maximizing value for our stakeholders, has initiated a formal review process to evaluate strategic alternatives for the Company.

As the Board of Directors conducts this process, we remain committed to delivering on our long-term objectives of driving growth in custom spaces to better capitalize on the $6 billion custom spaces total addressable market, as well as stabilizing our general merchandise business. We believe we can grow Custom Spaces from 40% of sales to 60% of sales over time through expanding our assortment, continuing to build and strengthen our in-home and in-store design services, and increasing the focus of our marketing efforts to drive brand awareness for our solution-oriented offering.

In summary, as we navigate the current environment with discipline, we remain laser focused on the long-term opportunity for our business and brand. We intend to continue executing and investing in the key initiatives that will best position us to capitalize on this long-term opportunity, while maintaining strong expense and capital discipline. I am encouraged by the progress we have made in fiscal 2023 and excited by what is to come. Thank you for supporting and being engaged with what we are doing at The Container Store, we look forward to keeping you updated on our progress.

Satish Malhotra
CEO and President of The Container Store

†Free cash flow is a non-GAAP financial measure. See a reconciliation of free cash flow to the most directly comparable GAAP measure on page 48 of the Annual Report on Form 10-K herein.

Satish Malhotra,

CEO and President of The Container Store