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Bear of the Day: The Container Store (TCS)

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The Container Store Group, Inc. (TCS - Free Report) is seeing improvement but this Zacks Rank #5 (Strong Sell) still guided to the low end of its full year EPS guidance.

The Container Store operates 93 retail stores specializing in organization and storage solutions and products. It also offers a full suite of custom closets designed to accommodate all sizes and budgets.

An Earnings Miss in the Second Quarter

On Oct 29, The Container Store reported its fiscal second quarter results and missed on the Zacks Consensus Estimate by 2 cents. Earnings were $0.08 versus the consensus of $0.10.

Net sales were up 5.3% to $236.4 million.

Comparable stores sales rose 5.4% with Custom Closets up 9.3%. Custom Closets added 420 basis points to the comparable results with other product categories up 2.2% and contributing 120 basis points.

Gross margin declined 30 basis points to 57.9% year-over-year.

The company has a new distribution center which is proceeding on plan and budget, and is ready to stock it with inventory.

Lowers Full Year EPS Guidance

In its fiscal 2019 outlook, the company confirmed that its comparable store sales for the year are expected to be at or slightly above the prior guidance range of up 2% to 3%.

But it guided earnings towards the low end of the previous range of $0.41 to $0.51.

It's not a surprise that analysts lowered their estimates. The Zacks Consensus Estimate for fiscal 2019 dropped to $0.42 from $0.49. That would indicate no year-over-year earnings growth as The Container Store made $0.42 in fiscal 2018.

But the fiscal 2020 Zacks Consensus was also cut, falling to $0.44 from $0.51 in the last 2 months. However, that's earnings growth of 4.8%.

Shares Fall on the Year

The Container Store is cheap. It's trading with a forward P/E of 9.9.

But shares are also down 16% in the last year.

For investors looking for another retailer in the storage and organization space, Bed Bath & Beyond BBBY is trading with a forward P/E of 8.1. It's a Zacks Rank #3 (Hold).

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