TCS 7/11/2023 Shareholder/Stockholder Letter Transcript:
2022
A N N UA L R E P O RT
To Our Valued Shareholders
In fiscal 2022, we continued to build on our strong
foundation and plant numerous seeds for long-term
growth to reach our long-term goal of $2 billion in
annual sales.
While it was a unique year for retail, our teams worked
hard and continually impressed me with their optimism
and ability to flex. For fiscal 2022, we delivered sales of
$1.05 billion and adjusted EPS of $0.75, and ended the
year with a consolidated debt leverage ratio of 1.4 times.
Despite the challenging macroeconomic environment, our
teams made great progress against our strategic initiatives.
Key accomplishments from the past fiscal year include:
Opening of our first three small-format store locations
in Colorado Springs, CO, Salem, NH, and Thousand
Oaks, CA
Introducing NEW Custom Spaces branding to move
our offering beyond closets to other key areas of the
home including living and garage spaces, which
came to life in-store and through a redesigned digital
experience
Launching our wholly owned and manufactured
premium-wood based line Preston in all stores, which
we believe will help us gain market share in custom
spaces over $2,000
Introducing new consumable product categories like
home fragrances and sustainable cleaners and
cleaning supplies to give customers a compelling
reason to shop and make a repeat purchase
Enrolling nearly 900,000 new members to our
Organized Insider loyalty program which accounted
for approximately 80% of total sales and a 57% higher
average ticket than non-loyalty members in our first
year with the program
Launching express mobile checkout in all stores, which
increased transaction efficiency and accounted for 20%
of store transactions
Enhancing our online experience with 40% faster
page speeds and a redesigned website navigation that
increased conversion
Publishing our first annual Sustainability Report which
laid the foundation for our ESG strategy
Launching a mentoring and development program:
I.D.E.A. (Inclusion, Diversity, Equity and Access) that
provides coaching, skills building and mentoring from
our most senior leaders
Focusing on our In-Home Design Specialists who sold
$75 million in total sales, with more than 25% selling
over $1 million each in Custom Spaces
Expanding private label Everything Organizer
Collection, which is a versatile line of clear organizers
designed with professional organizers
Delivering an NPS score of 80 for retail customer
experience in Q4
As we look to fiscal 2023, while we expect macroeconomic
headwinds to intensify, we remain committed to investing in
our long-term growth prospects through our three strategic
pillars: Deepening Our Relationship with Customers,
Expanding Our Reach, and Strengthening Our Capabilities.
DEEPENING OUR RELATIONSHIP WITH CUSTOMERS
Our Organized Insider loyalty program had a remarkable
first year. The program is structured to reward behavior
and offer unique, personalized experiences, and we will
continue to test new benefits to keep our best customers
engaged. In its second year, we plan to execute various
tests to see how customers react and inform the
evolution of the program. Some of these tests include
new rewards for high-value Custom Space purchases
and for hitting spend milestones, live events, and special
offers to introduce members to our newest products.
As we look at general merchandise under the leadership
of our new Chief Merchant, we are focused on continuing
to refine our assortment in a manner that best aligns
with our customers shopping journey and has the most
potential for growth, including college, travel, dining,
entertaining and home decor.
As part of our back-to-college campaign this year, we
partnered with online dorm d cor destination Dormify,
to offer our customers on-trend bedding and d cor
1
Adjusted EPS is a non-GAAP financial measure. Please see page 50 of our Annual Report on Form 10-K included herein for a reconciliation of adjusted EPS to GAAP EPS,
the most directly comparable GAAP measure.
I am confident we
have the right teams
in place to continue
to drive growth and
execute against
our plans for fiscal
2023 and beyond.
on our website and select stores. Part of the execution
included a Dormify shop-in-shop concept in five of our
retail locations. We will continue to pilot shop-in-shop
experiences with select direct-to-consumer brands to
give our customers and new ones a reason to shop.
We anticipate introducing nearly 1,000 new SKUs this
year from innovative brands that complement our core
offering of storage and organization. Many of these
brands are entering brick and mortar stores for the very
first time and have had much success selling direct to
consumers. We expect these products to bring notable
newness to The Container Store, and demonstrate to
customers how our curated, innovative, and solutionoriented products can help transform their lives.
Another way we are enhancing our assortment of general
merchandise is through our dropship program that
launched online this summer. Dropship allows us to sell
goods through our website that ship directly from the
vendor, so we do not own the inventory. This program
also gives us the opportunity to add complementary
products to our everyday assortment in more aesthetics
and price points, and allows us to test and learn with new
products before adding them to our stores.
EXPANDING OUR REACH
Regarding new stores, we still believe there is substantial
white space and a path to open at least 76 new stores
over time. In fiscal 2023, we expect to open six new
small format stores in existing markets, each with an
anticipated average of 12,500 selling square feet.This
compares to the nine originally planned due to delayed
timelines. The three that were planned for the end of
fiscal 2023 are now expected to open in early fiscal 2024.
As it relates to Custom Spaces, we continue to focus on
gaining market share in spaces over $2,000. We aim
to bring better awareness to our new Custom Space
branding and provide a whole home solution to our
customers. This year, our Custom Space events will
primarily focus on discounts on any of our three lines:
Elfa, Avera or Preston, rather than one line at a time, and
be evenly spaced throughout the year. We also plan to
increase the number of in-home designers to 150 this year
with design training focused on selling premium spaces.
In addition, we have product enhancements planned
throughout the year, including premium in-drawer and
toe kick lighting, mirrored glass, aluminum framed doors,
slim shaker profiles, and new on-trend colors like night
sky blue and lakeshore green. We are filling the void in
the market for custom garage solutions with new Preston
garage options, which are now available.
Our focus remains on creating an engaging customercentric Custom Spaces experience. One that builds trust
and makes it easy for the customer to stay updated on the
progress of their projects. We recently launched an online
scheduler for customers to make in-store, in-home or
virtual design appointments online when they are ready to
get started on a project. From there, our new My Custom
Spaces portal allows customers a centralized spot to
review their design, sign their purchase agreement,
manage their payment and track the status of the custom
space lifecycle from inspiration to installation.
We are accelerating ecommerce this year through various
avenues. Refreshed content across general merchandise
and Custom Spaces categories will keep our customers
inspired, and strategic updates to our product detail
pages will help improve conversion. During our college
campaign we have had success bundling products
customers frequently purchase together as a convenient
one-click solution for customers, and this is something we
intend to expand to other categories.
STRENGTHENING OUR CAPABILITIES
We are continually strengthening technology capabilities
across the company to create efficiencies in the work we
do on a day-to-day basis and to enhance our customer
experience. Soon you will see a new native checkout
within our App to increase speed for customers, and we
intend to offer more payment options like PayPal and
Apple Pay to make transactions convenient.
In June 2023, we published our second annual
Sustainability Report outlining the progress we made
in fiscal 2022 against our Environmental, Social and
Governance Strategy. One highlight I want to note is
being recognized by the United States Environmental
Protection Agency for our use of wind Green Power.
Our teams are also hard at work with a new partner
that will help us measure our Scope 3 Emissions. We
believe we are one of the first retailers to embark on
this assessment and look forward to learning the ways in
which we can further reduce our carbon footprint.
us well to deliver our long-term goal of low double-digit
operating margins. We are prioritizing investments in
the areas of the business that drive strong productivity
while also investing in our strategic initiatives, which we
believe will position us well to gain market share when the
macro environment improves. The reduction of force we
announced on our Q4 earnings call is intended to keep
our SG&A expenses just below 50% of consolidated sales
in fiscal 2023. I am confident we have the right teams in
place to continue to drive growth and execute against our
plans for fiscal 2023 and beyond.
Finally, we are cognizant of the importance of cost
management and continue to evaluate all areas of our
business to ensure an efficient cost structure to position
I am incredibly proud of the strides we have already made
in fiscal 2023 and our plans for the remainder of the year.
We are not sitting idle and remain focused on our path to
$2 billion in revenue.
Satish Malhotra
CEO and President of The Container Store
7/11/2023 Letter Continued (Full PDF)