How Container Store plans to grow after hot IPO debut
November 1, 2013, 10:54 AM
By Andria Cheng
- Container Store
Its shares doubled to $36 on Friday on its first day on the market. The company priced its offer of 12.5 million shares at $18 a share late Thursday, the top end of its already elevated range.
Behind investors’ appetite: the 63-store chain has posted 13 straight positive comparable store sales and says it has the potential to grow its U.S. current footprint to at least 300 locations.
“This is a strong concept with ample unit growth,” said Hedgeye analyst Brian McGough.
The Container Store’s IPO follows others in the consumer sector this year, including sandwich shop Potbelly, Burlington Coat Factory parent Burlington Stores, and Sprouts Farmers Market, all of which have logged solid trading debuts.
Container Store, which opened its first store in Dallas in 1978, said one of its competitive advantages is a training program that puts full-time employees through more than 260 hours of formal training in their first year. With $706.8 million in sales last year, it also has expanded through its online sales and call centers, which together have risen 84% over the past three fiscal years and account for 5.4% of total business.
Still, the money-losing company will have to answer questions about how it plans to return to profit while fighting in a fragmented home-furnishings market against the likes of Bed, Bath & Beyond /quotes/zigman/68991/delayed /quotes/nls/bbby BBBY and Crate & Barrel on the specialty retail side and from the likes of Wal-Mart /quotes/zigman/245476/delayed /quotes/nls/wmt WMT and Target /quotes/zigman/253872/delayed /quotes/nls/tgt TGT on the lower end.
“We are going to continue to dominate in this category,” said Melissa Reiff, president of Container Store, in an interview, adding the company increased its operating profit 12.4% last year despite the net loss. “We are just a baby. We have so many opportunities.”
She said the company plans a 10% square footage growth a year.
She said one of the chain’s competitive strengths also includes having an industry-low employee turnover rate of 10%, compared to the retail sector’s double turnover rate. With the IPO, 40% of its employees are now company shareholders, she said. As an example of how Container Store plans to increase store visits, 13 weeks ago it launched a loyalty reward program in nine stores in California, where 100,000 customers have signed up. Different from the regular point rewards given by other retailers, its loyalty shoppers may get a sneak peek of new products or may have lunch with its CEO Kip Tindell.
So far, those shoppers have returned to its stores more, Reiff told MarketWatch, adding the program will launch nationwide next year.
– Andria Cheng
– Follow her on Twitter @AndriaCheng
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