The Container Store Group, Inc (TCS), a national retailer of storage and organization products with principal offices in Coppell, Texas, plans to raise $187.5 million in its upcoming IPO. The firm will offer 12.5 million shares at an expected price range of $14.00-$16.00 per share. If the IPO can reach the midpoint of the expected range at $15.00 per share, TCS will command a market value of $729 million.
TCS filed on September 30, 2013.
Joint Bookrunners: J.P. Morgan, Barclays, Credit Suisse, Morgan Stanley, BofA Merrill Lynch, Wells Fargo Securities, Jefferies & Co
Co-Manager: Guggenheim Securities
The Container Store is the only national retailer dedicated exclusively to storage and organization products. The firm currently divides its business into two reporting segments: its retail stores, which accounted for 87% of the firm's net sales in fiscal 2012; and Elfa, a designer and manufacturer of customizable, component-based shelving based in Sweden, which accounted for 13% of the firm's net sales in fiscal 2012. As of October 1, 2013, the firm operated 62 units spread across 22 states.
TCS offers the following figures in its S-1 balance sheet for the 26 weeks ending August 31, 2013:
Net Sales: $343,419,000
Net Loss: $688,000
Total Assets: $754,351,000
Long-term Debt: $370,977,000
Total Stockholders' Equity: $139,566,000
We are neutral to slightly positive on this IPO at the proposed range of $14 to $16. If the final pricing is $14 or below, we would reconsider our rating.
Though we are encouraged by the firm's impressive new store and revenue growth and its experienced leadership team, the firm has yet to turn a profit on a GAAP basis. That said, it does appear to be approaching profitability, with an insignificant loss of under $1 million posted for the past six months, so this may be an opportunity to get into The Container Store Business just as it turns the corner. The company also faces massive and well financed competitors as we discuss below.
The Container Store has proven to be extremely successful in its physical and revenue growth. The firm boasts thirteen consecutive fiscal quarters of positive comparable store sales growth and an Adjusted EBITDA margin that has grown from 8.5% for fiscal 2008 to 12.4% for fiscal 2012. The firm's new store strategy has also proven effective, with an average pre-tax payback period of approximately 2.5 years for the twelve stores opened from fiscal 2008 through fiscal 2011.
Though The Container Store is the only national retailer focused specifically on storage and organization products, it is by no means the only retailer offering these products. The firm must compete with mass merchants like Target (TGT) and Walmart (WMT), as well as specialty retailers like Bed Bath & Beyond (BBBY) and Crate & Barrel.
The firm also must compete with significant online competition from firms like Amazon (AMZN). Some of these competitors are better capitalized and have stronger resources available than TCS.
CEO William A. Tindell, III has served in the chief executive position since 2006, and was elected Chairman of the board of directors in 2007. He was a 2011 recipient of the National Retail Federation's Gold Medal Award, which is considered the industry's top award. He serves on the Board of Directors of Whole Foods Market, Inc (WFM) and Baylor Healthcare Systems Foundation. The CEO was paid $2,001,500 in fiscal 2012. Mr. Tindell's wife, Sharon is the Chief Merchandising Officer and she was paid $1,460,500 in fiscal 2012. These compensation amounts to the husband and wife of a company that has lost over $75M over the past three years seem excessive.