The Container Store Quiet Period Provides Long Opportunity

| About: The Container (TCS)

The underwriter quiet period on The Container Store (NYSE:TCS) will end on November 25, 25 days after the firm's IPO on October 31, allowing the IPO underwriters to release research reports on the firm into the market and likely leading to at least a brief increase in the price of TCS stock.

TCS priced at the high end of its expected range, which had already been revised upward, at $18 per share, and proceeded to post an impressive first day return of 101.1%. However, the price has since remained fairly stagnant, hovering between $32.10 and $38.32; it closed at $35.19 on November 21.

The firm's underwriters, including J.P. Morgan, Barclays, Credit Suisse, Morgan Stanley, BofA Merrill Lynch, Wells Fargo Securities, Jefferies & Co, and Guggenheim Securities, will seek to invigorate the stock with positive research reports after the quiet period expires.

Our research over the past two years and recent academic studies have provided empirical evidence of a positive correlation between the number and quality of IPO underwriters and a rise in the price of shares with ending of the quiet period. The effect generally begins several days in advance of the expiration of the quiet period, as investors purchase shares in anticipation of the underwriters' release of positive information; these investors realize that the underwriters will not release negative information about a firm that they recently underwrote.

The Container Store is a nation-wide retailer that exclusively sells organization and storage products. The firm includes retail stores, referred to as TCS, which accounted for 87% of net sales in fiscal 2012, and Elfa, a Swedish shelving designer and manufacturer that accounted for 13% of net sales in fiscal 2012. The firm operated 62 retail stores across 22 states as of October 1, 2013.

The Container Store has shown strong revenue and physical growth, with thirteen consecutive fiscal quarters of increasing comparable store sales along with an Adjusted EBITDA margin that has increased from 8.5% in fiscal 2008 to 12.4% in fiscal 2012. However, The Container Store must contend with some extremely powerful mass merchants like Target (NYSE:TGT) and Walmart (NYSE:WMT) and specialty retailers such as Crate & Barrel and Bed Bath & Beyond (NASDAQ:BBBY). Online competition from firms like Amazon (NASDAQ:AMZN) is also a significant obstacle.

William A. Tindell, III has served as CEO since 2006, and became Chairman in 2007. He received the National Retail Federation's Gold Medal Award in 2011. He serves on the board of Baylor Healthcare Systems Foundation and Whole Foods Market (NASDAQ:WFM).

Though The Container Store certainly saw an explosive IPO and first day of trading, its stability since the first day means that the upcoming close of the quiet period may lead to a positive uptrend for the stock.

We are impressed by the firm's potent management team and its strong figures for new store and revenue growth, though it has yet to show a profit on a GAAP basis. It did post a relatively insignificant loss beneath one million dollars for the past six months, however, so it may soon be a profitable company.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.