The Container Store: Execution Risk Is High

About: The Container Store Group, Inc. (TCS), Includes: MIK, ORLY
by: Gainsboro Capital
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Gainsboro Capital
Growth, long-term horizon, long only, contrarian

The general retail environment in the U.S. has been shaky as the rise of e-commerce pushes brick-and-mortar to the background.

The Container Store, a specialty retailer focused on storage and organizational products, operates just 93 stores in the U.S. making for a large white space opportunity.

Direct-to-consumer sales are growing at ~19% year-over-year, comprising approximately 8% of sales.

Yet the company remains leveraged with $277M in net debt and interest coverage at just ~1.9x EBIT.

We believe the valuation is fair, but not all that attractive when considering execution risk and weighed down balance sheet.

The Container Store (TCS) is a leading retailer of storage and organizational products operating 93 locations across 33 states. Operating mile deep in an inch-wide market, the company has been delivering what we