The Container Store is hoping a $40 million bet from the owner of Bed, Bath & Beyond will help it navigate mounting losses that are curtailing plans to open any new stores.
The organizational retailer is closing a high-profile store in Los Angeles and plans to exit a Chicago store once the lease expires in February because of rising rents, according to a source close to the situation. And plans for any new locations once two small-format stores open in Florida before the end of the fiscal year are on hold, the source said.
The Container Store ended the quarter with 103 U.S. locations. The company's abrupt departure from planning new store openings comes two years after the retailer told investors it would add 76 small-format stores through 2027 to help it reach $2 billion in annual sales. The Container Store has not reached $1 billion in annual sales since fiscal 2021, when it reached the milestone for the first time.
"The Container Store is in retrenchment and cash savings mode," Neil Saunders, a retail analyst and managing director at analytics firm GlobalData, told CoStar News. "The Container Store is in a very difficult position with the company taking some quite significant losses year-to-date with a number of liabilities on the balance sheet. They need to start to make a profit, but the problem is sales are slumping and they are in a tight financial spot."
The retailer is betting on a financial lifeline of $40 million from Beyond, the parent company of Bed Bath & Beyond, and selling co-branded products will help it turnaround its troubled business. The retailer based in the Dallas area reported a loss of $16.1 million for its fiscal second quarter ended Sept. 28. Revenue was down 10.5% to $196.6 million from the prior year's period.
For the first half of the fiscal year, the Container Store reported a net loss of nearly $31 million, or $9.30 per share.
The $40 million investment from Midvale, Utah-based Beyond Inc. is "significant," Saunders said, but if the Container Store continues to rack up losses, the retailer will "burn through the cash quickly," forcing it to consider other options, including bankruptcy.
"The Beyond deal isn't the solution," Saunders said. "It buys time, but it doesn't buy them a solution."
Executives at The Container Store did not discuss filing for bankruptcy protection during its earnings call but the company did outline some of the financial challenges facing the company. Chief Financial Officer Jeff Miller said the company has "faced challenges due to softening demand" and "increased price sensitivity affecting our financial performance."
That lack of retail performance has weighed on its balance sheet, with the Container Store "actively collaborating with lenders to amend or refinance facilities" as well as "consummate the equity investment from Beyond" to improve its financial position, Miller said during the earnings call. The company's revolving credit facility with a balance of about $71 million at the end of the second quarter matures in one year, Miller added.
The Container Store declined to share any guidance to investors for the remaining of its fiscal year and the company declined to comment to CoStar News outside of its earnings call.
Housing headwinds
The Container Store isn't the only home goods retailer suffering from the larger macroeconomic headwinds facing the retail homes goods industry. With fewer people buying new homes amid elevated mortgage rates with the housing market being "super gummed up," there's been a correlation into less demand for housing goods, including organizational products sold by the Container Store, Saunders said.
"Even Home Depot and Lowe's profits are down and both of them are really successful retailers with a robustness of selection and financial fire power that The Container Store doesn't have," Saunders said, adding that until the housing is "un-gummed," challenges will continue for any retailer selling goods for homes.
Existing home sales in the U.S. fell to its lowest level since 2010, as CoStar News recently reported, with the recent rate cut by the Federal Reserve yet having an impact on mortgage rates or new home sales. Meanwhile, the Container Store is opening its last two stores for the foreseeable future in Florida, with one store at The Shops at Pembrooke Gardens in Pembrooke Pines, Florida, and a second store in Miami.
Saunders said he doesn't see a light at the end of the tunnel for the Container Store, a retailer hyper focused on selling home storage at a premium price — which isn't resonating with today's consumers, he added.
"They've got to get more people shopping there," Saunders said. "Their proposition in economically good times, worked. In the bad times, it seems to fall apart, and we are not in economically good times right now."