Popular retail chain faces delisting and risk of default

The company has been struggling with changing trends and increased competition.

May 21, 2024 - 22:30

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Popular retail chain faces delisting and risk of default

The past year has been bleak for retail chains that struggled during the covid pandemic.

During the pandemic some companies had to shut down due to social-distancing rules, and even when companies were allowed to open, many nonessential retailers struggled to find customers.

For many retailers expenses like rent and utilities did not go away while sales dropped. That led many chains to take on debt, which they have struggled to pay even as the pandemic eased and sales patterns returned to normal.

Several once-popular retailers were driven into bankruptcy and liquidation due to pandemic-related debt. Tuesday Morning and Christmas Tree Shops were chains that depended on foot traffic because their business models revolved around customers coming in and not knowing what items they might buy.

That so-called treasure-hunt model has succeeded at chains like Marshalls and Ross Dress for Less, but the pandemic hurt those companies more than other more essential retailers.

It was a time when companies that provided essential services or filled needs that arose from people being forced to stay home thrived while other chains became less relevant.

Consumers changed their shopping habits after the covid pandemic.
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Container Store Group sees a sales drop

Container Store Group had a very rough year.

For the fiscal year ended March 30, 2024, consolidated net sales were $847.8 million, down 19% from the year-earlier period.

Net sales for the retail business were $801.4 million, down 19.2%, the company reported. Comparable-store sales decreased 19.7%.

The chain did manage to do better on the bottom line, losing $103.3 million, or $2.09 a share, in the latest fiscal year, narrowed from a loss of $158.9 million, or $3.21 a share, in the year earlier.

CEO Satish Malhotra was honest about his company's struggles but tried to put a positive spin on its prospects in his comments in the earnings release.

Container Store ended the most recent fiscal year "with continued pressure on our general merchandise assortment while experiencing relative strength in our premium Custom Space offering," he said.

“Looking ahead, while we anticipate continued challenges within our general merchandise offerings, we continue to lean into Custom Spaces through enhancing our assortment, strengthening our in-home design service, and building awareness through impactful marketing campaigns that highlight our complete offerings."

Container Store Group faces delisting, default

Container Store Group (TCS) was notified by the New York Stock Exchange on May 14 that it was not in compliance with requirements to remain on the exchange because its stock has traded at less than $1 over a consecutive 30 trading-day period.

The notice does not result in the immediate delisting of the Company’s common stock from the NYSE, and the company intends to take steps to become compliant.

"The company can regain compliance at any time within the six-month period following receipt of the NYSE notice if on the last trading day of any calendar month during the cure period the company has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month," according to NYSE rules.

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In addition, Container Store Group also faces a significant risk of defaulting on its financial obligations, according to data from Rapid Ratings.

"A Core Health Score of 30 suggests low levels of efficiency and a performance which is not sustainable over the long term," the website wrote.

"Within the Resilience Indicators, we see weakness, and at this Core Health level, these Resilience Indicators are critical in determining default risk. Companies with this combination of Core Health and Resilience have a troubling short- and medium-term outlook that will require a lot of work."

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While Rapid Ratings does make clear that the chain's position reflect some positives, its overall rating is bleak.

"Container Store Group Inc is situated in our High-Risk group, displays weakness in five of our seven performance categories, demonstrates significant underperformance in [return on capital employed], and was downgraded in the most recent period," Rapid Ratings said.

"If current trends persist it would be logical to expect that Container Store Group Inc. will face serious default risk this coming year and will struggle with efficiency and competitiveness problems over the medium-term; thus, the outlook is negative."

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