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Container Store Overcomes Hurricanes as Growth Accelerates

2017 has been an interesting year for Container Store Group (NYSE: TCS). The retailer of organizational products started out the year on a down note, but has remained vigilant in its efforts to turn around its operations and find a path toward renewed growth. Even in a tough environment for retailers in general, Container Store has kept looking for opportunities to restore its former growth.

Coming into Tuesday's fiscal second-quarter financial report, Container Store investors wanted to see modest profits on solid gains in revenue. Even though the company faced some challenges due to storms during the period, its results were encouraging, and it boosted its guidance for the full year in anticipation of even better conditions ahead. Let's look more closely at how Container Store Group did and what lies ahead for the organizational retailer.

Image source: Container Store.

Container Store gives investors what they want

Container Store's fiscal second-quarter results were a dramatic improvement from recent quarters. Revenue jumped nearly 7% to $218.4 million, which was higher than what most investors were expecting from the retailer. Adjusted net income was up by nearly half from year-ago levels to $5.5 million, and that produced adjusted earnings of $0.12 per share, easily topping the consensus forecast for $0.05 per share.

Container Store's fundamental metrics looked stronger. Retail sales were also up 7% even though the company saw a $1.4 million negative top-line impact from hurricanes Harvey and Irma. Comparable-store sales were up 1.9% even taking into consideration the hurricanes, which cut growth in comps by about seven-tenths of a percentage point. Gross margin was up slightly from year-earlier figures, although increases in spending on overhead costs and interest expense weighed on profit margin numbers. Third-party sales of Elfa products were up about 1% in U.S. dollar terms, benefiting from strength in foreign currencies that overcame sluggish sales in Nordic markets.

CEO Melissa Reiff was proud of how well the company did despite facing headwinds. "The improvement in our business was broad-based across product categories," Reiff said, "and reflects the traction of our sales revitalization initiatives which, in combination with our efficiency and optimization efforts, are already driving an encouraging improvement in profitability." She also noted that the good results came despite temporary store closings in roughly 12% of its store base during the quarter.

Can Container Store keep improving?

Container Store expects the good times to continue. In Reiff's words, "We are encouraged by the progress we are making toward our strategic priorities across merchandising, marketing, store operations, and customer experience, as well as our optimization initiatives." The company was also optimistic about how the second half of the fiscal year should turn out.

In particular, Container Store boosted its full-year guidance. The organizational retailer now believes that revenue will be in a range of $845 million to $865 million, up by $15 million from its previous projections. Net income should be between $0.30 and $0.41 per share on an adjusted basis, which was up from a previous range of $0.27 to $0.40 per share. Comps are also likely to do better, with a new range of minus 1% to 1% looking a lot more favorable than the low single-digit percentage decrease that Container Store had expected three months ago.

Container Store investors were ecstatic about the results and upbeat guidance, and the stock soared 20% in after-hours trading following the announcement. Shareholders have had to wait a long time for a turnaround to take shape, but now that things are starting to look more favorable, they hope that Container Store can follow through on its new opportunities and deliver the fundamental growth that made the company so attractive early in its history.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of The Container Store Group. The Motley Fool has a disclosure policy.