Q2 2022 Container Store Group Inc Earnings Call
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Greetings and welcome to the container store second quarter, 'twenty, 'twenty, one and functions call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Caitlin Churchill Investor Relations the container store.
Please go ahead Sir.
Good afternoon, everyone and thanks for joining us today for the container stores second quarter fiscal year 2022 earnings results conference call.
Today, our teach the ultra Chief Executive Officer, and Jeff Miller, Chief Financial Officer.
After cetacean, Jeff has made their formal remarks, we will open the call to questions.
Before we begin I would like to remind everyone that certain matters discussed in today's conference call are forward looking statements relating to future events management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.
Actual results results could differ materially from those anticipated in these forward looking statements.
The risk factors that may affect results are referred to in the container stores press release issued today and in our annual report on Form 10-K filed with the SEC on June 2nd 2022 as updated by our quarterly reports on Form 10-Q, and other public filings with the U S Securities and Exchange Commission.
The forward looking statements made today are as of the date of this call and the container store does not undertake any obligation to update the forward looking statements.
Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call a reconciliation schedule of the non-GAAP financial measures to the most directly comparable GAAP measure is also available in the container store's press release issued today.
A copy of today's press release, and Investor deck may be obtained by visiting the Investor Relations page of the website at Www Dot container store Dot com.
I will now turn the call over to Satish.
Thank you Caitlin and thank you all for joining our call today.
I'll first discuss the highlights of our fiscal Q2 performance and then update you on our strategic initiatives Jeff.
Jeff will then review our financial results in more detail and discuss our outlook.
For the second quarter, we delivered bottom line results above our expectations. Despite a shortfall in our sales performance.
We continue to navigate a challenging consumer environment as we have seen customers change their discretionary spending patterns.
We've also had a negative impact of 110 basis points and sales growth headwind from foreign exchange.
While consolidated net sales declined one 2% compared to the prior year, we delivered adjusted earnings per diluted share above our expectations at 27% compared to 54 cents in the prior year.
As discussed on our last earnings call, we expected the year over year earnings decline as we continued to absorb higher freight and commodity costs.
Restored expenses that were pulled back during the height of the pandemic and made investments to support our path to $2 billion in sales.
Our team did a phenomenal job at maintaining a strong cost discipline. Despite these headwinds and continue to execute with excellence.
It is encouraging to see the continued strong performance of our custom spaces business and initiatives. Despite the softness in our general merchandise categories.
We remain committed to our strategic initiatives to support our long term growth and 2 billion dollar revenue goal.
As reflected in our updated guidance, which Jeff will review in more detail. We expect many of the macro headwinds we faced in Q2 related to the continued inflationary pressures and rising interest rates 2%.
While we recognize the more promotional environment. We are in we have experimented without promotional cadence with varying success.
Our expectation is to continue to manage profitability and topline growth thoughtfully.
Additionally, we continue to remain disciplined on the cost front prudently managing and allocating expenses, while staying committed to our long term growth plans.
The near term external headwinds notwithstanding I'm very encourage by the continued strength we are seeing in our retail net promoter score of 78 for the quarter and the progress we continue to make against our key strategic priorities, which include expanding our reach.
Our capabilities and deepening our relationship with our customers.
We are as focused as ever on deepening our relationship with our customers in Q2, we wrapped up a successful back to college events to help our customers and their students get organized for the new school year.
As a reminder, we created a compelling college shop at the front of our stores and online partner with direct to consumer Brian Domo Fi to enhance our offering and we had campus ambassadors and key college market.
We're pleased with the results of this event and see an opportunity to add new products to our assortment next year. In addition to starting the event earlier.
Average daily sales to the event with double that of last year with an average ticket 33% higher than last year.
More than a third of our back to college customers were new to the container store and we enroll them and that loyalty program organize insider.
We see back to college as an opportunity to drive additional growth in the years ahead.
Turning to our loyalty program organized insider, where I'm pleased to be over 126000 customers tier up in Q2 progressing either one or two tiers.
As we continue to see a higher average ticket the loyalty members versus non loyalty members at 61%.
In Q3, we plan to me by our highest here experts to an exclusive online event hosted by professional organizer cast Austin to help our most valuable customers get their homes ready for the holidays.
Also in Q2, we refreshed our impulse products located near checkout with a selection of cleaning products many of which are non toxic and plant based and are not available at other large retailers.
Some of the brands include Labonte times now she too koala, he co and common good with products ranging from counter sprain hand, and dish soap and much much more.
We are also proud that several of the brands, we're carrying a female owned building.
Early results indicate strong customer interest in <unk>.
New offerings.
As you look to the remainder of the year, we are delighted with our curated holiday product and how the offering has been brought to life online and in stores.
The front of our stores will feature a kitchen spotlight showcasing solutions to help customers with their holiday prep.
Some key products will include a new private label pantry beans, and entertaining essentials for marrow, one occasion collection and bakeware essentials from Chicago metallic bakeware.
We will also have our holiday shop of high quality wrapped ribbon bags and tags in coordinating things.
And I'm excited to offer our customers an assortment that is 48% exclusive to the container store.
We also have an expansive assortment of gifts and stocking stuffers with over 130, new products. This year.
Also new this year customers can choose from a variety of ready to give gift that Boston themes from our stocking stuffer assortment.
Finally to encourage sales during this time paradigm customers will enjoy a limited edition reusable tote and holiday Red when they purchased $100 in gift wrap and or stocking stuffers.
With regards to expanding our reach we continued to see strength in custom spaces. This quarter with comp store sales performance up 7% compared to last year, which partially offset the pullback in general merchandise we saw during the quarter.
The customer response to our new premium what baseline Preston began to accelerate in the second quarter.
With Preston now offered in all stores. Our teams are fully certified in design and sales activities and we look forward to adding to our sales pipeline through our first ever Preston event earlier this month.
Introductory offer as part of our strategy to gain market share and spaces over $2000.
We are excited about the opportunities we see ahead for Preston and are investing to expand the product line with new wood grain and Superman finishes and luxurious decorating accident, including reclaimed leather glass countertops and Frameless mirror doors.
All of these product additions align with leading industry design trends.
Additionally, we recently participated in Kips Bay decorate a show house, Dallas in which we demonstrated the incredible capabilities of Preston.
In partnership with to accomplish designers, we brought two primary closet for life that featured glass front cabinet warm Leds in lighting used both vertically and horizontally and a floating credenza wrapped in coal crocodile recycled leather with push to open draws.
Space is received high accolades from the interior design community.
In addition to our focus on Preston.
Day, we launched new branding custom spaces, which moves our offering beyond closet naturally aligned with key areas of the home, including closet living and garage spaces.
Customers can learn more about constant spaces through a new section on our website or in the custom spaces studio in any of our stores.
Online. We also added chat capabilities that not only support customers, but also allow for enhanced lead integration with future sales opportunities.
We also continuing to invest in custom spaces through a new design tool and have added talent across the business and technology engineering and sourcing to name a few areas.
Lastly, we have also begun to pilot our own in home installation teams in both the Chicago and Dallas market inclusive of branded vehicles.
By bringing this service in house combined without Dallas pilot for in home organizing we will be able to deliver a comprehensive and unmatched customer experience comprised them organizing solutions have been spaces and in home services.
I believe we are well positioned to capitalize on the sizable growth opportunity ahead.
At the end of August we also kicked off our Elfa savings, but every space event, which concluded in mid October .
The event was a spend more save more offer available only to our loyalty members.
Our customer engagements with this event was only slightly down year over year, we noted that our customers purchased fewer spaces at a higher average space value reflective of the softening of customer traffic and spend as a result of inflationary pressures and rising interest rates.
Despite the current softness we remain focused on long term growth and on developing new and innovative premium elfa product that we plan to launch throughout next year. These offerings will span multiple spaces and we'll include elevated features.
Turning to our store expansion plans during the quarter, we opened our first smaller format store in Colorado Springs initial customer response has exceeded our sales productivity expectations in total and in particular for custom spaces.
We remain on track to open a store in Salem, New Hampshire. This winter and are excited to announce plans for the opening of our next location in thousand Oaks, California in early spring 2023.
As previously stated we plan to open 76 stores by the end of fiscal 'twenty seven.
We anticipate one third of these new stores to open by the end of fiscal 2024, and we have these locations targeting and active and our pipeline.
Lastly, we continue to make progress related to strengthening our capabilities we.
We are leveraging technology across the organization and it is elevating the customer experience of our multi channel customer.
As it relates to cut and spaces, we not only launched a new experience online, but also enhance the lead platform to better understand our customers Omni channel journey from lead to conversion.
We also began rolling out mobile point of sale in stores for express checkout and assisted selling to help our customers more efficiently find solutions will sign up for our loyalty program.
From three D views in our online custom spaces design tool to and include both of his experience and piloting an AI powered chatbot on our site and App. We believe our technology initiatives are enhancing the customer experience.
Looking ahead, we will remain focused on execution of our near and long term objectives.
We are mindful of the macro backdrop and the prospects of a recession how that we have spent the last few years paying down debt and fortifying our balance sheet and we entered this period from a position of financial strength.
Even as we tighten our spending and more closely manage our costs. We plan to continue to prudently invest in our strategic growth initiatives that support our path to $2 billion in revenue.
With that I'll now hand, it over to Jeff to discuss our results and outlook in more detail.
Jeff.
Thank you Cynthia and good afternoon, everyone.
Our strategic review, we are pleased to have delivered second quarter earnings above our expectations. Despite the shortfall in sales.
Holidayed net sales decreased one 2% year over year to $272 7 million.
By segment net sales for the container store retail business were $259 9 million.
0.2% increase compared to $259 4 million last year.
The increase is inclusive of a comp store sales decrease of 0.8% driven.
Driven by the four 6% decline in our general merchandise categories, which negatively impacted comp store sales by 310 basis points.
Performance in general Merchandize was partially offset by the increase in custom space sales, which were up seven 1% compared to fiscal 2021 and contributed 230 basis points to the comp store sales.
The sales from recently acquired closet works and new stores contributed the remaining 100 basis points to the 0.2% Tcs net sales growth year over year.
As a reminder, beginning in Q1, we changed our definition of custom spaces to exclude general merchandize, causing departments and only include results of our custom spaces product and service offerings.
This change was driven by the importance of custom spaces on our path to 2 billion and a desire to provide more transparency to the customer spaces product and service offerings.
Please refer to the Q2 2022 investor deck for revised quarterly information regarding the mix of custom spaces and general merchandize product categories based on the new definition.
For the second quarter fiscal 2022.
Online channel decreased 0.7% year over year, however, when including curbside pick up our website generated sales in Q2 increased five 4% compared to last year.
Website generated sales represented a total of 29% of Tcs net sales in Q2 of fiscal 2022 compared to 19, 9% in Q2 last year.
Unearned revenue decreased slightly to $22 1 million in Q2, this year versus $22 4 million last year.
Elfa third party net sales of $12 8 million decreased 22, 8% compared to the second quarter of fiscal 2021 primarily due to the negative impact of foreign currency translation.
Excluding the impact of foreign currency translation Elfa third party net sales decreased five 3% year over year, primarily due to stopping sales in the Russian market.
From a profitability standpoint, our consolidated gross margin for Q2 was 56, 6% compared to 59, 3% last year with the decrease driven primarily by commodity and freight increases.
By segment Tcs gross margin decreased 130 basis points compared to last year.
Due to more promotional discounting and freight costs, partially offset by favorable product and service mix.
Elfa gross margin decreased to.
26, 2% compared to 31, 8% last year, primarily due to higher direct material costs.
Consolidated SG&A dollars increased 4% to $118 7 million compared to $114 1 million in Q2 last year.
SG&A spend in Q2. This year includes a $2 6 million net benefit from a legal settlement.
As a percentage of sales SG&A increased approximately 220 basis points year over year to 43, 5%.
The increase is primarily due to the normalization of SG&A cost post pandemic combined with the deleverage of fixed costs associated with lower sales and partially offset by the legal settlement received in Q2.
Our net interest expense in the second quarter of fiscal 2022 increased 18, 7% year over year to $3 8 million due to higher interest rates.
The effective tax rate for the quarter was 25, 9% compared to 25, 7% in the second quarter last year the.
The increase in the effective tax rate is primarily related to the tax impact associated with share based compensation on lower pretax income in the second quarter of fiscal 2022.
Net income for the quarter on a GAAP basis was $15 7 million or 31 cents per diluted share as compared to a GAAP net income of $27 2 million or 54 cents per diluted share in the second quarter of last year.
Adjusted net income was $13 8 million or 27 cents per diluted share as compared to last year's adjusted net income of $27 2 million or 54 cents per diluted share.
Our adjusted EBITDA decreased 24, 8% to $35 9 million in the second quarter of this year compared to $47 7 million in Q2 last year.
Turning to our balance sheet, we ended the quarter with $19 8 million in cash $174 2 million and total debt and total liquidity, including availability on our revolving credit facilities of $123 2 million.
Our current leverage ratio is one one times, we ended the quarter with consolidated inventory up nine, 8%, which reflects increased freight and commodity costs across the business year over year.
On a unit basis, our Tcs on hand inventory is relatively flat year over year. However, we anticipate increasing unit levels in the second half of the fiscal year in advance of the previously mentioned new Elfa product offerings expected to launch next year as well as the increasing safety stock on key Skus.
To ensure a positive customer experiences.
Capital expenditures were $32 million in the first half of fiscal 2022 versus $14 6 million in the first half of last year with the increase related primarily to investments in technology.
And our stores.
Free cash flow in the first half of this year was a use of $5 3 million versus $7 9 million generated in the first half of last year.
As announced on our first quarter earnings call. Our board has approved a stock repurchase program, which includes an authorization for up to $30 million.
After the end of the second fiscal quarter, the company repurchased approximately 940000 shares for $5 million.
Under a rule <unk> one plan, we have 25 million remaining of the original 30 million dollar authorization for share repurchases.
Stock repurchases may be made in the open market or it could be negotiated purchases with the amount and timing determined at the company's discretion would you not expect to incur additional debt as a result of these stock repurchases.
Now for outlook.
For Q3 of fiscal 2022 we expect consolidated sales to be approximately $240 million to $250 million driven primarily by a comparable store sales decline of high single digits.
We expect earnings per share in the third quarter to be in the range of two cents to seven cents per diluted share.
The implied year over year operating margin decline is expected to be driven primarily by SG&A deleverage associated with fixed cost deleverage on lower sales.
While we have taken action to pull back on certain corporate expenses and have reallocated spend due to the current economic environment. We plan to continue prudently investing in our strategic efforts.
As the teach reviewed while profit dollar maximization as a priority we do expect some headwinds to Q3 gross margins associated with the more promotional environment.
And freight and commodity costs headwinds, while abating versus a year ago remained elevated compared to historical trends.
However, we do expect a favorable product mix to serve as a partial offset to these headwinds.
Interest expense for the third quarter is expected to be $4 4 million driven by higher rates and our effective tax rate is expected to be 30%.
Yeah.
Our third quarter outlook reflects the expectation that we will continue to navigate a challenging macro environment.
Given the economic uncertainty we are withdrawing our previously issued full year guidance that said, we believe our prudent scenario would reflect trends not dissimilar to our Q3 expectations for the remainder of the fiscal year.
In this scenario, where we continue to experienced comparable store sales declines of high single digits for the remainder of fiscal 'twenty 'twenty. Two we would expect to achieve operating margins in the mid single digits with a decline on a year over year basis, primarily result of SG&A deleverage in the back half of the year and to a lesser extent.
<unk> gross margin pressure.
Interest expense for the full fiscal year is now expected to be $15 9 million driven by higher interest rates and the effective tax rate for the year is expected to be approximately 27%.
Before I close I also want to reiterate our confidence in the plans and the ability to deliver on our longer term sales target of $2 billion while.
While the duration of the current macro headwinds may impact our originally contemplated timeline for achieving those goals. We are focused on the long term opportunity with a strong balance sheet in place and continued focus on operational disciplines. We believe we are well positioned to navigate the ongoing dynamic macro environment.
This concludes our prepared remarks, I'll now turn it over to the operator to begin the Q&A session.
Thank you.
At this time, we will be conducting a question and answer session.
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Read across to restrict to one question and one follow up.
One moment please poll for questions.
We have a first question from the line of Steven Forbes with Guggenheim Securities. Please go ahead.
Good evening, Jeff.
I wanted to start with the chain wide merchandising reset in the migration to here.
Spaces.
But curious if you can provide some high level commentary on how you see your customer today you are both a loyal one.
Non loyal one as you define them.
Yeah, how are they engaging with the Preston line.
You know how many basket do you sort of see that that engagement factor.
In <unk> as a percentage and any initial thoughts on and how you sort of king begin to contextualize the potential impact of.
This strategic shift to the business as a secular growth algo.
Hey, Steve. Thank you for the question, let me first say.
As I think about the current consumer sentiment that we're definitely navigating a challenging consumer environment, obviously with continued inflationary pressures and rising interest rates.
We see our customers continuing to engage and they are changing their discretionary spending patterns due to these external headwinds.
They are spending more but fewer items in some cases fewer spaces.
And they definitely more essential about their visits to us and hence the softness in our traffic.
<unk> said all that the.
Point to a few factors that we are very pleased with and speak a little bit more around custom spaces in general we.
We were delighted with the success, we had with add back to college event definitely shows they are able to engage with us when we have a compelling offering.
And we were able to attract.
More than a third.
Customers that were new to Tcs that was extremely encouraging to see that event.
We also saw great results without some other event as well where average space values continued to be over $6000 and that too with a slightly lower average discount in <unk>.
Finally, we are seeing great excitement and momentum around our Preston line.
So as I kind of look forward.
As I stated a couple of times.
We really believe we have an opportunity to win in custom spaces in particular over the 2000 dollar space.
Today, we do well under $2000, but it represents less than 15% of the $6 billion market.
Addressable market that's out there in terms of value and that's why we've been.
Consistently focusing our attention to more towards the more premium lines, whether it be a vera and Preston.
You saw that we delivered plus seven comp.
Store sales performance of a L. Y. We've also continued to invest in the number of in home design is that we have with.
We've now gone, we're actually over 100 and plan to get to 140 by Q3, we have certified our designers to make sure that they're very comfortable understanding and selling more of that premium lines. We've got a dedicated section now on our website.
And if you go check it out you'll see it's a.
<unk> re envisioned in terms of how we talk about custom spaces, including enabling an online chat we've completely elevated the in store expression as well with our new branding.
We are also excited about introducing new finishes that we are now focused on whether it's in wood grain or super Matt, adding decorative accents as well all things that our customers have told us that they're interested in and that we are able to provide for them and it was underscored by having just a really successful Kips Bay Dallas.
Event with the interior design community, so I really see great strength and success in our custom space business. It represents.
Represents around 35% of our sales today for Tcs and I believe that will continue to penetrate even more as we look to grow and get towards the $2 billion.
I'm also really pleased with the way that our new store opening up in Colorado Springs, which as you know, it's a smaller stores only 12000 square feet and while its got a much curated down assortment within general merchandise. It has an uncompromised expression of custom spaces in the productivity.
For both custom spaces and the store overall is doing incredibly well and that that bodes a lot of confidence as we look to open more of these small format stores in the way that we believe we can drive incremental growth and higher productivity out of our out of our stores as well.
That's super helpful and maybe just a quick follow up here for Jeff.
I don't know I don't think you guys updated the Capex guide for the year, but I'm not sure. If you can help us frame where.
And where are you sort of see current spending for 2022, and then as we look out here is that is that five to five 5% to 6% of sales the right target to still be thinking about as.
As we as we look out for the.
To that path to 2 billion.
Yes, Steve.
Yeah. We are we're still projecting capex for fiscal 2020 to be in that $60 million to $65 million range and as we talked about in our path to 2 billion financial model.
We we still have that is five and a half six 5% total sales as part of that.
Capex spend certainly the current environment.
Could impact the timing and duration of our path to $2 billion, but we think right now it's a little too early to rerun the numbers until we get a better understanding of how long the current environment is going to.
Take us so more to come on that but at the end of the day, we still feel really good about the specifics of <unk> strategic objectives and activities that we're doing to get get us to that path to 2 billion, whether its store growth.
The focus on custom spaces of cities, just outlined are focusing online and our and our <unk>.
And dark or.
Or organized insider program.
Just engaging the customer so I still feel really confident on that front and looking forward to continue to grow the business.
Thank you.
Thank you we have next question from the line of Ryan Meyers with Lake Street Capital markets. Please go ahead.
Hey, guys. Thanks for taking my question.
First one for me just kind of wondering if you can unpack some of the commentary that you gave surrounding that elevated ticket prices you know, there's a lot of those coming from higher price increases or you know how much are you seeing customers just spending more on higher ticket items, whether it's more customizable products or whatever it might be I think that'd be helpful to understand.
Hey, Ryan it's Jeff I can take that and you can add on if possible you know.
When you take a look at the different areas of the business from a general merchandise perspective average ticket is related to more pricing and promotional activity.
We're not necessarily seeing more units per transaction.
So more challenge on that front as we talk about customer a pullback on the space fraud.
And when you look at an average ticket while they average space value has gone up could be related to maybe a larger space could be related to pricing, but their purchasing less spaces. So from an overall average.
Does have quite a bit of headwind on that Brian .
Got it makes sense and then just second one for me.
Is there any strength that you guys want to call out across certain product categories, you know more specifically in the general market merchandise.
As consumers are maybe shifting their buying preferences a little bit.
Yeah, Hi, Ryan.
What we have seen some strengthening is within particular, Inc. Kitchen area in particular, when we have it focused on the spotlight is doing incredibly well.
Private label business continues to penetrate very well in particular with our.
Organisers that we have where it's called everything organized as a private label franchise that we have and that's doing exceptionally well as well.
You know and we typically see when new customers are coming and they gravitate towards the our kitchen department as they get to understand what the container store has to offer.
And then we see them graduate into storage and we get to see them into our Elfa are grabbing goes and eventually into our custom spaces. So we're obviously working on the consumer mapping of the journey to understand how best to move customers along.
As they enter us, but overall I would say exchanges is doing quite well for us.
Great. That's helpful. Thanks, guys.
Thank you.
Next question from the line of Chris Hovers with J P. Morgan. Please go ahead.
Thanks, Good evening, guys can you maybe talk about.
When he saw the consumer change in terms of cadence over the quarter or was it.
Was there a certain I don't know when it when did things start to change was there any you know regionalisation to that change and with the high single digit decline for the third quarter is that what you're seeing in October .
Yes, Chris This is Jeff listen you know as part of it.
The Q1 call you know we were actually seeing we based our guidance for Q2 based on the current quarter trends and so.
We had finished out the.
The month of July .
Pretty significant traffic declines and all the while comping on the general merchandise side, a customer favorites promotion period that we did not.
Produce in the current year.
Since August though we did.
We have seen traffic moderate back, although still down but not to the same levels that we saw in August .
But based on where we're seeing current traffic trends.
Through the end of September and into October .
We based our Q3 outlook and guidance based on what we're seeing in the current trend perspective.
Got it and then in terms of.
That's very helpful. And then in terms of the was there any region. You know was there any sort of regional change that was observable to you win.
As you think about general merchandise being weak obviously, its very promotional out there.
Home decor category across the board, but you know how her journey.
Other than regionally are you seeing anything in terms of the customers' willingness to take on some of these bigger ticket spending around.
Custom closet or an end customer space.
Yeah, you know, we didn't really see much of a difference in terms of the originality I will tell you that the customers that are committed to getting accustomed space done.
We are engaging and getting it done hence the success that we had with the avera event.
And that we had for the for the summer it did quite well for us again.
Customer spending.
Average spaces over $6000, and we're seeing great traction and acceleration without Preston line and actually affected today, we've introduced that with a promotion and we're hopeful about the way that that introduces this beautiful luxurious new line to our customers, which is very customized.
The bowl and complete a gamut in terms of pricing.
Essentially what I would tell you is that as I said earlier the customers a more intentional around their visits and their willingness to spend and then we are able to capitalize on that and hence the high NPS scores that we have with 78 and that's what we are continuing to work through yes, we've seen some softness in general much but we're pleased with it.
<unk> Hussain with custom spaces.
Okay.
Got it and then one last one last question just in terms of you know.
The SG&A that was the performance that you had in the us.
The second quarter or is that that rate should the right baseline to think about.
From you know as we think about just the seasonality of the business is the 100 twentyish the right number to build from going forward.
Well.
Given the fact, Chris that some of our SG&A is variable in nature, depending on the quarter it could fluctuate.
Yeah.
But you know when you when.
When you look at it from a Q3 perspective Q3 is our second lowest quarter.
Historically from a trend standpoint on the top line in Q4 is one of our stronger so I think from a cadence standpoint could fluctuate at or above the Q2 numbers.
Got it very helpful. Thanks.
Hey, Chris one other thing I forgot I should remind you.
Is that in Q2.
This year, we had $2 $6 million benefit from a legal settlement.
Right Okay.
Understood very clear thank you.
Thank you ladies and gentlemen, this concludes our question and answer session and I'd like to turn the call back over to Santos Malhotra CEO for closing remarks over to you Sir.
Great. Thank you once again for joining us today and for continuing to follow the container store's growth story.
Hope you have a great night.
Thank you.
Ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
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