Q3 2024 The Container Store Group Inc Earnings Call
Speaker Change: [music].
Greetings and welcome to the container store third quarter 2023 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Operator: Greetings and welcome to the Container Store 3rd Quarter 2023. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation, if anyone should require operator assistance.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Operator: Express Stars, As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Caitlin Churchill, Investor. Thank you, Caitlin.
As a reminder, this conference is being recorded it is now my pleasure to introduce your host Caitlin Churchill Investor Relations. Thank you Caitlin you may begin.
Caitlin Churchill: Good afternoon, everyone and thanks for joining us today for the container stores third quarter fiscal year 2023 earnings results Conference call.
Caitlin Churchill: Good afternoon, everyone, and thanks for joining us today for the Container Store's 3rd Quarter Fiscal Year 2023 Earnings Results Conference Call. Speaking today are Satish Malhotra, Chief Executive Officer, and Jeff Miller, Chief Financial Officer. After Satish and Jeff have 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 plans and objectives for the business, and the future financial performance of the company, which are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these four looking states.
Caitlin Churchill: Speaking today are pretty small truck, Chief Executive Officer, and Jeff Miller, Chief Financial Officer.
Speaker Change: After institution jobs have made their formal remarks, we will open the call to questions.
Speaker Change: Before we begin I would like to remind everyone that certain matters discussed in todays conference call are forward looking statements relating to future events.
Speaker Change: Its plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.
Speaker Change: Actual results could differ materially from those anticipated in this fall.
Caitlin Churchill: The risk factors that may affect results are referred to in the Container Store's press release issued today and in our annual report on Form 10-K filed with the SEC on May 26, 2023, as updated by our quarterly report 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 statement. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures during this call.
Speaker Change: The risk factors that may affect the salt I referred to in the container stores press release issued today and in our annual report on Form 10-K filed with the FCC on May 26 2023.
Speaker Change: Updated by our quarterly reports on Form 10-Q, and other public filings with the U S Securities and Exchange Commission.
Speaker Change: The forward looking statements made today are the date of this call and the container store does not undertake any obligation to update the forward looking statements.
Speaker Change: 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 most directly comparable GAAP measure is also available on the P. King stores press release issued today.
Caitlin Churchill: A reconciliation schedule of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in the Container Store's press release issued today. A copy of today's press release and investor information may be obtained by visiting the investor relations page of the website at www.containerstore.com. I will now turn the call over to Satish.
Copy of today's press release, and Investor deck, maybe obtained by visiting the Investor Relations page of the website at Www Dot container store Dot com.
Speaker Change: I will now turn the call over to teach to teach.
Satish Malhotra: Thank you, Caitlin, and thank you all for joining our call today. I'll begin today's discussion by reviewing highlights from our third quarter performance, followed by a review of our key areas of growth. Jeff will then share the details of our third quarter financial results, followed by our outlook, and will then open up the call to questions. As we discussed in our announcement last month, our third quarter sales results fell short of our original expectations. We delivered a year-over-year consolidated sales decline of 14.8%, largely driven by ongoing challenges in our core general election ads category.
Teach: And thank you all for joining our call today.
Teach: I'll begin today's discussion by reviewing highlights from our third critical problem.
Teach: With you of action.
Teach: Jeff will then share the details about third quarter financial results followed by our outlook.
Jeffrey A. Miller: And then open up the call to your questions.
Jeffrey A. Miller: As we discussed you know that's what last month.
Jeffrey A. Miller: The shops themselves.
Jeffrey A. Miller: What about original expectation.
We delivered a year over year consolidated sales decline.
Jeffrey A. Miller: Fortunately and per se.
Jeffrey A. Miller: Largely driven by ongoing challenges and I'll call general merchandise categories.
Jeffrey A. Miller: Despite these dynamics, we maintained a strong discipline with respect to our promotional strategy and expense management.
Satish Malhotra: Despite these dynamics, we maintained strong discipline with respect to our promotional strategies and expense management to deliver adjusted loss per share, which was within our original range of expectations. Furthermore, we were encouraged by the sequential improvement in year-over-year competitive sales performance of custom spaces in the second quarter. While the current macroeconomic environment still remains challenging, our teams are focused on executing against our strategic initiative, leaning into the areas of the business that are delivering results, positioning ourselves to maximize the potential for longer-term growth, particularly in custom spaces. For the third quarter, despite experiencing declines in our co-general merchandise category, we did see a positive reception to the introduction of new products to our assortment, which failed more than double against our expectations for these new In particular, our new premium products continue to sell very well.
Jeffrey A. Miller: Adjusted loss per share.
Jeffrey A. Miller: Which was within our original range of expectation.
Jeffrey A. Miller: Furthermore, we were encouraged by the sequential improvement in year over year comparable sales decline of customers face when you go into the second quarter.
Jeffrey A. Miller: While the college macro economic environment still remains challenging our teams are focused on executing against our strategic initiatives.
Jeffrey A. Miller: Each of the areas of the business that argument.
Jeffrey A. Miller: And so just getting ourselves to maximize the potential for longer term.
Jeffrey A. Miller: Particularly with custom spaces.
Jeffrey A. Miller: For the third quarter, despite experiencing declines in I call General merchandise category, we did see a positive reception to the introduction of new products to our assortment.
Jeffrey A. Miller: It sounds more than doubling against all expectations for these new products.
Jeffrey A. Miller: In particular, our new premium products continue to do very well.
Satish Malhotra: Our analysis has shown that customers purchasing new premium products are returning more frequently and have a higher average ticket compared to customers who do not purchase these new products. Additionally, our discovery categories are also performing strongly, with on-the-go travel solutions and home fragrances achieving double-digit growth and comparable sales relative to the third quarter of last year. Likewise, our premium custom spacers have also maintained robust performance with sales experiencing only a slight decline compared to last year, thus outpacing the overall performance of custom spacers. And with that, we're pleased with the performance of our value-oriented alpha, which celebrated its 75th anniversary with a special event that ended in the third quarter.
Jeffrey A. Miller: Our analysis shows that customers purchasing new premium product are retaining most people.
The higher average ticket compared to customer, which you do not get caught up.
Jeffrey A. Miller: Additionally, our discovery.
Jeffrey A. Miller: Also performing strongly with.
Jeffrey A. Miller: On the go travel solutions and home fragrance.
Jeffrey A. Miller: Achieving double digit growth.
Jeffrey A. Miller: Comparable sales relative to the third quarter of last year.
Jeffrey A. Miller: Likewise, our premium customer base.
Jeffrey A. Miller: It has also maintained robust performance.
Jeffrey A. Miller: That was experiencing only a slight decline compared to last year.
Jeffrey A. Miller: Our P C.
Jeffrey A. Miller: Performance of coffee.
Jeffrey A. Miller: And you said that we were pleased with the performance of our value oriented alphabet, which celebrated its <unk> anniversary with a special event that ended in the third quarter.
Satish Malhotra: The event's sale performance met our expectations, with notable sales being achieved towards the end of the event, as customers responded to the sense of urgency messaging that was conveyed in our marketing communication. Looking ahead to Q4, in addition to January's abnormal weather impact, we anticipate continued challenges to our core general merchandise category, similar to what we experienced in the prior quarter. As a reminder, Custom Spaces is expected to have a tougher sequential comparison, as mentioned in our prior call, due to the additional promotional event this year to celebrate Alpha's 75th anniversary. We also expect softer Alpha product-related sales during the planned non-promotional time period in the fourth quarter. In response to our top-line performance, we remain committed to exercising strong discipline with both our promotional strategy and expense management. Furthermore, we look to action additional areas of optimization and include petition. As we look forward to fiscal 2024, we believe the need for the container store has never been greater. Over half of Americans are overwhelmed by the amount of information they have, and the vast majority have no idea what to do about it.
Jeffrey A. Miller: The events tail performance met our expectations with notable sales being achieved towards the end customer.
Jeffrey A. Miller: Customers responded to the sense of urgency messaging that was conveyed in that Mark mentioned indications.
Jeffrey A. Miller: Looking ahead to Q4 in addition to abnormal weather impact.
Jeffrey A. Miller: Despite continued challenging July called general merchandise category.
Jeffrey A. Miller: That's what we experienced in the prior quarters.
Jeffrey A. Miller: As a reminder, custom spaces is expected to have a tougher sequential comparison as mentioned on our call due to the additional promotional a day this year to celebrate alpha 76 and industry.
Jeffrey A. Miller: We also expect suffer softer also product related catalysts during the call non promotional time too in the fourth quarter.
Jeffrey A. Miller: In response to our top line performance, we remain committed to exercising strong discipline in both our promotional strategy and expense management.
At the mall, we looked at additional areas of optimization and Patricia.
Jeffrey A. Miller: As we look forward to fiscal 2024, we believe the need for the container store has never been paid it.
Jeffrey A. Miller: The Americans are overwhelmed by the amount of data and the vast majority have no idea what to do about it.
Satish Malhotra: Many resort to renting outside storage or find themselves unable to use the garages for parking due to the poor utilization of space in their homes. They need our help to reclaim not only their space but also their time, their money, and their lives. That's the journey we've been on these past few years and the purpose we have been living out. To help our customers transform their lives through the power of organization. While we are uniquely positioned with our comprehensive solution and services, we recognize the need to increase awareness about what we offer. This includes leveraging accolades such as the recent Recognition by Time, which named Alpha and Princeton as top picks within several of their Best Closet System categories, and tuning to the Key Growth Areas of Custom Spaces and General Electronics we'll be focused on in Fiscal 2024.
Jeffrey A. Miller: Many resorts.
Jeffrey A. Miller: Banking outside storage will find themselves unable to use the garages with hockey due to the poor utilization of space in their home.
They need our help.
Jeffrey A. Miller: So your claim not only their space at the time and money and their lives.
Jeffrey A. Miller: That's the journey, we get all these past few years.
Jeffrey A. Miller: We have been looking out to help our customers transform their lives and the power of organization.
Jeffrey A. Miller: While we are uniquely positioned with our comprehensive solutions and services.
Jeffrey A. Miller: Recognize the need to increase awareness about what we offer.
Jeffrey A. Miller: This includes leveraging accolades such as the recent recognition by time, which named Alpha and Preston.
Jeffrey A. Miller: Within several of the basketball category.
Jeffrey A. Miller: Turning to the key growth areas of parking spaces in general merchandise will be focused on in fiscal 2024.
Jeffrey A. Miller: Mark Hawkins placements has traditionally accounted for approximately 40%.
Satish Malhotra: While Custom Spaces has traditionally accounted for approximately 40% of our sales, given current sales trends and identified opportunities, we believe we can grow this penetration to approximately 60% of sales over time. We aim to fuel custom spaces growth in three distinct ways.
Current sales trend and identified opportunities. We believe we can grow this penetration to approximately 60% of sales over time.
We aimed to fuel customer spaces growth in three distinct ways.
Jeffrey A. Miller: So our expanded assortment.
Satish Malhotra: As we have discussed before, we are continuing to drive innovation and newness within our custom spaces line. We have recently expanded our garage offering with GarageBus by Alpha, which self-launched in late November. We're seeing the new features and functionality like enclosed wall and rolling cabinet, lighting, full extension drawers, and heavy duty workbench already resonate incredibly well with our customers, and look forward to officially launching them this spring. Later this calendar year, we also plan to launch a significant overhaul of our Alpha Decor line that will elevate its positioning in the market. Our Preston line is also expected to grow in its offering, just as we did earlier this fiscal year with more premium options like leather door fronts, matte finishing, and enhanced lighting. We're excited to be working on adding a fully-concealed hardware option for customers, which we expect to be a material differentiator in the market.
Jeffrey A. Miller: As we have discussed before we are continuing to drive innovation and newness within Oxford.
Jeffrey A. Miller: Hi.
Jeffrey A. Miller: We have recently expanded our garage offering with us also.
Jeffrey A. Miller: <unk>, which soft launched in late November.
Jeffrey A. Miller: We have seen the new features and functionality like enclosed mall in loan Covenant Lites. Some extension grows and heavy duty walk walk bench already resonates incredibly well with our customers and look for efficiently launching in the spring.
Jeffrey A. Miller: Later this calendar year, we also plan to launch a significant overhaul of our Elfa decor online.
Jeffrey A. Miller: Elevate your positioning in the marketplace.
Jeffrey A. Miller: I'll pass the line is also expected to grow and it's often just as we had done earlier this fiscal year with more premium options like leather dolphin matte finishes and handheld sliding.
Jeffrey A. Miller: We're excited to be working on adding they fully keep fields.
Hardware cheaper question.
Jeffrey A. Miller: Which we expect to be a material differentiator in the marketplace.
Satish Malhotra: Secondly, we plan to grow our custom space business through our specialists, whether they be in-store designers supporting alpha or in-home designers supporting our more premium line. Today, we have almost 140 highly trained in-home designers focused on selling premium spaces, and they continue to perfect their selling strategies, speed of design, and their design capabilities. In the third quarter, 92% of premium space sales were driven by our in-home designers.
Jeffrey A. Miller: Uh-huh plan to grow our customer base business to our specialists, whether they be in Saudi diner supporting Alpha.
Jeffrey A. Miller: In home design, it supporting them walking in line.
Jeffrey A. Miller: Today, we have almost 140 highly trained and hung do bank focused on selling premium spaces and they continue to affect the southern strategy speed of design and their design capability.
Jeffrey A. Miller: In the third quarter, 92% of premium space sales were driven by our in home design it.
Satish Malhotra: We plan to increase our number of in-home designers and are working diligently to significantly improve our pressing design-to-sold conversion rate, which is currently about two-thirds of what we experienced with our premium Averiline. When combined with the total investment market opportunity, this provides us with a long runway of growth. Potential Sharegoers Within Custom Spaces Finally, we anticipate Customs Basin's growth to come from increased awareness.
Jeffrey A. Miller: We plan to increase our number of $800 and are working diligently to significantly improve our pricing designed to solid conversion rate, which is currently about two thirds of what we expect without premium apparel line.
Jeffrey A. Miller: When combined with the total addressable market opportunity. This provides us a long runway of growth.
Jeffrey A. Miller: Actual share gains within custom spaces.
Jeffrey A. Miller: Finally, we anticipate hockey cases growth should come from increased awareness.
Satish Malhotra: Many customers today are either not aware that we offer custom spaces or have yet to engage in this category. We aim to change that by being far more intentional and leveraging data to drive our marketing strategy. For example, through a recent analysis, we reaffirmed that the majority of customers who have purchased Preston and Alpha spaces heavily shopped our kitchen and closet general merchandise categories first.
Jeffrey A. Miller: Many customers today are either not aware that we asked the question Stacy or have yet to engage in this category.
Jeffrey A. Miller: We aim to change that by being far more intentional and leveraging data to drive marketing strategy.
Jeffrey A. Miller: For example, we sit analysis, we reaffirmed it.
Jeffrey A. Miller: The majority of customers, who had purchased Preston and Elfa spaces heavily shopped, our kitchen and closet general merchandise categories first.
Jeffrey A. Miller: Leveraging insights like these will help us make molten chocolate decision as we attract new customers launch them on their customer journey.
Satish Malhotra: Leveraging insights like these will help us make more impactful decisions as we attract new customers and launch them on their custom space journey. Furthermore, our marketing efforts will aim to take a more integrated approach, demonstrating our ability to facilitate life-changing transformations for our customers through space optimization, curated finishing products, and vital organizational advice. This approach aims to not only allow customers to achieve their transformational aspirations but also ensures that their newly found achievements are maintained over time, as we intensify our focus on customers based... Our merchandising team is hyper-focused on refining and rebuilding our general merchandise assortment to complement our casting spaces offering for a complete solution. With respect to general merchandise growth, we also plan for it to come from three distinct areas. Trust through our expanded premium. As we've shared, we are pleased with the reception of our new premier general, Murchina, and see an opportunity to grow this ushering with an improved margin process. This includes high quality auditing bins and baskets to accompany a Preston closet and glass, crystal glass, and barware to complete a Preston.
Jeffrey A. Miller: Furthermore, our marketing assets will aim to take a more integrated approach.
Jeffrey A. Miller: Straining our ability to facilitate life changing transformation for our customers.
Jeffrey A. Miller: Through space optimization curated finishing products.
Jeffrey A. Miller: And by the organizational box.
Jeffrey A. Miller: This approach and so not only with our customers to achieve their transformation aspirations, but also ensure that their new found achievements are maintained at the time.
Jeffrey A. Miller: As we intensify our focus on cutting spaces, our merchandising team is hyper focused on it.
Jeffrey A. Miller: Finding and rebuilding our general merchandise assortment to complement.
Jeffrey A. Miller: Customer spaces offering for a complete solution.
Jeffrey A. Miller: With respect to general merchandise growth Nielsen plans for it to come from three distinct areas.
Jeffrey A. Miller: So absent minded premium assortment.
Jeffrey A. Miller: As we shared we are pleased with the reception of our new cleaner general merchandise.
Jeffrey A. Miller: See an opportunity to grow this offering with an improved margin calls.
Jeffrey A. Miller: This includes high quality audits and baskets to company at Preston closet.
Jeffrey A. Miller: Class Crystal glass and <unk> complete across the country.
Satish Malhotra: Offering premium general merchandise to complete our premium custom spaces is essential to serve the needs of our customers and offers them a solid solution under one roof. Next, we plan to grow our exclusive private label through our new sourcing capabilities that we brought in-house last year. Our Growing Everything Organizer Collection is a great example of an exclusive, value-oriented offering that can work in any space and complement our offer solution. The healthy margins private label products provide, and the opportunity to develop products that seamlessly integrate with our customers' faiths make this area crucial to our general merchandise growth.
Jeffrey A. Miller: I think premium general merchandise to complete a premium customer statement is essential to serve the needs of our customers and also has been a strong submission under one roof.
Jeffrey A. Miller: Next we plan to borrow absolutely naval business throw out a new sourcing capability that we brought in house last year.
Jeffrey A. Miller: I'm throwing everything organize the collection is a great example of an exclusive value oriented offering that's working in the space.
Jeffrey A. Miller: Thompson.
Jeffrey A. Miller: Its mission.
Jeffrey A. Miller: The healthy margin private label products provide and the opportunity to develop products that seamlessly integrate without talking safety make this area crucial <unk> general merchandise growth.
Satish Malhotra: Currently, 40% of our general merchandise is sold on this private label, and we see an opportunity to increase it further over time. Lastly, we believe we can achieve growth in general merchandise through our Discovery Academy, a company that I call Russia. Discovery categories like home fragrances and on-the-go travel solutions continue to turn positive, presenting us with significant opportunities in the area. Before I close...
Jeffrey A. Miller: Currently 40% of our journey merchandising something just private label.
Jeffrey A. Miller: Opportunity to introduce it further over time.
Jeffrey A. Miller: Lastly, we believe we can achieve growth in general merchandise category.
Jeffrey A. Miller: Chad.
Speaker Change: Nick I call Russia.
Speaker Change: Discovery categories like fragrance and under.
Speaker Change: Travel solution continued to trend positively presenting us with significant opportunity.
Speaker Change: Before I close.
Satish Malhotra: I want to touch on our updated outlook for the remainder of the year and our disciplined focus on capital allocation. With respect to store openings, we're on track to end fiscal 2023 with five new locations and recently celebrated our 100th store opening in Pinceton, New Jersey. We continue to see high penetration in customer spaces and high customer satisfaction in our small format stores, with an average net promoter score of 81 in Q2.
Speaker Change: I want to touch on our updated outlook for the remainder of the year.
Speaker Change: And our disciplined focus on capital allocation.
Speaker Change: With respect to new store openings, we are on track to end fiscal 2023 with five new location and recently celebrated our 100th store opening in Princeton New Jersey.
Speaker Change: We continue to see high penetration and Hudson's Bay and high touch.
Speaker Change: And the satisfaction and that small format stores with an average net promoter score of 81 in Q2.
Speaker Change: Without the fiscal 2024.
Satish Malhotra: In regards to fiscal 2024, we plan to open four new Delta Suite locations, which, as a reminder, require far less capital output. We also plan to relocate our San Francisco store in late June, and we have made the decision to close our store in Los Angeles due to the atomic bomb. We closely monitored the profitability of our stores and decided it was not in the company's best interest to renew the lease when it ends in August of 2024 due to a significant rent increase. Furthermore, given the current environment, we are not committing to the timing of future store growth beyond 2021, while we continue to seize significant opportunities to expand our national program. It will be done in conjunction with our goal of sustained positive compassion. Despite the current macroeconomic difficulties and your within our core general merchandise category, we remain optimistic about the growth opportunities we have identified. Our belief in the transformative power of organization, coupled with the demand for it, and our unique solution-oriented offerings fuels our company. Narrowing this focus with the passion and the strength of our team lays a solid foundation for enduring success. Now, I'll turn the call over to Jeff. Yeah. Thank you, Satish, and good afternoon, everyone.
Speaker Change: To open four new built to suit locations, which as a reminder require far less capital.
Speaker Change: We also plan to relocate that San Francisco store in late June.
We have made the strategic decision to close a store in Los Angeles market.
Speaker Change: We closely monitor the profitability of our stores and decided it was not and the Companys best interest to renew the lease when it ends in August of 2024 due to a significant increase.
Speaker Change: Furthermore, given the current environment, we have not committed to the timing of future store growth beyond 2024.
Speaker Change: While we continue to see significant opportunities to expand our national pricing.
Speaker Change: It will be done in conjunction with alcohol.
Positive free cash flow.
Speaker Change: Despite the current macro economic difficulty and the obstacles in childhood, but they're now called general merchandise category.
Speaker Change: And I'm optimistic about the growth opportunities we have identified.
Speaker Change: Our belief in the transformative power of organization.
Speaker Change: The demand for it.
Speaker Change: And our unique solution oriented offerings fuels our confidence.
Speaker Change: Narrowing their focus with the passion and the strength of that team.
Speaker Change: With a solid foundation filling drilling success.
Speaker Change: And now I'll turn the call over to Jeff.
Speaker Change: Jeff.
Jeffrey A. Miller: Thank you <unk> and good afternoon, everyone.
Jeffrey A. Miller: As Satish reviewed, while we continue to face similar challenges to our top line that we experienced in the second quarter, particularly within our core general merchandise category, we were able to deliver earnings results in line with our original guidance range through discipline, promotional activity, and tight expense management in the third quarter. Consolidated net sales decreased 14.8% year-over-year to $214.9 million.
Jeffrey A. Miller: Our strategic reviewed while we continued to face similar challenges to our topline we experienced in the second quarter.
Jeffrey A. Miller: Typically within our general core general merchandise categories, where we're.
Jeffrey A. Miller: Able to go global earnings results in line with our original guidance range through disciplined promotional activity and tight expense management.
Jeffrey A. Miller: For the third quarter.
Jeffrey A. Miller: Consolidated net sales decreased 14, 8% year over year to $214 9 million.
Jeffrey A. Miller: By segment net sales for the container store retail business were $202 5 million.
Jeffrey A. Miller: By segment, net sales for the container store retail business were $202.5 million, a 15.4% decrease compared to $239.3 million last year. The decrease is inclusive of a comp store sales decrease of 16.8%, driven primarily by the 20.4% decline in our general merchandise categories, which negatively impacted comp store sales by 1,380 basis. Custom Space comp store sales declined 9.2% compared to last year and negatively impacted comp store sales by 300 basis. Sales from new stores benefited total TCS net sales by 130 basis. For the third quarter of fiscal 2023, our online channel decreased 26.3% year over year, and our website generated sales, which includes curbside pickup, decreased 15.6% compared to last year. Website generated sales represented a total of 21.8% of TCS net sales in Q3, which is consistent with Q3 last year. Unearned revenue decreased to $17.5 million in Q3 this year versus $18.8 million last year, which is reflective of the decline in overall sales.
Jeffrey A. Miller: $15 four decrease compared to $239 3 million last year.
Jeffrey A. Miller: The decrease is inclusive of our comp store sales decrease of 16, 8%.
Jeffrey A. Miller: Driven primarily by the 24% decline in our general merchandise categories, which negatively impacted comp store sales by 13 180 basis points.
Jeffrey A. Miller: Boston space comp store sales declined nine 2% compared to last year and negatively impacted comp store sales by 300 basis points.
From new stores benefited total Tcs net sales by 130 basis points.
Jeffrey A. Miller: For the third quarter of fiscal 2023.
Jeffrey A. Miller: Our online channel decreased 26, 3% year over year.
Jeffrey A. Miller: Website generated sales, which includes curbside pickup decreased 15, 6% compared to last year.
Jeffrey A. Miller: Website generated sales represented a total of 21, 8% of Tcs net sales in Q3, which is consistent with Q3 last year.
Jeffrey A. Miller: Unearned revenue decreased to $17 5 million in Q3, this year versus $18 8 million last year, which is reflective of the decline in overall sales.
Jeffrey A. Miller: Elfa third party net sales of $12 4 million decreased four 2% compared to the third quarter of fiscal 2020 to.
Jeffrey A. Miller: Alpha third-party net sales of $12.4 million decreased 4.2% compared to the third quarter of fiscal 2022. Excluding the impact of foreign currency translation, Alpha third-party net sales decreased 4.9% year-over-year, primarily due to a decline in sales in Nordic markets. From a profitability standpoint, our consolidated gross margin for Q3 increased 140 basis points to 58.3% compared to 56.9% last year. The 140 basis point increase in gross margin was primarily driven by a higher mix of custom space sales this year. By segment, TCS gross margin increased 40 basis points compared to last year, primarily due to freight tailwinds, which were partially offset by product and service mixed headwinds driven by general merchandise, as well as the expected impact from the incremental promotional activity in Q3 of this year. Alpha Gross Margin decreased 170 basis points compared to last year, primarily due to unfavorable mix, partially offset by price increases to customers. Consolidated SG&A dollars decreased $9.7 million, or 8%, to $111.8 million compared to $121.5 million in Q3 last year, which reflects the impact of cost management actions taken in the first quarter.
Jeffrey A. Miller: Excluding the impact of foreign currency translation Elfa third party net sales decreased four 9% year over year, primarily due to a decline in sales can Nordic markets.
Jeffrey A. Miller: From a profitability standpoint.
Jeffrey A. Miller: Our consolidated gross margin for Q3 increased to 140 basis points to 58, 3% compared to 56, 9% last year.
Jeffrey A. Miller: The 140 basis point increase in gross margin was primarily driven by a higher mix of custom space sales this year.
Jeffrey A. Miller: By segment Tcs gross margin increased 40 basis points compared to last year, primarily due to freight tailwind, which were partially offset by product and service mix headwinds driven by general merchandise as well as the expected impact from the incremental promotional activity in Q3.
Jeffrey A. Miller: And this year.
Jeffrey A. Miller: Elfa gross margin decreased 170 basis points compared to last year, primarily due to unfavorable mix, partially offset by price increases to customers.
Jeffrey A. Miller: Consolidated SG&A dollars decreased $9 7 million or 8% to $111 8 million compared to $121 5 million in Q3 last year.
Jeffrey A. Miller: It reflects the impact of cost management actions taken in the first quarter.
Jeffrey A. Miller: As a percentage of net sales, SG&A increased 380 basis points year-over-year to 52%. The increase is primarily due to deleverage of fixed costs associated with lower sales in the third quarter of fiscal 2023. Our net interest expense in the third quarter of fiscal 2023 increased to $5.2 million compared to $4.4 million last year. The year-over-year increase is primarily due to higher year-over-year interest rates on our term loan and, to a lesser extent, higher average borrowings on our revolver during Q3. The effective tax rate for the quarter was negative 34.5 percent, compared to positive 33.8% in the third quarter last year.
Jeffrey A. Miller: As a percentage of net sales SG&A increased 380 basis points year over year to 52%.
Jeffrey A. Miller: The increase is primarily due to deleverage of fixed costs associated with lower sales in the third quarter.
Jeffrey A. Miller: For 2023.
Jeffrey A. Miller: Our net interest expense in the third quarter of fiscal 2023 increased to $5 2 million compared to $4 4 million last year.
Jeffrey A. Miller: The year over year increase was primarily due to higher year over year interest rates on our term loan and to a lesser extent higher average borrowings on our revolver during Q3.
Jeffrey A. Miller: The effective tax rate for the quarter was negative 34, 5%.
Jeffrey A. Miller: Compared to a positive 33, 8% in the third quarter last year.
Jeffrey A. Miller: The decrease in the effective tax rate was primarily related to the impact of discrete items related to share-based compensation on a pre-tax loss in the third quarter of fiscal 2023 as compared to pre-tax income in the third quarter of fiscal 2022. The net loss for the quarter on a gap basis was $6.4 million, or $0.13 per share, as compared to a gap net income of $4.2 million, or $0.08 per diluted share, in the third quarter of last year. The adjusted net loss was $4.1 million, or $0.08 per share, as compared to last year's adjusted net income of $4.1 million, or $0.08 per deleted share. Our adjusted EBITDA decreased to $12.8 million in the third quarter this year, compared to $22.2 million in Q3 last year.
Jeffrey A. Miller: The decrease in the effective tax rate was primarily related to the impact of discrete items related to share based compensation on a pre tax loss in the third quarter of fiscal 2023 as compared to pretax income in the third quarter of fiscal 2022.
Net loss for the quarter on a GAAP basis was $6 4 million or 13 cents per share as compared to a GAAP net income of $4 2 million or eight cents per diluted share in the third quarter of last year.
Jeffrey A. Miller: Adjusted net loss was $4 1 million or eight cents per share as compared to last year's adjusted net income of $4 1 million or <unk> <unk> per diluted share.
Jeffrey A. Miller: Our adjusted EBITDA decreased to $12 8 million in the third quarter of this year compared to $22 2 million in Q3 last year.
Jeffrey A. Miller: Turning to our balance sheet, we ended the quarter with $16 million in cash, $184.7 million in total debt, and total liquidity, including availability on our evolving credit facilities of $99.6 million. Our current leverage ratio is 2.8 times. We ended the quarter with consolidated inventory down 14.3% compared to the third quarter last year. The decline reflects a concerted effort to tightly manage inventory in the current environment and is primarily the result of lower freight costs and fewer inventory units year over year. At TCS, on a unit basis, on-hand inventory was down approximately 15% year over year, driven by general merchandise.
Jeffrey A. Miller: Turning to our balance sheet, we ended the quarter with $16 million in cash $184 7 million and total debt and total liquidity, including availability on our revolving credit facilities of $99 6 million.
Jeffrey A. Miller: Current leverage ratio is two eight times.
Jeffrey A. Miller: We ended the quarter with consolidated inventory down 14, 3% compared to the third quarter last year.
Jeffrey A. Miller: The decline reflects a concerted effort to tightly manage inventory in the current environment and is primarily the result of lower freight costs and pure inventory units year over year.
Jeffrey A. Miller: Tcs on a unit basis on hand inventory was down approximately 15% year over year driven by general merchandise.
Jeffrey A. Miller: Capital expenditures were $33 4 million in the first nine months of fiscal 2023 versus $46 6 million in the first nine months of fiscal 2022, which reflects the planned pullback in capital spending in fiscal 2023, we are continuing to prioritize investment in our stores and technology.
Jeffrey A. Miller: Capital expenditures were $33.4 million in the first nine months of fiscal 2023, versus $46.6 million in the first nine months of fiscal 2022, which reflects the planned pullback in capital spending in fiscal 2023. However, we are continuing to prioritize investment in our stores and technology. Free cash flow in the first nine months of this year was a use of $6.7 million versus a use of $27.7 million in the first nine months of last year.
Jeffrey A. Miller: Free cash flow in the first nine months of this year was a use of $6 7 million births versus a use of $27 7 million in the first nine months of last year.
Speaker Change: Now for our outlook.
Jeffrey A. Miller: Now for our Outlook. As noted in our press release, we have updated our full-year outlook to reflect our year-to-date results and updated outlook for the fourth quarter. For the fourth quarter of fiscal 2023, we expect consolidated net sales to be approximately $200 to $205 million, driven primarily by a comparable store sales decline in the mid-20s. The expected decline in comparable store sales is reflective of weather challenges we experienced in January as well as continued pullback in our core and value-oriented general merchandise category, as it relates to custom space, in addition to the already anticipated pull forward headwind related to the third quarter 75th Alpha anniversary sale.
Speaker Change: As noted in our press release, we have updated our full year outlook to reflect our year to date results and updated outlook for the fourth quarter.
Speaker Change: For the fourth quarter of fiscal 2023, we expect consolidated net sales to be approximately $200 million to $205 million driven primarily by a comparable store sales decline in the mid twenties.
Speaker Change: Expected decline in comparable store sales is reflected the weather challenges we have experienced in January as well as continued pullback in our core and value oriented general merchandise categories.
Speaker Change: As it relates to custom spaces. In addition to the already anticipated pull forward headwind related to the third quarter, 75th Alpha anniversary sale, we are expecting additional pressure from the alpha product line, primarily during a planned non promotional time period in the fourth quarter we.
Jeffrey A. Miller: We are expecting additional pressure from the Alpha product line, primarily during a planned, non-promotional time period in the fourth quarter. We expect the consolidated revenue declines to be inclusive of continued Alpha 30 party headwinds, which we expect to be more than offset by new store sales. We expect adjusted net loss per share in the fourth quarter to be in the range of 12 cents to nine cents.
Speaker Change: We expect the consolidated revenue declines were also inclusive of continued Elfa third party headwinds, which we expect to be more than offset by new store sales.
Speaker Change: We expect adjusted net loss per share in the fourth quarter to be in the range of 12 to.
Speaker Change: To nine cents.
Jeffrey A. Miller: The implied year-over-year operating margin decline for the fourth quarter is expected to be driven by SG&A, depreciation, and other fixed-cost e-leverage on lower sales. In addition, we expect gross margin to be relatively flat in comparison to the prior year as a result of the net impact of continued favorable tailwinds and an unfavorable product mix from General Merchant. Interest expense for the fourth quarter is expected to be approximately $5 million, driven primarily by higher interest rates. The effective income tax rate for the fourth quarter is expected to be approximately 21%.
Speaker Change: The implied year over year operating margin decline for the fourth quarter is expected to be driven by SG&A depreciation and other fixed cost deleverage on lower sales and.
Speaker Change: In addition, we expect gross margin to be relatively flat in comparison to the prior year as well as a result of the net impact of continued great tailwind and an unfavorable product mix from general merchandise.
Speaker Change: Interest expense for the fourth quarter is expected to be approximately $5 million driven primarily by higher interest rates.
Speaker Change: The effective income tax rate for the fourth quarter is expected to be approximately 21%.
Operator: Capital expenditures for the full fiscal 2023 are now expected to be in the range of approximately $40 to $45 million. Based on our performance today and our fourth-quarter outlook, we're expecting pre-cash flow to be slightly negative in fiscal 2023. This concludes our prepared remarks. I'll now turn it over to the operator to begin the Q&A session. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone. A confirmation tone will indicate your line is in. You may press star 2 if you'd like to remove your... If you are using speaker equipment, it may be necessary to pick up your handset before pressing the button.
Speaker Change: Capital expenditures for the full fiscal 2023, and now expect it to be in the range of approximately $40 million to $45 million based.
Speaker Change: Based on our performance to date and our fourth quarter outlook, we are expecting free cash flow to be slightly negative in fiscal 2023.
Speaker Change: This concludes our prepared remarks, I'll now turn it over to the operator to begin the Q&A session.
Speaker Change: Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Q1 moment. Please while we poll for questions.
Speaker Change: Yeah.
Operator: One moment, please, while we pull out. Thank you. Our first question is from Steven. Mr. Guggenheim, please proceed with your question. Good afternoon. See you, Jeff.
Speaker Change: Thank you. Our first question is from Steven Forbes with Guggenheim Securities. Please proceed with your question.
Steven Forbes: Good afternoon. This is Jeff.
So given all that.
Satish Malhotra: Satish, given the focus on conversion, right, and awareness improvements here, as we look ahead, can you maybe give us some preliminary thoughts on how you're thinking about the event calendar for next year? And have you guys sort of identified why the design to conversion rates differ between the product lines? Like, is there any? Any sort of targeted efforts, right, that you've sort of identified that you can incorporate into the event calendar? Yeah, this is Satish.
Steven Forbes: Okay, given the focus on conversion and awareness improvements here.
Steven Forbes: As we look out can you can you maybe give us some preliminary thoughts on how youre thinking about the event calendar for next year.
Steven Forbes: And have you guys sort of identified why the conversion the design to conversion rates differ between the product lines like is there any.
Steven Forbes: Any sort of targeted efforts right that you sort of identified that you can incorporate into the event calendar.
Steven Forbes: Yeah.
Speaker Change: This is <unk>. Thanks for the question Steve.
Satish Malhotra: Thanks for the question, Steve. So firstly, when it comes to the event calendar, the thinking that we have for Fiscal 24 is to separate some of the lines that we have traditionally showcased for our customers. So rather than having a combined customs-based event with all of our lines, we look to kind of separate them so they can each have their moments, in particular as we see really strong progression in-store sales with Alpha and then utilize our in-home specialists driving our Preston and Avera sales. With results, and quite frankly, I would tell you the conversion rate for Alpha is extremely high, as you can imagine, because not only is it available for customers as a do-it-yourself option, but it also allows us to design for our customers and for them to really benefit from the modularity of the Alpha offering.
So firstly when it comes to the event calendar.
Speaker Change: And the thinking that we have for fiscal 'twenty four is to separate some of the lines that we have traditionally showcase for our customers so rather than having a combined custom space event with all of our lines. We led to kind of separate them. So they can each have their moments in particular as we see really strong.
Speaker Change: <unk> progression of in store sales with Alpha and then utilizing our in home specialist driving our Preston and various sales.
Speaker Change: With results and and quite frankly, I would tell you the conversion rate for Alpha is extremely high as you can imagine because not only is it available for customers for do it yourself option, but it also allows us to design for our customers and for them to really benefit from the modularity of the alpha offerings.
Satish Malhotra: When we think about the lines in particular, more premium lines, as you can imagine, and this is the effort that we've been making, in particular with Avera, it takes our specialists some time to get comfortable with the lines and with their selling approach, and we've definitely seen great improvements with our Avera conversion lines, and similarly, we expect that to happen with our Preston line. As I mentioned, we have about 140 in-home designers, and they've gone through rigorous design training to enhance their design and selling skills.
Speaker Change: When we think about the lines in particular, our more premium lines as you can imagine and this is the efforts that we've been on in particular with avera is that it. It takes our specialist some time to get comfortable with the lines and with their selling approach and we've definitely seen great improvements without their conversion.
Speaker Change: Lines and similarly, we expect that to happen with our Preston line and.
Speaker Change: As I mentioned, we have about 140 in home designers and they have gone through rigorous design trainings to enhance their design and selling skills.
Satish Malhotra: Our more tenured designers are already performing quite well in annualizing sales from anywhere between $700,000 to $800,000 and are making great progress on their design-to-sales conversion rates. Obviously, that's slightly pulled down with new individuals that we're training and bringing into our company. All I will tell you is that we've seen great success in conversion with Alpha, we've seen great success with Avera, and we believe as our more tenured designers get comfortable with selling Preston, we should expect in Fiscal 2024 to get the benefits of them now being accustomed to all the new features and functionalities that we brought with Preston, including their abilities to utilize the design tools that are in their hands to start to benefit quite well from that conversion rate. Thank you for the call.
Speaker Change: More tenured designers are already performing quite well in annualized sales from anywhere from 700 to $800000 and are making great progress on their designed to sales conversion rates and obviously, that's slightly pulled down with new individuals that we're training and bringing into.
Speaker Change: Into our company and so like what I will tell you is that we've seen great success in conventional with Alpha we've seen great success with Advair and we believe as our more as a more tenured designers get comfortable with selling Preston we should expect in fiscal 'twenty four.
Speaker Change: To get the benefits of them now being accustomed with all the new features and functionalities that we bought with Preston, including their ability to utilize the design tools that are in their hands to start to benefit quite well with that conversion rate.
Speaker Change: Thank you for the color and maybe just a quick follow up for Jeff.
Jeffrey A. Miller: Maybe just a quick follow-up for Jeff, you commented out that this year sort of looking slightly negative on free cash flow. Any sort of preliminary thoughts as we think about the rebalancing of growth versus profit into next year and sort of what levers the business can pull to maybe keep the business in sort of a free cash flow neutral to positive state? Sure, Steve, as you know, we're in the early stages of planning our fiscal 2024, so we can't necessarily comment too much in detail. But as I as we think about the business moving forward and maintaining sustainable free cash flow as we're in this growth mode, focused on growth. There are a number of levers that we have, and right now, in the call earlier, Satish spoke to the fact that we have four stores open, planned to be open in 2024, and we have no plans for store expansion outside of 2024. So we're pulling back from a capital expenditure perspective, and that certainly will help on a free cash flow perspective in fiscal 2024. I would expect that.
Jeffrey A. Miller: Your comment on this this year sort of looking at slightly negative on a free cash flow.
Speaker Change: Any sort of preliminary thoughts as we think about the rebalancing of growth versus profit.
Speaker Change: Into next year.
Speaker Change: So what levers.
Kevin Paul: This is Kevin Paul.
Kevin Paul: Maybe it keep the business and sort of a free cash flow neutral to positive state.
Kevin Paul: Sure Steve.
Kevin Paul: You know we're in the early stages of planning our fiscal 2024, so I can't necessarily comment too much in detail, but as I as we think about the business moving forward and maintaining and sustaining free cash flow as we're in this growth mode.
Kevin Paul: Focused on the growth mode.
Kevin Paul: There are a number of levers that we have and right now we have <unk> and then in the.
Kevin Paul: Call earlier cities spoke to the fact that we have four stores open planned to be opened in 2024, and we have no plans for store expansion outside of 2024. So we're pulling back from a capital expenditure perspective certainly.
Kevin Paul: Well help.
Kevin Paul: On a free cash flow perspective in fiscal 2024, I would expect that as it relates to expense management and working capital we see line of sight.
Jeffrey A. Miller: As it relates to expense management and working capital, we see a line of sight to working capital opportunities, specifically in inventory, one of our largest areas of working capital, and we'll be working towards that as we get into 2024 plans of action around that. And, of course, we're always looking for efficiencies on the expense side, and we'll continue to focus on that as we work through our line of sight for fiscal 2024 with the aim and sight of positive to neutral free cash flow. Thank you. Thank you.
Kevin Paul: Working capital opportunities specifically in inventory of one of our largest areas of working capital and we'll be working towards that as we get into 2024 plans of actions around that and of course, we're always looking for efficiencies on the expense side and we'll continue to focus in on that.
Kevin Paul: As we work to.
Kevin Paul: Your line of sight for fiscal 2024 with the aim of insight.
Positive to neutral free cash flow.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Kate Mcshane with Goldman Sachs. Please proceed with your question.
Operator: Our next question is from Kate McShane with Goldman. Please proceed with your question. Hi, thanks for taking our question. We wanted to ask about marketing. Obviously, with Steve's question, he just walked through the messaging and the event calendar. But is there any change happening with the percentage spent on marketing? Or are you shifting dollars in any way to improve this messaging? Yeah, I'll take the first part of that question.
Caitlin Churchill: Hi, Thanks for taking my question.
Caitlin Churchill: I wanted to ask about marketing, obviously, Mitch Steves question, just walked through the messaging and the event calendar, but is there any change happening with.
Caitlin Churchill: The percentage spent.
Caitlin Churchill: As a percentage of sales and marketing are you shifting dollars and any way to improve this messaging.
Speaker Change: Yeah, I'll take the first part of that question.
Satish Malhotra: And then I'll let Jeff talk about the percentage to sales. Look, the change that we're making in our marketing is really to be more mindful of understanding that customers are still not really aware that we often offer custom spaces. And the approach that we're taking is a far more integrated approach.
Speaker Change: And then I'll, let Jeff talk about the percentage to sales with the change that we're making in our marketing.
Speaker Change: Is really to be more mindful.
Jeffrey A. Miller: Understanding that customers are still not really aware that we after a thorough custom spaces.
Jeffrey A. Miller: And the approach that we're taking is a far more integrated approach and what I mean by that is our ability whether it's through E mails or our site or even embedded within our general merchandise is really allowing customers to understand the importance of making sure. They have the right space and how that space can be optimized for them.
Satish Malhotra: And what I mean by that is our ability, whether it's through emails, or our site, or even embedded within our general merchandise, is really allowing customers to understand the importance of making sure they have the right space and how that space can be optimized for them. And then how our general merchandise truly is acting as a finishing product for that more optimized space, finished off with some really vital organizational tips to ensure that they're able to maintain their transformational achievements. Once they're being fully able to embrace what we have to offer.
Jeffrey A. Miller: And then how our general merchandise truly is acting as a finishing product for that more optimize space.
Jeffrey A. Miller: <unk> finished off with really some vital organizational tips to ensure that they are able to maintain their transformation achievements once they've been able to fully embrace what we have to offer.
Jeffrey A. Miller: So that's what you should expect to see now and into fiscal 24, us taking more of this integrated approach rather than it being siloed out between custom space messaging that then differs from general merchandise messaging that then differs from a services offering. Yeah, and just to add to that, Kate, you know, in terms of dollars spent on marketing, as a percent of sales, we've remained relatively consistent throughout fiscal 23. And, you know, as I said earlier, we're still early in the plans for 2024, but, you know, I think the focus will be more around making those dollars work harder for us, as Satish was outlining, and the approaches and how we're doing it, and the team that we have. Here at the Container Store, we have been working very diligently and finding ways to be much more efficient with the marketing dollars that we have to have the biggest impact. And I think Satish outlined some of those ways that we feel like would have the biggest impact.
Jeffrey A. Miller: So that's what you should expect to see now and into fiscal 'twenty. Four is us taking more of this integrated approach rather than it being siloed out between a customer space messaging that then differs from a general merchandise and messaging that then differs from a services offering.
Speaker Change: Yeah, and just to add to that Kate.
Speaker Change: In terms of dollar spent through marketing.
Caitlin Churchill: As a percent of sales remained relatively consistent throughout fiscal 'twenty three.
Speaker Change: As I said earlier, we're still early in the plans for 2024, but I.
Caitlin Churchill: I think the focus will be more around making those dollars work harder for us as cities was outlining and the approaches on how we're doing it and the team that we have.
Caitlin Churchill: Here at the container store has been working very diligently and finding ways to be much more efficient with the marketing dollars that we have to have the biggest impact and I think cities outlined some of those ways that we feel like what have the biggest impact.
Jeffrey A. Miller: We've been focused on making sure we're operationally efficient from an SG&A perspective, and implied in the Q4 guide is SG&A savings of $15 million, up to $15 million. Which we started the fiscal year taking actions, and we had a range in, you know, we saved $30 million for Q3 with an initial $15 through Q4 for total potential savings of $45 million on a year-over-year basis. With that in mind, we'll continue to focus on marketing as a key aspect of engaging with our customers and maintaining those messages and making sure they're much more efficient. Okay, thank you.
Caitlin Churchill: We've been focused on making sure we're operationally efficient from an SG&A perspective and implied in the <unk>.
Caitlin Churchill: The Q4 guide is SG&A savings of $15 million up to $50 million.
Caitlin Churchill: We started the fiscal year taking actions.
Caitlin Churchill: And we had a range and you know when you say $30 million for Q3 with an initial 15 through Q4 for total potential savings of $45 million on a year over year basis.
Caitlin Churchill: With that in mind, we will continue to focus on marketing is a key aspect of engaging with our customer and maintaining those messages and making sure they're much more efficient.
Speaker Change: Okay. Thank you and then a second question was just on the guide for comp in the fourth quarter is that primarily a function of.
Operator: And then our second question was just on the guide for comp in the fourth quarter. Is that primarily a function of, you know, the adverse weather trends that you mentioned in your prepared comments and the lapping of some of the tougher compares? Or is there anything else within, you know, the mid-20s decline that we should be looking at that's driving that?
Speaker Change: The adverse weather trends that you mentioned in your prepared comments and the lapping of some of the tougher compares is there anything else within.
Speaker Change: Yes.
Speaker Change: The mid Twenty's decline that we should be.
Speaker Change: That's driving that.
Speaker Change: Yeah.
Jeffrey A. Miller: Embedded in our guidance for Q4, if I were to speak to the high and low ends, it's really based on the January trends we saw at the time we were putting it together. The high end of the guide assumes some normalization from what we were seeing in January. And from a weather perspective, it did impact us quite a bit. We had six times more store closures in January than we did in the previous year.
Speaker Change: Embedded in our guidance for Q4.
Speaker Change: If I were to speak to the high and low end.
Speaker Change: It's really based on the January trends, we saw at the time, we were putting together.
Speaker Change: The high high end of the guidance assume some normalization from what were seeing in January and from a from a weather perspective.
Speaker Change: The impact is quite a bit we had six times more store impacts in January than we did in the previous year. When I look at the entire quarter of February last year did have more weather impacting but we're still early in February and we don't know so when we developed the guidance we assume some normalization from the January trends tie into the <unk>.
Jeffrey A. Miller: When I look at the entire quarter, February last year did have more weather impact, but we're still early in February, and we don't know. So, when we develop the guidance, we assume some normalization from the January trends at the high end of the guide. The low end of the guide assumes the January trends continue through the remainder of the quarter.
Speaker Change: The low end of the guide assumes that January trends continue through the remainder of the quarter and as I said in my prepared remarks.
Operator: And as I said in my prepared remarks, it's reflective of the continued pullback in the core and value-oriented general merchandise, and we are also seeing more pressure in the non-promotional time periods for the alpha product line based on what we learned during Q3. Okay, thank you. Thank you. Our next question is from Christopher Horvers with J.P. Morgan. Thanks, guys.
Speaker Change: It's reflective of the continued pullback in the core and value oriented general merchandise.
Speaker Change: And we also.
Speaker Change: We are.
Speaker Change: We are seeing more pressure in the non promotional time periods for the Alpha product line based on what we learned during Q3.
Speaker Change: Yeah.
Okay. Thank you.
Speaker Change: Thank you. Our next question is from Christopher <unk> with Jpmorgan. Please proceed with your question.
Christopher: Thanks, guys. So my first question is do you have a sense of how much.
Operator: So my first question is, do you have a sense of how much the Alpha anniversary sale pulled forward demand from the fourth quarter into the third quarter? You know, it's always been a big event here in the spring, and I know you moved it forward. And it drives a lot of seasonality in that business. So I was curious if you could give me some thoughts and numbers around that. Chris, I don't have a number to speak to from a pull-forward standpoint, but certainly, we are seeing that just on the normalization of the quarters from a revenue top-line perspective, and that's what was anticipated in our Q4 guide.
Christopher: The Elfa anniversary sale pulled forward demand from into the third quarter from the fourth quarter.
Christopher: Always been a big event here in the spring and I know you moved it forward and it drives a lot of seasonality in that business. So I was curious if you had put some thoughts and numbers around that.
Christopher: Sure.
Speaker Change: Chris I don't I don't have a number to speak to from a pull forward standpoint, but certainly we are seeing that just just on the normalization of the quarters from a revenue top line perspective.
Speaker Change: And Thats what was anticipated in our Q4 guide.
Speaker Change: Got it and then I guess as you think about.
Satish Malhotra: And then I guess, as you think about what is left for that, you mentioned like, you know, outside of the promotional periods, there's not as much responsiveness on the alpha side. So I guess, you know, what is what is what sort of exists now in the fourth quarter to drive that business. And as we think about the upcoming year, should we assume that the alpha cell goes back to its normal timing? Well, just to clarify, Chris, this is Satish. We are in Q4, and we do have an alpha event. And so the event that we were talking about earlier was our 75th anniversary event, and that was an added extra event from what we normally do.
Speaker Change: And what is left for that.
Speaker Change: Mike outside of the promotional periods, there's not as much responsiveness on the alpha side. So I guess you.
Speaker Change: What is what is what is sort of exist now in the fourth quarter.
Speaker Change: To drive that business and as we think about the upcoming year should we assume that the alpha so it goes back to its normal timing.
Mike: Well just to clarify Chris's institution, we do we are in Q4, we do have an alpha events and so the event that we were talking about earlier was that 75th anniversary event and that was an added event from what we normally do.
Satish Malhotra: And so that is something for you to pay attention to. And as we think about Fiscal 24, the expectation is to still have four Alpha events throughout the year. So, you know, the event that we have currently doesn't end until mid-February, and, you know, we still have a month and a half left to close out that quarter from that event, and we definitely will continue to go after customers that have experienced a purchase with Alpha and see what we can do to make sure that they're able to take full advantage of those installations, see what other potential Alpha opportunities exist, as well as complete those Alpha purchases So we still have a lot of exciting things to engage our customers with as we finish out Q4.
Mike: And so that is something for you to pay attention to and as we think about fiscal 'twenty four.
Mike: I.
Mike: Expectation is to still have for alpha events throughout throughout the year.
Mike: So the.
Mike: The event that we have currently it doesn't end until mid February and we still have a month and a half left to close out that quarters from that event and we definitely will continue to go out to customers that have experienced a purchase with alpha and see what we can do to make sure that they are able to take full.
Mike: Recognition of those installations and see what other potential alpha opportunities exist as well as completing those elfa purchases with completion products and so we still have a lot of exciting things to engage our customers with as we finish out Q4.
Satish Malhotra: Got it. And then I guess my last question is, you know, as you think about the current freight environment, more general merchandise is, I think, more from Asia. And then, you know, obviously, there's some stuff going on in the Middle East. So how are you thinking about the duration of this freight tailwind that you've seen in the gross margin line? And, you know, what are your thoughts on could that could turn to a headwind? Are you contracted out? Or, you know, how are you managing that?
Speaker Change: Got it and then I guess my last question is.
Speaker Change: As you think about like the current freight environment.
Speaker Change: More general merchandise is I think more from Asia and then obviously there is some stuff going on in the middle East. So how are you thinking about the duration of this freight tailwind that you've seen in in the in the gross margin line.
Speaker Change: What are your thoughts on could that could that turned to a headwind are you contracted out or.
Speaker Change: How are you managing that.
Speaker Change: Yeah.
Jeffrey A. Miller: Yeah, Chris, in terms of freight, certainly we've experienced the benefit of tailwinds through fiscal 2023 based on the lower freight costs that we've been seeing throughout the fiscal year. We would expect that to continue a little bit, not as much, in fiscal 2024 in the first half of the year. But when we look at this, you know, the Red Sea situation and some of the disruption that's going on there, we have limited routing through the Suez Canal; about less than 1% of our freight goes through there. The impact on global rates on the spot rates hasn't impacted us yet. We have about 85% of our shipments under contract, and certainly we're watching it as we move forward. It could be a potential risk depending on how prolonged the situation is, but from a volume standpoint, we don't have a whole lot of volume going through that part of the world.
Speaker Change: Yes, Chris.
Speaker Change: In terms of freight certainly we've experienced the benefit of <unk>.
Speaker Change: Tailwind.
Speaker Change: Through fiscal 2023 based on the lower freight costs that we've been seeing throughout the fiscal year, we would expect that to continue a little bit not not as much.
Speaker Change: In fiscal 2024 in the first half of the year.
Speaker Change: But when we look at this.
Speaker Change: Ritzy situation and some of the disruption that's going on there we have limited routing through the Suez Canal about less than 1% of our freight goes through there.
Speaker Change: Impact on global rates on the spot rates havent, it hasnt impacted us yet.
Speaker Change: We have about 85% of our shipments are under contract and certainly we're watching it as we move forward it could be a potential risk.
Speaker Change: Pending on how long how prolonged the situation is but from a volume standpoint, we don't have a whole lot of volume going through that part of it part of the world.
Jeffrey A. Miller: Got it. Thanks very much, www.globalonenessproject.org. Thanks, Chris. Thank you. There are no further questions at this time. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Got it thanks very much.
Speaker Change: Okay.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you there are no further questions at this time.
Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.