The Container Store Group Inc (TCS) Third Quarter 2014 Earnings Call Transcript

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Joshua Siber, Morgan Stanley
Okay. Just a separate topic. You rolled out Contained Home about a year ago in the Dallas area. How does that market compare versus your expectations right now and how does it compare to the initial rollout?

Melissa Reiff, President, COO and Director, The Container Store
The Contained Home program, that service is really gaining momentum. As I said, the average ticket is over $2,000. By the end of 2014, we are going to be in 33 stores. The momentum is obviously really been — we have seen it in the Dallas-Fort Worth market, but we also have been encouraged as we have continued to roll it out. The momentum continues to build and build and build. We will have it in all stores right along with TCS Closets by the end of 2015. That really breaks down to 12 stores in the first quarter of 2015, 16 stores in the second quarter, approximately 14 stores in the third quarter, and then approximately the remaining four stores in the fourth quarter of 2015.

Joshua Siber, Morgan Stanley
Okay, thank you very much.

Operator
Our next question comes from the line of John Heinbockel from Guggenheim Securities. Please go ahead with your question.

John Heinbockel, Guggenheim Securities
I know it is early but I wanted to get some initial read on TCS Closets conceptually. What are you finding with consumer interest and then actual closed transactions versus your plan, number one? Number two, is that yet helping the elfa business or is that yet to come in the stores where you have it? Then third, what do you think it does in terms of adding to the overall quality halo of the entire store because the presentation is so striking? Are you able to at all model what you think that does to those stores as consumers know about the product?

Melissa Reiff, President, COO and Director, The Container Store
Right. John, first of all, I am so delighted that you have been in the stores and you have seen TCS Closets and our beautiful displays, and I think it just magnifies everything. So far, we think that it definitely is helping elfa sales and that of course is terrific. The customer reaction in the Dallas-Fort Worth market has really been very positive. It was interesting, we had an event at the Dallas NorthPark store called Closets & Cocktails, where we had about 800 customers and influencers and the media attend, and we were very pleased with the response.

I think it is too early, John, or I know it is too early to really give any specific metrics on it. The whole thing about closet domination, and John, you know I am raising my hands about that. This is just going to add to our offering to give our customer whatever she wants. When any consumer thinks of closets, we want her to think of The Container Store. It is just broadening our offering and I think it is obviously going to be a win-win for elfa, too.

John Heinbockel, Guggenheim Securities
The average ticket, I know you said it’s north of Contained Home.

Melissa Reiff, President, COO and Director, The Container Store
Significantly.

John Heinbockel, Guggenheim Securities
Judging by what I saw, could it be two to three times of the ticket of Contained Home?

Melissa Reiff, President, COO and Director, The Container Store
Yes. It’s significant for sure.

John Heinbockel, Guggenheim Securities
Okay. Then on your comment on gross margin being up slightly in the fourth quarter, I would have thought with the weakness in the krona that it could be a decent amount better than slightly. I know you really do not like to be promotional. My question was, is that conservatism or is there really a plan to do more on the promotional side in the fourth quarter?

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