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Why The Container Store Stock Rallied 18% at the Open Today

What happened

Shares of home organization retailer The Container Store (NYSE: TCS) rose 18% out of the gate on Oct. 21. There wasn't any material news today to drive that, but on Oct. 20 the company reported earnings after the bell. So today was the first time investors could act on what turned out to be pretty good reading.

So what

COVID-19 has left consumers stuck hiding at home and largely out of physical stores. That's a mixed blessing for a company like The Container Store, which sells products that help consumers organize their lives and homes. The company's fiscal first-quarter results highlighted the issue, with overall sales down 27.6% year over year but online sales up nearly 200%. The biggest headwind was really that the company's brick-and-mortar stores were forced to close, since online sales clearly showed there was still demand for the company's wares.

Image source: Getty Images.

Things have changed a bit since that point, with physical stores being allowed to reopen. That said, many people continue to spend more time at home than they had historically, including both working from home and simply trying to avoid unnecessary social contact. The Container Store benefited materially now that it has been allowed to reopen its physical locations, posting sales of $248 million, up 5% year over year. However, included in that number was a huge 16% year-over-year increase in September. That suggests that the rest of the year could be pretty good for the retailer if its stores remain open the whole time. The company's fiscal second-quarter sales tally beat Wall Street expectations by more than 15%. Adjusted earnings, meanwhile, came in at $0.43 per share, up from $0.08 in the same stanza of 2019.

Now what

At this point The Container Store's stock is up 137% for the year. That's pricing in a lot of good news. Although fiscal second-quarter earnings were, in fact, pretty good reading, long-term investors might want to pause for a moment before stepping in here. It's worth a moment to consider how much of the current price momentum is related to a potentially temporary COVID-19 sales boost and how much is related to a change in the company's underlying fundamentals.

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


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