CONTAINER STORE SHARES DOWN 38% (TCS)

Asheboro Creative/FlickrA broken plastic container in the woods.

Shares of the Container Store are plummeting after the company reported an unexpected net loss for its most recent quarter.

Analysts had been expecting a report of $0.05 earnings per share, but the home goods retailer instead said it lost $0.04. Additionally same-store sales were up just 0.5%, lower than the 0.7% estimated by analysts.

This sent the stock spiraling downward, as of around 3:50 p.m. the stock was down a little under 41% at $4.25.

In the quarterly earnings call Thursday, Container Store CEO Kip Tindell said the bad news was related to high expenses.

“I would like to say that although we continued to achieve meaningful traction with our all-important strategic initiatives during the third quarter and that these initiatives are benefiting overall sales, we are very disappointed with our bottom line results this quarter,” he told analysts. “The shortfall versus our expectations was largely driven by expense items, the majority of which are non-recurring and unusual in nature”

According to Seth Sigman, an analyst at Credit Suisse, the shortfall was a part of a strategic shift by the Container Store to specialize its business through its Closets initiative. The initiative is a custom made service that tailors premium storage units for each customer.

The Container Store/YouTubeA still from a promotional video for The Container Store’s new “Closets” initiative.

Sigman wrote in a note to clients that the initiative will eventually contribute significantly to the bottom line, but it’s not without risks.

“But for this story to work, the key will be i) stemming the declines in the other categories (which were – 1.3%, -2.4% on a two year basis), ii) scaling the $0.08 of incremental investments that fell into 2015, and iii) rationalizing store growth plans/store sizes to adapt to the challenges it has faced,” he said.

In the end he expects the company to make a recovery, but not without a little pain first.

In addition to the miss for the third quarter, the company cut its outlook for the fourth quarter. The company projects a $0.19-$0.22 earnings per share versus analysts expectations of $0.29. Additionally the company projects comparable store sales decline of 1-1.6%.

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