Anne Rakunas - Investor Relations Kip Tindell - Chairman and Chief Executive Officer Melissa Reiff - President and Chief Operating Officer Jodi Taylor - Chief Financial Officer.

Chris Horvers - JPMorgan Seth Sigman - Credit Suisse Steve Forbes - Guggenheim Securities Simeon Gutman - Morgan Stanley Dan Binder - Jefferies Matthew Fassler - Goldman Sachs Matt Nemer - Wells Fargo Securities Denise Chai - Bank of America Merrill Lynch.

Good afternoon, everyone and thanks for joining us today for a pre-recording of management’s remarks pertaining to The Container Store’s Third Quarter Fiscal 2015 Earnings Results. Speaking today are Kip Tindell, Chairman and Chief Executive Officer; Melissa Reiff, President and Chief Operating Officer; and Jodi Taylor, Chief Financial Officer.

In addition to posting a press release with our third quarter results to our website, we have posted a written transcript of management’s prepared remarks on our website as well. A live Q&A session will follow today at 5 PM Eastern, and a replay of the Q&A session can be accessed at containerstore.com later this evening.

Before we begin, I need to remind you that certain comments made during this recording may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements. Those risks and uncertainties are referred to in The Container Store’s press release issued today.

The forward-looking statements are made today as of the date of this call and The Container Store does not undertake any obligation to update their forward-looking statements. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call.

A reconciliation schedule showing the GAAP versus the non-GAAP financial measures is available in The Container Store’s press release issued today. If you do not have a copy of today’s press release, you may obtain one by visiting the Investor Relations page of the website at containerstore.com. I will now turn the call over to Kip.

Kip?.

Thank you, Anne and thanks to all of you for joining us for our pre-recorded remarks on The Container Store’s third quarter prior to our live Q&A. Jodi and I are going to review our third quarter financial results. And given the importance to our overall business, Melissa will discuss our key TCS Closets initiative in more detail.

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.

The shortfall versus our expectations was largely driven by expense items, the majority of which are non-recurring and unusual in nature. We have a history of strong fiscal discipline and expense management, which has always been a core competency.

In response to third quarter results, we are increasing our efforts to reduce costs and SG&A without harming the momentum and evolution of our major initiatives, specifically TCS Closets. We will provide more commentary on expenses shortly, but I would like to start with a discussion of our third quarter sales.

Our comparable store sales for the third quarter of fiscal 2015 were up 0.5% compared to the third quarter of fiscal 2014 marking another quarter of comp store sales improvement.

The result for consolidated net sales for the third quarter of fiscal 2015 was $197.2 million, up 3.3% compared to the third quarter of fiscal 2014 after converting the Elfa International AB portion of consolidated net sales from Swedish kroner to U.S. dollars.

Net sales in The Container Store retail business were $177.6 million, up 5.4% as compared to the third quarter of fiscal 2014 primarily due to new store sales. Elfa International AB third-party net sales for the third quarter of fiscal 2015 were SEK165.9 million, up 2.1% compared to the third quarter of fiscal 2014.

Converting Elfa International AB third-party net sales to U.S. dollars reduced this consolidated net sales results from 5.1% to 3.3%, or $3.3 million for the third quarter of fiscal 2015 compared to the third quarter of fiscal 2014 using the prior year conversion rate for both periods.

Unfortunately, the improving third quarter sales trends were partially offset by a choppy retail environment and softer than planned November that we experienced. The start to the fourth quarter has also been more challenging, which we have reflected in our revised outlook.

But from a sales perspective, overall, we were pleased to see improved comparable store sales performance in Q3 as compared to Q2 with the improvement directly attributable to TCS Closets and Elfa.

In fact, the benefit of TCS Closets to comparable store sales has grown from 30 basis points in the first quarter to 80 basis points in the second quarter and now 180 basis points for the third quarter.

Simultaneously, we have realized strong growth in Elfa comparable store sales year-to-date at the end of the third quarter believing that TCS Closets and Elfa are in fact synergistic and complementary product lines as designed and planned.

TCS Closets is by far the most meaningful initiative in the history of our company and these early results are better than expected. We opened four new stores in the third quarter to end the quarter with 77 stores. We plan to open the remaining two stores in the fourth quarter, which will get us to our 10 stores for the year, including one relocation.

We have planned sales and overall economics to achieve our targeted, approximate 2.5 year payback and we continue to be very pleased with the performance of these new stores. Moving on to gross profit performance. Overall consolidated gross margin rate declined by 70 basis points in the quarter year-over-year.

As noted, our $75 free ship service is driving incremental sales and is driving profit dollars, it’s absolutely a good thing, but of course it’s a headwind to gross margin year-over-year.

Since we didn’t offer free shipping in the prior third quarter, the results in gross margin reduction year-over-year and this headwind will continue until we anniversary the free shipping introduction, which is in April of 2016.

We had a notable improvement in the reduction of other promotional activities impacting gross margin from second to third quarter. Our second quarter promotional activities were more aberrant and not indicative of our third quarter or planned future activities. We believe we are being more strategic in deploying only the most profitable promotions.

As we have shared on previous calls, we have been experimenting and testing and learning in order to ensure this is the case. Our performance on the SG&A side was disappointing.

While the complexity of our TCS Closets initiative drove higher expenses of $0.01 versus our expectations in the third quarter, this is an investment that is just prerequisite to realizing the full potential of this major initiative. However, this is only one piece of our higher than planned SG&A line item in the quarter.

As Jodi will discuss in more detail here in a moment, we had unusually high healthcare, distribution and payroll expenses. This is frustrating given their long history of soundly managing our expenses, and in the third quarter, we did not handle this area as well as we could and should have.

Let me emphasize that we take expense management very seriously at The Container Store.

We have updated our forecast to reflect any necessary revised expense estimates and as I mentioned earlier, in response to this third quarter, we are increasing our efforts to reduce costs and SG&A without harming the momentum of our major initiatives, specifically TCS Closets.

We are diligently focused on expense management paired with revenue creation despite some unpredictability and additional expenses that resulted in a net loss per share of $0.04 in the third quarter, including approximately $0.03 per diluted share in spend for key strategic initiatives, which was $0.01 higher than expected.

Fiscal 2015 continues to serve as an investment year for The Container Store as we take necessary steps to properly and strongly support employee training, customer service improvements and marketing for those strategic initiatives. Accordingly, we believe the greatest impact of the initiatives to sales will come in 2016 and beyond.

I would like to hand it over to Melissa to share more about the TCS Closets initiative.

Melissa?.

Thanks, Kip. TCS Closets does provide us with an opportunity to drive comparable store sales through higher average ticket. The product offering was available in just 7 stores at the start of our fiscal year, 74 stores at the end of our third quarter, and now since December, we have completed the rollout to all stores right on schedule.

The rollout included a complete remodel of our custom closet department featuring obviously new displays for TCS Closets, but also at the same time, we updated our Elfa displays. And if you haven’t already seen them, please visit one of our stores soon.

TCS Closets’ average ticket continues to exceed $10,000, while the average number of TCS Closets transactions per week, per store is steadily increasing from 0.1 in March of this fiscal year to now more than 0.4 TCS Closets transactions per week, per store through fiscal November.

Please note that TCS Closets’ $10,000 average ticket is for customer’s purchase of just TCS Closets. Any other products that are included in that customer’s basket at that same time are currently rung separately.

As Kip mentioned earlier, the benefit of TCS Closets to our comparable store sales is strengthening and has grown from 30 basis points in the first quarter to now 180 basis points in the third quarter.

This momentum has built while we simultaneously realize higher Elfa sales, which is very important to us since we own Elfa and it has our highest consolidated gross margin. We made excellent strides in the third quarter with virtually all markets realizing greater TCS Closets comparable store sales benefit compared to the second quarter.

Selling closets is in our wheelhouse and our goal is to dominate the closet category. At The Container Store, we have always had a very strong closet-related business that continues to rise as we add incremental sales of TCS Closets.

Elfa alone represents about 25% of our annual retail sales and our closet department represents approximately another 14% and then many of our other 14 lifestyle departments also have products that can be used in the closet in many ways. We believe that our percent of sales related to closets will continue to grow in the future.

We have a strong competitive advantage and that there is no other comparable retailer doing this high ticket, high quality, custom closet business.

And we also offered the complete solution for our customers, not just the closet of their choice with many options to choose from, but also the full array of closet organization products that accompany the closet.

In addition, we have a national footprint with millions of customers coming to our stores each year for our expert salespeople to work with and to sell them our beautiful custom closets.

And while the initial focus for TCS Closets has been the closet, based on customer demand and current trends, we intend to eventually expand the offering of TCS Closets solutions to other areas of the home.

We also believe that we have a unique, strategic position that allows us to meaningfully increase overall average ticket with our high average ticket initiatives and that our highly trained and experienced sales force, which has been selling proprietary, custom-designed Elfa product solutions for over 37 years is absolutely a unique asset to our strategy.

Over the last 12 months ended November 2015, our sales force has sold on average approximately 7.5 Elfa spaces per store, per day and grown these custom-designed Elfa solutions to currently represent approximately 25% of our annual retail sales.

We have also concluded the rollout of Contained Home to all stores in December and continue to see an average ticket in excess of $2,500 for the program to-date.

POP! Perfectly Organized Perks, our customer engagement program, we have now enrolled more than 3 million POP! Stars since launch and we continue to add approximately 25,000 POP! Stars per week. We are still leveraging this program to drive traffic and incremental sales. In summary, yes, we are making great progress on our key initiatives.

However, as Kip said, we are disappointed with our bottom line performance in the third quarter.

We will continue to make the appropriate investments in our business to position our initiatives for maximum success, but also we have reflected our revised forecast for expenses in our updated outlook for the year and we are increasing our efforts to reduce cost and SG&A without harming the momentum of our major initiatives.

We do understand that the world of retail continues to rapidly change and innovate more quickly than ever and we are proud of what we are doing to navigate through the changes, to innovate and ensure that we are playing to and leveraging our strengths in order to position The Container Store for decades to come as the beloved, relevant and much-needed retailer it has always been.

Now, I am going to hand it over to Jodi to go through our financial results and outlook in more detail.

Jodi?.

Thank you, Melissa and good afternoon everyone. Starting with our third quarter results, to reiterate, our consolidated net sales were $197.2 million, up 3.3% compared to the third quarter of fiscal 2014, but up 5.1% when using the prior year conversion rate for both periods.

Sales for The Container Store retail business were up 5.4% to $177.6 million primarily due to new store sales. Overall, our third quarter comp was up 0.5%, which reflects solid comp growth in September and October and a choppy November as Kip mentioned.

We ended the quarter with 77 stores and approximately 1.92 million of gross square footage as compared to 69 stores and approximately 1.73 million of gross square footage at the end of the third quarter of 2014.

The composition of our 2015 class of stores is more heavily weighted to smaller markets and we continue to expect sales in year one for the 2015 class of stores to be more in the range of around $6 million compared to approximately $9 million which is the simple average sales volume for our store fleet excluding the high volume Manhattan stores.

This is expected to drive approximately 20% first year EBITDA and an approximate 2.5 year payback on average. As a reminder, we have more new store openings in the second half of the current fiscal year, with 6 out of 9 new stores opened in the second half of fiscal 2015 compared to 3 out of 7 stores in the second half of fiscal 2014.

So, both the mix of openings as well as the timing of openings when compared to the prior year will impact your productivity calculations, but we continue to be pleased with the results we are seeing out of our new stores.

Turning to Elfa International AB, Elfa’s third-party net sales were up 2.1% from the third quarter of fiscal 2014 in Swedish kronor primarily driven by increased sales in Sweden and Norway partially offset by lower sales in Russia. However, the strengthening of the U.S.

dollar against the Swedish krona led to a negative conversion impact of $3.3 million in the third quarter of fiscal 2015. The Swedish krona depreciated approximately 17% year-over-year against the U.S. dollar during the third quarter of 2015 on average. As a result of this conversion impact, Elfa’s third-party net sales in U.S.

dollars declined approximately 12.7%. Now, on to profitability, consolidated gross profit dollars were up $2.2 million, primarily driven by increased sales volumes and partially offset by a decline in consolidated gross margin. In the third quarter, our TCS gross margin declined 120 basis points to 57.7%.

Ongoing analysis continues to support that incremental sales and profitability are being generated by our everyday free shipping on orders over $75 as we have discussed.

Additionally, we are seeing strong sales growth in locations outside our store trade areas through this free ship over $75 service, which is indicative of potential new customers being drawn to the brand.

So, while we have realized the benefit to overall sales, the estimated impact of free shipping on the TCS gross margin rate was approximately 90 basis points in the third quarter, or about 80 basis points on a consolidated basis.

As you will recall, we had assumed a drag of 70 basis points to consolidated gross margin in both third and fourth quarters. So, this headwind was slightly above our expectations. Since we didn’t offer free shipping in the third quarter last year, this headwind will continue until we anniversary the introduction in April of 2016.

Second, we offered all of our Elfa products on sale in the third quarter during our annual shelving sale compared with last year and all prior years when we excluded certain items within an Elfa solution, which was frustrating for our customers.

This combination of a more comprehensive offering of Elfa product on sale accompanied by better customer reception to Elfa during the sale impacted third quarter TCS gross margins by about 65 basis points or approximately 50 basis points on a consolidated basis. However, when you factor in the benefit of the stronger U.S.

dollar compared to the Swedish krona, which added approximately 110 basis points to consolidated gross margin during the third quarter, the Elfa gross margin at TCS had an overall positive impact to consolidated gross margin, with these two factors combining to attribute approximately 60 basis points on a consolidated basis.

Third was the impact of our test and learn marketing and promotional programs, which impacted third quarter TCS gross margins by approximately 60 basis points, or about 40 basis points on a consolidated basis. As Kip mentioned earlier, this is a notable improvement from the more aberrant higher levels of second quarter.

Lastly, the mix shift toward services that we discussed last quarter impacted our TCS gross margin rate by approximately 25 basis points, or about 10 basis points on a consolidated basis. Again, remember that although service gross margin rate is lower than that for our products, the two go hand-in-hand and together drive higher profits.

I would like to emphasize here that all of these factors which negatively impacted the gross margin rate were directly tied to incremental TCS sales and an increase in TCS gross profit dollars in the third quarter.

Elfa International AB gross margin improved 30 basis points to 39.3% primarily due to lower direct material costs as well as a shift in sales mix partially offset by increased freight costs. On a consolidated basis, gross margin declined 70 basis points to 58.9%.

Moving on to SG&A, as a percentage of sales, consolidated SG&A increased 250 basis points to 51.7% in the third quarter of fiscal 2015, which was significantly higher than we expected. The year-over-year SG&A de-leverage was primarily driven by the following factors.

First, as Kip mentioned, the complexity of our transformational TCS Closets initiative resulted in initiative spend of approximately $1.8 million or $0.03 per share in the third quarter compared to our $0.02 per share expectations.

This equates to approximately 90 basis points of SG&A expense in the third quarter, of which approximately 20 basis points was more than we initially expected.

Second, we incurred higher payroll costs in our stores and distribution center that drove approximately 70 basis points of deleverage, or about 50 basis points in stores and about 20 basis points in the distribution center.

We incurred higher store payroll for enhanced sales floor coverage, but also incurred more store payroll than expected in general as we ramped up selling of TCS Closets in our stores and were less efficient than we normally are during this final push of the launch.

All but three stores were up and running with TCS Closets at the end of the third quarter. We normally schedule our store labor as a percentage of sales and flex as needed around sales, which is generally achievable for us with our predominant mix of flexible part-time employees.

However, in the third quarter, the desire to provide enhanced sales floor coverage to maximize sales in our stores, combined with ensuring maximum success of the TCS Closets rollout, put more pressure on our payroll costs in-store than expected.

Our fourth quarter outlook includes a plan for store payroll that provides ongoing enhanced store floor coverage, but anticipates maintaining our planned payroll cost as a percent of sales like we historically have done around sales trends.

Additionally, as expected, compared to last year, our DC is incurring higher payroll costs associated with fulfillment of a greater number of orders shipped directly to customers.

This contributed approximately 20 basis points of expense de-leverage, which we expect will continue until we anniversary the launch of everyday $75 free shipping in April of 2016. Third, we incurred an increase in healthcare cost of approximately $1 million or about 50 basis points.

After elevated healthcare costs in first quarter, we have returned to more normalized healthcare trends in the second quarter, but unfortunately had a number of large claims hit in the third quarter, resulting in higher than planned expenses.

We have assumed an increased level of healthcare costs will continue into fourth quarter and this is factored into the outlook I will discuss shortly. Fourth, we incurred unexpected storage costs of approximately $800,000 in connection with the DC automation project that represented approximately 40 basis points in year-over-year SG&A de-leverage.

During 2015, we have been adding automation to our distribution facility in a 9-month project that will go live in April of 2016 and we encountered some challenges during our peak inventory period in the third quarter. As a result, we had to utilize some unanticipated, non-economical short-term storage options in the quarter.

We moved through the issue by the end of November and do not expect any further incremental costs related to this issue. The magnitude of the SG&A surprise is unacceptable to all of us as you heard Kip say.

We take expense management very seriously and pride ourselves in being able to flex our variable expenses in response to sales trends, which we have a long history of doing.

Let me assure you that we have spent substantial time and resources analyzing our third quarter expense performance fixing the areas that needed fixing and reflecting any necessary changes in our outlook.

New store pre-opening expenses were $1.4 million higher year-over-year due to the opening of 4 stores in third quarter of this year compared to 2 store openings in the third quarter last year. As a result, pre-opening expenses de-leveraged as expected by approximately 70 basis points year-over-year.

Our net interest expense in the third quarter of fiscal 2015 was $4.2 million compared to $4.3 million in the third quarter of fiscal 2014. The effective tax rate for the quarter was 28.6% compared to 34.2% in the third quarter of last year.

The decrease in the effective tax rate was primarily due to a pre-tax loss in the third quarter of 2015 as compared to pre-tax income in the third quarter of 2014 combined with a shift in the mix of projected domestic and foreign earnings.

These amounts are partially offset by a reduced tax rate in the third quarter of 2014 resulting from a non-taxable gain on the sale of a Norwegian subsidiary. Our net loss for the quarter was $1.7 million, or $0.04 per diluted share compared to adjusted net income of $3.2 million or $0.07 per diluted share in the third quarter of last year.

Turning to our balance sheet, we ended the third quarter with $14.6 million in cash, $365 million in outstanding borrowings and combined availability on revolving credit facilities and cash on hand of $85 million. We ended the quarter with inventory up 5.2% compared to the end of third quarter of 2014, with the increase primarily due to new stores.

On a per store basis, TCS retail inventories actually decreased approximately 4.6%. Now, turning to our outlook, while the biggest volume weeks still lie ahead, given the start to the fourth quarter that Kip mentioned, we are taking a conservative approach to our fourth quarter outlook.

We expect consolidated sales in the fourth quarter to be $222 million to $232 million including a comparable store sales decline of 3% to 5% and now expect diluted net income per share for the fourth quarter to be in the range of $0.19 to $0.22.

This fourth quarter outlook assumes moderation in the trend of year-over-year operating margin declines taking into consideration the increasing FX tailwind on gross margin, the abating investment spend and our efforts to reduce costs and SG&A.

Given our third quarter performance and updated outlook for fiscal fourth quarter, we are revising our 2015 outlook. We now expect consolidated net sales to be in the range of $785 million to $795 million assuming a comparable store sales decline of 1% to 1.6%.

Diluted net income per share for fiscal 2015 is now expected to be $0.10 to $0.13 based on a weighted average of 49 million diluted shares outstanding. This outlook now includes an anticipated $0.08 per diluted common share headwind related to the implementation of our initiatives. We completed the roll-out of our initiatives early in fourth quarter.

This outlook also includes the $0.01 drag related to the first quarter port delays and higher associated freight costs that we discussed when reporting our first quarter results. Our average SEK rate assumptions for this year remain very close to what we have originally articulated.

Finally, we expect our tax rate for fiscal 2015 to be approximately 36%, which implies an approximate 34% tax rate for fourth quarter. And our annual interest expense at today’s LIBOR rate is still expected to be approximately $17 million.

In summary, while we are disappointed with our bottom line performance in the third quarter, we have a firm handle on the expense issues and have addressed them.

Most importantly, we continue to see solid progress on our key TCS Closets initiative which bodes well for 2016 and beyond, which is when we expect this initiative to more meaningfully impact our sales and profits. That concludes our prepared remarks. Thank you..

Greetings and welcome to The Container Store third quarter 2015 question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Ms. Jodi Taylor. Ms. Taylor, you may now begin..

Good afternoon, everyone and thanks for joining us today for The Container Store’s third quarter fiscal 2015 Q&A session with the investment community. I am Jodi Taylor, Chief Financial Officer. And with me on today’s call are Kip Tindell, Chairman and Chief Executive Officer and Melissa Reiff, President and Chief Operating Officer.

This afternoon, we issued our third quarter results and posted a press release to our website. At that time, we also posted a recording of our prepared remarks as well as a written transcript. In addition, today’s Q&A session is being recorded and a replay can be accessed at containerstore.com later this evening.

Before we begin, I need to remind you that any forward-looking statements we make today are subject to the Safe Harbor statements found in our SEC filings and in our press release. With that, I hand the call over to the operator so that we can take your questions..

Thank you. [Operator Instructions] Our first question comes from Chris Horvers from JPMorgan..

Thanks. Good evening. Can you talk about the cadence of the quarter? It was very helpful that you added the transactions per week in TCS Closets would have suggested that November was very strong.

And then as a follow-on to that, lot of retailers talked about strength in the back half of December, almost nearly uniformly based on companies that have announced results so far for the holidays.

So, can you talk about what happened in December and that puts you to this and why you are maybe not participating in that pickup in the overall retail environment?.

Hi, Chris. This is Jodi. And I will start by taking that. As it relates first to the comp cadence, I will give some specifics that I think you will find helpful. Our comps for the quarter-to-date, 2 months and through October were up 1.3%. However, our November comps were down 1.2% and this is what led to the overall 0.5% comp for the quarter.

It is important to note that TCS Closets did, like you said, grow each month and contributed increasing amounts each quarter or each month of the quarter. And then as you shift over to fourth quarter, your question there, couple of comments, our quarter-to-date actual comps is actually within the implied Q4 outlook we provided today.

However, we have seen an improvement to our comp store sales in the last few days and do believe that the 2-week holiday calendar may have been somewhat disrupted by the start of the annual Elfa sale. The Elfa sale has distinct start, a distinct middle and ending period.

This is a real long sale or long sale that runs into February and we have seen customers procrastinate more and more and more each year. One thing that’s important to note is over 75% of the annual Elfa sale remains to be done.

So, there are some big volume sales days ahead this quarter that are going to have a meaningful impact to our fourth quarter sales results. We also have big weather impacted days from last year’s annual Elfa sale that lie ahead. So that said combined, we have clearly taken a conservative approach to our fourth quarter outlook..

And then as a follow-on to that I guess what’s I guess concerning is that if you are getting a bigger and bigger lift from the Closets and the contained home and the POP! Star initiative. However, your comps really aren’t responding that greatly.

So, it seems like the rest of your mix is deteriorating at the margin in an environment where the consumer has been pretty amenable to big ticket purchases.

So, how do you think about what you can do with the rest of the mix? Is there a need to adjust on pricing? Is the POP! Star program generating that incremental trip that you talked about and so forth? Thank you..

Well, this is Kip. First of all, back to the first part of that question, another add-on to that was the, as Jodi said, the Elfa sale does have a distinct start, middle and ending. The start is always pent up demand, very, very strong. The middle is sort of lull, because the Elfa sales are so long. They go on and on and on.

And then there is a great procrastination at the end which makes the ending of the Elfa sale very strong. This year for the first time I believe ever we started the Elfa sale a little early, a week or so before Christmas and the sales were very strong to the start of that.

But then when we came up in the last week of December, the week between Christmas and New Years, we were up against the last year’s start to the Elfa sale and that’s where we saw weakness in sales.

Now that we are in, as Jodi said, now that we are in the sort of after the holidays, after New Year’s, the relatives are gone, people are back from out of town, we are pleased with our sales during the – with our Elfa sales.

Since that you had kind of a component – we had great sales when we started this year against no sale last year a few days before Christmas then we had the bad sales, of course, when we were up against the start last year. Now, we are middle sale to middle sale and we are encouraged with the sales in that middle part of it.

The core business has always been Closets. I mean, 24.5%, 25% of our sales are Elfa, another 14% or 15% of our sales are the Closet section and then there is a very significant percentage.

It’s part of an unknown percentage, but a very, very significant percentage of sales on all the other 14 or 15 departments in the store that we have that go into the Closets. So, the majority of our sales have always been positive. Now, in adding TCS Closets, you can add another number to that.

We don’t know what that number would be, but we feel like it’s the most important thing that we have done in our history. So, we are kind of going from a majority to pretty much the vast majority of our sales being in Closets.

So, our strategy is to focus on that, to focus on increasing Elfa sales since our Elfa sales year-to-date have been quite strong. We are very pleased with the TCS Closets. We are, I guess, more than ever focusing on our particular ability to impact average ticket as it pertains to Closets, because that’s the most important part of our business.

It was in 1978, it is today and nobody can do Closets quite like The Container Store. Traffic is tough for us. Traffic is tough for most traditional retailers, but we have muscles in the right place to really focus on average ticket and Closet is the way to do that. And everyone knows that TCS Closets thinks a $10,000 average.

Elfa is very, very high as well. So, we have really enhanced our training and our focus on these areas. We also have these wonderful completion products, the shoeboxes, the hangers.

It’s we see the rich retail world changing, we see our business changing and our focus is on doing everything we can to improve our traffic trends just like every retailer is trying to do that.

But no one else has Elfa, no one else has TCS Closets and no one else has our culture and our salespeople that allow us to really make dramatic gains in average ticket that allows us to pullout of this comp store sales negative cycle that we have been in. And we are thrilled with the TCS Closets progress. We are thrilled with this strategy.

We think it’s the correct strategic initiative for us in this changing retail environment. And core business, the core business is Closets, always has been. And so I think we have kind of come to realize that that’s the greatest strength that we have. Nobody can touch us when it comes to Closets. Let’s face it. We have kind of got that to ourselves.

And so the kitchen goods and the laundry goods and the rest of the store is important and they drive traffic, but where we really get you is in Closets.

We are evolving along those lines and it’s something that we have tried to talk about in the release and that we are anxious to talk about more and more as we go forward with these TCS Closets, etcetera, giant core business initiative?.

Hey, Chris, it’s Melissa.

I just wanted to address your POP question, okay?.

Yes..

Yes. We absolutely are continuing to see our existing POP! Stars make one incremental visit trip on average to the stores, be it their average ticket is left.

And so we continue to focus on recognizing important importance of really creating a unique customer experience for POP! Stars in our stores through all of our marketing channels to really better connect with these customers and just stay really top of mind.

So we are super hyper focused on leveraging the customer behavior of data that we have to deliver this really super personalized communication and service in order again to make their experience even better.

And we are also investing more in our internal analytics and strategy teams so that we continue to stay really focus on how we can better understand the needs of this specific customer and really involve our business strategies and to drive more engagement with our brand.

And then, I think the notable difference year-over-year, Chris is which I am sure you read in the release and the script is that our POP! Stars have grown to about over 3 million POP! Stars now and we have done a little bit more analyzing the impact that POP is having on our new customers to The Container Store which I think is great, which is about an incremental half visit for our new POP! Stars.

And then additionally we know that about 62% of our top 30% of our best customers have joined POP. So obviously, this kind of continues to support our theory that our best customers are in a loyalty program and we are really able and we will continue to try to impact their behavior with incremental visits and ultimately driving more sales..

I think that’s a little bit of an add on visit when we are at our best, our customers are doing projects and they are coming back several times in a short period of time to complete the projects and it is consistent sometimes that the average ticket on that follow-up visit isn’t as high as the first one, because you did the project and then you have an add on.

We have always said it’s a little like a generation or two the way people or good customer would use neighborhood hardware store for projects.

You have to go two times or three times to get it done and I think we are starting to see that, both with the influence of the whole digital thing combined with the POP! thing, 90% of our friends at Google would tell your that 90% of sales still happen in retail stores, but 70% of those sales still happen in bricks-and-mortar stores are digitally influenced.

And so we are working hard to maximize the visits on those digitally influenced projects just like generation and go hardware store..

Understood. Thanks very much..

Thank you, Chris..

[Operator Instructions] Our next question comes from Seth Sigman from Credit Suisse..

Hi guys. Thanks for taking the question.

I wanted to follow-up on Chris’ question, more focused on store growth, so the mix of the business continues to evolve, you are seeing strong online growth, obviously TCS Closets is growing nicely, how do you think about store openings as you look toward next year, should we be expecting any major changes in terms of openings or optimal size of the store to address some of the topics you mentioned before?.

It’s Kip, I will take that one. We always look at store size, it’s about 23,000 square feet. If we can figure out how to modify that downward a little bit, that would be wonderful. We have nothing to announce along those lines, but we are always trying to figure out if we can tighten it up.

Hypothetically, if we went to 19,000 square feet you wouldn’t look what maybe the difference it would make. It just improves every number in the business. There is even whole departments of the store that you would – that you could drop. Also, 23,000 square feet is a little bit of a competitive size.

If we could get it a little bit smaller, there would be a bigger universe of potential to open to us. Having said all that, we are – one of the things we are most thrilled with about our business is the performance in the new stores. I don’t think they have ever contributed as much to the company’s prosperity as they do now.

We do – we are looking at attempting to continue our 12% square footage growth. Nothing is as important or profitable as comp store sales, but it’s a totally different set of muscles. We spent most of our existence growing at a lot more than 12% square footage growth.

It’s something that we feel like we can kind of do with one hand tied behind our back and it doesn’t interfere with doing a better job on comp store sales which is certainly job one. But importantly, we are achieving great financial terms with these new stores, very impressive payback, very, very strong first year four walls EBITDA.

And we have just kind of come of age to where we are seeing more and more turnkey landlords, funded deals, really sweetheart deals. We are not everywhere yet. So we are just a little bit better tenant for a center that’s actually trying to merchandise that center. We are not ubiquitous and so people want us in their center.

We are getting great opportunities. Also when you are that awkward kind of adolescent just less than $1 billion size, you long for scale. Technology is the key to everything. Technology is the key to customer service for god’s sakes and it’s tough to have – we are credited as having just fantastic technology.

I mean, people in RF would tell you that, I mean the green group retailers would tell you that. But it’s harder to be great at technology when you are less than $1 billion than it is at $2 billion or $3 billion. So scale is important to us, we are anxious to grow.

We have always been anxious to get to the point to where scale can help us, where our occupancy expense is somewhere in the neighborhood of 13%.

Every time we add a new store in a middle sized market like Indianapolis that’s at 8% or 9%, we pull that thing down towards the long-term goal of maybe occupancy expense can be something closer to single-digit over a period of time. It’s interesting to think that last year, we had 11.3% EBITDA on a minus 0.8% comp.

So our comps were down almost 1% and we have a little over 11% EBITDA. Before we went public and the years between the great recession and 2 years ago when we went public, we always had about 11% EBITDA too, but it took a positive 4%, 5% or 6% comp store sales increase to get us that 11% EBITDA. Now we get 11% EBITDA with a negative 1% comp.

I can’t wait to see what our EBITDA will be with a decent comp here in the future. That’s working on SG&A expenses which we emphasize since we didn’t do a very good of job at that in the third quarter, but it’s also scale. A company like ours needs to grow that’s why we intend to do the 12% on a continued basis. And I am with you.

I would like to convince our merchants and our visual people that we can do in 19,000 what we do in 23,000 and we are actually looking pretty hard at that right now. We don’t all agree on it but we understand the business [ph]..

Okay. Thanks for that. I will it at there. Thanks..

Thanks Seth..

Thank you. Our next question comes from John Heinbockel from Guggenheim Securities..

Hi, it’s actually Steve Forbes on for John for today..

Hi Steve..

Hi Steve..

So looking at the store level labor model, right, you mentioned getting payroll costs back to an appropriate percentage of sales in the fourth quarter while providing a – still providing an enhanced floor coverage, so can you just give us some color on what will change in the fourth quarter, is it simply reallocation of labor hours between the departments?.

Really – I am sorry, this is Jodi, Steve, just so you know who it is. The main difference between the third and the fourth quarters for us is that the initiatives are generally launched at this point. We only had three stores left as we started the fourth quarter, whereas third quarter was a large final push to get these into the stores.

So our stores now have digested all of that initial change at this point. We have always planned our store payroll around the percentage of sales and that is absolutely what we intend to do in our fourth quarter. We ran into some challenges doing that during the third quarter, when we were marrying up a change in store trend.

As I noted, we went from a trend of up 1.3% in the first two months to where it was down 1.2% in November. And in addition that was during the very peak time of when we were rolling out our TCS Closets. So, it was more challenging to flex the payroll to the degree we historically have done.

However, in fourth quarter, we anticipate being able to more flex the payroll around sales as we have always, always been able to do..

Right. And Steve, it’s Melissa. The fourth quarter of course is critically important for us, because it is the Elfa sale. And we have probably 80% less as Jodi said earlier with the Elfa sales. So, we are going to watch it closely though. It’s all hands on deck that’s for sure..

80% percent of the Elfa sale left and it’s even bigger than holiday trips in both sales and sales and earnings. It also relieves SG&A expenses a great deal to have the biggest initiative of our history completely ruled out. It’s ruled out..

And I guess, just correct me if I am wrong. I believe in the past you are testing different labor models, right, where that be a mix of full-time versus part-time.

I mean, where are you at that? Are you happy with where you guys are today? Are you still testing different models or is there any update you can provide there?.

Steve, this is Jodi. Our store labor model has always had a predominant mix of really great part time people. There is a lot of very tenured wonderful part time people that are customers of our store and have flexible schedules that really work great in our business model.

So, we have been very successful with having a larger portion in part time and have continued to do that. We have tested as you know differing models with percentages of full-time, part-time and really feel like sort of our typical mix of where it’s roughly three quarters part-time, roughly 25% full-time, but that works quite well with our stores..

It’s interesting. I have spent a lot of time talking to the retailers about that. We used to think that we needed to get more full-time. The reason we estimate part-time is not to put money on benefits that’s not what drives that.

It’s having the precision and ability to have optimal store scheduling, which is much easier to do if you have – it actually requires a majority part-time population to do that.

But even though you would think a full time person would know more, care more, be more involved than a part-time person, in a way, if you are a retailer, even if you are a retailer that pays well, you can do a better job hiring your customer on a part-time basis, because our customers are quite high income, they are very well educated and so people that just are customers that love The Container Store, we can get an extraordinarily overqualified, high caliber part time person to work for The Container Store on a part time basis and it’s much more difficult to get that same person to work on a full-time basis.

And that’s kind of the bottom line of that experiment is like, oh, these people, they won’t work for us full-time, but they will part-time, we want those people..

Right. And also, don’t forget that our part-time people which we call prime-timers, I mean they are so critical to our business and we provide way over 170 hours first year training for them and that’s just the beginning. So, I think relative to the industry I know into other retailers our prime time turnover is low..

But we have executive’s mom working in stores..

Thanks, everyone..

Thank you..

Thank you. Our next question comes from Simeon Gutman from Morgan Stanley..

Hi, there. It’s Simeon Gutman.

How are you? First question, can you talk about markets where that have had seen little expansion and how those stores are performing versus stores that have received one or two or several new stores over the last couple of years?.

This is Jodi. I will take that question. I think you are asking where we have filled into a marketplace what’s happened versus where we have gone to new markets. And our opening store lineup has been a mixture. It’s been more weighted though to brand new markets. So, there is obviously no pull at all from any other marketplace.

We really do not see anything what you typically see in retail for the most part when we go in with additional stores, because we have spread out our trade areas for the most part. I would say there is one exception to that and that’s in the LA area. We did open in the Farmer’s Market area, which is quite close to Century City.

And we knew going into that, that, that would be some cannibalization impact between the two stores, but that overall, we felt like that would grow the trade area in an appropriate fashion. But generally for us, cannibalization is not a big topic of discussion like it is with some retailers just because we just only have 77 stores..

Okay. And my follow-up, a slightly different topic, investments.

I don’t know if you can roll the investment spending and some of the extra items we have seen in the last couple of quarters, if you can roll them together, maybe quantify them, detail exactly what they are and then it implies that 2015 is an investment year that they don’t persist next year.

Just given the timing of when some of them started, I would expect some to linger into the first part of next fiscal year, maybe that’s not right, but can you talk about that collectively please?.

Sure. Simeon, this is Jodi. If you look at our investment spending that we are doing for the year, as I think we could have outlined before, it’s predominantly broken down between payroll-related and marketing. And marketing, of course, we have done Closets and cocktails events in all of our key influencer big markets, in fact, number of markets.

We have done some very specific targeted marketing to get the word out that we sell Closets with some of our Shelter magazines and through some special billboards and just some above and beyond type things to tell people that after 37 years, we do carry this fabulous product.

The payroll-related costs have been – and let me just comment on that, I would think for next year, our marketing will kind of fold into we think of marketing as a percentage of sales to a large degree and we would think that, that would fold into a lot of our already brands marketing that we are doing versus as much as just telling the initial message like we have been doing this year.

As it relates to payroll, a lot of that has been training related. We have had to train every single one of our employees, every single one of our installers and every single one of our contained home organizers about this product, because it is so different than anything else we have sold in terms of it requires a deposit, it’s non-refundable.

There is a lot of different aspects to it in terms of even the selling process. With our low turnover, with all areas that I spoke to, that really isn’t a recurring cost. That kind of blends into our ongoing training that we are doing within our stores. So, that’s not something incremental.

So, we will be able obviously to quantify more clearly as we give our outlook for 2016, but there is definitely a large portion of that spending that’s not recurring..

Okay, thank you..

Thank you. Our next question comes from Dan Binder from Jefferies..

Hi, good afternoon. My question was around promotional activity competition and margin outlook for Q4.

I think if you have a FX benefiting you – FX benefit in Q4 and just kind of curious given what you have seen in sales trends, what you are planning on a promotional front year-over-year and then a follow up if I may?.

Sure. Dan, this is Jodi. Let me take that as well as it relates to fourth quarter gross margin. From a promotional perspective, we don’t have anything incremental planned in fourth quarter of this year versus fourth quarter of last year. Our fourth quarter is largely driven by two campaigns.

It’s the annual Elfa sale which we spoke to and then in December up until of course December 24 is the holiday campaign. So, in terms of incremental promotions, we are not planning anything of any significance versus last year. There would be some changes.

Some of the promotions we did last year with our new probabilities with over 3 million POP! Stars will focus a bit differently on a few than we did last year. But in terms of the margin impact, we are not assuming that there is going to be anything incremental from that..

No, we are doing – Dan, we are doing our in-store receipt bounce back which we utilized here as well. The timing is a little different, but there is not really anything major incremental..

In the second quarter, we experimented with a lot of female promotions more than we had in the past. There was a margin hit to that in the second quarter. In the third quarter, by that time, we kind of figured out which of those was better to do, more strategic to do, more profitable to do.

And so we had a little bit of a margin blip in the second quarter due to the combination of that and the $75 free freight thing that has now worked itself out, and we think that, that aberrant – I think that’s kind of limited to the second quarter, the very beginning of the third quarter and we are well past that now..

My follow-up question is just regarding the consumer, especially your consumer, I mean, willingness to invest in the home is higher now than it had been in many years and you seem like you have positioned well from a product perspective, I am just curious what you are thinking about your pricing and value proposition and your ability to convert online if you think there is a need to make adjustments there to capture loss share?.

You want me to start on that. I would be happy to do and then you got to add on. I mean in terms of our – we look closely at our online customer versus our brick-and-mortar customer in terms of what they are buying and the activity we see there.

And with the exception of TCS Closets which is not sold online and Elfa which we sell much more of that in-store than we do online, although we do sell some online, we really don’t see a much of a change in terms of the basket. The same customer experience and the same customer purchase patterns can occur in both of those channels.

So really in terms of pricing, in terms of offering products, for us I think it continues to be very much about making sure that we have got those proprietary exclusive items, that we continue to have that high service environment whether it’s online or in-store, we try to make our online site as replicated as much as you possibly can to offer that full-service.

And keeping that differentiation so that we – I know we have talked about it many times, that our customers by many items, it’s a solution they are buying, it’s not just necessarily an item purchased with us which I think is a huge distinction between us and some of the competition..

And the proprietary..

Okay. Thanks..

Sure..

Our next question comes from Matthew Fassler from Goldman Sachs..

Good afternoon..

Hi Matt..

Well, the first….

Matt, we can’t hear you..

Okay. We did lose his line. We will go to our next question coming from Matt Nemer from Wells Fargo Securities..

The other Matt, good afternoon..

Hi Matt..

Hi Matt..

So I just wanted to go back to the non-closet business and then I would promise I won’t to call it core, we will call it non-core, but could you just provide any context on which categories have been seeing more substantial declines, whether it would be kitchen or laundry or travel, I think we would just like to get a little more detail on how sustainable the softness is on that side of your business? Thanks..

Do you guys want me to take that? I mean, I can start that..

Yes. You can supply the numbers. I can see you are reaching for them..

No, no. I just was going to look at the department information. There really isn’t anything specific to call out in terms of the specific department that is notable other than we talked about Elfa and we talked about TCS Closets..

Yes. And I would not characterize it as giant online competition fatigue. I would characterize – I would suggest that it probably has more to do with focus or lack thereof, and that we are embarking on this TCS Closets, Elfa, closet focus. That is where our training is, that is where our marketing is, that is where our entire focus is.

And now that TCS Closets has rolled out, I think we would get back to more normal training. Every hour you train somebody is expensive and so we can kind of get back to our usual focus, our usual training. I think you will see that balance out. So it’s important to note that it’s probably more self improve focused than it is competitive issues..

No, I think that’s a good point, Kip. I mean I think the reality is we have said it before. We took on rolling out these initiatives in a really short timeline for our size of company because we just felt as though the potential impact of the business in 2016 and beyond was so significant potential that we really should try to fast track it.

And I think it’s fair to say that it’s consumed a lot of our resources and we are very, very glad that they are in our stores, rolled out and that’s behind us..

100%..

Yes..

Also remember that the vast majority of the products in the kitchen section, in the travel section, in all of the sections are proprietary in nature, they are exclusive or proprietary in nature and that they are sold as Jodi mentioned a moment ago, as solutions rather than items which is helpful.

You don’t get a lot of competition on solutions based selling and of course, you get much less competition on exclusive or proprietary products. Now sometimes, a Mercedes can look like a Ford, but it helps a lot to have proprietary products and solutions-based selling..

Great, it’s helpful. And just a quick follow-up, on new stores, you talked about how happy you are with the contribution, the year one economics, but as we calculate new store productivity, we are coming up with something just below 50%.

So I just – maybe that’s a normal number, but I am just trying to understand what the disconnect there is, is it – could it be timing, is it that some of these are smaller markets and so the dollar volumes shouldn’t be as high, how should we think about new store performance relative to the calculated new store productivity? Thanks..

Yes. We are having a big romance with middle sized markets. And I think Jodi can answer this for you clearly. So we are opening $6 million to $7 million stores that are highly profitable, but we used to open a store that wasn’t going to be at least $10 million, and we found out that’s wrong.

We should love some of these $6 million and $7 million stores of revenue.

Can you explain that better Jodi?.

Yes. Matt, this is Jodi. I think one of the things that will be helpful for you is the combination of a lot of the factors you just spoke to. Our 2015 class of stores was anticipated and is experiencing sales around $6 million a year annually, so less than the $9 million on average that the non-Manhattan base does.

If you include Manhattan, it’s actually more like $9.5 million which of course, you are looking at that on an overall basis with Manhattan, doing it at the high level. So that has impact to it. Also, the fact is that – and that weighs into the fact that Kip just said there are some middle markets that are kind of playing into the mix.

It’s also timing of when the stores are opening versus last year. We are more back end loaded with the openings this year versus last year, so I think that’s part of it..

I think we only had one in the first quarter or something like that....

Yes. We opened six of our nine stores opened in the second half of this year versus only three of seven last year. So it’s the mix that’s impacting it, it’s the timing of when they open. And I know you are also aware of it, the movement of services into the comp and out of the non-comp revenue bucket had an impact on the calculation this year as well..

Great, it’s very helpful. Thanks so much..

You’re welcome..

Thank you. Our next question comes from Matthew Fassler from Goldman Sachs..

Hi guys.

Hopefully you can hear me better this time?.

Yes. We can..

Great. Sorry about that earlier.

So two questions, first of all, I think two questions ago, Kip, you addressed some questions about e-mail marketing, can you talk about how Q – you are using learnings from the POP! Star database for CRM efforts that might have been incorporated into that answer, but how far along that journey would you say you are today?.

E-mail costs less than $0.01, our direct mail catalogs costs $0.50. It’s been a massive migration for us. We have built our business for almost 40 years on mostly print medium direct mail. It’s very, very, very expensive, but I can’t believe the power of an e-mail for less than maybe 1% to 2% of the cost of it.

And so we are still experimenting with that and we are seeing a lot of success. We are learning to focus on the pertinence of the individualized POP! Star to thrill particularly her. We are learning to be very strategic rather than kind of silly in a discount. You don’t just give 15% off the whole store, you focus on a dorm room to buy that value.

You focus on installation, the free installation.

But Melissa, do you want some more specifically to the – support of this question there?.

Yes. This is very important question, I appreciate it. We are definitely, as I mentioned earlier, really using a lot of our analytics. And all of the test and learn that we have done and we will continue to do to be much more strategic. And as Kip said, e-mail is so much less expressive, so it’s a balance.

It’s a balance with all of our kind of what we call our magical marketing mix to know how to communicate to the customer and get her to respond in a way that we want her to and the way she wants to. So in the fourth quarter and the next year, we are going continue to do our test and learn.

We are going to continue to use our analytics and invest in that part of the business and speak to her in a very, very, very personalized way. So basically kind of reiterating what we have said, but that’s the truth..

We are trying to thrill and delight without needlessly giving away gross margin. That’s the problem with most people’s loyalty programs. And it’s, oh, boy, it’s tempting to just give away needlessly margins, but I think we are doing a pretty good job of that. We are only going to get better at it.

The POP! thing is still new too and there is a lot of room for success there, because $0.01 is less than $0.50..

Got it. And then the second question, so as you know, I am fairly new to covering the company, but I see your footage growth rate. And clearly, the business has not delivered on your financial expectations.

What would it take financially for the performance of the overall company for you to slow that store growth rate? And do you think that perhaps, the store opening effort which is substantial given double-digit growth could potentially dilute efforts and stabilize same-store sales performance as we are operating today?.

Well, I mean, we just – it’s kind of like I know your kids, I know your family, I mean, it’s not going to help comp store sales for us to slow our new store growth.

It’s just not the same people, it’s not – it does the things that I outlined, but it’s not going to help that and we – if you look at the new stores over the last three years, there is a close to 20% first year four walls EBITDA return on that. The return on capital is about 2.5 years.

Most people that we share those numbers with seem to feel that that’s pretty rare business opportunity.

And then there is another trend that’s going on that the key developers that we are working with are getting more aggressive in working with us to get more and more turnkey so there’s better and better rent structure, so there’s less capital and less rent expense involved with it. But we look at that all the time.

Believe it or not, in the 37-year history with tenant store, I have personally always been the one that was kind of the anchor to growth. I’m so delighted in the joys and the profitability of maximizing comp store sales. I know it’s hard to tell here last 1.5 years or so but that I always want to focus first and foremost on that.

So, we are not married to the 12% thing, it just seems like it’s going very well on that end and not interfering with the more important comp store sales thing. These comp store sales are unacceptable. We have been encouraged with our comp store sales improvement for most of this year. We expect that to continue into the future.

And if new store growth ever really and truly objectively gets in the way of that, then we will discard that in favor of more comp store focus, because clearly, it’s more profit. New store growth is not nearly as profitable as comp store growth..

Fair enough. Thank you so much..

Thank you. Our next question comes from Denise Chai from Bank of America Merrill Lynch..

Hi, thank you. First, I had a question on cost savings.

So, you have talked about payroll and marketing, but are there any other big buckets where you see opportunities for example, sourcing, supply chain or corporate overheads?.

Hi, Denise. This is Jodi. And we are absolutely going to be looking very, very closely and are looking very closely and hard at every single expense item as we go through our 2016 planning process that we have started.

And we are going looking into much more detail when we release our further quarter results and provide our 2016 outlook in April, but everything is on the table for discussion..

Got it. Thanks.

And then just on the Closets business, I see in your release, you have got these Closets transactions per week per store, was that per store where Closets were available or is that looking at the overall store base?.

That’s looking at where Closets are available, Denise. So, wherever we had – so basically, I think that’s an important stat to flag. Everywhere we had any store that had profit we count that into the calculation. So, it’s not growing, because we have added stores.

It’s growing because we are selling more per store as they are getting more experienced, as they are getting more comfortable, as the awareness of the product is growing. It’s a metric that really shows that we are getting better just like we thought we would at selling closets..

Well, there is a history to our big new initiatives like that. Just like a golf game, just like a tennis game, the first year is not as good as your second year and third year. Typically, these giant initiatives historically have started out slowly. You can take the big core part of Elfa is the more expensive part of Elfa.

The first year, it didn’t sell at all. The second year, it started selling better. Now, it’s over about two-thirds of our Elfa sales. The mesh drawer for Elfa didn’t sell at all the first year. Well, long story short, now it’s 94% of our sales and we are discontinuing the Swedish drawer.

These big initiatives, that’s our lifeblood and that we have kind of noticed we had a dirth of for a while, as luck would have it right at the time that we went public, we were focusing on today’s sales and earnings, mending SG&A, a still checkered economy between the great recession and now.

We were saying hey, don’t get into so many of those and we had a little dirth of these big initiatives that hit right about the time that we went public and we didn’t recognize the importance of the cadence of that. We need one every 3 or 4 years, one or two or three, because that’s what kind of drives comp store sales.

So, the fun thing about TCS Closets or for that matter, any of the other major initiatives we are working on now is that you get a lot of growth out of them for 3 or 4 years. And then you better have your next set of 2 or 3 or 4 big merchandise driven initiatives. We now understand that.

And those are already on their way, because it will climb in the year two, it will climb in the year three, then they tend to level off and then you need to be bringing in the new ones, if that makes sense.

I didn’t say that very well, but we have discovered after 37 years that there is a proper cadence to our big giant merchandise driven initiatives like TCS Closets..

Also Denise, this is Melissa. Also, I know we have talked a little bit about this, but we are seeing more and more of our customers choose to work with our in-store well-trained sales people and not necessarily utilize the Contained Home additional organizing services.

And in fact in the third quarter, Jodi, I think we saw more and more of the majority of those really hitting our in-store sales people, which is great. We want to give them whatever path to purchase they want and however they want it.

And many of those customers will work with our in-store sales person will install the TCS Closets or Elfa or whatever it is and then the Contained Home organizer will come back and they may choose to use organizational services. So, it’s a – again, we wanted to sift in those aided the offering which is what we are trying to do and what we are doing..

Got it. Great. Thank you for those explanations. And I just want to check on credit for your Closets business.

Sorry, before you said spring, is it safe to think it will be in place by the beginning of your first quarter?.

No, Denise. This is Jodi. We have not come back with an exact date on that at this point. Yes, we have said spring and we will announce the exact timeframe once we have a firm date.

Really, the longest piece for integration has been that we are, from an IT integration perspective, perhaps more detailed than you want to know, but we moved to point-to-point encryption in our payment card environment earlier this year and we want to ensure that we link synchrony into this platform which does cause the system integration product to be a bit more complex.

But that said, we are still very much planning to roll that out just as quickly as we can in the first half of 2015 – ‘16, sorry..

And that has to do with security, right, Jodi, I mean, it needs to be very, very, very secure..

Well, we chose to be very demanding on that. I think our decision even though it slowed it down intolerably, but its right to get that right to begin with..

Okay, understood. Thank you so much and good luck..

Thanks, Denise..

Thank you. At this time, we have no further questions. I will turn the call back over to management for closing comments..

Thank you everyone for joining. We appreciate your time..

Thank you. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..