Greetings and welcome to The Container Store’s First Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I’d now like to turn the conference over to your host, Caitlin Churchill of Investor Relations. Please proceed [technical difficulty].

Good afternoon, everyone and thanks for joining us today for The Container Store’s first quarter fiscal year 2022 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’s plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.

Actual results could differ materially from those anticipated in these forward-looking statements.

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 June 2nd, 2022, as updated by our quarterly reports on Form 10-Q and other public filings with the US 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 their forward-looking statements. 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 to the most directly comparable GAAP measure is also available in The Container Store’s press release issued today. A copy of today’s press release and investor deck 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..

Thank you, Caitlin and thank you all for joining our call today. I’ll first discuss our fiscal 2022 Q1 performance, followed by an update on our growth initiatives. Jeff will then review our financial results in more detail and discuss our outlook.

Our first quarter results reflect a solid start to fiscal 2022, as they exceeded our expectations on the top and bottom line. I’m proud of our team’s agility and performance.

They continue to successfully navigate a dynamic consumer environment, while staying focused on our long-term objectives of reaching $2 billion in sales by the end of fiscal 2027. For the first quarter, consolidated net sales were $262.6 million, an increase of approximately 7.1% compared to the prior year.

The outperformance versus our expectation was fueled once again by Custom Closets.

From a profitability perspective, we delivered adjusted EPS of $0.21, compared to $0.36 in the prior year, as we absorbed higher freight and commodity costs, restored expenses that were pulled back during the heights of the pandemic, and investments to support our path to $2 billion in sales.

Our strong Q1 results reflect the strength of our action as we reacted to the ongoing dynamic consumer environment. This environment particularly impacted our General Merchandise business, as customers returned to more normalized summer activities and continued with increased inflationary pressures.

Despite today’s reality, our teams did well, pivoting and delivering smart and engaging promotional campaigns that still drove profitable growth.

As I mentioned, Custom Closets performed above our expectations, and we were pleased with the customer response to our Avera Premium Closets event, which helped deliver strong sales at lower promotional rates than the prior year.

The Avera event was an Organized Insider event, requiring customers to be part of our loyalty program to be eligible for a discount. Additionally, we tiered this discount so that our most loyal customers, whom we call Experts, received a higher discount.

Total sales for the Avera event were nearly 9% higher than last year and further demonstrated our ability to sell premium spaces over $2,000 as the average face value was above $7,000, up 22% for last year.

The tiered discount approach led to an average discount for the event that was less than 20% compared to a discount of more than 25%, the prior year.

Shortly after the Avera event ended, we continue to see strong engagement in Custom Closets through our More Space, More Savings Elfa Event, and I look forward to sharing details of that event, which ended in mid-July in our Q2 earnings call.

Within General Merchandise, despite a tough compare in Closet and Storage categories over the last year, we were pleased with the strength we saw in our Kitchen, Office and Bath categories. Within our Kitchen category, the Home Edit product sales increased over 50% compared to Q1 of last year.

However, we were most encouraged by the growth of our private label, Everything Organizer collection, which saw a triple-digit increase over last year. Our Bath category also benefited from sales of the Home Edit product, which were up nearly 40% in Q1 compared to last year.

In May, we introduced the new wave of sustainable and elevated KonMari products in a variety of categories. Our Office Department benefited from these new products, as well as from our private label multipurpose build, which were recently introduced in new colors.

As we look ahead, we have recently launched a compelling collection of premium home fragrances, featuring candles and diffusers from LAFCO, Pura, Capri Blue and more.

Early results indicate this as a highly productive use of space in our stores, which is why we plan to take it a step further and refresh our Impulse products located near checkout, with a selection of carefully curated and eco-friendly consumables.

Our results this quarter also benefited from our new loyalty program, Organized Insider, which is a key priority given our focus on deepening our relationship with our customers.

Since the launch in late March, we have seen over 100,000 customers cheer up, progressing either one or two tiers, we’re seeing a higher average ticket over 60% for loyalty members compared to non-loyalty members.

And when it comes to our top tier members, our Experts, we are seeing them spending five times more than our first tier Enthusiast and are visiting twice as frequently. We’re also seeing that our Kitchen category is resonating most without Enthusiast, whereas Elfa is resonating most with Experts.

We intend to capitalize on the opportunity to not only add new members to our loyalty program, but also to increase engagement and spend with existing customers so they can move up in their tiers. We’ve also made progress on Expanding Our Reach through, with the strength in Custom Closets and through our robust pipeline in for new store growth.

At the close of Q1, Preston displays were installed in 60 of our 94 stores with plans to complete the rollout during the second quarter. As a reminder, Preston is our custom wood-based system that replaced our former offering, [Lauren] [ph].

Preston office built in luxury in 11 premium finishes with a variety of door hardware, lighting and accessory options like a hamper, pull-out ironing board and wine rack. This premier offering is suitable not only for closet, but for all areas of the home, including pantries, offices and living spaces.

Since launching Preston, we have built a strong pipeline of designs with a healthy average ticket of over $8,500 in Q1. As we laid out on our last call, we see significant whitespace to grow our store base. We are on track to open our first small format store in Colorado Springs, Colorado in the second quarter of fiscal 2022.

And we plan to open a second small format store later in the winter. As previously mentioned, we plan to open 76 new stores by the end of fiscal 2027. We anticipate one-third of these new stores to open by the end of fiscal 2024. And we have these locations targeted and active in our pipeline.

As we continue to strengthen our capabilities, we are very encouraged with the momentum we are seeing with our mobile app, which launched in Q4 of fiscal ‘21.

Over 80% of our mobile app users are loyalty members, and the app is converting at a rate double that of mobile web and with an average ticket of over 30% higher, while the app makes up just 5% by web-generated ecommerce sales at present, it provides a superior customer experience compared to mobile and served as an opportunity to reengage lapsed customers.

Additionally, we were pleased with website-generated sales, which are up 2.2% for the quarter, as consumers are pulling back from pure online shopping and returning to stores. Given this consumer shift, we are strategically encouraging and incentivizing customers to buy online and pick up in-store, which helped saves on freight costs.

Our results reflect a solid Q1 performance, despite some periods of softness primarily around holidays when consumers are enjoying summer activities or traveling. As we look to the rest of the year, we are revising our outlook to reflect the impact of inflationary pressures across our business, including higher interest rate.

Despite this environment, we believe a continued focus on our objective and executing our initiatives will position us to achieve our fiscal ‘22 goals and make progress on our path to $2 billion in sales. As we plan for Q2, we’ll be intently focused on back-to-college.

We have created a compelling can’t miss college shop at the front of our store showcasing must have products for dorms and apartments. We’ve also teamed up with Dormify, a direct-to-consumer brand to showcase their bedding, headboard and lamp in 10 of our stores located in key college markets.

This partnership and the product showcase help round out our college offering.

To add to the success of our Kitchen category, we have also launched a new and exclusive product line with New York Times best-selling author and YouTube star, Rosanna Pansino, the Rosanna Pansino Collection by iDesign includes clear storage bins, canisters, mixing bowls, turntables, a cake dome and more.

These products are made of sustainable materials, including 100% recycled clear plastic and Paulownia wood. The collection is a fresh take on some of our best-selling kitchen products and we look forward to seeing how our customer and Rosanna’s audience respond.

With the current economic backdrop, we also see our Kitchen category as a great resource for families who are cooking more at home. We’re also looking forward to launching our new Custom Spaces branding in Q2.

We are strategically moving our branding beyond Custom Closets to Custom Spaces to help educate our customers that our metal and wood-based systems go beyond closets. And that they are also meant for everyday living spaces, such as entertainment centers and garages.

We’ll continue to see a significant opportunity to drive results and gain market share in Custom Spaces. Finally, we are pleased that published our first Sustainability Report this past June, revealing key areas such as our product lifecycle and environmental impact, emissions and energy and diversity, equity and inclusion initiatives.

We look forward to continuing to update our stakeholders on our progress with this work on an annual basis. Before I close, I want to thank our teams for their impactful contributions in delivering a solid start to the fiscal year and for their continued commitment as we navigate a dynamic environment.

We will stay focused on our long-term goals, while remaining nimble and flexible to the changing consumer environment. I will now turn the call over to Jeff to review our first quarter performance in more detail.

Jeff?.

Thank you, Satish and good afternoon, everyone. As Satish said, we are pleased with our solid fiscal Q1 performance, with top and bottom line results that exceeded our expectations. Consolidated net sales increased 7.1% year-over-year to $262.6 million.

By segment, net sales for The Container Store retail business were $246.8 million, a 7.9% increase compared to $228.7 million last year. The 7.9% increase is inclusive of a comp store sales increase of 5.1%.

The increase in comp store sales was driven by Custom Closets sales, which were up 14.7% compared to fiscal 2021 and contributed 4.5% of the 5.1% year-over-year increase in comp store sales. Other product categories were up 0.8% in Q1 and contributed the remaining 0.6% of our comp store sales increase year-over-year.

The sales from recent acquired Closet Works and new stores contributed the remaining 2.8% to this 7.9% TCS net sales growth year-over-year. I’d like to reiterate, a reminder from our Q4 call. Historically, when we have referred to Custom Closets, we have included the General Merchandise closet department.

However, starting this quarter, when we refer to Custom Closets, we will exclude the General Merchandise closet departments from the amounts and only include the results of our Custom Closet product and service offerings.

We are making this change due to the importance of Custom Closets on our path to $2 billion and a desire to provide more transparency to the Customer Closet product and service offerings.

Please refer to the Q1 2022 investor deck for revised quarterly historical information regarding the mix of Custom Closets and General Merchandise product categories based on this new definition. For the first quarter of fiscal 2022, our online channel decreased 0.9% year-over-year.

However, when including curbside pickup, our website-generated sales in Q1 increased 2.2% compared to last year.

Website-generated sales represented a total of 21.3% of TCS net sales in Q1 of fiscal 2022 compared to 22.5% in Q1 last year, reflecting the expected normalization of traffic patterns across channels, following the pandemic-driven surge in digital channel performance.

We had unearned revenue of $24.7 million this year versus $21.6 million last year, driven by the increase in Custom Closets’ orders taken, but not yet installed, associated with the successful start of the More Space, More Savings, Elfa event that ended on July 11th.

Elfa third-party net sales of $15.9 million decreased 4.4% compared to the first quarter of fiscal 2021 and reflects the significant strengthening of the US dollar to the Swedish krona. Excluding the impact of foreign currency translation, Elfa third-party net sales increased 11.9% year-over-year.

From a profitability standpoint, our consolidated gross margin for Q1 was 57.1% compared to 59.6% last year, with the decrease driven by the higher mix of TCS segment sales, combined with lower gross margins at our TCS segment.

By segment, gross margin at The Container Store decreased 140 basis points compared to last year, primarily due to higher freight costs, which was partially offset by favorable product mix. Elfa gross margin was flat at 36.6% compared to last year, primarily due to direct material cost increases offset by favorable custom mix and price increases.

Consolidated SG&A dollars increased 10.7% to $121.9 million, compared to $110.1 million in Q1 last year.

As a percentage of net sales, SG&A increased approximately 150 basis points year-over-year to 46.4% due to increased compensation and benefit costs and increased marketing costs, reflecting the restoration of expenses that were pulled back during the height of the pandemic and additional investments into the business to support our growth to $2 billion in sales by the end of fiscal 2027.

The compensation and marketing increases were partially offset by leverage of occupancy costs on higher sales year-over-year. Our net interest expense in the first quarter of fiscal 2022 remain consistent year-over-year at $3.2 million. The effective tax rate for the quarter was 28.8% compared to 24.3% in the first quarter last year.

The increase in the effective tax rate is primarily related to the tax impact of share-based compensation on lower pre-tax income in the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021.

Net income for the quarter on a GAAP basis was $10.5 million or $0.21 per diluted share, as compared to a GAAP net income of $17.7 million or $0.35 per diluted share in the first quarter of last year.

Adjusted net income was $10.5 million or $0.21 per diluted share as compared to last year’s adjusted net income of $18.2 million or $0.36 per diluted share. Our adjusted EBITDA decreased 15.9% to $28.2 million in the first quarter this year, compared to $33.5 million in Q1 last year. Turning to our balance sheet.

We ended the quarter with $23.2 million in cash, $187.1 million in total debt and total liquidity, including availability on our revolving credit facilities of approximately $115.5 million. Our current leverage ratio is 1.1 times.

We ended the quarter with consolidated inventory up 31.5%, which reflects increased freight and commodity costs across our organization year-over-year. On a unit basis, our TCS on-hand inventory is down slightly year-over-year.

We have been and plan to continue employing multiple methods to help mitigate the impacts of higher costs, which include vendor negotiations actively managing our supply chain, along with adjusting our retail pricing and promotional tables.

CapEx was $17.6 million in the first quarter of this year, versus $7.6 million in Q1 last year, with the increase related primarily to investments in technology and our stores. Free cash flow in the first quarter this year with a use of $14.4 million versus a use of $3.8 million in Q1 last year. Now, for our outlook.

For the full year, we are prudently considering the current promotional environment for our General Merchandise categories, and that the current sales trends continue through the remainder of the year.

With that said, we still expect fiscal 2022 consolidated net sales of approximately $1.125 billion, driven by a low single-digit increase in comparable store sales and two planned store openings.

While we still expect operating margins to be in the high single-digit range, we now expect over 50 basis points of incremental operating margin pressure, as compared to our previous guidance, which excludes the benefit of an expected one-time legal settlement gain of $2.6 million from SG&A in the second quarter of fiscal 2022.

Approximately two-thirds of the operating margin pressure is related to additional SG&A deleverage, and the remaining one-third is related to gross margin pressure. As it relates to SG&A, we have factored in additional inflationary cost pressures into our guidance, such as increased outbound transportation costs.

The incremental gross margin pressure is related to higher than expected promotional cadence, as well as additional expected commodity and freight cost increases. Fiscal 2022 interest expense is now expected to be approximately $14 million, as a result of higher rates and our effective tax rate is still expected to be approximately 28%.

As a result, we estimate full year adjusted earnings per share to be approximately $1.10 to $1.20 per share with 51 million assumed dilutive shares outstanding. Our adjusted EPS estimate does not include the expected $0.04 earnings per share benefit associated with a legal settlement occurring in the second quarter of this fiscal year.

For Q2 of fiscal 2022, we expect consolidated sales growth to be in the low single-digits, driven primarily by comparable store sales at TCS, which is in line with our Q2 to-date trends, excluding the impact of a one-time legal settlement benefit of $0.04 per share, we expect adjusted EPS in the second quarter to be in the range of $0.20 to $0.25 per diluted share.

As a reminder, the second quarter of fiscal 2021 was the most profitable quarter of the fiscal year as a result of better than expected gross margins and lower SG&A costs. Our better than expected gross margin performance was associated with less promotional cadence and anticipation of higher commodity and freight costs.

The lower SG&A costs were a result of expense savings from pandemic-related cost reductions that were reintroduced starting late Q2 and into the remaining two quarters of fiscal 2021.

In Q2 of fiscal 2022, we expect our operating margin to be in the high single-digit range, with two-thirds of the expected year-over-year profitability decline driven by SG&A deleverage associated with costs that we brought back into the business in fiscal 2021.

The expected SG&A deleverage excludes the benefit of a one-time legal settlement gain of $2.6 million. The remaining expected profitability decline is associated with gross margin pressure, as a result of freight and commodity costs increases compared to Q2 of fiscal 2021.

Also, as Satish mentioned earlier, we are on track to open our first small format store in Colorado Springs, Colorado in the second quarter of fiscal 2022.

Capital expenditures for the full year fiscal 2022 are still expected to be approximately $60 million to $65 million for technology, infrastructure and software projects, new stores and existing store merchandising and refresh activities.

Given our strong balance sheet, and an anticipation of generating positive free cash flow for the remainder of fiscal 2022 and into the future as well as our commitment to delivering shareholder value. Our Board has recently approved our first stock repurchase program, which includes an authorization for up to $30 million.

Stock repurchases may be made in the open market, or to be negotiated purchases, but the amount and timing determined at the company’s discretion. We do not expect to incur additional debt as a result of these stock repurchases. This concludes our prepared remarks. I’ll now turn it over to the operator to begin the Q&A session..

Thank you very much. At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Steve Forbes from Guggenheim Securities. Please proceed with your question, Steve..

Thank you and good afternoon. Satish, I wanted to start with the planned completion of the rollout of Preston to all stores during the current quarter.

So just curious if you can help frame the cadence, the rollout you know when – when will it be completed? Maybe you know what – what space is it replacing in-store? Is it consistent within region? And – and whether the updated outlook assumes any productivity assumption from that space as we – as we update our models here?.

Sure, thanks, Steve. Thank you for the question. So I’m actually pleased to announce we have now completed the rollout of Preston throughout our stores, we just completed that. There’s some minor touchups that need to happen. But they are now all in stores.

And as I mentioned in my prepared remarks, we’re really pleased with the pipeline that we are seeing with these designs, with the average tickets of over $8,500. So the – the reaction from our customers have been quite pleasant. They’re amazed with not only the quality of the offering, but also as all of the additional features that come with it.

And we’re really excited to be able to get that into our customers’ home as quickly as we can..

And just on, Steve..

Yeah, go ahead, Jeff..

Yeah, Steve, just a – just to follow-on that. The – the Preston product lines that are going into our stores are the replacement of the Lauren lines that we have today.

So – and that – and we do factor in into our outlook, the ramp up of that Preston line in our stores through the remaining year and have been doing so as part of the original budgeting process..

Thank you. And then – and then just a quick follow-up. As we think about the commitment to the openings, it really – through 2024, I think it’s 24. So can you provide just some additional color on how the – the pipeline is coming along? I think you mentioned right that the real estate is – is – you’re sort of in the search process here.

But, how are the lease signings coming along? And – and how should we expect that sort of pipeline to build here as we look out over the next 12 months?.

Yeah, I’ll answer it first and then Jeff can chime in as well. We’re – we’re really pleased actually at our ability to locate and negotiate some really great leases.

As we look at not only 2023, but also ‘24 and ‘25, we have an amazing real estate team and they are – they have boots on the ground really stick around these great places and in locations that we’re very, very proud of.

And so it’s still very much fluid – it’s very much fluid in terms of our ability to not only negotiate the leases, but also sign them. But we’re pleased with what we’ve been able to identify so far and our pace of opening them..

Yeah, just to add to that, again you know we’re expecting one-third of the 76 stores through 2024.

And while we do have a pipeline actively working, like since you said there’s a lot of factors that come into play you know I will say, looking into 2023, we haven’t announced anything yet, but we do have a very solid pipeline as we’re looking 2023 and we’re building one for 2024.

So, at this point in the process, I think the real estate team has done a great job working on our ambition of that growth of additional 76 stores and we’re looking forward to sharing more in the coming months..

Thank you. Best of luck..

Thank you. The next question comes from Kate McShane from Goldman Sachs. Please proceed with your question, Kate..

Hi, good afternoon. Thanks for taking our question. I wondered if you could talk a little bit more about what is being assumed in your guidance for promotions this fiscal year.

I know that this is something that you’ve been pulling back on, as you mentioned in your prepared comments, I think your marked down rate was lower for one of your annual sales versus the year before, but just how you’re thinking about the promotional environment in the context of a tougher macro backdrop than just a promotional environment across the Board and in retail?.

Yeah, sure, thanks, Kate. You know as we said earlier you know we’re definitely navigating a very dynamic consumer environment.

And also not only contending with customers who are really enjoying – finally enjoying their summer activities and travel, and then there are customers that are also kind of looking for and expecting more value, given current inflationary pressures.

With that said, you know we really are a proud of the fact of the way that we are delivering smart and engaging promotional campaigns. We kind of do that in three ways.

We do it through our loyalty program, we do it through some of our spend more, save more events and also through our amazing private label assortment, which not only delivers on quality and innovation, but also on value.

And so the recent examples of that was the Avera event, as we mentioned, sales were up 9% of our OI, and the discount was less than 20% versus 25%, which was what we experienced last year.

We also did it within our General Merchandise, we held a limited time-only Buy More, Save More event in early June with the Home Edit and that really drove some significant growth in Kitchen and Bath. Again, where customers are spending more, there are – they have the ability to save more.

And we currently have a very compelling back-to-college campaign, where customers have the opportunity to save in a variety of different ways. And so it’s really been smart of engaging that customer. So they – they can see the value in what we’re offering. But while we’re doing it in a very profitable and mindful manner..

Thank you. If I could just ask a second question about back-to-college.

Could you maybe characterize for us what you’re expecting in terms of the demand for back-to-college versus last year? Would you have just defined last year as a normal year for back-to-college? Or are we still lapping what might be still some easier compares when it comes to that particular season?.

Sure. You know we’re really excited about our back-to-school offering this year. Last year, I think we were kind of playing into it engaging with customers. And this year we’ve – we’ve made significant improvements in the way that we come across with our expression.

So, we have our Front of Store Spotlight as I mentioned earlier, and a dedicated online landing page, showcasing you know some really amazing products like our 3-tier Rolling Cart, Under Bed Storage, Notebooks, Planners, and most famous, Elfa Printer/Fridge Cart. And that really is engaging with our customers.

We also partnered with Dormify in 10 of our stores, really delivering on a more complete experience. We also went on campus for the first time engaging with local schools so that we could really get the awareness out there that The Container Store really competes in back-to-school.

And have recently just rolled out an amazing reusable shopping tote, which is an instant hit with customers. So big for us. You know, we’re now playing much more strongly in back-to-school, we will continue to play strongly in back-to-school and really encouraged with the results that we’re seeing over OI so far..

Thank you..

Thank you. The next question comes from Ryan Meyers from Lake Street Capital Markets. Please proceed, Ryan..

Yeah. Hi, guys. Thanks for taking my questions. First one for me.

I wonder if you could just kind of highlight what store traffic has looked like maybe in the first quarter and kind of how it’s tracking so far in Q2?.

Yeah. Ryan, hey, great to hear from you. You know our store traffic, it is slightly down is what we are seeing there have been pockets, in particular, during the holidays that we’ve seen it down even more, but it is absolutely more than offset by whether it’s a combination of our conversion rate or our average ticket.

And so it’s our ability to really engage with customers and get them to add on to their purchase, I think our specialists in our stores just do a brilliant job of really spending quality time now with those customers that are coming in, so they can understand the projects that they’re taking, and so that they can give a full – a full level of service to them..

Great. Now, that’s helpful. That’s all I had. Thank you..

Sure..

Thank you. Your next question comes from Chris Horvers from JPMorgan. Please proceed, Chris..

Thanks, good evening. So I had a first question on Preston and then a couple model follow-ups.

So, the first on Preston, could you talk about how expensive the change in the line was relative to the prior line? You know sort of how many incremental finishes there were, so maybe how much store space – space in the store it’s taken up now versus what it did currently, maybe a number of SKUs?.

Yeah, what I would tell you, Chris is that, today we – we offer 11 premium finishes now, and which was more than I believe we had you know with our Lauren line, but I tell you what, is really, that the consumers are really paying attention to is the customization of our product.

So we’re able now to offer a far more customization, whether it’s drawers, we obviously have the 360 revolver, that has been a great hit with our customers as well, lighting, hardware, a variety of different accessories that come with it.

So the expensiveness actually is, it’s quite big as our customers choose whether or not for example, they want to have back panels on their – on their designs or not, whether or not they want to have glass, and we have a variety of different glasses we can offer with this frosted or see through or opaque glasses.

And that’s really what’s exciting for customers to engage in. And you know when I look at what we’ve been able to do just for the month of July alone in Preston, it’s far surpassed what we did in Q1 alone. So clearly, we’re seeing a huge pickup in – in the demand for Preston.

And will you know I would tell you, we’re just getting started with that line..

Got it, makes sense, a lot more customization.

And then, on the – in reference to the prior question that was asked in Q&A, maybe could you delve into sort of how the cadence of the quarter looked when you talk about you know some moderation around the times of holidays and presumably that’s – that’s a July 4th sort of impact? Is that – are you referencing that? And maybe what are you seeing at the category level? Is it more than the General Merchandise that where you see the – you know sort of the air pocket of demand? Is – is it also showing up on the Elfa and the Custom Closets side?.

Yeah, when it comes to holiday was definitely some of it was Memorial Day. You know more so and a bit of that during the July 4th, for sure.

And in terms of categories you know it was softer on the General Merch than our Custom Closets side of the business that continues to deliver as you saw double-digit growth over OI and seeing great performance, not only with the Avera, but also with Elfa, very pleased with our ability to continue to win in the above $2,000 in space as you know, that’s where we see significant upside in our growth potential and our path to hit $2 billion in sales.

Specifically, within General Merch, you know very pleased with what we saw in Kitchen, in particular, and in Bath and in Office, great categories doing well for us. You know we have some tough competitors, in particular, around closet and storage.

And that’s because we were essentially anniversarying a pretty big promo – promo event that we had last year, which is our Closet Essentials Sale that ran from what mid-April to the end of May. And so that’s what we were trying to anniversary this time period..

Got it. And then just one quick modeling one.

On – on the gap between the sale, total net sales growth and in the comp growth is – is that wholly made up of Closet Works and so within that sort of low single-digit outlook should sales be sort of at the high end of that and then the comps more towards the midpoint of that?.

Chris, are you talking about the Q1 GAAP?.

Yeah..

Between Closet?.

Yes..

Yeah and how to think about it going forward?.

Yeah, so you’re correct. The difference that 2.8% between comp store and the total was primarily related to Closet Works. Historical business, they had the dealer network, and that – that we had a backlog that we’re working through.

As we moved forward, going forward as we’re now offering that Preston line exclusively in our stores, and no longer within that dealer network, we would expect the impact of the Closet Works historical backlog to fall off sharply starting in Q2..

Got it, makes sense. Thanks so much..

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Satish for closing remarks. Thank you, sir..

Well, thank you again for joining us today and for continuing to follow The Container Store’s growth story. Look forward to when we can discuss our Q2 results. Until then, thank you and good night..

Thank you. This concludes today’s conference call. You may disconnect your lines at this time and thank you very much for your participation..