Everyone. Today we're happy to be introducing The Container Store. Today we have with us Satish, Chief Executive Officer, and Jeff, Chief Financial Officer. Thank you so much for joining us today. We're starting with an intro question just to kind of launch us into our conversation with talking about just 2023. And could you maybe talk through some of the bigger challenges for Container Store this year, and maybe what have been some of the bigger wins for the company? Yeah, sure. I'll take that question. Thank you for having us, first of all. I would say fiscal 2023 definitely has been a challenging year, given the macro environment that most retailers are facing. The headwinds are real. We definitely are seeing our customers contend with higher inflation, interest rates, and just a lot of uncertainty. And because of that, then we see a natural pullback in discretionary spending. And so it's one of the reasons we quickly in the start of fiscal 2023 decided to really put in place some cost-cutting measures, knowing that the first half was gonna be tougher than the second half. We feel proud to be able to execute that in the way that we thought we would without disrupting our customer service. In terms of some of the challenges, I would say, without a doubt, traffic has been down and continues to be down, and we see customers that do come into our stores having buying less transactions, less items because of the pricing. That's why we kinda played around with our promotional cadence to see what we could do to engage with them, and had some great learnings in the first quarter that we are deploying into the second quarter. We're also seeing some of our kinda more traditional storage and organization categories, decline much rapidly, much further than some of our other categories, particularly in the Home Edit line and WeCondo and Drop-Front Shoe Boxes. So all of those have seen kind of more pronounced declines, primarily 'cause we had a lot of success in the prior years. In terms of some of the wins, what I'm really excited about is that newness is working for us. We started to really get into newness, into new categories like our home fragrance categories and plant-based categories. They're doing both of those categories very well and comping over LY, driving in new customers. We completely reimagined our travel department, introduced new brands like CALPAK, Rains, Thule, and it's really resonated well with customers. They love, for example, with CALPAK, you know, not only the durability of the product, but the vibrant colors that it gets to offer, and we're actually chasing inventory because of it. That kinda led us to pushing a lot of newness for back to college. It was probably the first time that we really expanded our assortment. We've obviously had a relationship with Dormify. We strengthened it further. We introduced drop ship capabilities that allowed us to expand our assortment without carrying the inventory, and it not only drove new customers, but it allowed us to really capture more share of wallet. Typically, a customer would come in and only find certain items that we would necessarily have, in particular, underbed storage or a three-tier cart, and then would have to go to other retailers to kinda complete that shopping experience. For the first time, I'd say we captured a significant amount of that basket. I can testify, with my daughter going to college, being a freshman, 90% of her purchase happened at The Container Store 'cause we were able to carry all the products that she was looking for. Cool, innovative products, not only underbed storage, but also whether it be a fan or a humidifier, all the things that she was looking for, we had. So that bodes well for us in terms of newness and how it's resonating with our customers, and we have a lot more newness planned for the balance of the year and know that we'll make great traction there. In terms of another success, I would say, is our premium spaces, premium custom spaces, in particular, Preston. You know, we now have 130 in-home designers that have gone through a pretty rigorous training. They've gone through technical training, 3-4 days in person, where they're now really up to speed in terms of how best to put forth the designs that make sense for the customer. They're not overly complicated and can meet the budget for our customers, and that is really proving to be quite successful for us. In addition, with just all of the new innovation that's coming out of our Preston line, we've just recently launched Domus Lighting, which is a European lighting kind of best-in-class out there in our Custom Spaces, and it's integrated with your smart homes, so Alexa, Google. We've also put in mesh inserts into our doors, which really enhances the elegance of a custom space. And soon we'll have concealed hardware, as well as in-drawer lighting and toe kick lighting. So there's a lot of great things that are coming, and I think we can really expand upon that as our customers interact with us. And last but not least, in terms of what is really going well for us, I would say our in-store service continues to be incredibly strong. Our Net Promoter Scores are in the eighties. They continue to do well. Our service levels for our Custom Spaces are also continue to improve, and I think that really is a testament to the spirit and the passion that our specialists have, especially when you consider what they're up against and the headwinds that they're facing. ... So maybe we can talk a little bit about the macro headwinds that your customers specifically is facing. How much of your business today do you think is tied to the housing market? And when you think about, you know, the demand for discretionary categories, which I think most of your categories fall into, how do you think about how that plays out, you know, in terms of prioritization as we move through the year? You know, it's a difficult question to ask, to answer, rather, because of just the complexity of the consumer and the housing market that they're contending with. You know, one could argue, "Hey, when you've got a housing boom, you would expect to see a significant increase in volume." The counterpoint to that as well is today, customers, quite frankly, will not be able to purchase their dream homes that they may have thought they would a few years ago because interest rates are so high. And if anything, they will now have to contend with their homes, and we think will actually bode well in terms of, renovations that may happen, and we're obviously there to play, with our customers there. Make the most out of your home, and they can do that with The Container Store. If I take a step back and just look at the psyche of the consumer right now, I kind of put them in two buckets. Very simplistically, there's the customer that is very much value conscious, so they are engaging with us in categories, looking for a deal. It's very rampant out there in terms of the retail industry. There's a lot of retailers offering promotional discounts, and that seems to be the playing field that in order to... It's kind of training that customer, and in order for us to be competitive, we're obviously playing with those levers there. The value consumer also, I think, can benefit from our offering, whether it's Elfa, which is a very modular system, and it's a do-it-yourself system. It's a system actually you can take with you if you do end up leaving your home, and coupled with our private label assortment, which has smart price points. So I think there is a competitive offering there, albeit it's in a, you know, the macro environment of highly, kind of, sensitivity around pricing. Then we have another set of consumers that are more of the, the affluent, premium consumer. What they're looking for is really quality, and they're looking for customization, and they're looking for products that are gonna complete their homes. And as I said, we've seen great success with our Preston collection, and what we're looking to do now is enhance our Preston collection with more premium general merchandise. So funny enough, in all of our stores, we have a Preston pantry, and our Preston pantry is dressed up with products that we sell and with props. There's one prop in particular, which is a tea kettle that we have. It's a very elegant, beautiful pour-over tea kettle with kind of a gooseneck. Our customers kept asking about this tea kettle and whether or not we sold it. They wanted to buy the tea kettle, but it was a prop. Our visual merchandise team had did such an amazing job propping it out, but it wasn't a kettle that we sold, until now, that is. It is one of those, you know, items. It's through Fellow, and it not only looks beautiful, something that's a statement piece that you would proudly display in your home, in your pantry, on your countertop, but also has great precision, temperature control capabilities as well. And it got us to think about really enhancing our general merchandise product to complement our Custom Spaces. That's what that more affluent consumer is looking for, kind of reasons to come in to, to shop that will complete our spaces. We recently just partnered with Citizensry as well, which is another amazing company that offers really curated, specialized merchandise, home decor merchandise from around the world, made by artisans, and have ethically sourced product, and that complements a lot of our Preston designs, whether it's our primary closets or even our wall bed that we get to offer as well. And so that's what we get excited about. Like, we will absolutely work hard to engage the more value-conscious customer, but I think we have a tremendous amount of upside as we think about the more premium, affluent customer and how we can engage them with a complete offering. That's great. My next question was on Custom Spaces, which I know has been a big initiative of yours since you came into your role. How could you maybe take a step back and talk to us about how different it is today walking into a Container Store store, when it comes to your closet presentation, versus a couple of years ago? Yeah. I would say it's widely different today than it was 3 years ago, and I will tell you, we can continue to elevate not only in stores but also online too. The expression that we have online is fantastic. And I would say, like 2 years ago, we primarily focused on specific lines, in particular the Elfa line. It was the workhorse for us, and it does well for us, and it will continue to do well for us. But we never really thought about the whole home experience. We kind of treated it as individual lines. And so now what we've done over essentially the last 2 years, made some really major strategic moves. First and foremost was training our staff to be able to sell more premium spaces. We did that with Avera. We then embarked on an acquisition for Closet Works so that we could really win in the premium wood-based systems, and that's what our customers are really asking for. They're like: "We don't wanna necessarily always have a metal-based offering. We wanna be able to, if we're gonna complete the home, as I had completed my home, you wanna be able to pick and choose the right product lines that make sense in your home. And with the acquisition of Closet Works, which, you know, happened essentially at the right at the end of 2021, early into 2022, gave us kind of really a license to win in that premium space. And as a reminder, you know, the, when you think about the $6 billion addressable market in Custom Spaces, the lion's share of that, over 80%, is in spaces over $2,000, and we've hardly ever played in that space. So this gave us great opportunity for growth when we thought about it, and then we went around understanding, do we have the right assortment then to offer our customers? And so Preston launched about a year ago in our stores. We transformed our custom closet line to Custom Spaces to talk about the entire line. And since then, what you've seen is now we have over 130 in-home designers. We've brought in great technology into our Custom Spaces, where we have a custom portal, which makes it super easy for customers to be able to engage with us, look at their designs, sign their contracts, pay, pay with us, also follow along when installation's gonna happen. We've put in, just recently, an online scheduler, where customers can actually book an appointment, either in store or in home. We've also brought about innovation in our Preston line, and today, now we have 13 finishes. We've got AirTech edge banding, which is really cutting-edge in terms of making sure that you've got seamless integration in the systems, versus the traditional glue. We have a six-way glider that makes it so easy for installation to happen. And so for us, when we think about Custom Spaces, quite candidly, we're just getting started in being able to win in that premium space. It starts with the team, it starts with training, getting comfortable with that, and then married with the assortment that we have, and I think today we have a really competitive offering, more so than we had, three years ago. Can we expect the mix of your store to change meaningfully between the general merchandise and the Custom Spaces over time? Yeah, I, I do. I, I think it's... Definitely there will be certain stores in particular that will over-index with Custom Spaces. There will be other stores that perhaps will under-index, given the geographic trade area that they're serving. But I think over a period of time, that is the actual desire, is to see more growth come out of Custom Spaces, in particular in the premium side of it, where we get to also benefit, you know, handsomely from the margins in that not only do we have the retail margins, but we have the manufacturing margins, 'cause we own both of the lines of Elfa and with Preston as well. Then, you know, that allows us to get into the home and to not only deliver on one space, but multiple spaces. So I think if you fast-forward us 3, 5 years from now, you will definitely see a high penetration of Custom Spaces, in particular when in premium. You know, the percentages are up in the air because it really is gonna depend on the customer and how the customer interacts. And also, as we start to strengthen that premium general merchandise, I think can also play a really, can play well in terms of perhaps even normalizing some of that penetration between general merchandise and Custom Spaces. And we've just. If you go into our stores today, or even our website, you know, we've just launched about 28 new brands and over 350 new SKUs, and it's started to really resonate with our customers. We look and feel, you know, quite different, even in our stores today than we did six months ago, let alone three years ago. Well, I think one of the underappreciated parts of your story is just the opportunity for unit growth, and that's something that you've identified since you've become CEO. So could you maybe talk to us about how you're viewing unit growth going forward, especially in the context of maybe a more difficult macro environment? And can you talk about how these new stores look from an economic standpoint versus your existing store base? Sure. I'll pass that to Jeff so he's not just sitting here by himself. Right. Yeah, so new store growth, a big piece w hen we came out and we started talking about the path to $2 billion. We had a suggested cadence. Certainly, that cadence is not the same, given the macro environment. But when we look at overall capital expenditures, that's what we're managing to, 'cause we're growing through positive free cash flow. We try to maintain between 5.5% to 6% of the revenue per year. So when you look at 2023, we have 6 new stores going in, plan to be going in, half of which are build-to-suits, all small format stores. And, you know, when you look at the layout of that store and what we're targeting in these small format stores, it's, you know, first year revenue of about $5 million, 20% flow-through EBITDA is the target. Now, given the macro environment, you know, they're not immune to the macro environment like the rest of the stores. So from a performance standpoint, not exactly what we were expecting, but still performing quite well in relation to the store base. I mean, we're seeing those new stores that we've opened do about 37% of their business in Custom Spaces. Their NPS scores are higher than the store base. They're in the almost mid-eighties. And so the customer really is appreciating the new store base, and we're attracting a very similar customer that we have elsewhere, and we're going into existing key markets. We're targeting those key customers that we've seen come through The Container Store year after year after year, and we're engaging with them. 60% of the traffic coming into these new stores are those types of customers that we've been looking for, that we've not seen before. I have a question, actually, because on that 60% of customer shopping, you are new. Is there anything markedly different between them versus maybe your historical or traditional customer? You know, when we start looking for our locations of a new store, we're taking our customer data that we've had over decades, and we're targeting the existing customer base. We've known tried and true, who they are, where they are, where they shop in relation to that, and we know that we're not engaging with them yet, which gives us the confidence that there's a big opportunity, a wide space out there for us to continue to expand our store base in existing key markets and other markets, as well, that we haven't actually entered. But primarily, as we look at this store growth over time, we see a pathway to at least 76-100 more stores out into the future. The cadence of which will be driven by the macroeconomic environment and our ability to continue to grow the business. Okay, if I can just go to some of the financials. So Jeff will get a lot of questions now. For the guidance for 2023, can you talk about what scenarios you're baking in? Because obviously there are a couple of headwinds that your consumer is facing, that Satish walked us through. But there sounds like there's a ton of newness and new innovation and things that you say that the consumer is responding to above and beyond just promotions. So how should we think about the guidance that you've given and where that upside maybe can come from to guidance or maybe where some of the risk is? Yeah, so if, you know, if you look at our guidance for the full year, the second half of the year suggests a slight improvement over what we're seeing from a trend perspective. And that's really a few things. One is the product newness that you talked about. We're really excited about some of the launches that we have coming this fall. We also have learned a lot around promotional strategy from our Q1 performance, and we've adjusted our promotional strategy. We feel like we can drive better performance on that front. And then also, I would say it's an easier comp. I mean, we saw the business, we saw headwinds in the business starting in late Q2, really starting in Q3 of last year and in Q4. And so when you look at it on a year-over-year basis, we think it's an easier comp basis, which we believe will subside with the newness, the promotional strategy, and then, of course, we have new stores opening later this year as well. As we look at that, we... While we do have new product, our promotional strategy also has us excited about what we're gonna do from a custom space perspective. We're gonna get, you know, we believe we're gonna get a benefit of product mix as well. I know SG&A has been a focus in terms of just balancing that with the top line softness the last couple of quarters. Can you talk about how you balance some of the pullback in SG&A and it not impacting your top line in the short or longer term? Yeah, sure. As Satish spoke about, in Q1, we executed the expense savings program that we announced on our Q4 call, and, our Q1 results, reflected that. I think our SG&A was, approximately $10 million less than the year before, and that was really focused on pulling back without impacting the customer experience. And, so we're very closely monitoring that. While we did pull back in store payroll, we did it commensurate with customer demand and customer traffic, and we're constantly watching it. So we are paying attention to customer feedback and the NPS scores, with them still hovering around 80, 81. We feel really good that we have not impacted the customer experience, and thus, our top line. In terms of marketing dollars, I have spoken about marketing dollars. They would pull back. There's a few things that we've done there. While the customer may not be listening as hard right now, we are becoming much more targeted, much more performance oriented. We've employed some new tools and technology that help us, you know, deliver dollars and more return on investment for those. We'll keep monitoring that. If we see opportunities where it pays off, we'll certainly invest into it. Okay. And one thing I don't think that Container Store has talked about too much, but we're hearing from a lot of other retailers, is shrink. And so we wondered if you could maybe just talk through why maybe it hasn't been an issue, as much of an issue, maybe, for Container Store, and how we should maybe or how you're thinking about it, and managing it in the future? Yeah, I think, fortunately, we haven't experienced a lot of shrink as other retailers have. You know, the only thing I could really underscore is the service level that we offer in our stores, and we're able to greet our customers and convert our customers and spend the time with them, which obviously makes it, you know, perhaps difficult for someone that wants to come in and steal. You know, we've generally not really had, and, and perhaps we're not as much of a category where others want to come in and, and steal merch from as well. You know, we've had some minor instances when we think about home fragrances, in particular, where we have seen a high level of shrinkage there, but we've been able to combat it pretty quickly. So fortunately, we've been a bit immune to what other retailers are facing right now. Yeah. Okay. We're at the point of the chat where we ask the four questions of every company that's presenting at the conference. Some of it is going to be a little repetitive based on what we've already talked about. But the first question centers around the health of the consumer. Just do you see the consumer facing more headwinds, your consumer, facing more headwinds or less headwinds next year compared to 2023? I hope it's less headwinds. I think we're all hoping for that as well. You know, as things start, the element of uncertainty starts to settle and folks understand kind of what the macro play looks like with interest rates stabilizing and not increasing, I think that will help. But it also allows us to really work hard at engaging with our customers. So, you know, as I mentioned before, when we can give customers a reason to shop, you know, they do come in. Now, whether that's giving them a reason to shop with an incredible promotion offer, great, we'll take that for those value-conscious consumers. But those that are more affluent, you know, they do engage with newness, and they are excited about what we have to offer. They're obviously looking for curation. They're looking for an element of selection that's limited out there that they can take home. You know, I think that's what we're starting to see our customers... They want to be able to identify a product that is both aesthetically pleasing but also functional, and that's where they're willing to spend those dollars. For example, we do have, you know, a $250 leather basket, and it does incredibly well for us because it's one of those items that is something you're proud to showcase in your living room, but also very functional. But it becomes part of kind of your home decor and aesthetics. So the more items that we are able to bring in, again, selective items, that command that more premium kind of look and experience, I think, I think we'll do quite well there. I think customers are also looking for an element of innovation, and that's something that we are continuing to push forward as well. For example, we have this amazing. We just introduced this kind of food preserve system from ZWILLING, which has a vacuum seal on it. Our customers all instantly fell in love with it because all of a sudden, they start to see their products have a 5 times longer shelf life. You know, it's a system that's innovative and something they can take home, and they engage with, you know, whether that's in the current environment or definitely in a more kind of less headwind environment that they'll do well in. You know, and then consumers that we can offer kind of more of those discovery moments, I think will continue to play well for us in the future as well. So whether it's the travel category we talked about or even, as we start to push a little bit more into pets, it seems like everyone has a COVID pet out there, and, we've started to play with certain containers and harnesses, for, for pets, and it's actually doing quite well. And so, you know, it, it's still early days as we're introducing some of this new product in there, but even in the environment that we're in today with the headwinds, they're resonating. So I can only imagine that as that lessens, you know, those are the areas that will do quite well when we think about fiscal 2024. Okay, and then as a part B of that, that question, how are you thinking about the potential impact from trade up or trade down within your business in 2024? Look, we'll, we'll take every trade, whether it's a trade up or a trade down. I think again, the consumer, if we are able to demonstrate the reason to buy, you know, they, then they do engage. We are working more closely with enhancing our private label offerings and sourcing that internally. In fact, we've just hired someone to be able to go after that. We had great success with our Everything Organizer, which was a private label offering that we created, very innovative, stackable- Has done well with the customer, and I think we have opportunities where we can do more of that ourselves. So that will kind of speak to kind of more of that value-conscious consumer. And then trade up is as long as the customer feels that they are able to find a product that not only fits their needs and their solution but also can complement their home decor, then it gives us permission to play more in that trade-up experience as well. Okay. The next question's on share of wallet, which we already kind of touched on, so I'm gonna skip over that. The third question's on pricing. How are you thinking about pricing into 2024? Do you anticipate to raise, lower, or maintain pricing? So we play with pricing all the time, understanding where we might be, you know, perhaps overpriced in certain categories or where we've got room to be able to take pricing based on the product offering that we have. I would expect, as commodity prices continue to decrease, that we're able to lower prices in certain areas and give that back to customers, for sure. We're starting to see it now, and we're working with vendors very closely to be able to give that back. In the meantime, the lever that we've been playing with is our promotional lever- so that we can provide an element of a discount there. And our vendor base is also working strongly with us as well, in many cases, offering to cover some of the promotional discounts as well. So we're not having to carry the burden ourselves. So I do believe there will be areas where we're able to lower prices, where it makes sense, and I think there are areas where we can command higher pricing because of the experience and the offering that we have, in particular, around our custom spaces. I think that is a unique area where it is very difficult to compare pricing with competitors because it's such a customized experience You know, you could have a very simplistic design, or you could have a Mona Lisa design, where you have all the bells and whistles that we offer. But it's very personal to the individual, and the customer really looks at those purchases as an investment more than an expense. It's an investment in their home, an investment where they know that they will be able to get a return on if they ever so choose to sell their home. It adds value to the home, but they also get to enjoy it while, you know, they live in that home as well. Okay, thank you for that. Then the last question is on destocking, which isn't, you know, totally applicable here, but just maybe if you could just update us on your inventory, how you feel about in stocks, how you're looking at inventory into the back half of the year? Yeah. So, we've been watching our inventory since the pandemic. You know, we all have the increases, the decreases. You know, we're trying not to get the inventory, then we're trying to get so much of the inventory. You know, I think our team has done a really good job through that, just anticipating the slowness in the supply chain, and so we never really found ourselves in a position where we're over inventoried. It never put us in a pressure point that we had to discount just to move through it. And so, you know, I would say the same thing right now. I mean, the 10.6% decrease in inventory in the Q1 was a lot driven by freight cost decreases. We feel good about our inventory positions. We're buying into some newness now. We're not buying it overly aggressive into it just because, you know, we're testing and learning some of that, and so we're being very careful about it. When you look at the custom space inventory, it's really primarily Elfa. And, even if it we are heavy in a particular area, we know that over time we can get through it. It's not something that puts margin pressure for us, on, on my perspective. So, as we look at free cash flow generation for fiscal 2023 and our target and our goal being positive free cash flow, that is one area, from a working capital perspective we've got to keep a close eye on, just given the current macro environment. We're pulling back our inventory, purchases in the areas that where we're seeing slowness and making sure that the inventory levels are meeting customer demands, but, it takes time, and, and, you know, we have to anticipate that a little bit. So, overall, we feel pretty good about where our inventory is right now. Yeah, and the other thing I would just add to that is... you know, where it makes sense for us to make investments, we do. So, for example, we have a garage launch that's coming up in November, both Preston and with Garage+ from Elfa. And so that is an area that we will invest in, because we think there's significant growth within garage, where we essentially have dabbled in but not really have doubled down on, and we think it's a great opportunity for our customers, and they've told us so as well, to really be able to provide a compelling and competitive garage offering. And so that's an area when it comes to inventory we will invest in because we know we'll get a return on that. Great. Well, thank you for joining us today. Great, yeah. Thank you. Thank you.