Best Idea Long TCS delivers a great 4Q (March end) with EPS of $0.46 vs consensus of $0.26. Revenue beat by 9% in the quarter. TCS continues its momentum in the category, and sales gains from the pandemic are being sustained as 4Q sales were 21% ahead of 2019, inline with last Quarter. Y/Y revenue growth in total was inline with last Q at -2.9% as the company is guiding to a revenue acceleration in its fiscal 1Q with visibility to half the quarter. The company is managing through inflationary cost pressures, but is delivering strong profitability even with the margin pressure. TCS is one of the most underestimated and underappreciated growth stories in retail. This has been a top line story and it will continue to be a top line story but soon combining positive comps with new store growth. We think home organization will be a long term consumer trend and an outsized grower in the home space, while home investment/spend is taking a permanent lift in wallet share as a result of the pandemic behavioral patterns. TCS's category cannot be easily transferred online and it has a large custom closets business that also can’t be done online. The new CEO has been in place for just over a year and has been tweaking the model to be better positioned for selling the visual experience, service and organizational solutions as opposed to being “sale” oriented. That means healthy margins and solid box economics ahead of the store growth ramp. Management was on offense this call, detailing out the 5 year business plan and financials. That now includes 76 new stores, LSD comps, $2bn in revenue, margin expansion, and over $3.00 in EPS by 2027.
Our model is headed higher on this print as revenue trends are accelerating ahead of where we though and store growth will ramp faster than we were modeling. We’re at $1.30 for 2022 and think you have $2 to $2.50 in EPS power over a TAIL duration, building to $4 by 2027 when including share buyback. We think that’s a stock worth mid-teens today and over $30 in 2-3 years vs the stock trading just below $8 in the aftermarket. Best Idea Long.
