The Container Store Group (TCS) Cares About Its Employees But What About Investors? XRT, LOW & HD

Small cap storage and organization system retailer Container Store Group Inc (NYSE: TCS) is the latest hot consumer IPO to temp investors and while there are no direct peers for the quirky but money loosing retailer, could investors just be better off sticking with retail ETFs like the SPDR S&P Retail ETF (NYSEARCA: XRT) or more traditional large cap home improvement stocks like Lowe's Companies, Inc (NYSE: LOW) and The Home Depot, Inc (NYSE: HD)?

What is the Container Store Group?

Starting out in 1978 with just one store, small cap Container Store Group is truly a specialty retail stock as its the original storage and organization specialty retailer and the only national retailer solely devoted to the category with 62 stores across 22 states (a typical location will have around 19,000 square feet and 10,000 SKUs). The Container Store is perhaps most famous for its "employee-first culture" that has landed the retailer on FORTUNE Magazine's annual list of "100 Best Companies To Work For" for the past 14 years.

For reference, the SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index by investing in approximately 101 retail stocks while Lowe's Companies and The Home Depot are, of course, the big behemoths of home improvement retail and offer consumers the materials to more dramatically alter their storage and organizational space.

What You Need to Know About the Container Store Group

Last Friday, the Container Store Group offered 12.5 million shares at $18, the top end of an already elevated range, and saw shares shoot up to the $36 level by the end of the trading day for what has become the latest hot consumer orientated IPO.

It might be somewhat ironic that Wall Street has fallen in love with the Container Store Group as its long been touted as a model for an employee centric company or at least for a warm and fuzzy version of capitalism. In fact, its "Foundation Principles" were even outlined in the S-1 filing with that section beginning with the following paragraph:

One of our greatest hopes is that the practice of simultaneously taking care of everyone connected to a business, operating from a purpose beyond profits and leading with consciousness—what we along with other companies, thought leaders and academics call Conscious Capitalism®—becomes the preferred and most accepted way of doing business. It will prove that the economic imperatives of corporate success aren't incompatible with doing the right things. It's not a zero-sum game. No one has to lose for the other person to win. You can make decisions based on love and succeed.

The Principles themselves are focused around "treating employees, customers and vendors with respect and dignity" and the Container Store Group has long claimed that they along with its employee training program that puts full-time employees through more than 260 hours of formal training in their first year are competitive advantages. Moreover, the company culture has helped to produce an industry-low employee turnover rate of 10% verses the retail sector's usual double turnover rate while the IPO has turned 40% of its employees into shareholders.

However, there is a catch. While the Container Store Group has apparently posted 13 straight positive comparable store sales and says it has the potential to grow its US footprint to at least 300 locations, the company is not yet profitable. Specifically, the Container Store Group has produced revenues of $706.76M (53 weeks ending 2013-03-02), $633.62M (52 weeks ending 2012-02-25), $568.82M (52 weeks ending 2011-02-26) and $523.00M (52 weeks ending 2010-02-27) for the past four fiscal years and net losses of $0.13M (53 weeks ending 2013-03-02), $30.67M (52 weeks ending 2012-02-25), $45.05M (52 weeks ending 2011-02-26) and $4.20M (52 weeks ending 2010-02-27). Nevertheless, it should be mentioned that the Container Store Group has also expanded beyond bricks and mortar into online sales and call centers, which together have risen 84% over the past three fiscal years and account for 5.4% of the total business.      

Share Performance: Container Store Group Plus XRT, LOW & HD

On Tuesday, the Container Store Group closed at $35.35, where it started the day at, for a market cap of $1.63 billion. With that and the above in mind, here is a look at the long term performance of the SPDR S&P Retail ETF, Lowe's Companies and The Home Depot:

As you can see from the chart, the SPDR S&P Retail ETF has been the best performer followed by The Home Depot with Lowe's Companies also rewarding investors.

Finally, here is a the latest rather bullish technical charts for the SPDR S&P Retail ETF and Lowe's Companies plus The Home Depot.

The Bottom Line. Given just how competitive and cut throat the retail, home improvement or home furnishing market can be, Container Store Group's is a rather noble company for how it treats its employees. But investors who aren't employees might want to look elsewhere for a more investor centric retailer or investment like the SPDR S&P Retail ETF, Lowe's Companies or The Home Depot.