July 9, 2014 / 5:55 PM / 4 years ago

UPDATE 1-Container Store's shares dive after weak results, lowered forecast

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July 9 (Reuters) - Container Store Group Inc’s shares fell as much as 15 percent after the maker of Elfa shelving systems reported a bigger-than-expected quarterly loss and cut its full-year forecast, hit by weak consumer spending and its decision not to offer more discounts.

The storage products retailer’s stock fell to $22.91 - its lowest since the company went public in November - and at least five brokerages cut their price targets on the stock, citing falling traffic at the company’s stores.

Even as U.S. consumers shy away from spending, Container Store faces growing competition from Wal-Mart Stores Inc , Bed Bath & Beyond and premium private companies such as California Closets.

Stagnant wage growth and weak economy have pushed retailers to discount more. Bed Bath & Beyond increased promotions and deals in the first quarter while Wal-Mart has been lowering prices to lure more customers to its stores.

Still, Container Store did not step up its discounting in the quarter ended May 31, despite an “incredibly promotional consumer environment”, saying it wanted to protect its gross margins.

“Consistent with so many of our fellow retailers, we are experiencing a retail ‘funk’,” Chief Executive Kip Tindell said.

Container Store has two divisions - TCS, which includes retail stores, a website and a call center; and Elfa, a Swedish maker of component-based shelving and drawer systems that it acquired in 1999.

“Higher end (retail) seems to be in better shape while home furnishings trends have been solid. Thus, TCS’ negative traffic and (comparable store sales) are at odds with this dynamic,” Morgan Stanley analysts wrote in a note.

Analysts, however, expect the company’s traffic and sales to get a boost next year from the rollout of its customer loyalty program, in-home personal organization service and premium custom closets.

The company’s stock was down 10 percent at $24.33 in midday trading on the New York Stock Exchange. (Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Savio D’Souza)

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