The Container Store Group Inc. Downgraded To 'B-', Ratings On Watch Negative On Weak Expected Demand Due To Coronavirus

  • We believe Coppell, Texas-based storage and organization specialty retailer The Container Store Group Inc. will face significant top-line headwinds in the next few quarters because of the coronavirus pandemic.
  • Therefore, we are lowering all of our ratings on The Container Store, including our issuer credit rating, to 'B-' from 'B' to reflect our expectation that its credit metrics will deteriorate significantly with leverage exceeding our downside threshold of 5.5x as of the end of fiscal year 2020 (ending March 2021).
  • At the same time, we are placing all of our ratings on the company on CreditWatch with negative implications.
  • The CreditWatch placement indicates that there is at least a one-in-two chance we will lower our ratings on The Container Store if its liquidity becomes pressured and it is unable to maintain adequate headroom under its covenants.
NEW YORK (S&P Global Ratings) March 26, 2020--S&P Global Ratings today took the rating actions listed above.
The downgrade reflects our expectation for significantly weaker credit metrics this year given our forecast for a sharp decline in sales and cash flow due to the coronavirus pandemic. 
We expect The Container Store's performance to remain pressured over the next several quarters based on our forecast for a swift and severe drop in discretionary consumer spending amid a macroeconomic slowdown in the U.S. this year. Given the government mandates in certain regions to avoid nonessential activities as well as consumers' heightened focus on social distancing to prevent the spread of the coronavirus, we expect the company's store traffic to decline materially, which may lead it to close its stores for an extended period. In addition, we expect the demand for Custom Closets, which accounts for roughly half of the company's sales, to fall significantly given the high price point (ranging from $1,000-$10,000) of this discretionary purchase.
We expect to resolve the CreditWatch in the next three months as more information becomes available. There is at least a one-in-two chance we will lower our ratings on The Container Store by one notch or more as we evaluate the company's liquidity profile, covenant cushion, and the likelihood that it will receive a covenant waiver or amendment.
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