Reflections on investor-friendly companies

The little discussion above about Amazon not trying to make a profit reminded me of The Container Store, also a MF recommendation. When it was first recommended I toyed with establishing a position because I liked the stores, even took a little starter position, but in the conference calls the CEO explicitly stated more than once that his first priority is his employees, his second is his customers (and stockholders come third). I figured that would make it a great company to work for, probably good to be a customer, but I’d be crazy to be an investor.

The Container Store was recommended twice by the way. The first recommendation is down 60% compared to the S&P, the second is down 49% to the S&P. What can I say?



The Container Store was recommended twice by the way. The first recommendation is down 60% compared to the S&P, the second is down 49% to the S&P. What can I say?

I think you said it all.

I didn’t like the concept (someone figuring out my organizational problems then charging me high to resolve them or, I could figure it out myself and shop around and save on the solution) so I didn’t buy but since TMF was high on them, I sold some puts.

Now I am the not so proud owner of TCS at 42% below market and no where to go, (facing a similar situation with TTS but 50% down there and until November to rectify it). This is a side of options that I have now learned about the hard way.

Fortunately TCS is a small % of my portfolio, .51%. Now having said that, I should sell it and buy more SYNA on Monday to give my weary dollars a chance to make a comeback. It’s just hard admitting defeat though it will be a rather cheap lesson to have learned.

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So, which companies ARE the most investor-friendly?


The Container Store was recommended twice by the way. The first recommendation is down 60% compared to the S&P, the second is down 49% to the S&P. What can I say?

Had the same reaction to TCS. Looked at them in January and didn’t think they were worth investing in for some of the same reasons you hit on.

The story is feel-good with its conscious capitalism and humane treatment of employees but that is not necessarily a recipe for a great IPO and public company. It works for Whole Foods (a shareholder friendly company) because organic food is a way of life and passionate consumers. I never quite got why one container is superior to another. Organic food is a different retail milieu.

There are a few problems with TCS and two are critical and need correction to make this a good investment.

TCS has terrible operating margins and that’s the direct result of putting employees ahead of investors. They pay anywhere from 50% to 100% more than similar sales positions elsewhere. IMO this is a great way to treat your employees but if you are public company, negative operating margins aren’t a successful management strategy. TCS prides itself on intense employee training and high compensation with long tenure, but unfortunately their revenue growth can’t keep up with this massive expense.

Bringing us to problem two and that’s the comps with steep drops in traffic across the store base. Why aren’t consumers shopping there? I don’t know the answer to that but wouldn’t be a buyer until that reverses. Traffic has been falling for a couple of years so this isn’t a new problem.With great friendly knowledgable sales staff and unrivaled selection, why aren’t people coming in?

one answer may lie in Kip Tindell’s strategy to offset traffic losses with higher prices. he is entirely comfortable with this strategy and in the last CC said they would keep doing it. The rationale is that the TCS experience is well worth the higher pries. I think he has no firm grasp of retail fundamentals. He is almost too passionate about his calling to organize the world. It’s faintly disturbing to read transcripts and watch interview.

This company would be just fine as a privately held business–which it was. Shareholders did not need to be involved. So why go public?

A couple of reasons. First and probably foremost was the $90 million in accrued dividends to preferred shareholders TCS couldn’t pay. And in fact most of the IPO proceeds went to paying dividends, the Tindells and preferred shareholders. There wasn’t anything left at the end of the day to invest in the company

Second, Tindell was anxious to be able to pay employees with options which he did immediately–millions of $$ worth. What this does is shift part of the compensation for his overpaid employees to shareholders. Couldn’t do that with a privately held co. Had to pay with preferrereds that cost him dividends. Options may lower his operating expense at the expense of shareholders.

TCS isn’t a great investment now and may never be. Depends on if they can lure more traffic into the stores and grow revenue faster than expenses. I expect they may revert back to private equity at some point if someone is crazy enough to give them money. i don’t think Leonard Green ever collected a dividend from them in the 8 years they were invested.


Wow, Monster Fluff, a great write-up on The Container Store. I can’t believe they got recommended twice. It’s hard to find anything to like about them.