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Why The Container Store and Alcoa need to beat earnings

The Container Store Group

The Container Store Group (TCS) reports its FQ1 ’15 results after market close on Tuesday. Wall Street is predicting a large fall in EPS quarter-over-quarter (QoQ) to reach a negative value of -$0.05 and a revenues number of $203.5M. The Estimize community are expecting EPS of $0.00 and revenues to come in at $196.64M.

Since debuting on the New York Stock Exchange in 2013, The Container Store’s share price has fallen circa 54.34%. A major concern for investors is that the retailer has struggled to stimulate sales growth as competitors offer discounts to steal market share. Management have recently announced a strategy in which they aim to capitalize on social media to drive sales and to also offer financing arrangements and in-home consultants as a way to differentiate themselves from their competitors. Despite management’s optimism, investors are cautious leading into the upcoming result for a number of reasons; rigorous cost cutting by competitors, a strengthening U.S. Dollar and poor weather conditions have all limited the company’s ability to increase same-store sales QoQ.

Disappointing same-store sales growth is possibly the greatest concern for investors leading into Tuesday’s result. During FQ4 ’14, The Container Store reported a negative same store sales of -0.8%. If the result on Wednesday delivers another negative same-store sales growth figure, it will mark the fifth consecutive quarter of negative growth.

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Alcoa

Alcoa (AA) reports its FQ2 ’15 results after the market close on Wednesday to unofficially kickoff reporting season. Alcoa’s share price has continued to deteriorate leading into its result. Year-to-date, Alcoa’s stock has fallen -29.70% as compared to the S&P 500 index which has appreciated 0.84%. Estimize predicts an EPS figure of $0.26 and a revenue number of $5.9B. Wall Street analysts however, predict an EPS figure of $0.23 and revenues of $5.82B

Alcoa has pursued an aggressive cost cutting campaign and continues to reduce capacity as alumina prices continue to remain depressed. Recently, Alcoa announced to the market that they are permanently closing their Poços de Caldas primary smelter in Brazil. The closing of this smelter reduces Alcoa’s overall capacity by 96,000 metric tons to 3.4 million metric tons. Investors will watch how the company reacts to competitive threats from Chinese aluminum producers. The low cost Chinese producers have had a destructive impact on the aluminum industry and this is only likely to worsen. Earnings and revenue estimates continue to be revised down leading up to Alcoa’s result.

Unfortunately for Alcoa’s shareholders, cost cutting will most likely not be enough to stimulate earnings in a meaningful way. Alcoa needs an earnings beat and some positive outlook from management in order to generate some share price momentum.

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