Investor Relations
NYSE: TCS 5.28 -0.08(-1.49%) Market Open: 5.24 Market Close: 5.36 52 Week High: 14.25 52 Week Low: 5.11 Sep 23, 2022 04:00 PM (Prices delayed 20 mins)

The Container Store Group, Inc. Announces First Quarter Fiscal 2022 Financial Results

08/02/2022

First quarter consolidated net sales up 7.1%

Comparable store sales^ up 5.1%, driven by Custom Closets + up 14.7%

Earnings per diluted share of $0.21 compared to $0.35 in the first quarter of fiscal 2021; Adjusted earnings per diluted share* of $0.21 compared to $0.36 in the first quarter of fiscal 2021

Board of Directors authorizes $30 million stock repurchase program

Updates Fiscal 2022 Earnings Outlook

COPPELL, Texas--(BUSINESS WIRE)-- The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced its financial results for the first quarter of fiscal year 2022 ended July 2, 2022.

  • Consolidated net sales were $262.6 million, up 7.1%. Net sales in The Container Store retail business (“TCS”) were $246.8 million, up 7.9%. Elfa International AB (“Elfa”) third-party net sales were $15.9 million, down 4.4% compared to the first quarter of fiscal 2021. Excluding the impact of foreign currency translation, Elfa third-party net sales were up 11.9%.
  • Comparable store sales^ increased 5.1%, with Custom Closets+ up 14.7%, contributing 450 basis points of the increase in comparable store sales^ and general merchandise categories up 0.8%, contributing the remaining 60 basis points.
  • Consolidated net income and net income per share (“EPS”) was $10.5 million and $0.21 compared to $17.7 million and $0.35, respectively, in the first quarter of fiscal 2021. Adjusted net income per share* (“Adjusted EPS”) was $0.21 compared to $0.36 in the first quarter of fiscal 2021.

Satish Malhotra, Chief Executive Officer and President of The Container Store, commented, “Our first quarter results reflect a solid start to fiscal 2022 as we outperformed our expectations on both the top and bottom line. In particular, we are delighted with the continued growth we saw in custom closets, which resulted in seven consecutive comparable quarters of growth in this category. I am proud of our team’s agility as they continue to successfully navigate a dynamic consumer environment while staying focused on our long-term growth objectives.”

“We continue to be pleased with the reception to key initiatives such as our recently launched Organized InsiderTM loyalty program, our mobile app, and our private-label products. We have recently announced an exciting sustainable product collaboration with YouTube influencer, Rosanna Pansino, as well as revamped our approach to back-to-college in our fiscal second quarter. Additionally, we plan to complete the rollout of our new premium custom wood-based offering, PrestonTM, to all of our stores in the fiscal second quarter. While we are cognizant of the volatile backdrop for the consumer and are taking a prudently conservative view of the rest of the year, we are operating from a position of financial strength and remain confident in our ability to achieve our long-term objectives, including our path to $2 billion in sales by the end of fiscal 2027. This confidence is reflected in the authorization of our first stock repurchase program as we look forward to delivering results and value for all of our stakeholders,” Mr. Malhotra concluded.

First Quarter Fiscal 2022 Results
For the first quarter (thirteen weeks) ended July 2, 2022:

  • Consolidated net sales were $262.6 million, up 7.1%compared to the first quarter of fiscal 2021.
    • Net sales in TCS were $246.8 million, up 7.9%
    • Comparable store sales^ increased 5.1%, with Custom Closets+ up 14.7%,contributing 450basis points of the increase in comparable store sales^ and general merchandise categories up 0.8%, contributing the remaining 60 basis points.
    • Our online sales decreased 0.9% compared to the first quarter of fiscal 2021.
    • Elfa International AB (“Elfa”) third-party net sales were $15.9 million, down 4.4% compared to the first quarter of fiscal 2021. Excluding the impact of foreign currency translation, Elfa third-party net sales were up 11.9%.
  • Consolidated gross margin was 57.1%, a decrease of 250basis points, compared to the first quarter of fiscal 2021. TCS gross margin decreased 140basis points to 56.8%primarily due to increased freight costs, partially offset by favorable product and services mix. Elfa gross margin remained flat at 36.6% compared to the first quarter of fiscal 2021 primarily due to higher direct material costs, offset by favorable customer mix and price increases to third-party customers.
  • Consolidated selling, general and administrative expenses (“SG&A”) increased by 10.7% to $121.9 million in the first quarter of fiscal 2022 from $110.1 million in the first quarter of fiscal 2021. SG&A as a percentage of net sales increased 150 basis points to 46.4% primarily due to increased compensation and benefit costs and increased marketing costs, partially offset by leverage of occupancy costs on higher sales during the first quarter of fiscal 2022.
  • Interest expense remained consistent at $3.2 million as compared to the first quarter of fiscal 2021.
  • The effective tax rate was 28.8% in the first quarter of fiscal 2022, as compared to 24.3% in the first quarter of fiscal 2021. The increase in the effective tax rate was primarily related to the tax impact associated with share-based compensation on lower pre-tax income in the first quarter of fiscal 2022.
  • Net income was $10.5 million, or $0.21 per diluted share, in the first quarter of fiscal 2022 compared to $17.7 million, or $0.35 per diluted share, in the first quarter of fiscal 2021. Adjusted net income* was $10.5 million, or $0.21 per diluted share, in the first quarter of fiscal 2022 compared to adjusted net income* of $18.2 million, or $0.36 per diluted share, in the first quarter of fiscal 2021.
  • Adjusted EBITDA* was $28.2 million in the first quarter of fiscal 2022 compared to $33.5 million in the first quarter of fiscal 2021.

New and Existing Stores

During the first quarter of fiscal 2022, the Company did not open any new stores. As of July 2, 2022 and July 3, 2021, the Company store base was 94.

Balance sheet and liquidity highlights:

 

 

 

 

 

 

 

(In thousands)

 

July 2, 2022

 

July 3, 2021

Cash

 

$

23,206

 

 

$

10,512

 

Total debt, net of deferred financing costs

 

$

187,115

 

 

$

166,323

 

Liquidity1

 

$

115,467

 

 

$

119,768

 

Free cash flow*

 

$

(14,448

)

 

$

(3,829

)

____________________

(1)

Cash plus availability on revolving credit facilities.

Share Repurchase Authorization

On August 1, 2022, the Board of Directors authorized a share repurchase program for up to an aggregate amount of $30 million of its outstanding shares of common stock. The timing, volume and nature of repurchases are in management’s discretion and are subject to market conditions, applicable securities laws and other factors that management may deem relevant. This program does not obligate the Company to acquire any particular amount of common stock and the repurchase program may be amended, suspended or discontinued at any time. Shares may be repurchased from time to time on the open market, in privately negotiated transactions, or otherwise.Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including within the pricing and volume requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The Company may also, from time to time, enter into Rule 10b5-1 plans to facilitate repurchases of its shares under this authorization.

Outlook

The Company today provided the following financial outlook for the fiscal year ending on April 1, 2023:

 

 

 

 

 

Current Outlook

 

Prior Outlook

Consolidated net sales

Approximately $1.125 billion

 

Approximately $1.125 billion

Comparable store sales^ growth

Low-single digits

 

Low-single digits

Earnings per diluted share

$1.14 to $1.24

 

$1.20 to $1.30

Adjusted earnings per diluted share*

$1.10 to $1.20

 

$1.20 to $1.30

Assumed dilutive shares

51 million

 

51 million

Capital expenditures

$60 to $65 million

 

$60 to $65 million

Planned store openings1

2

 

2

The Company also provided the following financial outlook for the fiscal second quarter ending on October 1, 2022:

 

 

Consolidated net sales growth

Low-single digits

Comparable store sales^ growth

Low-single digits

Earnings per diluted share

$0.24 to $0.29

Adjusted earnings per diluted share*

$0.20 to $0.25

Assumed dilutive shares

51 million

Planned store openings1

1

(1) Planned smaller footprint store openings in fiscal 2022 are as follows:

  • Colorado Springs, CO in the second quarter of fiscal 2022
  • Salem, NH in the winter of calendar 2022

References

* See Reconciliation of GAAP to Non-GAAP Financial Measures table.
+ Custom Closets includes metal-based and wood-based custom space products and in-home installation services. Starting in Q122, the closet lifestyle department products sold by the TCS segment are now included in General Merchandise versus prior inclusion in Custom Closets.
^ Comparable store sales includes all net sales from our TCS segment, except for sales from stores open less than sixteen months, stores that have been closed permanently, stores that have been closed temporarily for more than seven days and Closet Works sales to third parties

Conference Call Information

A conference call to discuss first quarter fiscal 2022 financial results is scheduled for today, August 2, 2022, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 (international callers please dial (201) 493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.containerstore.com.

A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing (844) 512-2921 (international callers please dial (412) 317-6671). The pin number to access the telephone replay is 13730607. The replay will be available until September 2, 2022.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding our future opportunities; our goals, strategies, priorities and initiatives including future store openings and product rollouts; sales trends, momentum and targets; our share repurchase program; and our anticipated financial performance and long term targets.

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: a decline in the health of the economy and the purchase of discretionary items; the COVID-19 pandemic and the associated impact on our business, results of operations and financial condition; our ability to continue to lease space on favorable terms; costs and risks relating to new store openings; quarterly and seasonal fluctuations in our operating results; cost increases that are beyond our control; our inability to protect our brand; our failure or inability to protect our intellectual property rights; overall decline in the health of the economy, consumer spending, and the housing market; our inability to source and market new products to meet consumer preferences; failure to successfully anticipate consumer preferences and demand; competition from other stores and internet-based competition; vendors may sell similar or identical products to our competitors; our and our vendors’ vulnerability to natural disasters and other unexpected events; disruptions at our Elfa manufacturing facilities; product recalls and/or product liability, as well as changes in product safety and other consumer protection laws; risks relating to operating multiple distribution centers; our dependence on foreign imports for our merchandise; our reliance upon independent third party transportation providers; our inability to effectively manage our online sales; effects of a security breach or cyber-attack of our website or information technology systems, including relating to our use of third-party web service providers; damage to, or interruptions in, our information systems as a result of external factors, working from home arrangements, staffing shortages and difficulties in updating our existing software or developing or implementing new software; failure to comply with laws and regulations relating to privacy, data protection, and consumer protection; our indebtedness may restrict our current and future operations, and we may not be able to refinance our debt on favorable terms, or at all; fluctuations in currency exchange rates; our inability to maintain sufficient levels of cash flow to meet growth expectations; our fixed lease obligations; disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital to finance the carrying costs of inventory to pay for capital expenditures and operating costs; changes to global markets and inability to predict future interest expenses; our reliance on key executive management; our inability to find, train and retain key personnel; labor relations difficulties; increases in health care costs and labor costs; violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws; impairment charges and effects of changes in estimates or projections used to assess the fair value of our assets; effects of tax reform and other tax fluctuations; significant fluctuations in the price of our common stock; substantial future sales of our common stock, or the perception that such sales may occur, which could depress the price of our common stock; risks related to being a public company; our performance meeting guidance provided to the public; anti-takeover provisions in our governing documents, which could delay or prevent a change in control; acquisition-related risks and our failure to establish and maintain effective internal controls.

These and other important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, (the “SEC”) on June 2, 2022 and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management’s estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

About The Container Store

The Container Store Group, Inc. (NYSE: TCS) is the nation’s leading specialty retailer of storage and organization products and solutions and custom closets – a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 11,000 products designed to transform lives through the power of organization.

Visit www.containerstore.com for more information about products, store locations, services offered and real-life inspiration.

Follow The Container Store on Facebook, Twitter, Instagram, TikTok, YouTube, Pinterest and LinkedIn.

The Container Store Group, Inc.

Consolidated statements of operations

 

 

 

 

 

 

 

 

 

Fiscal Quarter Ended

 

 

July 2,

 

July 3,

(In thousands, except share and per share amounts) (unaudited)

 

2022

 

2021

 

 

 

 

 

 

 

Net sales

 

$

262,634

 

$

245,315

 

Cost of sales (excluding depreciation and amortization)

 

 

112,546

 

 

98,991

 

Gross profit

 

 

150,088

 

 

146,324

 

Selling, general, and administrative expenses (excluding depreciation and amortization)

 

 

121,909

 

 

110,148

 

Stock-based compensation

 

 

1,201

 

 

869

 

Pre-opening costs

 

 

36

 

 

594

 

Depreciation and amortization

 

 

9,006

 

 

8,201

 

Loss (gain) on disposal of assets

 

 

1

 

 

(5

)

Income from operations

 

 

17,935

 

 

26,517

 

Interest expense, net

 

 

3,223

 

 

3,185

 

Income before taxes

 

 

14,712

 

 

23,332

 

Provision for income taxes

 

 

4,233

 

 

5,660

 

Net income

 

$

10,479

 

$

17,672

 

 

 

 

 

 

 

 

Net income per common share — basic

 

$

0.21

 

$

0.36

 

Net income per common share — diluted

 

$

0.21

 

$

0.35

 

 

 

 

 

 

 

 

Weighted-average common shares — basic

 

 

49,719,559

 

 

49,080,897

 

Weighted-average common shares — diluted

 

 

50,312,855

 

 

50,448,216

 

The Container Store Group, Inc.

Consolidated balance sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

July 2,

 

April 2,

 

July 3,

 

(In thousands)

 

2022

 

2022

 

2021

 

Assets

 

(unaudited)

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash

 

$

23,206

 

$

14,252

 

$

10,512

 

Accounts receivable, net

 

 

30,466

 

 

30,225

 

 

29,292

 

Inventory

 

 

190,752

 

 

192,783

 

 

145,041

 

Prepaid expenses

 

 

14,612

 

 

11,628

 

 

12,767

 

Income taxes receivable

 

 

808

 

 

1,687

 

 

93

 

Other current assets

 

 

9,826

 

 

9,836

 

 

17,538

 

Total current assets

 

 

269,670

 

 

260,411

 

 

215,243

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

144,175

 

 

140,198

 

 

130,600

 

Noncurrent operating lease right-of-use assets

 

 

365,053

 

 

347,519

 

 

303,232

 

Goodwill

 

 

221,159

 

 

221,159

 

 

202,815

 

Trade names

 

 

221,633

 

 

224,938

 

 

228,416

 

Deferred financing costs, net

 

 

190

 

 

203

 

 

243

 

Noncurrent deferred tax assets, net

 

 

636

 

 

865

 

 

1,026

 

Other assets

 

 

1,923

 

 

2,284

 

 

2,951

 

Total noncurrent assets

 

 

954,769

 

 

937,166

 

 

869,283

 

Total assets

 

$

1,224,439

 

$

1,197,577

 

$

1,084,526

 

The Container Store Group, Inc.

Consolidated balance sheets (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

July 2,

 

April 2,

 

July 3,

 

(In thousands, except share and per share amounts)

 

2022

 

2022

 

2021

 

Liabilities and shareholders’ equity

 

(unaudited)

 

 

 

 

(unaudited)

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

68,920

 

 

$

84,059

 

 

$

68,209

 

 

Accrued liabilities

 

 

81,743

 

 

 

89,004

 

 

 

80,205

 

 

Current borrowings on revolving lines of credit

 

 

11,541

 

 

 

1,790

 

 

 

423

 

 

Current portion of long-term debt

 

 

2,072

 

 

 

2,096

 

 

 

2,155

 

 

Current operating lease liabilities

 

 

54,605

 

 

 

52,540

 

 

 

48,976

 

 

Income taxes payable

 

 

10,464

 

 

 

6,026

 

 

 

9,938

 

 

Total current liabilities

 

 

229,345

 

 

 

235,515

 

 

 

209,906

 

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

173,502

 

 

 

158,564

 

 

 

163,745

 

 

Noncurrent operating lease liabilities

 

 

332,800

 

 

 

317,345

 

 

 

280,053

 

 

Noncurrent deferred tax liabilities, net

 

 

48,309

 

 

 

50,493

 

 

 

48,972

 

 

Other long-term liabilities

 

 

6,876

 

 

 

7,564

 

 

 

12,302

 

 

Total noncurrent liabilities

 

 

561,487

 

 

 

533,966

 

 

 

505,072

 

 

Total liabilities

 

 

790,832

 

 

 

769,481

 

 

 

714,978

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares authorized; 49,941,336 shares issued at July 2, 2022; 49,635,447 shares issued at April 2, 2022; 49,417,215 shares issued at July 3, 2021

 

 

499

 

 

 

496

 

 

 

494

 

 

Additional paid-in capital

 

 

875,016

 

 

 

874,190

 

 

 

870,460

 

 

Accumulated other comprehensive loss

 

 

(33,241

)

 

 

(27,444

)

 

 

(18,214

)

 

Retained deficit

 

 

(408,667

)

 

 

(419,146

)

 

 

(483,192

)

 

Total shareholders’ equity

 

 

433,607

 

 

 

428,096

 

 

 

369,548

 

 

Total liabilities and shareholders’ equity

 

$

1,224,439

 

 

$

1,197,577

 

 

$

1,084,526

 

 

The Container Store Group, Inc.

Consolidated statements of cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarter Ended

 

 

July 2,

 

July 3,

(In thousands) (unaudited)

 

2022

 

2021

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net income

 

$

10,479

 

 

$

17,672

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

9,006

 

 

 

8,201

 

Stock-based compensation

 

 

1,201

 

 

 

869

 

Loss (gain) on disposal of assets

 

 

1

 

 

 

(5

)

Deferred tax (benefit) expense

 

 

(1,325

)

 

 

5,097

 

Non-cash interest

 

 

471

 

 

 

470

 

Other

 

 

81

 

 

 

(109

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(2,101

)

 

 

110

 

Inventory

 

 

(59

)

 

 

(14,494

)

Prepaid expenses and other assets

 

 

(2,415

)

 

 

(4,183

)

Accounts payable and accrued liabilities

 

 

(17,280

)

 

 

(5,738

)

Net change in lease assets and liabilities

 

 

7

 

 

 

(2,926

)

Income taxes

 

 

5,271

 

 

 

(1,265

)

Other noncurrent liabilities

 

 

(165

)

 

 

38

 

Net cash provided by operating activities

 

 

3,172

 

 

 

3,737

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Additions to property and equipment

 

 

(17,620

)

 

 

(7,566

)

Investment in non-qualified plan trust

 

 

(767

)

 

 

(39

)

Proceeds from non-qualified plan trust redemptions

 

 

60

 

 

 

39

 

Proceeds from sale of property and equipment

 

 

 

 

 

5

 

Net cash used in investing activities

 

 

(18,327

)

 

 

(7,561

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Borrowings on revolving lines of credit

 

 

23,834

 

 

 

430

 

Payments on revolving lines of credit

 

 

(13,528

)

 

 

 

Borrowings on long-term debt

 

 

15,000

 

 

 

5,000

 

Payments on long-term debt

 

 

(530

)

 

 

(5,550

)

Payment of taxes with shares withheld upon restricted stock vesting

 

 

(712

)

 

 

(3,677

)

Proceeds from the exercise of stock options

 

 

340

 

 

 

226

 

Net cash provided by (used in) financing activities

 

 

24,404

 

 

 

(3,571

)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(295

)

 

 

220

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

8,954

 

 

 

(7,175

)

Cash at beginning of fiscal period

 

 

14,252

 

 

 

17,687

 

Cash at end of fiscal period

 

$

23,206

 

 

$

10,512

 

Note Regarding Non-GAAP Information

This press release includes financial measures that are not calculated in accordance with GAAP, including adjusted net income, adjusted net income per common share - diluted, Adjusted EBITDA, and free cash flow. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in a table accompanying this release. These non-GAAP measures should not be considered as alternatives to net income as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. These non-GAAP measures are key metrics used by management, the Company’s board of directors, and Leonard Green and Partners, L.P., to assess its financial performance.

The Company presents adjusted net income, adjusted net income per common share - diluted, and Adjusted EBITDA because it believes they assist investors in comparing the Company’s performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance and because the Company believes it is useful for investors to see the measures that management uses to evaluate the Company. These non-GAAP measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry. In evaluating these non-GAAP measures, you should be aware that in the future the Company will incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of these non-GAAP measures should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using non-GAAP measures supplementally. These non-GAAP measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

The Company defines adjusted net income as net income before restructuring charges, charges related to the impact of COVID-19 on business operations, credits pursuant to the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, severance charges associated with COVID-19, acquisition-related costs, loss on extinguishment of debt, certain losses (gains) on disposal of assets, certain management transition costs incurred, legal settlements and the tax impact of these adjustments and other unusual or infrequent tax items. We define adjusted net income per common share - diluted as adjusted net income divided by the diluted weighted average common shares outstanding. We use adjusted net income and adjusted net income per common share - diluted to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. We present adjusted net income and adjusted net income per common share - diluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the Company.

The Company defines EBITDA as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with its credit facilities and is one of the components for performance evaluation under its executive compensation programs. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including certain non-cash and other items that the Company does not consider in its evaluation of ongoing operating performance from period to period as discussed further below. The Company uses Adjusted EBITDA in connection with covenant compliance and executive performance evaluations, and to supplement GAAP measures of performance to evaluate the effectiveness of its business strategies, to make budgeting decisions and to compare its performance against that of other peer companies using similar measures. The Company believes it is useful for investors to see the measures that management uses to evaluate the Company, its executives and its covenant compliance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry.

The Company presents free cash flow, which the Company defines as net cash provided by operating activities in a period minus payments for property and equipment made in that period, because it believes it is a useful indicator of the Company’s overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for debt repayment, investment, and other discretionary and non-discretionary cash uses. Accordingly, we believe that free cash flow provides useful information to investors in understanding and evaluating our liquidity in the same manner as management. Our definition of free cash flow is limited in that it does not solely represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Consolidated Statements of Cash Flows. Although other companies report their free cash flow, numerous methods may exist for calculating a company’s free cash flow. As a result, the method used by our management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.

Additionally, this press release refers to the change in Elfa third-party net sales after the conversion of Elfa’s net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate, which is a financial measure not calculated in accordance with GAAP. The Company believes the disclosure of the change in Elfa third-party net sales without the effects of currency exchange rate fluctuations helps investors understand the Company’s underlying performance.

The Container Store Group, Inc. Supplemental Information - Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except share and per share amounts)

(unaudited)

The table below reconciles the non-GAAP financial measures of adjusted net income and adjusted net income per common share - diluted with the most directly comparable GAAP financial measures of GAAP net income and GAAP net income per common share - diluted.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Quarter Ended

 

Current FY 2022 Outlook

 

 

Prior FY 2022 Outlook

 

July 2, 2022

 

July 3, 2021

 

Low

 

High

 

Low

 

High

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

10,479

 

$

17,672

 

 

$

58,100

 

 

$

63,200

 

 

$

61,200

 

$

66,300

Management transition costs (a)

 

 

 

473

 

 

 

 

 

 

 

 

 

 

 

COVID-19 costs (b)

 

 

 

192

 

 

 

 

 

 

 

 

 

 

 

Legal settlement (c)

 

 

 

 

 

 

(2,600

)

 

 

(2,600

)

 

 

 

 

Taxes (d)

 

 

 

(186

)

 

 

780

 

 

 

780

 

 

 

 

 

Adjusted net income

$

10,479

 

$

18,151

 

 

$

56,280

 

 

$

61,380

 

 

$

61,200

 

$

66,300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — diluted

 

50,312,855

 

 

50,448,216

 

 

 

51,000,000

 

 

 

51,000,000

 

 

 

51,000,000

 

 

51,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — diluted

$

0.21

 

$

0.35

 

 

$

1.14

 

 

$

1.24

 

 

$

1.20

 

$

1.30

Adjusted net income per common share — diluted

$

0.21

 

$

0.36

 

 

$

1.10

 

 

$

1.20

 

 

$

1.20

 

$

1.30

____________________

(a)

Costs related to the transition of key executives including severance and signing bonus recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

 

(b)

Includes incremental costs attributable to the COVID-19 pandemic, which primarily consist of sanitization costs in the first quarter of fiscal 2021, all of which were recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

 

(c)

The Company expects to receive a $2.6 million legal settlement, net of legal fees, in the second quarter of fiscal 2022. The amount is expected to be recorded in selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

 

(d)

Tax impact of adjustments to net income that are considered to be unusual or infrequent tax items, all of which we do not consider in our evaluation of ongoing performance.

The table below reconciles the non-GAAP financial measure Adjusted EBITDA with the most directly comparable GAAP financial measure of GAAP net income.

 

 

 

 

 

 

 

Fiscal Quarter Ended

 

July 2,

 

July 3,

 

2022

 

2021

Net income

$

10,479

 

 

$

17,672

 

Depreciation and amortization

 

9,006

 

 

 

8,201

 

Interest expense, net

 

3,223

 

 

 

3,185

 

Income tax provision

 

4,233

 

 

 

5,660

 

EBITDA

$

26,941

 

 

$

34,718

 

Pre-opening costs (a)

 

36

 

 

 

594

 

Non-cash lease expense (b)

 

34

 

 

 

(3,355

)

Stock-based compensation (c)

 

1,201

 

 

 

869

 

Management transition costs (d)

 

 

 

 

473

 

Foreign exchange (gains) losses (e)

 

(24

)

 

 

11

 

COVID-19 costs (f)

 

 

 

 

192

 

Adjusted EBITDA

$

28,188

 

 

$

33,502

 

____________________

(a)

Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

 

(b)

Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments.

 

(c)

Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

 

(d)

Costs related to the transition of key executives including severance and signing bonus recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

 

(e)

Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

 

(f)

Includes incremental costs attributable to the COVID-19 pandemic, which primarily consist of sanitization costs in the first quarter of fiscal 2021, all of which were recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

The table below reconciles the non-GAAP financial measure of free cash flow with the most directly comparable GAAP financial measure of net cash provided by operating activities.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

July 2,

 

July 3,

 

 

2022

 

2021

Net cash provided by operating activities

 

$

3,172

 

 

$

3,737

 

Less: Additions to property and equipment

 

 

(17,620

)

 

 

(7,566

)

Free cash flow

 

$

(14,448

)

 

$

(3,829

)

 

Investors:

ICR, Inc.
Farah Soi/Caitlin Churchill
203-682-8200
Farah.Soi@icrinc.com
Caitlin.Churchill@icrinc.com

or

Media:
The Container Store Group, Inc.
Katelyn Clinton, 972-538-6491
publicrelations@containerstore.com

Source: The Container Store Group, Inc.