Investor Relations
NYSE: TCS 1.28 +0.06(+4.92%) Market Open: 1.20 Market Close: 1.22 52 Week High: 4.54 52 Week Low: 0.95 Feb 23, 2024 04:00 PM (Prices delayed 20 mins)

The Container Store Group, Inc. Announces First Quarter 2023 Financial Results

08/01/2023

First quarter consolidated net sales of $207.1 million, down 21.1% compared to the first quarter of fiscal 2022, including 30 basis point negative foreign exchange impact

Comparable store sales^ down 19.9% compared to the first quarter of fiscal 2022

First quarter loss per share of $0.24 compared to earnings per diluted share of $0.21 in the first quarter of fiscal 2022; Adjusted loss per share* of $0.21 compared to adjusted income per diluted share of $0.21 in the first quarter of fiscal 2022

Updates Fiscal 2023 Earnings Outlook

The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced its financial results for the first quarter of fiscal 2023 ended July 1, 2023.

For the first quarter of fiscal 2023:

  • Consolidated net sales were $207.1 million, down 21.1%, compared to the first quarter of fiscal 2022, including 30 basis point negative impact of foreign currency translation. Net sales in The Container Store retail business (“TCS”) were $195.1 million, down 20.9%. Elfa International AB (“Elfa”) third-party net sales were $12.0 million, down 24.4% compared to the first quarter of fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 19.2%.
  • Comparable store sales^ decreased 19.9%, with general merchandise categories down 20.5%, contributing a decrease of 1360 basis points to comparable store sales^. Custom Spaces+ were down 18.6%, negatively impacting comparable store sales^ by 630 basis points.
  • Consolidated net loss and net loss per share were $11.8 million and $0.24 per share, compared to net income of $10.5 million and $0.21 per diluted share, respectively, in the first quarter of fiscal 2022. Adjusted net loss per share* was $0.21 compared to adjusted net income per diluted share of $0.21 in the first quarter of fiscal 2022.

Satish Malhotra, Chief Executive Officer and President of The Container Store, commented, “Our first quarter topline performance was in line with our expectations and reflects the impact of the ongoing challenging macro environment. During the quarter, we continued our focus on bringing merchandise newness and innovation to our customers, and delivering an engaging in-store experience demonstrated by a net promoter score of 81. We also tested a number of different promotional events to entice our customers. While these tests pressured margins in the quarter, they unlocked key learnings that we are incorporating into our go-forward promotional plans. We also successfully executed against our cost-cutting action plan that did not jeopardize our focus on customer experience.”

Mr. Malhotra, continued, “We are updating our outlook to reflect current trends in the business. Even as we continue to navigate the challenges of the current environment, we are relentlessly focused on executing against the initiatives that will further solidify our category leadership position and drive our growth when market conditions normalize.”

First Quarter Fiscal 2023 Results

For the first quarter (thirteen weeks) ended July 1, 2023:

  • Consolidated net sales were $207.1 million, down 21.1%, including 30 basis point negative impact of foreign currency translationcompared to the first quarter of fiscal 2022.
    • Net sales in TCS were $195.1 million, down 20.9%.
    • Comparable store sales^ decreased 19.9%, with general merchandise categories down 20.5%, contributing 1360 basis points of the decrease in comparable store sales^. Custom Spaces+ were down 18.6%, negatively impacting comparable store sales^ by 630 basis points.
    • Our online sales decreased 15.8% compared to the first quarter of fiscal 2022.
    • Elfa third-party net sales were $12.0 million, down 24.4% compared to the first quarter of fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 19.2% primarily due to a decline in sales in Nordic markets.
  • Consolidated gross margin was 55.3%, a decrease of 180basis points, compared to the first quarter of fiscal 2022. TCS gross margin decreased 230basis points to 54.5% primarily due to increased promotional activity, higher mix of online sales and associated shipping costs and unfavorable product and services mix, partially offset by lower freight costs. Elfa gross margin decreased 420 basis points compared to the first quarter of fiscal 2022 primarily due to higher direct material costs.
  • Consolidated selling, general and administrative expenses (“SG&A”) decreased by 8.6%to $111.4 million in the first quarter of fiscal 2023 from $121.9 million in the first quarter of fiscal 2022. SG&A as a percentage of net sales increased 740basis points to 53.8%, with the increase primarily due to deleverage on occupancy, compensation and benefit costs, and other fixed costs on lower sales in the first quarter of fiscal 2023, partially offset by decreased marketing costs.
  • Consolidated depreciation and amortization increased 16.7% to $10.5 million in the first quarter of fiscal 2023 from $9.0 million in the first quarter of fiscal 2022. The increase was primarily due to capital investments in stores and technology in fiscal 2022.
  • Other expenses of $2.5 million were recorded in the first quarter of fiscal 2023 related to severance costs associated with the previously announced elimination of certain positions.
  • Consolidated net interest expense increased 54.1% to $5.0 million in the first quarter of fiscal 2023 from $3.2 million in the first quarter of fiscal 2022. The increase was primarily due to a higher interest rate on the Senior Secured Term Loan Facility.
  • The effective tax rate was 23.3% in the first quarter of fiscal 2023, as compared to 28.8%in the first quarter of fiscal 2022. The decrease in the effective tax rate was primarily related to the impact of discrete items on a pre-tax loss in the first quarter of fiscal 2023, as compared to pre-tax income in the first quarter of fiscal 2022.
  • Net loss was $11.8 million, or $0.24 per share, in the first quarter of fiscal 2023 compared to net income of $10.5 million, or $0.21 per diluted share, in the first quarter of fiscal 2022. Adjusted net loss* was $10.1 million, or $0.21 per share, in the first quarter of fiscal 2023 compared to adjusted net income* of $10.5 million, or $0.21per diluted share, in the first quarter of fiscal 2022.
  • Adjusted EBITDA* was $2.9 million in the first quarter of fiscal 2023 compared to $28.2 million in the first quarter of fiscal 2022.

New and Existing Stores

As of July 1, 2023, the Company store base was 97 as compared to 94 as of July 2, 2022. The Company did not open any stores during the first quarter of fiscal 2023.

Balance sheet and liquidity highlights:

 

 

 

 

 

 

 

(In thousands)

 

July 1, 2023

 

July 2, 2022

Cash

 

$

12,155

 

 

$

23,206

 

Total debt, net of deferred financing costs

 

$

185,388

 

 

$

187,115

 

Liquidity 1

 

$

94,187

 

 

$

115,467

 

Net cash (used in) provided by operating activities

 

$

(2,988

)

 

$

3,172

 

Free cash flow *

 

$

(11,886

)

 

$

(14,448

)

____________________________

(1)

Cash plus availability on revolving credit facilities.

Share repurchase

There were no repurchases during the first quarter of fiscal 2023. The Company has $25 million remaining of the original $30 million authorization for share repurchases.

Outlook

The Company today provided the following financial outlook for the fiscal second quarter ending on September 30, 2023 and the full year ending March 30, 2024:

Current Outlook

 

Current Outlook

 

Prior Outlook

 

Second Quarter Ending
September 30, 2023

Fiscal Year Ending
March 30, 2024

Fiscal Year Ending
March 30, 2024

Consolidated net sales

$205 - $215 million

 

$875 - $890 million

 

$885 - $900 million

Comparable store sales^ decline

Low to mid twenties

 

High teens

 

Mid to high teens

Net (loss) income per diluted share

($0.11) - $0.00

 

($0.10) to $0.00

 

$0.07 to $0.17

Adjusted net (loss) income per diluted share*

($0.10) - $0.00

 

$0.05 to $0.15

 

$0.21 to $0.31

Assumed dilutive shares

49 million

 

50 million

 

50 million

Capital expenditures

 

 

$45 to $50 million

 

$45 to $50 million

Effective tax rate (1)

(20%) to 75%

 

300% to 115%

 

60% to 75%

(1)

Effective tax rate for fiscal year ending March 30, 2024 assumes approximately $5.6 million of discrete income tax expense expected to be recorded in the third quarter of fiscal 2023 related to the expiration of certain stock options granted in connection with our initial public offering in 2013.

The Company plans to open six new small format stores in fiscal 2023 and three new stores in fiscal 2024. The six new stores for fiscal 2023 are as follows:

 

Estimated Opening

San Mateo, CA

Fall 2023

Woodland Hills, CA

Fall 2023

Princeton, NJ

Fall 2023

Gaithersburg, MD

Winter 2023

Miami, FL

Spring 2024

Huntington, NY

Spring 2024

References

* See Reconciliation of GAAP to Non-GAAP Financial Measures table.

+ Custom Spaces includes metal-based and wood-based custom space products and in-home installation services.

^ 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 2023 financial results is scheduled for today, August 1, 2023, 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 three 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 13739988. The replay will be available until September 1, 2023.

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 goals, strategies, priorities and initiatives including future store openings; future opportunities; our share repurchase program; the impact of macroeconomic conditions 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; 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; our inability to source and market new products to meet consumer preferences; failure to successfully anticipate, or manage inventory commensurate with, consumer preferences and demand; competition from other stores and internet-based competition; our inability to obtain merchandise from our vendors on a timely basis and at competitive prices; 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 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 May 26, 2023 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 organizing solutions, custom spaces, and in-home services – a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 10,000 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 1,

 

July 2,

(In thousands, except share and per share amounts)

 

2023

 

2022

 

 

 

(unaudited)

 

 

(unaudited)

Net sales

 

$

207,112

 

 

$

262,634

Cost of sales (excluding depreciation and amortization)

 

 

92,563

 

 

 

112,546

Gross profit

 

 

114,549

 

 

 

150,088

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

 

 

111,380

 

 

 

121,909

Stock-based compensation

 

 

474

 

 

 

1,201

Pre-opening costs

 

 

185

 

 

 

36

Depreciation and amortization

 

 

10,512

 

 

 

9,006

Other expenses

 

 

2,453

 

 

 

Loss on disposal of assets

 

 

1

 

 

 

1

(Loss) income from operations

 

 

(10,456

)

 

 

17,935

Interest expense, net

 

 

4,967

 

 

 

3,223

(Loss) income before taxes

 

 

(15,423

)

 

 

14,712

(Benefit) provision for income taxes

 

 

(3,586

)

 

 

4,233

Net (loss) income

 

$

(11,837

)

 

$

10,479

 

 

 

 

 

 

 

Net (loss) income per common share — basic

 

$

(0.24

)

 

$

0.21

Net (loss) income per common share — diluted

 

$

(0.24

)

 

$

0.21

 

 

 

 

 

 

 

Weighted-average common shares — basic

 

 

49,252,869

 

 

 

49,719,559

Weighted-average common shares — diluted

 

 

49,252,869

 

 

 

50,312,855

The Container Store Group, Inc.

Consolidated balance sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

July 1,

 

April 1,

 

July 2,

 

(In thousands)

 

2023

 

2023

 

2022

 

Assets

 

(unaudited)

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

 

 

 

Cash

 

$

12,155

 

$

6,958

 

$

23,206

 

Accounts receivable, net

 

 

21,870

 

 

25,870

 

 

30,466

 

Inventory

 

 

170,512

 

 

170,637

 

 

190,752

 

Prepaid expenses

 

 

14,624

 

 

14,989

 

 

14,612

 

Income taxes receivable

 

 

964

 

 

858

 

 

808

 

Other current assets

 

 

9,985

 

 

10,914

 

 

9,826

 

Total current assets

 

 

230,110

 

 

230,226

 

 

269,670

 

Noncurrent assets:

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

157,747

 

 

158,702

 

 

144,175

 

Noncurrent operating lease right-of-use assets

 

 

353,402

 

 

347,959

 

 

365,053

 

Goodwill

 

 

23,447

 

 

23,447

 

 

221,159

 

Trade names

 

 

219,894

 

 

221,278

 

 

221,633

 

Deferred financing costs, net

 

 

137

 

 

150

 

 

190

 

Noncurrent deferred tax assets, net

 

 

517

 

 

568

 

 

636

 

Other assets

 

 

2,702

 

 

2,844

 

 

1,923

 

Total noncurrent assets

 

 

757,846

 

 

754,948

 

 

954,769

 

Total assets

 

$

987,956

 

$

985,174

 

$

1,224,439

 

The Container Store Group, Inc.

Consolidated balance sheets (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

July 1,

 

April 1,

 

July 2,

 

(In thousands, except share and per share amounts)

 

2023

 

2023

 

2022

 

Liabilities and shareholders’ equity

 

(unaudited)

 

 

 

 

(unaudited)

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

53,305

 

 

$

52,637

 

 

$

68,920

 

 

Accrued liabilities

 

 

68,218

 

 

 

74,673

 

 

 

81,743

 

 

Current borrowings on revolving lines of credit

 

 

 

 

 

2,423

 

 

 

11,541

 

 

Current portion of long-term debt

 

 

2,055

 

 

 

2,063

 

 

 

2,072

 

 

Current operating lease liabilities

 

 

59,996

 

 

 

57,201

 

 

 

54,605

 

 

Income taxes payable

 

 

670

 

 

 

1,318

 

 

 

10,464

 

 

Total current liabilities

 

 

184,244

 

 

 

190,315

 

 

 

229,345

 

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

183,333

 

 

 

163,385

 

 

 

173,502

 

 

Noncurrent operating lease liabilities

 

 

320,845

 

 

 

314,100

 

 

 

332,800

 

 

Noncurrent deferred tax liabilities, net

 

 

45,062

 

 

 

49,338

 

 

 

48,309

 

 

Other long-term liabilities

 

 

5,394

 

 

 

5,851

 

 

 

6,876

 

 

Total noncurrent liabilities

 

 

554,634

 

 

 

532,674

 

 

 

561,487

 

 

Total liabilities

 

 

738,878

 

 

 

722,989

 

 

 

790,832

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares authorized; 49,390,882 shares issued at July 1, 2023; 49,181,562 shares issued at April 1, 2023; 49,941,336 shares issued at July 2, 2022

 

 

494

 

 

 

492

 

 

 

499

 

 

Additional paid-in capital

 

 

872,537

 

 

 

872,204

 

 

 

875,016

 

 

Accumulated other comprehensive loss

 

 

(34,113

)

 

 

(32,509

)

 

 

(33,241

)

 

Retained deficit

 

 

(589,840

)

 

 

(578,002

)

 

 

(408,667

)

 

Total shareholders’ equity

 

 

249,078

 

 

 

262,185

 

 

 

433,607

 

 

Total liabilities and shareholders’ equity

 

$

987,956

 

 

$

985,174

 

 

$

1,224,439

 

 

The Container Store Group, Inc.

Consolidated statements of cash flows

 

 

 

 

 

 

 

 

 

Fiscal Quarter Ended

 

 

July 1,

 

July 2,

(In thousands)

 

2023

 

2022

Operating activities

 

 

(unaudited)

 

 

(unaudited)

Net (loss) income

 

$

(11,837

)

 

$

10,479

 

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

10,512

 

 

 

9,006

 

Stock-based compensation

 

 

474

 

 

 

1,201

 

Loss on disposal of assets

 

 

1

 

 

 

1

 

Deferred tax benefit

 

 

(3,975

)

 

 

(1,325

)

Non-cash interest

 

 

471

 

 

 

471

 

Other

 

 

193

 

 

 

81

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

5,894

 

 

 

(2,101

)

Inventory

 

 

(234

)

 

 

(59

)

Prepaid expenses and other assets

 

 

1,173

 

 

 

(2,415

)

Accounts payable and accrued liabilities

 

 

(8,707

)

 

 

(17,280

)

Net change in lease assets and liabilities

 

 

4,101

 

 

 

7

 

Income taxes

 

 

(739

)

 

 

5,271

 

Other noncurrent liabilities

 

 

(315

)

 

 

(165

)

Net cash (used in) provided by operating activities

 

 

(2,988

)

 

 

3,172

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Additions to property and equipment

 

 

(8,898

)

 

 

(17,620

)

Investments in non-qualified plan trust

 

 

(128

)

 

 

(767

)

Proceeds from non-qualified plan trust redemptions

 

 

83

 

 

 

60

 

Proceeds from sale of property and equipment

 

 

1

 

 

 

 

Net cash used in investing activities

 

 

(8,942

)

 

 

(18,327

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Borrowings on revolving lines of credit

 

 

12,799

 

 

 

23,834

 

Payments on revolving lines of credit

 

 

(15,180

)

 

 

(13,528

)

Borrowings on long-term debt

 

 

20,000

 

 

 

15,000

 

Payments on long-term debt

 

 

(518

)

 

 

(530

)

Payment of taxes with shares withheld upon restricted stock vesting

 

 

(140

)

 

 

(712

)

Proceeds from the exercise of stock options

 

 

 

 

 

340

 

Net cash provided by financing activities

 

 

16,961

 

 

 

24,404

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

166

 

 

 

(295

)

 

 

 

 

 

 

 

Net increase in cash

 

 

5,197

 

 

 

8,954

 

Cash at beginning of fiscal period

 

 

6,958

 

 

 

14,252

 

Cash at end of fiscal period

 

$

12,155

 

 

$

23,206

 

Note Regarding Non-GAAP Information

This press release includes financial measures that are not calculated in accordance with GAAP, including adjusted net (loss) income, adjusted net (loss) 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 (loss) 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 (loss) income, adjusted net (loss) 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 (loss) income as net (loss) income before restructuring charges, severance charges, acquisition-related costs, impairment charges related to intangible assets, loss on extinguishment of debt, certain losses (gains) on disposal of assets, legal settlements and the tax impact of these adjustments and other unusual or infrequent tax items. We define adjusted net (loss) income per common share - diluted as adjusted net (loss) income divided by the diluted weighted average common shares outstanding. We use adjusted net (loss) income (loss) and adjusted net (loss) income (loss) 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 (loss) income and adjusted net (loss) 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 (loss) income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with the Company’s 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. 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 (loss) income and adjusted net (loss) income per common share - diluted with the most directly comparable GAAP financial measures of GAAP net (loss) income and GAAP net (loss) income per common share - diluted.

 

Fiscal Quarter Ended

Q2 2023 Outlook

 

 

FY 2023 Outlook

 

July 1,

 

July 2,

 

 

 

 

 

 

 

 

 

2023

 

2022

Low

 

High

 

 

Low

 

High

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(11,837

)

 

$

10,479

 

$

(5,525

)

 

$

 

 

$

(5,000

)

 

$

Severance charges (a)

 

2,453

 

 

 

 

 

 

 

 

 

 

 

2,453

 

 

 

2,453

Taxes (b)

 

(749

)

 

 

 

 

625

 

 

 

 

 

 

5,100

 

 

 

5,100

Adjusted net (loss) income

$

(10,133

)

 

$

10,479

 

$

(4,900

)

 

$

 

 

$

2,553

 

 

$

7,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — basic

 

49,252,869

 

 

 

49,719,559

 

 

49,000,000

 

 

 

49,000,000

 

 

 

49,000,000

 

 

 

49,000,000

Weighted-average common shares outstanding — diluted

 

49,252,869

 

 

 

50,312,855

 

 

49,000,000

 

 

 

49,000,000

 

 

 

50,000,000

 

 

 

50,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share — basic & diluted

$

(0.24

)

 

$

0.21

 

$

(0.11

)

 

$

0.00

 

 

$

(0.10

)

 

$

0.00

Adjusted net (loss) income per common share — basic & diluted

$

(0.21

)

 

$

0.21

 

$

(0.10

)

 

$

0.00

 

 

$

0.05

 

 

$

0.15

____________________________

(a)

TCS segment severance charges associated with the elimination of certain positions recorded in other expenses in the first quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

 
(b)

Tax impact of adjustments to net (loss) income that are considered to be unusual or infrequent tax items. For fiscal 2023, includes approximately $5.6 million of discrete income tax expense expected to be recorded in the third quarter of fiscal 2023 related to the expiration of certain stock options granted in connection with our initial public offering in 2013, 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 (loss) income.

 

 

Fiscal Quarter Ended

 

July 1,

 

July 2,

 

2023

 

2022

Net (loss) income

$

(11,837

)

 

$

10,479

 

Depreciation and amortization

 

10,512

 

 

 

9,006

 

Interest expense, net

 

4,967

 

 

 

3,223

 

(Benefit) provision for income taxes

 

(3,586

)

 

 

4,233

 

EBITDA

$

56

 

 

$

26,941

 

Pre-opening costs (a)

 

185

 

 

 

36

 

Non-cash lease expense (b)

 

(174

)

 

 

34

 

Stock-based compensation (c)

 

474

 

 

 

1,201

 

Foreign exchange gains (d)

 

(75

)

 

 

(24

)

Severance charges (e)

 

2,453

 

 

 

 

Adjusted EBITDA

$

2,919

 

 

$

28,188

 

____________________________

(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)

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

 
(e)

TCS segment severance charges associated with the elimination of certain positions recorded in other expenses in the first quarter of fiscal 2023, 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 (used in) provided by operating activities.

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

 

July 1,

 

July 2,

 

 

2023

 

2022

Net cash (used in) provided by operating activities

 

$

(2,988

)

 

$

3,172

 

Less: Additions to property and equipment

 

 

(8,898

)

 

 

(17,620

)

Free cash flow

 

$

(11,886

)

 

$

(14,448

)

 

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.