Investor Relations
NYSE: TCS 2.02 -0.08(-3.81%) Market Open: 2.10 Market Close: 2.10 52 Week High: 5.80 52 Week Low: 2.02 Sep 22, 2023 04:00 PM (Prices delayed 20 mins)

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

02/07/2023

Third quarter consolidated net sales down 5.6% compared to the third quarter of fiscal 2021, including 100 basis point negative foreign exchange impact

Comparable store sales^ down 4.3 %, inclusive of Custom Spaces + up 2.1%, compared to the third quarter of fiscal 2021

Earnings per diluted share of $0.08 compared to $0.27 in the third quarter of fiscal 2021;
Adjusted earnings per diluted share* of $0.08 compared to $0.28 in the third quarter of fiscal 2021

Provides Q4 Fiscal 2022 Earnings Outlook

The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced its financial results for the third quarter of fiscal year 2022 ended December 31, 2022.

  • Consolidated net sales were $252.2 million, down 5.6%, compared to the third quarter of fiscal 2021, including 100 basis point negative impact of foreign currency translation. Net sales in The Container Store retail business (“TCS”) were $239.3 million, down 3.8%. Elfa International AB (“Elfa”) third-party net sales were $13.0 million, down 30.6% compared to the third quarter of fiscal 2021. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 15.8%.
  • Comparable store sales^ decreased 4.3%, with Custom Spaces+ up 2.1%, contributing an increase of 65 basis points to comparable store sales^ which was more than offset by general merchandise categories, which were down 7.1%, negatively impacting comparable store sales^ by 495 basis points.
  • Consolidated net income and net income per diluted share (“EPS”) was $4.2 million and $0.08 compared to $13.7 million and $0.27, respectively, in the third quarter of fiscal 2021. Adjusted net income per share* (“Adjusted EPS”) was $0.08 compared to $0.28 in the third quarter of fiscal 2021.

Satish Malhotra, Chief Executive Officer and President of The Container Store, commented, “Our third quarter performance reflects better than expected results led by Custom Spaces+, which benefitted from a successful event focused on our new premium wood-based product line, PrestonTM. We continue to be very pleased by the performance of our first small format store in Colorado Springs, Colorado, and are thrilled to share the new store opening in Salem, New Hampshire in January exceeded our expectations, in particular with the number of new customers that signed up for our Organized Insider program. Looking ahead, we are excited to share that, in addition to our previously announced new small format store opening in Thousand Oaks, California this spring, we plan to open nine new small format stores in the second half of fiscal 2023.”

“As we enter the fourth quarter, while we are encouraged by our new store performance and ongoing customer engagement, we are experiencing headwinds related to changing customer spending behavior in light of the current, uncertain macro backdrop. I am confident in our team’s ability to navigate this environment while remaining focused on driving long-term profitable growth on our path to $2 billion in revenue. We plan to continue a disciplined approach to expense management and allocation of capital to support our key long-term growth initiatives,” Mr. Malhotra concluded.

Third Quarter Fiscal 2022 Results

For the third quarter (thirteen weeks) ended December 31, 2022:

  • Consolidated net sales were $252.2 million, down 5.6%, including 100 basis point negative impact of foreign currency translation compared to the third quarter of fiscal 2021.
    • Net sales in TCS were $239.3 million, down 3.8%.
    • Comparable store sales^ decreased 4.3% with Custom Spaces+ up 2.1%, contributing an increase of 65 basis points to comparable store sales^ which was more than offset by general merchandise categories, which were down 7.1%, negatively impacting comparable store sales^ by 495 basis points.
    • Our online sales increased 4.6% compared to the third quarter of fiscal 2021.
    • Elfa International AB (“Elfa”) third-party net sales were $13.0 million, down 30.6% compared to the third quarter of fiscal 2021. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 15.8%, primarily due to a decline in sales in Nordic and Russian markets.
  • Consolidated gross margin was 56.9%, a decrease of 10 basis points, compared to the third quarter of fiscal 2021. TCS gross margin decreased 10 basis points to 57.2% primarily due to increased promotional activity, partially offset by favorable product and services mix. Elfa gross margin increased 570 basis points compared to the third quarter of fiscal 2021 primarily due to price increases, partially offset by higher direct material costs.
  • Consolidated selling, general and administrative expenses (“SG&A”) increased by 1.1% to $121.5 million in the third quarter of fiscal 2022 from $120.3 million in the third quarter of fiscal 2021. SG&A as a percentage of net sales increased 320 basis points to 48.2%, with the increase primarily due to the deleverage of compensation and benefits, occupancy, and other costs on lower sales in the third quarter of fiscal 2022.
  • Consolidated depreciation and amortization increased 14.8% to $10.0 million in the third quarter of fiscal 2022 from $8.7 million in the third quarter of fiscal 2021. The increase was primarily due to higher capital investments in fiscal 2022.
  • Consolidated net interest expense increased 36.6% to $4.4 million in the third quarter of fiscal 2022 from $3.2 million in the third quarter of fiscal 2021. The increase was primarily due to a higher interest rate on the Senior Secured Term Loan Facility.
  • The effective tax rate was 33.8% in the third quarter of fiscal 2022, as compared to 27.9% in the third quarter of fiscal 2021. The increase in the effective tax rate was primarily related to the impact of discrete items on lower pre-tax income in the third quarter of fiscal 2022.
  • Net income was $4.2 million, or $0.08 per diluted share, in the third quarter of fiscal 2022 compared to $13.7 million, or $0.27 per diluted share, in the third quarter of fiscal 2021. Adjusted net income* was $4.1 million, or $0.08 per diluted share, in the third quarter of fiscal 2022 compared to adjusted net income* of $14.3 million, or $0.28 per diluted share, in the third quarter of fiscal 2021.
  • Adjusted EBITDA* was $22.2 million in the third quarter of fiscal 2022 compared to $31.4 million in the third quarter of fiscal 2021.

For the fiscal year (thirty-nine weeks) ended December 31, 2022:

  • Consolidated net sales were $787.5 million, down 0.1%, including 100 basis point negative impact of foreign currency translation as compared to the thirty-nine weeks ended January 1, 2022.
    • Net sales for the TCS segment were $745.9 million, up 1.2%.
    • Comparable store sales^ decreased 0.2% with general merchandise categories down 3.8%, contributing 260 basis points of the decrease, partially offset by Custom Spaces+ up 7.8%, contributing a positive impact of 240 basis points to comparable store sales^.
    • Our online sales increased 0.9% compared to the thirty-nine weeks ended January 1, 2022.
    • Elfa third-party net sales were $41.6 million, down 19.7% compared to the thirty-nine weeks ended January 1, 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 3.6% compared to the thirty-nine weeks ended January 1, 2022, primarily due to a decline in sales in Russia.
  • Consolidated gross margin was 56.9%, a decrease of 170 basis points compared to the thirty-nine weeks ended January 1, 2022. TCS gross margin decreased 100 basis points to 56.9%, primarily due to increased freight costs and increased promotional activity, partially offset by favorable product and services mix. Elfa gross margin increased 20 basis points primarily due to price increases, partially offset by higher direct material costs.
  • Consolidated SG&A increased by 5.1% to $362.1 million from $344.5 million in the thirty-nine weeks ended January 1, 2022. SG&A as a percentage of net sales increased 230 basis points to 46.0%, with the increase primarily due to increased compensation and benefits, occupancy, marketing and other costs.
  • Consolidated depreciation and amortization increased 12.2% to $28.5 million in the thirty-nine weeks ended December 31, 2022 from $25.4 million in the thirty-nine weeks ended January 1, 2022. The increase was primarily due to higher capital investments in fiscal 2022.
  • Consolidated net interest expense increased 18.9% to $11.4 million in the thirty-nine weeks ended December 31, 2022 from $9.6 million in the thirty-nine weeks ended January 1, 2022. The increase is primarily due to a higher interest rate on the Senior Secured Term Loan Facility.
  • The effective tax rate was 28.1% for the thirty-nine weeks ended December 31, 2022 as compared to 25.8% in the thirty-nine weeks ended January 1, 2022. The increase in the effective tax rate is primarily related to the tax impact associated with share-based compensation on lower pre-tax income in the thirty-nine weeks ended December 31, 2022.
  • Net income was $30.4 million, or $0.61 per diluted share, in the thirty-nine weeks ended December 31, 2022 compared to net income of $58.6 million, or $1.16 per diluted share in the thirty-nine weeks ended January 1, 2022. Adjusted net income* was $28.4 million, or $0.57 per diluted share in the thirty-nine weeks ended December 31, 2022 compared to adjusted net income* of $59.6 million, or $1.19 per diluted share in the thirty-nine weeks ended January 1, 2022.
  • Adjusted EBITDA* was $86.3 million in the thirty-nine weeks ended December 31, 2022 compared to $112.6 million in the thirty-nine weeks ended January 1, 2022.

New and Existing Stores

The Company did not open any new stores during the third quarter of fiscal 2022. As of December 31, 2022, the Company store base was 95 as compared to 94 as of January 1, 2022. Subsequent to December 31, 2022, the Company opened one new store in Salem, New Hampshire.

Balance sheet and liquidity highlights:

 

 

 

 

 

 

 

(In thousands)

 

December 31, 2022

 

January 1, 2022

Cash

 

$

5,760

 

 

$

19,008

 

Total debt, net of deferred financing costs

 

$

188,608

 

 

$

198,743

 

Liquidity 1

 

$

96,059

 

 

$

94,993

 

Net cash provided by operating activities

 

$

18,856

 

 

$

15,591

 

Free cash flow *

 

$

(27,702

)

 

$

(8,438

)

____________________
(1)

Cash plus availability on revolving credit facilities.

 

Share repurchase

During the thirteen weeks ended December 31, 2022, the Company repurchased approximately 940 thousand shares for $5 million, under a Rule 10b5-1 plan. 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 fourth quarter ending on April 1, 2023:

 

 

Consolidated net sales

$255 - $265 million

Comparable store sales^ decline

High-single digit to low-teens

Earnings per diluted share

$0.10 to $0.20

Assumed dilutive shares

50 million

 

 

Store openings

 

Salem, New Hampshire

Opened in January 2023

Thousand Oaks, California

Planned for early spring 2023

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. Starting in the first quarter of fiscal 2022, the closet lifestyle department products sold by the TCS segment are now included in General Merchandise versus prior inclusion in Custom Spaces.
^ 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 third quarter fiscal 2022 financial results is scheduled for today, February 7, 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 13734844. The replay will be available until March 7, 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; sales trends, momentum and targets; 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; 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 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 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

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

December 31,

 

January 1,

 

December 31,

January 1,

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

 

2022

 

 

2022

 

 

2022

 

2022

 

Net sales

 

$

252,236

$

267,304

 

$

787,542

$

788,573

 

Cost of sales (excluding depreciation and amortization)

 

 

108,795

 

114,956

 

 

339,583

 

326,363

 

Gross profit

 

 

143,441

 

152,348

 

 

447,959

 

462,210

 

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

 

 

121,540

 

120,268

 

 

362,104

 

344,478

 

Stock-based compensation

 

 

825

 

1,204

 

 

2,562

 

3,159

 

Pre-opening costs

 

 

430

 

20

 

 

1,049

 

686

 

Depreciation and amortization

 

 

9,952

 

8,667

 

 

28,507

 

25,412

 

Loss (gain) on disposal of assets

 

 

10

 

(9

)

 

91

 

(14

)

Income from operations

 

 

10,684

 

22,198

 

 

53,646

 

88,489

 

Interest expense, net

 

 

4,389

 

3,213

 

 

11,395

 

9,584

 

Income before taxes

 

 

6,295

 

18,985

 

 

42,251

 

78,905

 

Provision for income taxes

 

 

2,127

 

5,292

 

 

11,857

 

20,345

 

Net income

 

$

4,168

$

13,693

 

$

30,394

$

58,560

 

 

 

 

Net income per common share — basic

 

$

0.08

$

0.28

 

$

0.61

$

1.19

 

Net income per common share — diluted

 

$

0.08

$

0.27

 

$

0.61

$

1.16

 

 

 

 

Weighted-average common shares — basic

 

 

49,263,122

 

49,611,468

 

 

49,661,209

 

49,386,897

 

Weighted-average common shares — diluted

 

 

49,452,980

 

50,298,101

 

 

50,024,589

 

50,310,320

 

 

The Container Store Group, Inc.

Consolidated balance sheets

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

April 2,

 

January 1,

(In thousands)

 

2022

 

2022

 

2022

Assets

 

(unaudited)

 

 

 

 

(unaudited)

Current assets:

 

 

 

 

 

 

 

 

 

Cash

 

$

5,760

 

$

14,252

 

$

19,008

Accounts receivable, net

 

 

30,790

 

 

30,225

 

 

32,565

Inventory

 

 

190,307

 

 

192,783

 

 

196,641

Prepaid expenses

 

 

15,596

 

 

11,628

 

 

13,076

Income taxes receivable

 

 

1,357

 

 

1,687

 

 

1,055

Other current assets

 

 

9,941

 

 

9,836

 

 

9,997

Total current assets

 

 

253,751

 

 

260,411

 

 

272,342

Noncurrent assets:

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

152,282

 

 

140,198

 

 

134,810

Noncurrent operating lease right-of-use assets

 

 

357,607

 

 

347,519

 

 

342,980

Goodwill

 

 

221,159

 

 

221,159

 

 

221,183

Trade names

 

 

221,046

 

 

224,938

 

 

226,182

Deferred financing costs, net

 

 

163

 

 

203

 

 

216

Noncurrent deferred tax assets, net

 

 

690

 

 

865

 

 

796

Other assets

 

 

2,323

 

 

2,284

 

 

2,576

Total noncurrent assets

 

 

955,270

 

 

937,166

 

 

928,743

Total assets

 

$

1,209,021

 

$

1,197,577

 

$

1,201,085

 

The Container Store Group, Inc.

Consolidated balance sheets (continued)

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

April 2,

 

January 1,

(In thousands, except share and per share amounts)

 

2022

 

2022

 

2022

Liabilities and shareholders’ equity

 

(unaudited)

 

 

 

 

(unaudited)

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

57,704

 

 

$

84,059

 

 

$

70,983

 

Accrued liabilities

 

 

75,338

 

 

 

89,004

 

 

 

98,273

 

Current borrowings on revolving lines of credit

 

 

8,131

 

 

 

1,790

 

 

 

 

Current portion of long-term debt

 

 

2,061

 

 

 

2,096

 

 

 

2,117

 

Current operating lease liabilities

 

 

58,309

 

 

 

52,540

 

 

 

52,486

 

Income taxes payable

 

 

276

 

 

 

6,026

 

 

 

416

 

Total current liabilities

 

 

201,819

 

 

 

235,515

 

 

 

224,275

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

178,416

 

 

 

158,564

 

 

 

196,626

 

Noncurrent operating lease liabilities

 

 

322,243

 

 

 

317,345

 

 

 

313,414

 

Noncurrent deferred tax liabilities, net

 

 

50,050

 

 

 

50,493

 

 

 

50,925

 

Other long-term liabilities

 

 

6,983

 

 

 

7,564

 

 

 

9,208

 

Total noncurrent liabilities

 

 

557,692

 

 

 

533,966

 

 

 

570,173

 

Total liabilities

 

 

759,511

 

 

 

769,481

 

 

 

794,448

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares authorized; 49,164,862 shares issued at December 31, 2022; 49,635,447 shares issued at April 2, 2022; 49,618,747 shares issued at January 1, 2022

 

 

492

 

 

 

496

 

 

 

496

 

Additional paid-in capital

 

 

871,384

 

 

 

874,190

 

 

 

873,088

 

Accumulated other comprehensive loss

 

 

(33,614

)

 

 

(27,444

)

 

 

(24,643

)

Retained deficit

 

 

(388,752

)

 

 

(419,146

)

 

 

(442,304

)

Total shareholders’ equity

 

 

449,510

 

 

 

428,096

 

 

 

406,637

 

Total liabilities and shareholders’ equity

 

$

1,209,021

 

 

$

1,197,577

 

 

$

1,201,085

 

 

The Container Store Group, Inc.

Consolidated statements of cash flows

 

 

 

 

 

 

 

 

 

Thirty-Nine Weeks Ended

 

 

December 31,

 

January 1,

(In thousands) (unaudited)

 

2022

 

2022

Operating activities

 

 

 

 

 

 

Net income

 

$

30,394

 

 

$

58,560

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

28,507

 

 

 

25,412

 

Stock-based compensation

 

 

2,562

 

 

 

3,159

 

Loss (gain) on disposal of assets

 

 

91

 

 

 

(14

)

Deferred tax (benefit) expense

 

 

(1,018

)

 

 

4,459

 

Non-cash interest

 

 

1,413

 

 

 

1,412

 

Other

 

 

855

 

 

 

(264

)

Changes in operating assets and liabilities (exclusive of effects of acquisition):

 

 

 

 

 

 

Accounts receivable

 

 

(2,955

)

 

 

(3,729

)

Inventory

 

 

511

 

 

 

(64,945

)

Prepaid expenses and other assets

 

 

(3,303

)

 

 

(3,105

)

Accounts payable and accrued liabilities

 

 

(33,126

)

 

 

11,161

 

Net change in lease assets and liabilities

 

 

607

 

 

 

(5,680

)

Income taxes

 

 

(5,539

)

 

 

(8,221

)

Other noncurrent liabilities

 

 

(143

)

 

 

(2,614

)

Net cash provided by operating activities

 

 

18,856

 

 

 

15,591

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Additions to property and equipment

 

 

(46,558

)

 

 

(24,029

)

Closet Works acquisition, net of cash acquired

 

 

 

 

 

(19,445

)

Investments in non-qualified plan trust

 

 

(1,049

)

 

 

(267

)

Proceeds from non-qualified plan trust redemptions

 

 

811

 

 

 

2,605

 

Proceeds from sale of property and equipment

 

 

36

 

 

 

17

 

Net cash used in investing activities

 

 

(46,760

)

 

 

(41,119

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Borrowings on revolving lines of credit

 

 

64,790

 

 

 

48,913

 

Payments on revolving lines of credit

 

 

(58,243

)

 

 

(48,913

)

Borrowings on long-term debt

 

 

35,000

 

 

 

38,000

 

Payments on long-term debt

 

 

(16,572

)

 

 

(6,633

)

Repurchases of common stock

 

 

(5,000

)

 

 

 

Payment of taxes with shares withheld upon restricted stock vesting

 

 

(712

)

 

 

(4,677

)

Proceeds from the exercise of stock options

 

 

340

 

 

 

566

 

Net cash provided by financing activities

 

 

19,603

 

 

 

27,256

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(191

)

 

 

(407

)

 

 

 

 

 

 

 

Net (decrease) increase in cash

 

 

(8,492

)

 

 

1,321

 

Cash at beginning of fiscal period

 

 

14,252

 

 

 

17,687

 

Cash at end of fiscal period

 

$

5,760

 

 

$

19,008

 

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

December 31, 2022

 

January 1, 2022

 

December 31, 2022

 

January 1, 2022

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Net income

$

4,168

 

 

$

13,693

 

 

$

30,394

 

 

$

58,560

 

Management transition costs (a)

 

 

 

 

 

 

 

 

 

 

473

 

Acquisition-related costs (b)

 

 

 

 

692

 

 

 

63

 

 

 

692

 

COVID-19 costs (c)

 

 

 

 

 

 

 

 

 

 

192

 

Legal settlement (d)

 

 

 

 

 

 

 

(2,600

)

 

 

 

Taxes (e)

 

(59

)

 

 

(110

)

 

 

545

 

 

 

(294

)

Adjusted net income

$

4,109

 

 

$

14,275

 

 

$

28,402

 

 

$

59,623

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — diluted

 

49,452,980

 

 

 

50,298,101

 

 

 

50,024,589

 

 

 

50,310,320

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share — diluted

$

0.08

 

 

$

0.27

 

 

$

0.61

 

 

$

1.16

 

Adjusted net income per common share — diluted

$

0.08

 

 

$

0.28

 

 

$

0.57

 

 

$

1.19

 

____________________

(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 legal costs incurred in the third quarter of fiscal 2021 and the second quarter of fiscal 2022 associated with the acquisition of Closet Works, all of which were recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

(c)

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.

(d)

The Company received a legal settlement, net of legal fees, in the second quarter of fiscal 2022. The amount was recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

(e)

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

December 31,

 

January 1,

 

December 31,

 

January 1,

 

2022

 

2022

 

 

2022

 

 

2022

 

Net income

$

4,168

 

$

13,693

 

 

$

30,394

 

$

58,560

 

Depreciation and amortization

 

9,952

 

 

8,667

 

 

 

28,507

 

 

25,412

 

Interest expense, net

 

4,389

 

 

3,213

 

 

 

11,395

 

 

9,584

 

Income tax provision

 

2,127

 

 

5,292

 

 

 

11,857

 

 

20,345

 

EBITDA

$

20,636

 

$

30,865

 

 

$

82,153

 

$

113,901

 

Pre-opening costs (a)

 

430

 

 

20

 

 

 

1,049

 

 

686

 

Non-cash lease expense (b)

 

232

 

 

(1,345

)

 

 

403

 

 

(6,422

)

Stock-based compensation (c)

 

825

 

 

1,204

 

 

 

2,562

 

 

3,159

 

Management transition costs (d)

 

 

 

 

 

 

 

 

473

 

Foreign exchange losses (gains) (e)

 

38

 

 

(39

)

 

 

30

 

 

(34

)

Acquisition-related costs (f)

 

 

 

692

 

 

 

63

 

 

692

 

COVID-19 costs (g)

 

 

 

 

 

 

 

 

192

 

Adjusted EBITDA

$

22,161

 

$

31,397

 

 

$

86,260

 

$

112,647

 

____________________

(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 legal costs incurred in the third quarter of fiscal 2021 and the second quarter of fiscal 2022 associated with the acquisition of Closet Works, all of which were recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

(g)

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.

 

 

 

 

 

 

 

 

 

Thirty-Nine Weeks Ended

 

 

December 31,

 

January 1,

 

 

2022

 

2022

Net cash provided by operating activities

 

$

18,856

 

 

$

15,591

 

Less: Additions to property and equipment

 

 

(46,558

)

 

 

(24,029

)

Free cash flow

 

$

(27,702

)

 

$

(8,438

)

 

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.