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 Third Quarter 2023 Financial Results

02/06/2024

Third quarter consolidated net sales of $214.9 million, down 14.8% compared to the third quarter of fiscal 2022

Comparable store sales^ down 16.8% compared to the third quarter of fiscal 2022

Third quarter net loss per share of $0.13, compared to earnings per diluted share of $0.08 in the third quarter of fiscal 2022; Adjusted net loss per share* of $0.08 compared to adjusted net income per diluted share of $0.08 in the third 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 third quarter of fiscal 2023 ended December 30, 2023.

For the third quarter of fiscal 2023:

  • Consolidated net sales were $214.9 million, down 14.8%, compared to the third quarter of fiscal 2022. Net sales in The Container Store retail business (“TCS”) were $202.5 million, down 15.4% compared to the third quarter of fiscal 2022. Elfa International AB (“Elfa”) third-party net sales were $12.4 million, down 4.2% compared to the third quarter of fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 4.9%.
  • Comparable store sales^ decreased 16.8%, with general merchandise categories down 20.4%, contributing a decrease of 1,380 basis points to comparable store sales^. Custom Spaces+ were down 9.2%, negatively impacting comparable store sales^ by 300 basis points.
  • Consolidated net loss and net loss per share were $6.4 million and $0.13 per share, compared to net income of $4.2 million and $0.08 per diluted share, respectively, in the third quarter of fiscal 2022. Adjusted net loss per share* was $0.08 compared to adjusted net income per diluted share of $0.08 in the third quarter of fiscal 2022.

Satish Malhotra, Chief Executive Officer and President of The Container Store, commented, “As we discussed in our commentary ahead of the ICR Conference last month, our third quarter sales reflected similar trends to what we experienced in the second quarter as our general merchandise categories weighed on results while our Custom Spaces assortment relatively outperformed. In fact, Custom Spaces saw sequential improvement in comparable store sales declines from the second quarter driven by improved performance in our elfa® product line and strength in our premium, wood-based line, Preston®. Despite the sales shortfall from our original guidance, promotional discipline and tight cost management enabled us to deliver bottom line results within our original outlook range.”

Mr. Malhotra continued, “Given the landscape we are navigating, we plan to continue to manage expenses and capital allocation with great discipline. We continue to lean into our competitive strengths and differentiation in Custom Spaces and complementary premium general merchandise, where we see significant growth opportunity.

Third Quarter Fiscal 2023 Results

For the third quarter (thirteen weeks) ended December 30, 2023:

  • Consolidated net sales were $214.9 million, down 14.8%, compared to the third quarter of fiscal 2022.
    • Net sales in TCS were $202.5 million, down 15.4%.
    • Comparable store sales^ decreased 16.8%, with general merchandise categories down 20.4%, contributing a decrease of 1,380 basis points to comparable store sales^. Custom Spaces+ were down 9.2%, negatively impacting comparable store sales^ by 300 basis points.
    • Online sales decreased 26.3% compared to the third quarter of fiscal 2022.
    • Elfa third-party net sales were $12.4 million, down 4.2% compared to the third quarter of fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 4.9% primarily due to a decline in sales in Nordic markets.
  • Consolidated gross margin was 58.3%, an increase of 140basis points, compared to the third quarter of fiscal 2022 primarily due to a higher mix of Custom Spaces+ sales year over year. TCS gross margin increased 40basis points to 57.6% primarily due to lower freight costs, partially offset by increased promotional activity and unfavorable product and services mix. Elfa gross margin decreased 170 basis points compared to the third quarter of fiscal 2022 primarily due to unfavorable mix, partially offset by price increases to customers.
  • Consolidated selling, general and administrative expenses (“SG&A”) decreased by 8.0%to $111.8 million in the third quarter of fiscal 2023 from $121.5 million in the third quarter of fiscal 2022. SG&A as a percentage of net sales increased 380basis points to 52.0%, with the increase primarily due to deleverage of fixed costs associated with lower sales in the third quarter of fiscal 2023.
  • Consolidated depreciation and amortization increased 15.9% to $11.5 million in the third quarter of fiscal 2023 from $10.0 million in the third quarter of fiscal 2022. The increase was primarily due to capital investments in stores and technology in fiscal 2022.
  • Consolidated net interest expense increased 17.4% to $5.2 million in the third quarter of fiscal 2023 from $4.4 million in the third quarter of fiscal 2022. The increase was primarily due to a higher interest rate on the Senior Secured Term Loan Facility and higher average borrowings on the Revolving Credit Facility during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022.
  • The effective tax rate was (34.5)% in the third quarter of fiscal 2023, as compared to 33.8%in the third quarter of fiscal 2022. The negative effective tax rate was primarily related to the impact of discrete items related to share-based compensation on a pre-tax loss in the third quarter of fiscal 2023, as compared to pre-tax income in the third quarter of fiscal 2022.
  • Net loss was $6.4 million, or $0.13 per share, in the third quarter of fiscal 2023 compared to net income of $4.2 million, or $0.08 per diluted share, in the third quarter of fiscal 2022. Adjusted net loss* was $4.1 million, or $0.08 per share, in the third quarter of fiscal 2023 compared to adjusted net income* of $4.1 million, or $0.08per diluted share, in the third quarter of fiscal 2022.
  • Adjusted EBITDA* was $12.8 million in the third quarter of fiscal 2023 compared to $22.2 million in the third quarter of fiscal 2022.

For the fiscal year-to-date (thirty-nine weeks) ended December 30, 2023:

  • Consolidated net sales were $641.7 million, down 18.5%, including a 10 basis point negative impact of foreign currency translation as compared to the thirty-nine weeks ended December 31, 2022.
    • Net sales for the TCS segment were $606.1 million, down 18.7%
    • Comparable store sales^ decreased 18.9%, with general merchandise categories down 20.5%, contributing a decrease of 1,350 basis points to comparable store sales^. Custom Spaces+ were down 15.9%, negatively impacting comparable store sales^ by 540 basis points.
    • Online sales decreased 21.2% compared to the thirty-nine weeks ended December 31, 2022.
    • Elfa third-party net sales were $35.6 million, down 14.5% compared to the thirty-nine weeks ended December 31, 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 12.1% compared to the thirty-nine weeks ended December 31, 2022 primarily due to a decline in sales in Nordic markets.
  • Consolidated gross margin was 57.1%, an increase of 20 basis points compared to the thirty-nine weeks ended December 31, 2022. TCS gross margin decreased 50 basis points to 56.4%, primarily due to increased promotional activity and unfavorable product and services mix, partially offset by lower freight costs in the thirty-nine weeks ended December 30, 2023. Elfa gross margin decreased 10 basis points primarily due to unfavorable mix, partially offset by price increases to customers.
  • Consolidated SG&A decreased by 8.2% to $332.5 million from $362.1 million in the thirty-nine weeks ended December 31, 2022. SG&A as a percentage of net sales increased 580 basis points to 51.8%, with the increase primarily due to deleverage of fixed costs associated with lower sales in the thirty-nine weeks ended December 30, 2023, and due to the benefit of the legal settlement received in the second quarter of the prior fiscal year.
  • Consolidated depreciation and amortization increased 13.7% to $32.4 million in the thirty-nine weeks ended December 30, 2023 from $28.5 million in the thirty-nine weeks ended December 31, 2022. The increase was primarily due to capital investments in stores and technology in fiscal 2022.
  • A non-cash goodwill impairment charge of $23.4 million was recorded in the thirty-nine weeks ended December 30, 2023 as compared to zero in the thirty-nine weeks ended December 31, 2022. We conducted an interim assessment of our remaining goodwill balance on September 30, 2023 in accordance with ASC 350 due to indicators identified during the second quarter of fiscal 2023. The interim assessment resulted in the Company recording a $23.4 million charge which represented an impairment of the remaining goodwill balance in the TCS reporting unit as of September 30, 2023.
  • Consolidated net interest expense increased 34.8% to $15.4 million in the thirty-nine weeks ended December 30, 2023 from $11.4 million in the thirty-nine weeks ended December 31, 2022. The increase is primarily due to a higher interest rate on the Senior Secured Term Loan Facility.
  • The effective tax rate was 3.1% for the thirty-nine weeks ended December 30, 2023 as compared to 28.1% in the thirty-nine weeks ended December 31, 2022. The decrease in the effective tax rate is primarily due to the tax impact of discrete items related to share-based compensation on a pre-tax loss in the thirty-nine weeks ended December 30, 2023.
  • Net loss was $41.9 million, or $0.85 per share, in the thirty-nine weeks ended December 30, 2023 compared to net income of $30.4 million, or $0.61 per diluted share in the thirty-nine weeks ended December 31, 2022. Adjusted net loss* was $13.8 million, or $0.28 per share in the thirty-nine weeks ended December 30, 2023 compared to adjusted net income* of $28.4 million, or $0.57 per diluted share in the thirty-nine weeks ended December 31, 2022.
  • Adjusted EBITDA* was $32.7 million in the thirty-nine weeks ended December 30, 2023 compared to $86.3 million in the thirty-nine weeks ended December 31, 2022.

New and Existing Stores

As of December 30, 2023, the Company store base was 100 as compared to 95 as of December 31, 2022. The Company opened two stores during the third quarter of fiscal 2023.

Balance sheet and liquidity highlights:

 

 

 

 

 

 

 

(In thousands)

 

December 30, 2023

 

December 31, 2022

Cash

 

$

16,007

 

 

$

5,760

 

Total debt, net of deferred financing costs

 

$

184,656

 

 

$

188,608

 

Liquidity 1

 

$

99,632

 

 

$

96,059

 

Net cash provided by operating activities

 

$

26,673

 

 

$

18,856

 

Free cash flow *

 

$

(6,703

)

 

$

(27,702

)

_________________________
(1)

Cash plus availability on revolving credit facilities.

Share repurchase

There were no repurchases during the third 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 fourth quarter ending on March 30, 2024:

 

 

 

 

 

 

Current Outlook

 

Current Outlook

 

Prior Outlook

 

Fourth Quarter Ending
March 30, 2024

Fiscal Year Ending
March 30, 2024

Fiscal Year Ending
March 30, 2024

Consolidated net sales

$200 - $205 million

 

$842 - $847 million

 

$870 - $885 million

Comparable store sales^ decline

Mid twenties

 

Low twenties

 

High teens

Net loss per diluted share

($0.12) - ($0.09)

 

($0.97) - ($0.94)

 

($0.82) - ($0.70)

Adjusted net loss per diluted share*

($0.12) - ($0.09)

 

($0.40) - ($0.37)

 

($0.24) - ($0.13)

Assumed dilutive shares

49.5 million

 

49.5 million

 

49 million

Capital expenditures

 

 

$40 to $45 million

 

$45 to $50 million

Effective tax rate (1)

21%

 

6% to 5%

 

0% to (4%)

(1) Effective tax rate for fiscal year ending March 30, 2024 includes $2.6 million of discrete income tax expense 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 two new small format stores in the remainder of fiscal 2023. Looking forward to fiscal 2024, we are planning to open four new stores and close one location. We also plan to relocate our San Francisco store to a nearby location in June 2024. The two new store openings planned before the end of fiscal 2023 are as follows:

 

 

 

Estimated Opening

Gaithersburg, MD

Spring calendar 2024

Huntington, NY

Spring calendar 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 third quarter fiscal 2023 financial results is scheduled for today, February 6, 2024, 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 13742837. The replay will be available until March 6, 2024.

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 and closures; expected expense management; future opportunities; 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, X, Instagram, TikTok, YouTube, Pinterest and LinkedIn.

The Container Store Group, Inc.

Consolidated statements of operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

 

December 30,

 

December 31,

 

December 30,

 

December 31,

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

 

2023

 

2022

 

2023

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

214,899

 

 

$

252,236

 

$

641,742

 

 

$

787,542

Cost of sales (excluding depreciation and amortization)

 

 

89,682

 

 

 

108,795

 

 

275,308

 

 

 

339,583

Gross profit

 

 

125,217

 

 

 

143,441

 

 

366,434

 

 

 

447,959

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

 

 

111,820

 

 

 

121,540

 

 

332,471

 

 

 

362,104

Impairment charges

 

 

 

 

 

 

 

23,447

 

 

 

Stock-based compensation

 

 

515

 

 

 

825

 

 

1,605

 

 

 

2,562

Pre-opening costs

 

 

849

 

 

 

430

 

 

1,583

 

 

 

1,049

Depreciation and amortization

 

 

11,532

 

 

 

9,952

 

 

32,427

 

 

 

28,507

Other expenses

 

 

130

 

 

 

 

 

2,589

 

 

 

Loss on disposal of assets

 

 

 

 

 

10

 

 

221

 

 

 

91

Income (loss) from operations

 

 

371

 

 

 

10,684

 

 

(27,909

)

 

 

53,646

Interest expense, net

 

 

5,151

 

 

 

4,389

 

 

15,356

 

 

 

11,395

(Loss) income before taxes

 

 

(4,780

)

 

 

6,295

 

 

(43,265

)

 

 

42,251

Provision (benefit) for income taxes

 

 

1,651

 

 

 

2,127

 

 

(1,344

)

 

 

11,857

Net (loss) income

 

$

(6,431

)

 

$

4,168

 

$

(41,921

)

 

$

30,394

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share — basic

 

$

(0.13

)

 

$

0.08

 

$

(0.85

)

 

$

0.61

Net (loss) income per common share — diluted

 

$

(0.13

)

 

$

0.08

 

$

(0.85

)

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares — basic

 

 

49,591,111

 

 

 

49,263,122

 

 

49,435,182

 

 

 

49,661,209

Weighted-average common shares — diluted

 

 

49,591,111

 

 

 

49,452,980

 

 

49,435,182

 

 

 

50,024,589

The Container Store Group, Inc.

Consolidated balance sheets

 

 

 

 

 

 

 

 

 

 

 

December 30,

 

April 1,

 

December 31,

(In thousands)

 

2023

 

2023

 

2022

Assets

 

(unaudited)

 

 

 

 

(unaudited)

Current assets:

 

 

 

 

 

 

 

 

 

Cash

 

$

16,007

 

$

6,958

 

$

5,760

Accounts receivable, net

 

 

27,489

 

 

25,870

 

 

30,790

Inventory

 

 

163,090

 

 

170,637

 

 

190,307

Prepaid expenses

 

 

15,515

 

 

14,989

 

 

15,596

Income taxes receivable

 

 

1,235

 

 

858

 

 

1,357

Other current assets

 

 

10,343

 

 

10,914

 

 

9,941

Total current assets

 

 

233,679

 

 

230,226

 

 

253,751

Noncurrent assets:

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

159,879

 

 

158,702

 

 

152,282

Noncurrent operating lease right-of-use assets

 

 

340,883

 

 

347,959

 

 

357,607

Goodwill

 

 

 

 

23,447

 

 

221,159

Trade names

 

 

222,285

 

 

221,278

 

 

221,046

Deferred financing costs, net

 

 

110

 

 

150

 

 

163

Noncurrent deferred tax assets, net

 

 

352

 

 

568

 

 

690

Other assets

 

 

3,589

 

 

2,844

 

 

2,323

Total noncurrent assets

 

 

727,098

 

 

754,948

 

 

955,270

Total assets

 

$

960,777

 

$

985,174

 

$

1,209,021

The Container Store Group, Inc.

Consolidated balance sheets (continued)

 

 

 

 

 

 

 

 

 

 

 

December 30,

 

April 1,

 

December 31,

(In thousands, except share and per share amounts)

 

2023

 

2023

 

2022

Liabilities and shareholders’ equity

 

(unaudited)

 

 

 

 

(unaudited)

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

49,325

 

 

$

52,637

 

 

$

57,704

 

Accrued liabilities

 

 

72,587

 

 

 

74,673

 

 

 

75,338

 

Current borrowings on revolving lines of credit

 

 

3,300

 

 

 

2,423

 

 

 

8,131

 

Current portion of long-term debt

 

 

2,068

 

 

 

2,063

 

 

 

2,061

 

Current operating lease liabilities

 

 

62,525

 

 

 

57,201

 

 

 

58,309

 

Income taxes payable

 

 

2,994

 

 

 

1,318

 

 

 

276

 

Total current liabilities

 

 

192,799

 

 

 

190,315

 

 

 

201,819

 

Noncurrent liabilities:

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

179,288

 

 

 

163,385

 

 

 

178,416

 

Noncurrent operating lease liabilities

 

 

315,327

 

 

 

314,100

 

 

 

322,243

 

Noncurrent deferred tax liabilities, net

 

 

42,746

 

 

 

49,338

 

 

 

50,050

 

Other long-term liabilities

 

 

5,731

 

 

 

5,851

 

 

 

6,983

 

Total noncurrent liabilities

 

 

543,092

 

 

 

532,674

 

 

 

557,692

 

Total liabilities

 

 

735,891

 

 

 

722,989

 

 

 

759,511

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares authorized; 49,591,111 shares issued at December 30, 2023; 49,181,562 shares issued at April 1, 2023; 49,164,862 shares issued at December 31, 2022

 

 

496

 

 

 

492

 

 

 

492

 

Additional paid-in capital

 

 

873,664

 

 

 

872,204

 

 

 

871,384

 

Accumulated other comprehensive loss

 

 

(29,351

)

 

 

(32,509

)

 

 

(33,614

)

Retained deficit

 

 

(619,923

)

 

 

(578,002

)

 

 

(388,752

)

Total shareholders’ equity

 

 

224,886

 

 

 

262,185

 

 

 

449,510

 

Total liabilities and shareholders’ equity

 

$

960,777

 

 

$

985,174

 

 

$

1,209,021

 

The Container Store Group, Inc.

Consolidated statements of cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirty-Nine Weeks Ended

 

 

December 30,

 

December 31,

(In thousands) (unaudited)

 

2023

 

2022

Operating activities

 

 

 

 

 

 

Net (loss) income

 

$

(41,921

)

 

$

30,394

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

32,427

 

 

 

28,507

 

Stock-based compensation

 

 

1,605

 

 

 

2,562

 

Impairment charges

 

 

23,447

 

 

 

 

Loss on disposal of assets

 

 

221

 

 

 

91

 

Deferred tax (benefit) expense

 

 

(6,619

)

 

 

(1,018

)

Non-cash interest

 

 

1,413

 

 

 

1,413

 

Other

 

 

5

 

 

 

855

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(904

)

 

 

(2,955

)

Inventory

 

 

8,585

 

 

 

511

 

Prepaid expenses and other assets

 

 

(1,111

)

 

 

(3,303

)

Accounts payable and accrued liabilities

 

 

(4,622

)

 

 

(33,126

)

Net change in lease assets and liabilities

 

 

13,641

 

 

 

607

 

Income taxes

 

 

1,329

 

 

 

(5,539

)

Other noncurrent liabilities

 

 

(823

)

 

 

(143

)

Net cash provided by operating activities

 

 

26,673

 

 

 

18,856

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Additions to property and equipment

 

 

(33,376

)

 

 

(46,558

)

Investments in non-qualified plan trust

 

 

(220

)

 

 

(1,049

)

Proceeds from non-qualified plan trust redemptions

 

 

642

 

 

 

811

 

Proceeds from sale of property and equipment

 

 

1

 

 

 

36

 

Net cash used in investing activities

 

 

(32,953

)

 

 

(46,760

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Borrowings on revolving lines of credit

 

 

54,492

 

 

 

64,790

 

Payments on revolving lines of credit

 

 

(53,733

)

 

 

(58,243

)

Borrowings on long-term debt

 

 

31,000

 

 

 

35,000

 

Payments on long-term debt

 

 

(16,550

)

 

 

(16,572

)

Repurchases of common stock

 

 

 

 

 

(5,000

)

Payment of taxes with shares withheld upon restricted stock vesting

 

 

(144

)

 

 

(712

)

Proceeds from the exercise of stock options

 

 

 

 

 

340

 

Net cash provided by financing activities

 

 

15,065

 

 

 

19,603

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

264

 

 

 

(191

)

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

9,049

 

 

 

(8,492

)

Cash at beginning of fiscal period

 

 

6,958

 

 

 

14,252

 

Cash at end of fiscal period

 

$

16,007

 

 

$

5,760

 

Note Regarding Non-GAAP Information

This press release includes financial measures that are not calculated in accordance with GAAP, including adjusted net income (loss), adjusted net income (loss) 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 (loss) 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 (loss), adjusted net income (loss) 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 (loss) as net income (loss) 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 income (loss) per common share - diluted as adjusted net income (loss) divided by the diluted weighted average common shares outstanding. We use adjusted net income (loss) and adjusted net 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 income (loss) and adjusted net income (loss) 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 (loss) 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 income (loss) and adjusted net income (loss) per common share - diluted with the most directly comparable GAAP financial measures of GAAP net income (loss) and GAAP net income (loss) per common share - diluted.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

Q4 2023 Outlook

 

FY 2023 Outlook

 

December 30,

 

December 31,

 

December 30,

 

December 31,

 

 

 

 

 

 

 

 

 

2023

 

2022

 

2023

 

2022

 

Low

 

High

 

Low

 

High

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(6,431

)

 

$

4,168

 

 

$

(41,921

)

 

$

30,394

 

 

$

(6,000

)

 

$

(4,400

)

 

$

(47,921

)

 

$

(46,321

)

Impairment charges (a)

 

 

 

 

 

 

 

23,447

 

 

 

 

 

 

 

 

 

 

 

 

23,447

 

 

 

23,447

 

Severance charges (b)

 

 

 

 

 

 

 

2,462

 

 

 

 

 

 

 

 

 

 

 

 

2,462

 

 

 

2,462

 

Elfa restructuring (c)

 

130

 

 

 

 

 

 

130

 

 

 

 

 

 

 

 

 

 

 

 

130

 

 

 

130

 

Acquisition-related costs (d)

 

 

 

 

 

 

 

 

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

Legal settlement (e)

 

 

 

 

 

 

 

 

 

 

(2,600

)

 

 

 

 

 

 

 

 

 

 

 

 

Taxes (f)

 

2,238

 

 

 

(59

)

 

 

2,051

 

 

 

545

 

 

 

 

 

 

 

 

 

2,051

 

 

 

2,051

 

Adjusted net (loss) income

$

(4,063

)

 

$

4,109

 

 

$

(13,831

)

 

$

28,402

 

 

$

(6,000

)

 

$

(4,400

)

 

$

(19,831

)

 

$

(18,231

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding — basic

 

49,591,111

 

 

 

49,263,122

 

 

 

49,435,182

 

 

 

49,661,209

 

 

 

49,500,000

 

 

 

49,500,000

 

 

 

49,500,000

 

 

 

49,500,000

 

Weighted-average common shares outstanding — diluted

 

49,591,111

 

 

 

49,452,980

 

 

 

49,435,182

 

 

 

50,024,589

 

 

 

49,500,000

 

 

 

49,500,000

 

 

 

49,500,000

 

 

 

49,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income per common share — basic

$

(0.13

)

 

$

0.08

 

 

$

(0.85

)

 

$

0.61

 

 

$

(0.12

)

 

$

(0.09

)

 

$

(0.97

)

 

$

(0.94

)

Net (loss) income per common share — diluted

$

(0.13

)

 

$

0.08

 

 

$

(0.85

)

 

$

0.61

 

 

$

(0.12

)

 

$

(0.09

)

 

$

(0.97

)

 

$

(0.94

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted net (loss) income per common share — basic

$

(0.08

)

 

$

0.08

 

 

$

(0.28

)

 

$

0.57

 

 

$

(0.12

)

 

$

(0.09

)

 

$

(0.40

)

 

$

(0.37

)

Adjusted net (loss) income per common share — diluted

$

(0.08

)

 

$

0.08

 

 

$

(0.28

)

 

$

0.57

 

 

$

(0.12

)

 

$

(0.09

)

 

$

(0.40

)

 

$

(0.37

)

_________________________________
(a)

Non-cash goodwill impairment charge incurred in the second quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

(b)

Severance charges associated with the elimination of certain positions recorded in other expenses in the first and second quarters of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

(c)

Charges associated with the close-down of Elfa segment sales operations in Poland in the third quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

(d)

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

(e)

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

(f)

Tax impact of adjustments to net income (loss) that are considered to be unusual or infrequent tax items. For fiscal 2023, also includes $2.6 million of discrete income tax expense 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 income (loss).

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

December 30,

 

December 31,

 

December 30,

 

December 31,

 

2023

 

2022

 

2023

 

2022

Net (loss) income

$

(6,431

)

 

$

4,168

 

$

(41,921

)

 

$

30,394

Depreciation and amortization

 

11,532

 

 

 

9,952

 

 

32,427

 

 

 

28,507

Interest expense, net

 

5,151

 

 

 

4,389

 

 

15,356

 

 

 

11,395

Provision (benefit) for income taxes

 

1,651

 

 

 

2,127

 

 

(1,344

)

 

 

11,857

EBITDA

$

11,903

 

 

$

20,636

 

$

4,518

 

 

$

82,153

Pre-opening costs (a)

 

849

 

 

 

430

 

 

1,583

 

 

 

1,049

Non-cash lease expense (b)

 

(573

)

 

 

232

 

 

(902

)

 

 

403

Impairment charges (c)

 

 

 

 

 

 

23,447

 

 

 

Stock-based compensation (d)

 

515

 

 

 

825

 

 

1,605

 

 

 

2,562

Foreign exchange losses (gains) (e)

 

(29

)

 

 

38

 

 

(102

)

 

 

30

Severance charges (f)

 

 

 

 

 

 

2,462

 

 

 

Elfa restructuring (g)

 

130

 

 

 

 

 

130

 

 

 

Acquisition-related costs (h)

 

 

 

 

 

 

 

 

 

63

Adjusted EBITDA

$

12,795

 

 

$

22,161

 

$

32,741

 

 

$

86,260

__________________________________
(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 goodwill impairment charge incurred in the second quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

(d)

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.

(e)

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

(f)

Severance charges associated with the elimination of certain positions recorded in other expenses in the first and second quarters of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

(g)

Charges associated with the close-down of Elfa segment sales operations in Poland in the third quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance.

(h)

Includes legal costs incurred in the second quarter of fiscal 2022 associated with the acquisition of Closet Works, all of which are 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 30,

 

December 31,

 

 

2023

 

2022

Net cash provided by operating activities

 

$

26,673

 

 

$

18,856

 

Less: Additions to property and equipment

 

 

(33,376

)

 

 

(46,558

)

Free cash flow

 

$

(6,703

)

 

$

(27,702

)

 

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.