Second quarter consolidated net sales of
$219.7 million, down 19.4% compared to the second quarter of fiscal
2022
Comparable store sales^ down 20.0% compared
to the second quarter of fiscal 2022
Second quarter loss per share of $0.48,
inclusive of $23.4 million non-cash goodwill impairment charge,
compared to earnings per diluted share of $0.31 in the second
quarter of fiscal 2022; Adjusted net income per diluted share* of
$0.01 compared to adjusted net income per diluted share of
$0.27 in the second 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 second quarter of
fiscal 2023 ended September 30, 2023.
For the second quarter of fiscal 2023:
- Consolidated net sales were $219.7 million, down 19.4%,
compared to the second quarter of fiscal 2022, including 10 basis
point negative impact of foreign currency translation. Net sales in
The Container Store retail business (“TCS”) were $208.5 million,
down 19.8%. Elfa International AB (“Elfa”) third-party net sales
were $11.2 million, down 12.5% compared to the second quarter of
fiscal 2022. Excluding the impact of foreign currency translation,
Elfa third-party net sales were down 10.7%.
- Comparable store sales^ decreased 20.0%, with general
merchandise categories down 20.4%, contributing a decrease of 1,320
basis points to comparable store sales^. Custom Spaces+ were down
19.3%, negatively impacting comparable store sales^ by 680 basis
points.
- Consolidated net loss and net loss per share were $23.7 million
and $0.48 per share, inclusive of a non-cash impairment charge
related to the remaining goodwill balance in the TCS reporting unit
of $23.4 million, compared to net income of $15.7 million and $0.31
per diluted share, respectively, in the second quarter of fiscal
2022. Adjusted net income per diluted share* was $0.01 compared to
adjusted net income per diluted share of $0.27 in the second
quarter of fiscal 2022.
Satish Malhotra, Chief Executive Officer and President of The
Container Store, commented, “For the second quarter we delivered
results above the high end of our expectations against the
continued challenging macro-environment. We continued to give new
and existing customers reasons to shop with us through our
successful back-to-college campaign and hundreds of new, premium
products supported by our ‘Uncontained’ branding campaign. While
sales remain pressured, we are incredibly pleased with the
performance of these initiatives which complement our core offering
of storage and organization solutions. Similar to what we saw in
the first quarter, new products and premium Custom Spaces performed
significantly better than our core and value-oriented general
merchandise assortment, underscoring the importance of our ongoing
focus on growing our premium offering. In addition, we successfully
incorporated key learnings from promotional tests earlier this year
that encourage customer engagement while balancing a disciplined
promotional cadence. Our store specialists continued to deliver an
exceptional customer experience despite these turbulent times,
which was demonstrated by a record-high store net promoter score of
81 for the second quarter.”
Mr. Malhotra, continued, “In addition to continued macro
headwinds, we are updating our outlook to reflect current product
mix dynamics and lower than previously assumed SG&A savings as
we thoughtfully and intentionally reinstitute pay increases for
eligible employees. We continue to be disciplined in balancing cost
management and capital allocation with investments in areas that
resonate most with customers. This includes a continued focus on
new premium products, innovation and Custom Spaces, all of which we
believe will position us well when customers begin prioritizing
investments in their homes.”
Second Quarter Fiscal 2023
Results
For the second quarter (thirteen weeks) ended September 30,
2023:
- Consolidated net sales were $219.7 million, down 19.4%,
including 10 basis point negative impact of foreign currency
translation compared to the second quarter of fiscal 2022.
- Net sales in TCS were $208.5 million, down 19.8%.
- Comparable store sales^ decreased 20.0%, with general
merchandise categories down 20.4%, contributing a decrease of 1,320
basis points to comparable store sales^. Custom Spaces+ were down
19.3%, negatively impacting comparable store sales^ by 680 basis
points.
- Online sales decreased 21.7% compared to the second quarter of
fiscal 2022.
- Elfa third-party net sales were $11.2 million, down 12.5%
compared to the second quarter of fiscal 2022. Excluding the impact
of foreign currency translation, Elfa third-party net sales were
down 10.7% primarily due to a decline in sales in Nordic
markets.
- Consolidated gross margin was 57.6%, an increase of 100 basis
points, compared to the second quarter of fiscal 2022. TCS gross
margin increased 10 basis points to 56.9% primarily due to lower
freight costs, partially offset by unfavorable product and services
mix and increased promotional activity. Elfa gross margin increased
500 basis points compared to the second quarter of fiscal 2022
primarily due to price increases.
- Consolidated selling, general and administrative expenses
(“SG&A”) decreased by 7.9% to $109.3 million in the second
quarter of fiscal 2023 from $118.7 million in the second quarter of
fiscal 2022. SG&A as a percentage of net sales increased 620
basis points to 49.7%, with the increase primarily due to
deleverage of fixed costs associated with lower sales in the second
quarter of fiscal 2023, and due to the benefit of the legal
settlement received in the second quarter of the prior year.
- Consolidated depreciation and amortization increased 8.7% to
$10.4 million in the second quarter of fiscal 2023 from $9.5
million in the second quarter of fiscal 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 second quarter of fiscal 2023 as compared to zero
in the second quarter of fiscal 2022. We conducted an interim
assessment of our remaining goodwill balances as of September 30,
2023 in accordance with Accounting Standards Codification (“ASC”)
350 due to indicators identified during the second quarter of
fiscal 2023. The $23.4 million charge represents an impairment of
the remaining goodwill balance in the TCS reporting unit as of
September 30, 2023.
- Consolidated net interest expense increased 38.5% to $5.2
million in the second quarter of fiscal 2023 from $3.8 million in
the second quarter of fiscal 2022. The increase was primarily due
to a higher interest rate on the Senior Secured Term Loan Facility
and borrowings on the Revolving Credit Facility.
- The effective tax rate was (2.6)% in the second quarter of
fiscal 2023, as compared to 25.9% in the second 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 second
quarter of fiscal 2023, as compared to pre-tax income in the second
quarter of fiscal 2022.
- Net loss was $23.7 million, or $0.48 per diluted share, in the
second quarter of fiscal 2023 compared to net income of $15.7
million, or $0.31 per diluted share, in the second quarter of
fiscal 2022. Adjusted net income* was $0.4 million, or $0.01 per
diluted share, in the second quarter of fiscal 2023 compared to
adjusted net income* of $13.8 million, or $0.27 per diluted share,
in the second quarter of fiscal 2022.
- Adjusted EBITDA* was $17.0 million in the second quarter of
fiscal 2023 compared to $35.9 million in the second quarter of
fiscal 2022.
For the fiscal year-to-date (twenty-six weeks) ended
September 30, 2023:
- Consolidated net sales were $426.8 million, down 20.3%,
including 20 basis point negative impact of foreign currency
translation as compared to the first half of fiscal 2022.
- Net sales for the TCS segment were $403.7 million, down
20.3%
- Comparable store sales^ decreased 20.0%, with general
merchandise categories down 20.5%, contributing a decrease of 1,340
basis points to comparable store sales^. Custom Spaces+ were down
19.0%, negatively impacting comparable store sales^ by 650 basis
points.
- Online sales decreased 18.8% compared to the first half of
fiscal 2022.
- Elfa third-party net sales were $23.2 million, down 19.1%
compared to the first half of fiscal 2022. Excluding the impact of
foreign currency translation, Elfa third-party net sales were down
15.3% compared to the first half of fiscal 2022.
- Consolidated gross margin was 56.5%, a decrease of 40 basis
points compared to the first half of fiscal 2022. TCS gross margin
decreased 110 basis points to 55.7%, primarily due to increased
promotional activity and unfavorable product and services mix,
partially offset by lower freight costs in the first half of fiscal
2023. Elfa gross margin increased 80 basis points primarily due to
price increases.
- Consolidated SG&A decreased by 8.3% to $220.7 million from
$240.6 million in the first half of fiscal 2022. SG&A as a
percentage of net sales increased 680 basis points to 51.7%, with
the increase primarily due to deleverage of fixed costs associated
with lower sales in the second quarter of fiscal 2023, and due to
the benefit of the legal settlement received in the second quarter
of the prior year.
- Consolidated depreciation and amortization increased 12.6% to
$20.9 million in the first half of fiscal 2023 from $18.6 million
in the first half of fiscal 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 first half of fiscal 2023 as compared to zero in
the first half of fiscal 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 $23.4 million charge represents
an impairment of the remaining goodwill balance in the TCS
reporting unit as of September 30, 2023.
- Consolidated net interest expense increased 45.7% to $10.2
million in the first half of fiscal 2023 from $7.0 million in the
first half of fiscal 2022. The increase is primarily due to a
higher interest rate on the Senior Secured Term Loan Facility and
borrowings on the Revolving Credit Facility.
- The effective tax rate was 7.8% for the first half of fiscal
2023 as compared to 27.1% in the first half of fiscal 2022. The
decrease in the effective tax rate is primarily due to the tax
impact of discrete items on a pre-tax loss in the first half of
fiscal 2023.
- Net loss was $35.5 million, or $0.72 per diluted share, in the
first half of fiscal 2023 compared to net income of $26.2 million,
or $0.52 per diluted share in the first half of fiscal 2022.
Adjusted net loss* was $9.8 million, or $0.20 per diluted share in
the first half of fiscal 2023 compared to adjusted net income* of
$24.3 million, or $0.48 per diluted share in the first half of
fiscal 2022.
- Adjusted EBITDA* was $19.9 million in the first half of fiscal
2023 compared to $64.1 million in the first half of fiscal
2022.
New and Existing Stores
As of September 30, 2023, the Company store base was 98 as
compared to 95 as of October 1, 2022. The Company opened one store
during the second quarter of fiscal 2023.
Balance sheet and liquidity highlights:
(In thousands)
September 30, 2023
October 1, 2022
Cash
$
10,195
$
19,814
Total debt, net of deferred financing
costs
$
173,201
$
174,191
Liquidity 1
$
104,303
$
123,208
Net cash provided by operating
activities
$
20,691
$
26,790
Free cash flow *
$
(1,346
)
$
(5,257
)
____________________
(1)
Cash plus availability on revolving credit
facilities.
Share repurchase
There were no repurchases during the second 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 third quarter ending on December 30, 2023 and the full
year ending March 30, 2024:
Current
Outlook
Current
Outlook
Prior
Outlook
Third
Quarter Ending December 30, 2023
Fiscal
Year Ending March 30, 2024
Fiscal
Year Ending March 30, 2024
Consolidated net sales
$220 - $225 million
$870 - $885 million
$875 - $890 million
Comparable store sales^ decline
Mid to low teens
High teens
High teens
Net loss per diluted share (1)
($0.13) - ($0.09)
($0.82) to ($0.70)
($0.10) to $0.00
Adjusted net loss per diluted share*
($0.08) - ($0.04)
($0.24) to ($0.13)
$0.05 to $0.15
Assumed dilutive shares
49 million
49 million
50 million
Capital expenditures
$45 to $50 million
$45 to $50 million
Effective tax rate (2)
(50%) to (145%)
0% to (4%)
300% to 115%
(1) Prior outlook for the fiscal year
ending March 30, 2024 did not contemplate the $23.4 million, or
$0.48 per share, non-cash goodwill impairment charge for the TCS
reporting unit recorded in the second quarter of fiscal 2023.
(2) Effective tax rate for fiscal year
ending March 30, 2024 assumes approximately $2.8 million of
discrete income tax expense expected to primarily 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 four new small format stores in the
remainder of fiscal 2023 and four new stores in fiscal 2024. The
four new stores for the remainder of fiscal 2023 are as
follows:
Estimated Opening
Woodland Hills, CA
Opened October 21, 2023
Princeton, NJ
Fall 2023
Gaithersburg, MD
Winter 2023
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 second quarter fiscal 2023
financial results is scheduled for today, October 31, 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 13740918. The replay will be available until December 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 and expected customer engagement; 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
Thirteen Weeks Ended
Twenty-Six Weeks Ended
(In thousands, except share and per
share amounts) (unaudited)
September 30,
2023
October 1, 2022
September 30,
2023
October 1, 2022
Net sales
$
219,731
$
272,672
$
426,843
$
535,306
Cost of sales (excluding depreciation and
amortization)
93,064
118,242
185,627
230,788
Gross profit
126,667
154,430
241,216
304,518
Selling, general, and administrative
expenses (excluding depreciation and amortization)
109,270
118,655
220,650
240,564
Impairment charges
23,447
—
23,447
—
Stock-based compensation
615
536
1,089
1,737
Pre-opening costs
549
583
734
619
Depreciation and amortization
10,383
9,549
20,895
18,555
Other expenses
7
—
2,460
—
Loss on disposal of assets
220
80
221
81
(Loss) income from operations
(17,824
)
25,027
(28,280
)
42,962
Interest expense, net
5,238
3,783
10,205
7,006
(Loss) income before taxes
(23,062
)
21,244
(38,485
)
35,956
Provision (benefit) for income taxes
591
5,497
(2,995
)
9,730
Net (loss) income
$
(23,653
)
$
15,747
$
(35,490
)
$
26,226
Net (loss) income per common share —
basic
$
(0.48
)
$
0.31
$
(0.72
)
$
0.53
Net (loss) income per common share —
diluted
$
(0.48
)
$
0.31
$
(0.72
)
$
0.52
Weighted-average common shares — basic
49,461,590
50,000,945
49,357,218
49,860,252
Weighted-average common shares —
diluted
49,461,590
50,350,549
49,357,218
50,324,456
The Container Store Group, Inc.
Consolidated balance sheets
(In thousands)
September 30,
2023
April 1, 2023
October 1, 2022
Assets
(unaudited)
(unaudited)
Current assets:
Cash
$
10,195
$
6,958
$
19,814
Accounts receivable, net
24,857
25,870
28,624
Inventory
173,438
170,637
190,142
Prepaid expenses
12,986
14,989
17,474
Income taxes receivable
1,091
858
1,309
Other current assets
9,189
10,914
9,639
Total current assets
231,756
230,226
267,002
Noncurrent assets:
Property and equipment, net
158,740
158,702
147,302
Noncurrent operating lease right-of-use
assets
355,863
347,959
356,605
Goodwill
—
23,447
221,159
Trade names
219,558
221,278
218,882
Deferred financing costs, net
123
150
176
Noncurrent deferred tax assets, net
432
568
471
Other assets
3,037
2,844
2,062
Total noncurrent assets
737,753
754,948
946,657
Total assets
$
969,509
$
985,174
$
1,213,659
The Container Store Group, Inc.
Consolidated balance sheets
(continued)
(In thousands, except share and per
share amounts)
September 30,
2023
April 1, 2023
October 1, 2022
Liabilities and shareholders’
equity
(unaudited)
(unaudited)
Current liabilities:
Accounts payable
$
65,275
$
52,637
$
79,892
Accrued liabilities
71,362
74,673
79,447
Current borrowings on revolving lines of
credit
2,820
2,423
13,660
Current portion of long-term debt
2,060
2,063
2,066
Current operating lease liabilities
61,533
57,201
56,204
Income taxes payable
912
1,318
218
Total current liabilities
203,962
190,315
231,487
Noncurrent liabilities:
Long-term debt
168,321
163,385
158,465
Noncurrent operating lease liabilities
323,230
314,100
322,830
Noncurrent deferred tax liabilities,
net
43,790
49,338
49,804
Other long-term liabilities
5,793
5,851
6,393
Total noncurrent liabilities
541,134
532,674
537,492
Total liabilities
745,096
722,989
768,979
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000
shares authorized; 49,591,111 shares issued at September 30, 2023;
49,181,562 shares issued at April 1, 2023; 50,104,829 shares issued
at October 1, 2022
496
492
501
Additional paid-in capital
873,149
872,204
875,550
Accumulated other comprehensive loss
(35,740
)
(32,509
)
(38,451
)
Retained deficit
(613,492
)
(578,002
)
(392,920
)
Total shareholders’ equity
224,413
262,185
444,680
Total liabilities and shareholders’
equity
$
969,509
$
985,174
$
1,213,659
The Container Store Group, Inc.
Consolidated statements of cash
flows
Twenty-Six Weeks Ended
(In thousands) (unaudited)
September 30,
2023
October 1, 2022
Operating activities
Net (loss) income
$
(35,490
)
$
26,226
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Depreciation and amortization
20,895
18,555
Stock-based compensation
1,089
1,737
Impairment charges
23,447
—
Loss on disposal of assets
221
81
Deferred tax (benefit) expense
(4,603
)
396
Non-cash interest
942
942
Other
176
492
Changes in operating assets and
liabilities:
Accounts receivable
(25
)
(2,655
)
Inventory
(3,827
)
(935
)
Prepaid expenses and other assets
2,539
(5,685
)
Accounts payable and accrued
liabilities
10,776
(6,713
)
Net change in lease assets and
liabilities
5,574
102
Income taxes
(684
)
(5,600
)
Other noncurrent liabilities
(339
)
(153
)
Net cash provided by operating
activities
20,691
26,790
Investing activities
Additions to property and equipment
(22,037
)
(32,047
)
Investments in non-qualified plan
trust
(177
)
(879
)
Proceeds from non-qualified plan trust
redemptions
472
467
Proceeds from sale of property and
equipment
1
34
Net cash used in investing activities
(21,741
)
(32,425
)
Financing activities
Borrowings on revolving lines of
credit
27,177
44,104
Payments on revolving lines of credit
(26,649
)
(30,855
)
Borrowings on long-term debt
20,000
15,000
Payments on long-term debt
(16,032
)
(16,053
)
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
4,356
11,824
Effect of exchange rate changes on
cash
(69
)
(627
)
Net increase in cash
3,237
5,562
Cash at beginning of fiscal period
6,958
14,252
Cash at end of fiscal period
$
10,195
$
19,814
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
(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 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 (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 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 (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 income (loss) and adjusted net income (loss) 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.
Thirteen Weeks Ended
Twenty-Six Weeks Ended
Q3 2023 Outlook
FY 2023 Outlook
September 30,
2023
October 1, 2022
September 30,
2023
October 1, 2022
Low
High
Low
High
Numerator:
Net (loss) income
$
(23,653
)
$
15,747
$
(35,490
)
$
26,226
$
(6,500
)
$
(4,200
)
$
(40,200
)
$
(34,500
)
Impairment charges (a)
23,447
—
23,447
—
—
—
23,447
23,447
Severance charges (b)
9
—
2,462
—
—
—
2,462
2,462
Acquisition-related costs (c)
—
63
—
63
—
—
—
—
Legal settlement (d)
—
(2,600
)
—
(2,600
)
—
—
—
—
Taxes (e)
562
604
(187
)
604
2,500
2,400
2,313
2,213
Adjusted net income (loss)
$
365
$
13,814
$
(9,768
)
$
24,293
$
(4,000
)
$
(1,800
)
$
(11,978
)
$
(6,378
)
Denominator:
Weighted-average common shares outstanding
— basic
49,461,590
50,000,945
49,357,218
49,860,252
49,000,000
49,000,000
49,000,000
49,000,000
Weighted-average common shares outstanding
— diluted
49,624,482
50,350,549
49,357,218
50,324,456
49,000,000
49,000,000
49,000,000
49,000,000
Net (loss) income per common share —
basic
$
(0.48
)
$
0.31
$
(0.72
)
$
0.53
$
(0.13
)
$
(0.09
)
$
(0.82
)
$
(0.70
)
Net (loss) income per common share —
diluted
$
(0.48
)
$
0.31
$
(0.72
)
$
0.52
$
(0.13
)
$
(0.09
)
$
(0.82
)
$
(0.70
)
Adjusted net income (loss) per common
share — basic
$
0.01
$
0.28
$
(0.20
)
$
0.49
$
(0.08
)
$
(0.04
)
$
(0.24
)
$
(0.13
)
Adjusted net income (loss) per common
share — diluted
$
0.01
$
0.27
$
(0.20
)
$
0.48
$
(0.08
)
$
(0.04
)
$
(0.24
)
$
(0.13
)
____________________
(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)
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.
(d)
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.
(e)
Tax impact of adjustments to net (loss)
income that are considered to be unusual or infrequent tax items.
For fiscal 2023, includes approximately $2.8 million of discrete
income tax expense expected to be primarily 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.
Thirteen Weeks Ended
Twenty-Six Weeks Ended
September 30,
2023
October 1, 2022
September 30,
2023
October 1, 2022
Net (loss) income
$
(23,653
)
$
15,747
$
(35,490
)
$
26,226
Depreciation and amortization
10,383
9,549
20,895
18,555
Interest expense, net
5,238
3,783
10,205
7,006
Provision (benefit) for income taxes
591
5,497
(2,995
)
9,730
EBITDA
$
(7,441
)
$
34,576
$
(7,385
)
$
61,517
Pre-opening costs (a)
549
583
734
619
Non-cash lease expense (b)
(155
)
137
(329
)
171
Impairment charges (c)
23,447
—
23,447
—
Stock-based compensation (d)
615
536
1,089
1,737
Foreign exchange losses (gains) (e)
2
16
(73
)
(8
)
Severance charges (f)
9
—
2,462
—
Acquisition-related costs (g)
—
63
—
63
Adjusted EBITDA
$
17,026
$
35,911
$
19,945
$
64,099
____________________
(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)
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.
Twenty-Six Weeks Ended
September 30,
2023
October 1, 2022
Net cash provided by operating
activities
$
20,691
$
26,790
Less: Additions to property and
equipment
(22,037
)
(32,047
)
Free cash flow
$
(1,346
)
$
(5,257
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231031306664/en/
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
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