0001104659-18-006847.txt : 20180206 0001104659-18-006847.hdr.sgml : 20180206 20180206161250 ACCESSION NUMBER: 0001104659-18-006847 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20180206 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180206 DATE AS OF CHANGE: 20180206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Container Store Group, Inc. CENTRAL INDEX KEY: 0001411688 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES [5700] IRS NUMBER: 260565401 FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-36161 FILM NUMBER: 18577748 BUSINESS ADDRESS: STREET 1: 500 Freeport Parkway CITY: Coppell STATE: TX ZIP: 75019 BUSINESS PHONE: 972-538-6000 MAIL ADDRESS: STREET 1: 500 Freeport Parkway CITY: Coppell STATE: TX ZIP: 75019 FORMER COMPANY: FORMER CONFORMED NAME: TCS Holdings, Inc. DATE OF NAME CHANGE: 20120611 FORMER COMPANY: FORMER CONFORMED NAME: TCS Holdings DATE OF NAME CHANGE: 20070906 8-K 1 a18-5430_18k.htm 8-K

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K

 


 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported): February 6, 2018

 


 

THE CONTAINER STORE GROUP, INC.

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

001-36161

 

26-0565401

(State or other jurisdiction of
incorporation or organization)

 

(Commission
File Number)

 

(I.R.S. Employer
Identification No.)

 

500 Freeport Parkway
Coppell, TX 75019
(Address of principal executive offices) (Zip Code)

 

(972) 538-6000
(Registrant’s telephone number, include area code)

 

N/A
(Former Name or Former Address, if Changed Since Last Report)

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

 

 

 



 

Item 2.02. Results of Operations and Financial Condition.

 

On February 6, 2018, The Container Store Group, Inc. announced its financial results for the quarter ended December 30, 2017. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

The information in this Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly provided by specific reference in such a filing.

 

Item 9.01. Financial Statements and Exhibits.

 

(d) Exhibits

 

The following exhibit relating to Item 2.02 shall be deemed to be furnished, and not filed:

 

Exhibit
No.

 

Description

 

 

 

99.1

 

Press Release issued on February 6, 2018

 

2



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

 THE CONTAINER STORE GROUP, INC.

 

 

 

 

 

 

 

 

 

 

 Date: February 6, 2018

 

 

By:

/s/ Jodi L. Taylor

 

 

 

 

 

 

 

 

 

Jodi L. Taylor

 

 

 

 

Chief Financial Officer and Chief Administrative Officer

 

3


EX-99.1 2 a18-5430_1ex99d1.htm EX-99.1

Exhibit 99.1

 

 

 

The Container Store Group, Inc. Announces Third Quarter Fiscal 2017 Financial Results

 

Consolidated Net Sales up 3.1%; Comparable Sales down 0.2%

GAAP EPS of $0.59; Adjusted EPS of $0.11

Narrows Fiscal 2017 Outlook Ranges

 

Coppell, TX — February 6, 2018 — The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the third quarter of fiscal 2017 ended December 30, 2017.

 

·                  Consolidated net sales were $223.0 million, up 3.1%.  Net sales in The Container Store retail business (“TCS”) were $203.9 million, up 2.4%. Elfa International AB (“Elfa”) third-party net sales were $19.1 million, up 10.5%, primarily due to the positive impact of foreign currency translation.

 

·                  Comparable store sales for the third quarter of fiscal 2017 decreased 0.2%, with holiday departments’ sales contributing an approximate 1.0% decline.

 

·                  Consolidated net income per share (“EPS”) was $0.59, inclusive of a $0.50 per share provisional benefit from the Tax Cuts and Jobs Act (“Tax Act”), compared with $0.11 in the third quarter of fiscal 2016.  Adjusted net income per share (“Adjusted EPS”) was $0.11 compared with $0.11 in the third quarter of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

 

·                  The Company opened three stores, inclusive of one relocation, in the third quarter of fiscal 2017, and had 90 stores at the end of the third quarter of fiscal 2017, as compared to 86 stores as of December 31, 2016.

 

Melissa Reiff, Chief Executive Officer, stated, “In the fiscal third quarter we made further progress with our core Custom Closets offering and delivered continued improvement in all of our non-closet categories, with the exception of our holiday departments, which typically represent a small percentage of our annual sales, but historically have had a notable impact on our fiscal third quarter sales. While the softness in our holiday categories is disappointing, we were prudent in our buying for holiday and disciplined in selling through the related inventory, as evidenced by our strong gross margin performance and healthy ending inventory position. With the holiday season behind us, and with a strong start to Our Annual elfa® Sale that has continued into the fiscal fourth quarter, we expect comparable store sales in the fiscal fourth quarter to improve from the fiscal third quarter, as reflected in our implied fiscal fourth quarter comparable store sales outlook of flat to up low single digits.”

 

“We are also very pleased with the progress being made on each of our key strategic priorities. Given our year-to-date performance, as well as the expected impact of the Tax Act, we have narrowed our outlook ranges for fiscal 2017 and look forward to building on this progress as we close out the fiscal year,” concluded Reiff.

 

Third Quarter 2017 Results

 

For the third quarter (thirteen weeks) ended December 30, 2017:

 

·                  Consolidated net sales were $223.0 million, up 3.1% as compared to the third quarter of fiscal 2016. Net sales at TCS were $203.9 million, up 2.4%, with the increase driven by new store net sales, partially offset by a 0.2% decrease in net sales from comparable stores. Elfa third-party net sales were $19.1 million, up 10.5% compared to the third quarter of fiscal 2016, primarily due to the positive impact of foreign currency translation, which increased third-party net sales by 8.3%, as well as higher sales in Russia.

 

1



 

·                  Consolidated gross margin was 58.6%, an increase of 50 basis points compared to the third quarter of fiscal 2016. TCS gross margin increased 110 basis points to 58.1%, as lower cost of goods associated with the Optimization Plan and the benefit of favorable foreign currency contracts were partially offset by higher costs associated with our installation services business during the quarter. Elfa segment gross margin declined 150 basis points primarily due to higher direct materials costs. On a consolidated basis, gross margin increased 50 basis points as the increase in TCS gross margin was partially offset by the decrease in Elfa gross margin.

 

·                  Consolidated selling, general and administrative expenses (“SG&A”) were $103.9 million compared to $100.2 million in the third quarter of fiscal 2016 and, as a percentage of net sales, increased 30 basis points. The increase in SG&A as a percentage of net sales was primarily due to an increase in marketing and technology-related expenses, as well as deleveraging of occupancy costs associated with comparable store net sales declines during the quarter, partially offset by ongoing savings and efficiency efforts.

 

·                  Consolidated net interest expense increased 77.2% to $7.3 million in the third quarter of fiscal 2017 from $4.1 million in the third quarter of fiscal 2016 due to the previously announced amendment of our Senior Secured Term Loan Facility in August 2017, which increased the applicable interest rate margins.

 

·                  The effective tax rate for the third quarter of fiscal 2017 was -330.1%, as compared to 39.7% in the third quarter of fiscal 2016. The decrease in the effective tax rate was primarily due to the initial estimated impact of the Tax Act enacted in the third quarter of fiscal 2017, which was largely driven by the remeasurement of deferred tax balances.

 

·                  Consolidated net income was $28.4 million, or $0.59 per share (inclusive of $0.50 per share provisional benefit from the Tax Act), in the third quarter of fiscal 2017 compared to net income of $5.1 million, or $0.11 per share, in the third quarter of fiscal 2016.

 

·                  Consolidated adjusted net income was $5.1 million, or $0.11 per share, in the third quarter of fiscal 2017 compared to adjusted net income of $5.2 million, or $0.11 per share in the third quarter of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

 

·                  Consolidated Adjusted EBITDA was $25.6 million, compared to $25.3 million in the third quarter of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

 

For the year-to-date (thirty-nine weeks) ended December 30, 2017:

 

·                  Consolidated net sales were $624.5 million, up 4.3% as compared to the first thirty-nine weeks of fiscal 2016.  Net sales at TCS were $573.3 million, up 4.3%, primarily due to new store sales, combined with a 0.2% increase in net sales from comparable stores. Elfa third-party net sales were $51.2 million, up 3.5% compared to the year-to-date ended December 31, 2016, primarily due to the positive impact of foreign currency translation, which increased third-party net sales by 2.1%, as well as higher sales in Russia.

 

·                  Consolidated gross margin was 57.7%, a decrease of 50 basis points compared to the first thirty-nine weeks of fiscal 2016 due to decreases in gross margin at TCS and Elfa. TCS gross margin declined 30 basis points to 57.3%, primarily due to higher costs associated with our installation services business and a greater portion of sales generated by merchandise campaigns, partially offset by lower cost of goods associated with the Optimization Plan. Elfa segment gross margin declined 150 basis points primarily due to higher direct materials costs.

 

·                  Consolidated selling, general and administrative expenses (“SG&A”) were $306.9 million compared to $288.0 million in the first thirty-nine weeks of fiscal 2016. SG&A as a percentage of net sales increased 100 basis points primarily due to consulting costs incurred as part of the Optimization Plan, which contributed 105 basis points to the increase in the first thirty-nine weeks of fiscal 2017. Additionally, the impact of the amended and restated employment agreements entered into with key executives during the

 

2



 

first half of fiscal 2016, which led to the reversal of accrued deferred compensation associated with the original employment agreements, net of costs incurred to execute the agreements, contributed a 65 basis points benefit in first thirty-nine weeks of fiscal 2016. This combined 170 basis point increase period-over-period was partially offset by a 70 basis point improvement in SG&A as a percentage of net sales, primarily due to ongoing savings and efficiency efforts, inclusive of savings from the Optimization Plan, as well as lower self-insurance costs, partially offset by increased occupancy costs and an increase in marketing and technology-related expenses.

 

·                  Consolidated net interest expense increased 39.9% to $17.4 million in the first thirty-nine weeks of fiscal 2017 from $12.4 million in the first thirty-nine weeks of fiscal 2016 due to the previously announced amendment of our Senior Secured Term Loan Facility in August 2017, which increased the applicable interest rate margins. Additionally, the Company recorded $2.4 million as a loss on extinguishment of debt as a result of the amendment to the Senior Secured Term Loan Facility.

 

·                  The effective tax rate was 429.3%, as compared to 42.5% in the first thirty-nine weeks of fiscal 2016. The increase in the effective tax rate is primarily due to the initial estimated impact of the Tax Act enacted in the third quarter of fiscal 2017, which was largely driven by the remeasurement of deferred tax balances, combined with the impact of a pre-tax loss position in the thirty-nine weeks ended December 30, 2017, as compared to a pre-tax income position in the thirty-nine weeks ended December 31, 2016.

 

·                  Consolidated net income was $19.8 million, or $0.41 per share (inclusive of $0.50 per share provisional benefit from the Tax Act), in the first thirty-nine weeks of fiscal 2017 compared to net income of $6.6 million, or $0.14 per share, in the first thirty-nine weeks of fiscal 2016.

 

·                  Consolidated adjusted net income was $5.2 million, or $0.11 per share, in the first thirty-nine weeks of fiscal 2017 compared to adjusted net income of $4.7 million, or $0.10 per share in the first thirty-nine weeks of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

 

·                  Consolidated Adjusted EBITDA was $58.5 million in the first thirty-nine weeks of fiscal 2017 compared to $59.7 million in the first thirty-nine weeks of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP Financial Measures table). The Adjusted EBITDA of $59.7 million in the first thirty-nine weeks of fiscal 2016 included a benefit from the impact of amended and restated employment agreements entered into with key executives during the first quarter of 2016, net of costs incurred to execute the agreements, of $3.9 million.

 

Balance sheet highlights:

 

(In thousands)

 

December 30,
2017

 

December 31,
2016

 

Cash

 

$

22,653

 

$

18,491

 

Total debt

 

$

314,103

 

$

338,290

 

Liquidity*

 

$

102,636

 

$

106,384

 

 


*Cash plus availability on revolving credit facilities

 

3



 

Optimization Plan

 

In May 2017, the Company announced the implementation of a four-part Optimization Plan to drive improved sales and profitability. This plan includes sales initiatives, certain full-time position eliminations at TCS that were concluded in the fiscal first quarter, organizational realignment at Elfa and ongoing savings and efficiency efforts.  The Company expects to incur pre-tax charges associated with the Optimization Plan of approximately $11 million in fiscal 2017, or $0.15 on a per share basis.  The expected annualized pre-tax savings associated with the Optimization Plan continue to be approximately $20 million, of which approximately $12 to $14 million, or $0.16 to $0.19 on a per share basis, is now expected to be realized in fiscal 2017, for an estimated net benefit of approximately $0.01 to $0.04 on a per share basis.

 

Outlook

 

The Company is revising its outlook for fiscal 2017 to incorporate year-to-date fiscal 2017 actual results, as well as the impact of the Tax Act, which was enacted in the third quarter of fiscal 2017.

 

 

 

Current Outlook

 

Prior Outlook

Net sales

 

$850 million to $860 million

 

$845 million to $865 million

Net new store openings

 

4

 

4

Comparable store sales

 

0% to increase 1%

 

Decrease 1% to increase 1%

Net income per common share(1)

 

$0.60 to $0.66(2)

 

$0.11 to $0.22

Adjusted net income per common share(3)

 

$0.31 to $0.37

 

$0.30 to $0.41

Assumed tax rate

 

35%(4)

 

39%

Estimated share count

 

49 million

 

49 million

 


(1) Includes the aforementioned Optimization Plan costs and benefits.

(2) Includes a $0.50 per share provisional benefit related to the remeasurement of deferred tax balances as well as a $0.01 to $0.02 per share tax benefit related to the reduction in the statutory rate from the Tax Act. Does not include any provisional amounts for the one-time transition tax on foreign earnings as the Company is not able to determine a reasonable estimate.

(3) See Reconciliation of GAAP to Non-GAAP Financial Measures Table.

(4) Does not include any provisional amounts recognized for deferred tax balances under the Tax Act or the tax impact of adjustments to net income (see footnote “e” in Reconciliation of GAAP to Non-GAAP Financial Measures Table). Including these items would result in an expected GAAP effective tax rate of approximately -170% for fiscal 2017. The Company is not able to estimate any future adjustments to the provisional amount recognized for the remeasurement of deferred tax balances. The assumed tax rate also does not include any provisional amounts for one-time transition taxes on foreign earnings, as the Company is not able to determinate a reasonable estimate.

 

Conference Call Information

 

A conference call to discuss third quarter fiscal 2017 financial results is scheduled for today February 6, 2018, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial 1-877-407-3982 (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 www.containerstore.com in the investor relations section of the website.

 

A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing 1-844-512-2921 (international replay number is 1-412-317-6671).  The pin

 

4



 

number to access the telephone replay is 13675601. The replay will be available through March 6, 2018 at 11:59 PM Eastern Time.

 

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 about our expectations regarding our goals, strategies, priorities and initiatives, including our Optimization Plan and key strategic priorities; sales and profitability improvements; expectations regarding new store openings and relocations; anticipated financial performance and tax rate for fiscal 2017; anticipated benefits of tax reform; and anticipated charges and savings in connection with our Optimization Plan.

 

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: our Optimization Plan may not result in improved sales and profitability; our inability to open or relocate new stores, or remodel existing stores, in the timeframe and at the locations we anticipate; overall decline in the health of the economy, consumer spending, and the housing market; our operating and financial performance in a given period may not meet the guidance we provided to the public; our inability to manage costs and risks relating to new store openings; our inability to source and market new products to meet consumer preferences; our failure to achieve or maintain profitability; our dependence on a single distribution center for all of our stores; effects of a security breach or cyber-attack of our website or information technology systems; our vulnerability to natural disasters and other unexpected events; our reliance upon independent third party transportation providers; our inability to protect our brand; our failure to successfully anticipate consumer preferences and demand; our inability to manage our growth; inability to locate available retail store sites on terms acceptable to us; our inability to maintain sufficient levels of cash flow to meet growth expectations; 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; fluctuations in currency exchange rates; our inability to effectively manage our online sales; competition from other stores and internet based competition; our inability to obtain merchandise on a timely basis at competitive prices as a result of changes in vendor relationships; vendors may sell similar or identical products to our competitors; our reliance on key executive management, and the transition in our executive leadership; our inability to find, train and retain key personnel; labor relations difficulties; increases in health care costs and labor costs; our dependence on foreign imports for our merchandise; violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti bribery and anti-kickback laws; effects of tax reform; and our indebtedness may restrict our current and future operations.

 

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, or SEC, on June 1, 2017, 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 (NYSE: TCS) is the nation’s leading retailer of storage and organization products — a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 11,000 products designed to maximize any size space, a suite of custom closet systems, and a wide variety of convenient online and mobile shopping services. Visit www.containerstore.com for more information about store locations, the product collection and services offered. Visit www.containerstore.com/blog for inspiration and real solutions to everyday storage challenges, and www.whatwestandfor.com to learn more about the company’s unique culture.

 

5



 

The Container Store Group, Inc.

Consolidated balance sheets (unaudited)

 

 

 

December 30,

 

April 1,

 

December 31,

 

(In thousands, except share and per share amounts)

 

2017

 

2017

 

2016

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

22,653

 

$

10,736

 

$

18,491

 

Accounts receivable, net

 

29,548

 

27,476

 

31,344

 

Inventory

 

110,391

 

103,120

 

109,009

 

Prepaid expenses

 

11,668

 

10,550

 

10,815

 

Income taxes receivable

 

1,450

 

16

 

 

Other current assets

 

10,338

 

10,787

 

12,319

 

Total current assets

 

186,048

 

162,685

 

181,978

 

Noncurrent assets:

 

 

 

 

 

 

 

Property and equipment, net

 

160,836

 

165,498

 

166,428

 

Goodwill

 

202,815

 

202,815

 

202,815

 

Trade names

 

230,379

 

226,685

 

226,050

 

Deferred financing costs, net

 

329

 

320

 

343

 

Noncurrent deferred tax assets, net

 

2,308

 

2,139

 

1,080

 

Other assets

 

1,684

 

1,692

 

1,420

 

Total noncurrent assets

 

598,351

 

599,149

 

598,136

 

Total assets

 

$

784,399

 

$

761,834

 

$

780,114

 

 

Liabilities and shareholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

53,757

 

$

44,762

 

$

49,057

 

Accrued liabilities

 

73,539

 

60,107

 

64,552

 

Current portion of long-term debt

 

9,465

 

5,445

 

5,390

 

Income taxes payable

 

1,690

 

2,738

 

4,156

 

Total current liabilities

 

138,451

 

113,052

 

123,155

 

Noncurrent liabilities:

 

 

 

 

 

 

 

Long-term debt

 

304,638

 

312,026

 

332,900

 

Noncurrent deferred tax liabilities, net

 

56,706

 

80,679

 

79,672

 

Deferred rent and other long-term liabilities

 

32,941

 

34,287

 

33,020

 

Total noncurrent liabilities

 

394,285

 

426,992

 

445,592

 

Total liabilities

 

532,736

 

540,044

 

568,747

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares authorized; 48,072,187 shares issued at December 30, 2017; 48,045,114 shares issued at April 1, 2017; 48,003,359 shares issued at December 31, 2016

 

481

 

480

 

480

 

Additional paid-in capital

 

860,827

 

859,102

 

858,460

 

Accumulated other comprehensive loss

 

(14,323

)

(22,643

)

(24,047

)

Retained deficit

 

(595,322

)

(615,149

)

(623,526

)

Total shareholders’ equity

 

251,663

 

221,790

 

211,367

 

Total liabilities and shareholders’ equity

 

$

784,399

 

$

761,834

 

$

780,114

 

 

6



 

The Container Store Group, Inc.

Consolidated statements of operations (unaudited)

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

(In thousands, except share and
per share amounts)

 

December 30,
2017

 

December 31,
2016

 

December 30,
2017

 

December 31,
2016

 

Net sales

 

$

222,986

 

$

216,380

 

$

624,464

 

$

598,888

 

Cost of sales (excluding depreciation and amortization)

 

92,425

 

90,678

 

263,919

 

250,136

 

Gross profit

 

130,561

 

125,702

 

360,545

 

348,752

 

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

 

103,894

 

100,206

 

306,866

 

288,037

 

Stock-based compensation

 

585

 

599

 

1,589

 

1,355

 

Pre-opening costs

 

1,872

 

2,918

 

4,676

 

6,558

 

Depreciation and amortization

 

9,477

 

9,236

 

28,524

 

28,061

 

Other expenses

 

751

 

182

 

4,908

 

839

 

Loss on disposal of assets

 

83

 

 

236

 

41

 

Income from operations

 

13,899

 

12,561

 

13,746

 

23,861

 

Interest expense, net

 

7,300

 

4,119

 

17,398

 

12,434

 

Loss on extinguishment of debt

 

 

 

2,369

 

 

Income (loss) before taxes

 

6,599

 

8,442

 

(6,021

)

11,427

 

(Benefit) provision for income taxes

 

(21,780

)

3,350

 

(25,848

)

4,851

 

Net income

 

$

28,379

 

$

5,092

 

$

19,827

 

$

6,576

 

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.59

 

$

0.11

 

$

0.41

 

$

0.14

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

48,067,754

 

47,999,535

 

48,057,974

 

47,992,652

 

Weighted-average common shares outstanding - diluted

 

48,167,882

 

48,022,499

 

48,128,682

 

48,002,495

 

 

7



 

The Container Store Group, Inc.

Consolidated statements of cash flows (unaudited)

 

 

 

Thirty-Nine Weeks Ended

 

(In thousands)

 

December 30,
2017

 

December 31,
2016

 

Operating activities

 

 

 

 

 

Net income

 

$

19,827

 

$

6,576

 

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

 

 

 

 

 

Depreciation and amortization

 

28,524

 

28,061

 

Stock-based compensation

 

1,589

 

1,355

 

Loss on disposal of property and equipment

 

236

 

41

 

Loss on extinguishment of debt

 

2,369

 

 

Deferred tax benefit

 

(27,255

)

(1,044

)

Noncash interest

 

1,905

 

1,441

 

Other

 

326

 

(135

)

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(727

)

(9,843

)

Inventory

 

(2,665

)

(25,686

)

Prepaid expenses and other assets

 

233

 

2,932

 

Accounts payable and accrued liabilities

 

19,627

 

19,882

 

Income taxes

 

(2,461

)

5,089

 

Other noncurrent liabilities

 

(2,136

)

(4,794

)

Net cash provided by operating activities

 

39,392

 

23,875

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Additions to property and equipment

 

(20,101

)

(21,010

)

Proceeds from sale of property and equipment

 

19

 

7

 

Net cash used in investing activities

 

(20,082

)

(21,003

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Borrowings on revolving lines of credit

 

47,054

 

43,135

 

Payments on revolving lines of credit

 

(47,054

)

(46,653

)

Borrowings on long-term debt

 

335,000

 

30,000

 

Payments on long-term debt

 

(331,885

)

(19,121

)

Payment of taxes with shares withheld upon restricted stock vesting

 

(39

)

 

Payment of debt issuance costs

 

(11,246

)

 

Net cash (used in) provided by financing activities

 

(8,170

)

7,361

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

777

 

(551

)

Net increase in cash

 

11,917

 

9,682

 

Cash at beginning of period

 

10,736

 

8,809

 

Cash at end of period

 

$

22,653

 

$

18,491

 

 

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 diluted share, and Adjusted EBITDA. 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

 

8



 

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., its controlling stockholder, to assess its financial performance. The Company presents these non-GAAP measures 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 available to common shareholders before distributions accumulated to preferred shareholders, stock-based compensation and other costs in connection with our IPO, charges related to an Elfa manufacturing facility closure, impairment charges related to intangible assets, losses on extinguishment of debt, certain gains on disposal of assets, certain management transition costs incurred and benefits realized, charges incurred as part of the implementation of our Optimization Plan, and the tax impact of these adjustments and other unusual or infrequent tax items. We define adjusted net income per diluted share as adjusted net income divided by the diluted weighted average common shares outstanding. We use adjusted net income and adjusted net income per diluted share 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 diluted share 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.

 

We have included a presentation of adjusted net income for the thirteen and thirty-nine weeks ended December 31, 2016 to show the net impact of the amended and restated employment agreements entered into with key executives during the thirty-nine weeks ended December 31, 2016 (“management transition costs (benefits)”). Although we disclosed the net positive impact of the amended and restated employment agreements in our discussions of earnings per share and SG&A in our earnings press releases in fiscal 2016, we did not include in those press releases a presentation of adjusted net income. However, in the thirteen and thirty-nine weeks ended December 30, 2017, our Optimization Plan has caused us to incur similar charges that we believe are not indicative of our core operating performance, and we expect to continue to incur such charges in the remainder of fiscal 2017. As a result, we believe that adjusting net income in the thirteen and thirty-nine weeks ended December 31, 2016 for management transition costs (benefits), in addition to adjusting net loss for the thirteen and thirty-nine weeks ended December 30, 2017 for charges incurred as part of the implementation of our Optimization Plan will assist investors in comparing our core operating performance across reporting periods on a consistent basis. Likewise, we believe that presenting full year fiscal 2017 adjusted net income guidance and fiscal 2016 adjusted net income as a comparative measure, will assist investors in evaluating our anticipated financial performance as it relates to our core operations.

 

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,

 

9



 

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 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 diluted share with the most directly comparable GAAP financial measures of GAAP net income and GAAP net income per diluted share.

 

 

 

Thirteen Weeks Ended

 

Thirty-Nine Weeks Ended

 

Fiscal Year 2017 Outlook

 

Fiscal Year
Ended

 

 

 

December 30,
2017

 

December 31,
2016

 

December 30,
2017

 

December 31,
2016

 

Low

 

High

 

April 1,
2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

28,379

 

$

5,092

 

$

19,827

 

$

6,576

 

$

29,400

 

$

32,340

 

$

14,953

 

Management transition costs (a)

 

 

182

 

 

(3,071

)

 

 

(2,852

)

Elfa manufacturing facility closure (b)

 

335

 

 

852

 

 

1,000

 

1,000

 

 

Loss on extinguishment of debt (c)

 

 

 

2,369

 

 

2,369

 

2,369

 

 

Optimization Plan implementation charges (d)

 

422

 

 

10,742

 

 

11,000

 

11,000

 

 

Taxes (e)

 

(24,053

)

(46

)

(28,637

)

1,147

 

(28,579

)

(28,579

)

1,292

 

Adjusted net income

 

$

5,083

 

$

5,228

 

$

5,153

 

$

4,652

 

$

15,190

 

$

18,130

 

$

13,393

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — diluted

 

48,167,882

 

48,022,499

 

48,128,682

 

48,002,495

 

49,000,000

 

49,000,000

 

48,016,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share - diluted

 

$

0.59

 

$

0.11

 

$

0.41

 

$

0.14

 

$

0.60

 

$

0.66

 

$

0.31

 

Adjusted net income per common share - diluted

 

$

0.11

 

$

0.11

 

$

0.11

 

$

0.10

 

$

0.31

 

$

0.37

 

$

0.28

 

 


(a)                           Certain management transition costs incurred and benefits realized, including the impact of amended and restated employment agreements entered into with key executives during fiscal 2016, which resulted in the reversal of accrued deferred compensation associated with the original employment agreements, net of costs incurred to execute the agreements, partially offset by cash severance payments, which we do not consider in our evaluation of ongoing performance.

 

(b)                           Charges related to the closure of an Elfa manufacturing facility in Lahti, Finland in December 2017, recorded in other expenses, which we do not consider in our evaluation of our ongoing performance.

 

10



 

(c)                            Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility and the Revolving Credit Facility in August 2017, which we do not consider in our evaluation of our ongoing operations.

 

(d)                           Charges incurred to implement our Optimization Plan, which includes certain consulting costs recorded in selling, general and administrative expenses, cash severance payments associated with the elimination of certain full-time positions at the TCS segment recorded in other expenses, and cash severance payments associated with organizational realignment at the Elfa segment recorded in other expenses, which we do not consider in our evaluation of ongoing performance.

 

(e)                            Tax impact of adjustments to net income, as well as the estimated impact of the Tax Cuts and Jobs Act enacted in the third quarter of fiscal 2017, which is considered to be an unusual or infrequent tax item, 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 30,
2017

 

December 31,
2016

 

December 30,
2017

 

December 31,
2016

 

Net income

 

$

28,379

 

$

5,092

 

$

19,827

 

$

6,576

 

Depreciation and amortization

 

9,477

 

9,236

 

28,524

 

28,061

 

Interest expense, net

 

7,300

 

4,119

 

17,398

 

12,434

 

(Benefit) provision for income taxes

 

(21,780

)

3,350

 

(25,848

)

4,851

 

EBITDA

 

$

23,376

 

$

21,797

 

$

39,901

 

$

51,922

 

Pre-opening costs (a)

 

1,872

 

2,918

 

4,676

 

6,558

 

Non-cash rent (b)

 

(714

)

(298

)

(1,451

)

(970

)

Stock-based compensation (c)

 

585

 

599

 

1,589

 

1,355

 

Loss on extinguishment of debt (d)

 

 

 

2,369

 

 

Foreign exchange (gains) losses (e)

 

(360

)

53

 

(306

)

(211

)

Optimization Plan implementation charges (f) 

 

422

 

 

10,742

 

 

Elfa manufacturing facility closure (g)

 

335

 

 

852

 

 

Other adjustments (h)

 

45

 

249

 

135

 

996

 

Adjusted EBITDA

 

$

25,561

 

$

25,318

 

$

58,507

 

$

59,650

 

 


(a)                           Non-capital expenditures associated with opening new stores and relocating stores, including rent, 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 rent expense has been above or below our cash rent payment due to lease accounting adjustments. The adjustment varies depending on the average age of our lease portfolio (weighted for size), as our GAAP rent expense on younger leases typically exceeds our cash cost, while our GAAP rent expense on older leases is typically less than our cash cost.

 

11



 

(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)                           Loss recorded as a result of the amendments made to the Senior Secured Term Loan Facility and the Revolving Credit Facility in August 2017, which we do not consider in our evaluation of our ongoing operations.

 

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

 

(f)                             Charges incurred to implement our Optimization Plan, which include certain consulting costs recorded in selling, general and administrative expenses, cash severance payments associated with the elimination of certain full-time positions at the TCS segment recorded in other expenses, and cash severance payments associated with organizational realignment at the Elfa segment recorded in other expenses, which we do not consider in our evaluation of ongoing performance.

 

(g)                            Charges related to the closure of an Elfa manufacturing facility in Lahti, Finland in December 2017, recorded in other expenses, which we do not consider in our evaluation of our ongoing performance.

 

(h)                           Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

 

12


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