EX-99.1 2 ex-99d1.htm EX-99.1 tcs_Ex99_1

Exhibit 99.1

Picture 1

The Container Store Group, Inc. Announces Fourth Quarter and Full Fiscal Year 2018 Financial Results

Fourth Quarter Comparable Store Sales up 8.5%; Consolidated Net Sales up 8.8%

Fiscal 2018 Comparable Store Sales up 3.5%; Consolidated Net Sales up 4.4%

Fourth Quarter EPS of $0.33 vs ($0.01) in Q417; Adjusted EPS increases to $0.33 from $0.18 in Q417

Fiscal 2018 EPS of $0.45 vs $0.40 in Fiscal 2017; Adjusted EPS increases to $0.42 from $0.28 in Fiscal 2017

Provides Fiscal 2019 Outlook

Coppell, TX — May 14, 2019 — The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the fourth quarter and fiscal year 2018 ended March 30, 2019.

For the fourth quarter of fiscal 2018:

·

Consolidated net sales were $253.2 million, up 8.8%.  Net sales in The Container Store retail business (“TCS”) were $235.7 million, up 10.1%.  Elfa International AB (“Elfa”) third-party net sales were $17.5 million, down 6.4% due to foreign currency translation.

·

Comparable store sales increased 8.5%, with Custom Closets up 7.4%, contributing 380 basis points of the increase to comparable store sales.  

·

Consolidated net income and net income per share (“EPS”) were $15.9 million and $0.33 compared to a  net loss of $0.4 million and ($0.01), respectively, in the fourth quarter of fiscal 2017.  Adjusted net income per share (“Adjusted EPS”) was $0.33 compared to $0.18 in the fourth quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

·

Adjusted EBITDA (see Reconciliation of GAAP to Non-GAAP Financial Measures table), was $37.8 million compared to $31.1 million in the prior year period.

“We ended fiscal 2018 with strong results, posting an 8.5% comparable store sales increase in Q4 that was broad-based across our core Custom Closets business, as well as our other product categories,” said Melissa Reiff, Chief Executive Officer. “This performance reflects the improvements we continue to make across all aspects of our business – in merchandising and new product development, marketing, inventory management and in-stock levels, as well as overall execution with excellence in our stores and our online channel. It also includes the positive impact from the “Marie Kondo effect” that is driving even more interest in our core category of Custom Closets and storage and organization.”

“We have plans in fiscal 2019 to strategically build on our progress to drive more brand awareness and market share gains, specifically in our core Custom Closets business where we recently launched our new Avera™ product line,” Reiff added. “Our second distribution center in Maryland is planned to become fully operational in late fiscal 2019, positioning us to generate significant efficiencies and a considerable reduction in delivery times leading to improved customer service in fiscal 2020 and beyond. Across our entire company, we have clear priorities and a go-to-market strategy grounded in our purpose – which is to help our customers accomplish projects, maximize their space and make the most of their homes. We intend to capitalize on the many opportunities we see for the business and realize our vision to be a beloved brand and the first choice for customized organization solutions and services.”

 

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Fourth Quarter Fiscal 2018 Results

For the fourth quarter (thirteen weeks) ended March 30, 2019:

·

Consolidated net sales were $253.2 million, up 8.8% as compared to the fourth quarter of fiscal 2017. Net sales at TCS were $235.7 million, up 10.1%,  driven by an increase in comparable store sales of 8.5%, combined with incremental sales from new stores. Elfa third-party net sales were $17.5 million, down 6.4% compared to the fourth quarter ended March 31, 2018, due to the negative impact of foreign currency translation during the quarter which decreased third-party net sales by 11.7%, partially offset by higher sales in the Nordic markets.

·

Consolidated gross margin was 58.6%, consistent with the fourth quarter of fiscal 2017. TCS gross margin increased 70 basis points to 57.8%,  primarily due to the impact of the Optimization Plan combined with a positive impact from foreign currency.  Elfa gross margin declined 340 basis points primarily due to higher direct materials costs attributable to higher raw material prices and a weaker Swedish krona. 

·

Consolidated selling, general and administrative expenses (“SG&A”) increased by 5.0% to $110.0 million in the fourth quarter of fiscal 2018 from $104.9 million in the fourth quarter of fiscal 2017. SG&A as a percentage of net sales decreased 150 basis points. This was primarily due to decreased marketing expense in the fourth quarter of fiscal 2018 associated with a shift in the timing of recognition of campaign-related marketing costs from the fourth quarter to the third quarter as well as decreased costs incurred as part of the Optimization Plan,  decreased professional fees and ongoing savings and efficiency efforts.  

·

Consolidated net interest expense decreased 21.4% to $6.0 million in the fourth quarter of fiscal 2018 from $7.6 million in the fourth quarter of fiscal 2017. In September 2018, the Company amended its Senior Secured Term Loan Facility, which decreased the applicable interest rate margins.   

·

The effective tax rate was 28.3%, as compared to 103.1% in the fourth quarter of fiscal 2017. In the fourth quarter of fiscal 2018, the effective tax rate rose above the U.S statutory rate primarily due to items related to the Tax Cuts and Jobs Act (the “Tax Act”) and a pretax income position. In the fourth quarter of fiscal 2017, the effective tax rate increased above the blended U.S statutory rate primarily due to the provisional amount recorded for the one-time transition tax on foreign earnings in connection with the Tax Act.

·

Net income was $15.9 million, or $0.33 per share, in the fourth quarter of fiscal 2018 compared to  a net loss of $0.4 million, or ($0.01) per share in the fourth quarter of fiscal 2017. Adjusted net income was $16.2 million, or $0.33 per share, in the fourth quarter of fiscal 2018 compared to adjusted net income of $8.4 million, or $0.18 per share in the fourth quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

·

Adjusted EBITDA was $37.8 million in the fourth quarter of fiscal 2018 compared to $31.1 million in the fourth quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).  

For the year (fifty-two weeks) ended March 30, 2019:

·

Consolidated net sales were $895.1 million, up 4.4% as compared to fiscal 2017. Net sales at TCS were $829.6 million, up 5.4%,  driven by a  comparable store sales increase of 3.5% combined with incremental sales from new stores.  Elfa third-party net sales were $65.5 million, down 6.2% compared to fiscal 2017, primarily due to the negative impact of foreign currency translation which decreased third-party net sales by 6.9%, partially offset by higher sales in the Nordic markets.

·

Consolidated gross margin was 58.5%, an increase of 50 basis points compared to fiscal 2017. TCS gross margin increased 80 basis points to 58.0%, primarily due to lower cost of goods associated with the Optimization Plan, partially offset by higher promotional activities and increased costs associated with shipping

 

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services.  Elfa gross margin declined 320 basis points primarily due to higher direct materials costs attributable to higher raw materials prices, a shift in product mix, and a weaker Swedish krona. 

·

Consolidated SG&A expense increased by 4.7% to $431.0 million in fiscal 2018 from $411.7 million in fiscal 2017. SG&A as a percentage of net sales increased 20 basis points. The increase was primarily attributable to the deleverage of occupancy costs, higher payroll costs, and increased marketing expense associated with the branding campaign launch in the second quarter of fiscal 2018, partially offset by decreased costs associated with the Optimization Plan.

·

Pre-opening costs decreased to $2.1 million in fiscal 2018 compared to $5.3 million in fiscal 2017. The Company opened four new stores  (inclusive of two relocations), in fiscal 2018, ending the fiscal year with 92 stores, as compared to five new stores opened (inclusive of one relocation) and an ending store count of 90, in fiscal 2017. 

·

Other expenses decreased to $0.2 million in fiscal 2018 compared to $5.7 million in fiscal 2017. The decrease is primarily due to severance costs incurred in fiscal 2017 to implement the Optimization Plan.

·

Consolidated net interest expense increased 9.0% to $27.3 million in fiscal 2018 from $25.0 million in fiscal 2017 primarily due to the amendment of our Senior Secured Term Loan Facility in the second quarter of fiscal 2017, which increased the applicable interest rate margins.

·

The effective tax rate was 1.3% in fiscal 2018 as compared to -189.8% in fiscal 2017. In fiscal 2018, the effective tax rate was below the U.S. statutory rate due to the finalization of the one-time transition tax on foreign earnings. In fiscal 2017, the effective tax rate was below the U.S. statutory rate primarily due to the estimated impact of the Tax Act enacted in the third quarter of fiscal 2017, including the provisional benefit for the remeasurement of deferred tax balances.

·

Net income was $21.7 million, or $0.45 per share, in fiscal 2018 compared to net income of $19.4 million, or $0.40 per share in fiscal 2017. Adjusted net income was $20.4 million, or $0.42 per share, in fiscal 2018 compared to adjusted net income of $13.6 million, or $0.28 per share in fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

·

Adjusted EBITDA was $96.3 million in fiscal 2018 compared to $89.6 million in fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).

Balance sheet and liquidity highlights:

 

 

 

 

 

 

 

(In thousands)

    

March 30, 2019

    

March 31, 2018

Cash

 

$

7,364

 

$

8,399

Total debt, net of deferred financing costs

 

$

267,487

 

$

285,165

Liquidity (1)

 

$

83,532

 

$

90,767

Free cash flow (2)

 

$

21,226

 

$

34,530


(1) Cash plus availability on revolving credit facilities.

(2) See reconciliation of GAAP to Non-GAAP Measures table.

 

 

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Outlook

The Company is establishing its outlook for fiscal 2019 as follows:

 

 

 

 

 

    

Fiscal 2019 Outlook

    

Net sales

 

$915 million to $925 million

 

New store openings and store relocations

 

2 openings, including 1 relocation (2)

 

Comparable store sales

 

Up 2.0% to up 3.0%

 

Net income per common share (1)

 

$0.41 to $0.51

 

Adjusted net income per common share (1) (3)

 

$0.41 to $0.51

 

Assumed tax rate

 

30%

 

Estimated share count

 

49 million

 


(1) Includes approximately $4 million, or $0.06 per common share of net costs associated with the opening of a second distribution center in Aberdeen, MD.

(2) The Company plans to open a new store in Memphis, TN during the second quarter of fiscal 2019. Additionally, during the second half of fiscal 2019, the Company plans to relocate an existing store in Dallas, TX.

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

 

Conference Call Information

A conference call to discuss fourth quarter fiscal 2018 financial results is scheduled for today, May 14, 2019, 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 two 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 13690281. The replay will be available until June 14, 2019.

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 future opportunities; expectations regarding our goals, strategies, priorities and initiatives; expectations regarding new store openings and relocations; plans to drive more brand awareness and attain market share gains; statements regarding our new distribution center and its anticipated effects on our business; and our anticipated financial performance and tax rate for fiscal 2019.

 

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 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; risks relating to the opening of a  second distribution center; 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; 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

 

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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; 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; effects of tax reform; and uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between the United States and other countries.

 

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 May 31, 2018, 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 10,000 products designed to save space and time, a suite of custom closet systems and an array of digital shopping services. Visit www.containerstore.com for more information about store locations, the product collection and services offered. Visit www.containerstore.com/blog for real solutions from the really organized and www.whatwestandfor.com to learn more about the company’s unique culture.

 

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The Container Store Group, Inc.

Consolidated statements of operations

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except share and

Thirteen Weeks Ended

 

Fiscal Year Ended

per share amounts)

March 30, 2019

 

March 31, 2018

 

March 30, 2019

 

March 31, 2018

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

 

Net sales

$

253,180

    

$

232,764

    

$

895,093

    

$

857,228

Cost of sales (excluding depreciation and amortization)

 

104,900

 

 

96,248

 

 

371,410

 

 

360,167

Gross profit

 

148,280

 

 

136,516

 

 

523,683

 

 

497,061

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

 

110,048

 

 

104,855

 

 

430,997

 

 

411,721

Stock-based compensation

 

859

 

 

437

 

 

2,846

 

 

2,026

Pre-opening costs

 

185

 

 

617

 

 

2,103

 

 

5,293

Depreciation and amortization

 

8,953

 

 

9,398

 

 

36,305

 

 

37,922

Other expenses

 

(120)

 

 

826

 

 

177

 

 

5,734

Loss (gain) on disposal of assets

 

221

 

 

42

 

 

(63)

 

 

278

Income from operations

 

28,134

 

 

20,341

 

 

51,318

 

 

34,087

Interest expense, net

 

5,982

 

 

7,615

 

 

27,275

 

 

25,013

Loss on extinguishment of debt

 

 —

 

 

 —

 

 

2,082

 

 

2,369

Income before taxes

 

22,152

 

 

12,726

 

 

21,961

 

 

6,705

Provision (benefit) for income taxes

 

6,270

 

 

13,125

 

 

281

 

 

(12,723)

Net income (loss)

$

15,882

 

$

(399)

 

$

21,680

 

$

19,428

 

 

 

 

 

 

 

 

 

 

 

 

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

$

0.33

 

$

(0.01)

 

$

0.45

 

$

0.40

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares — basic

 

48,142,319

 

 

48,072,187

 

 

48,139,929

 

 

48,061,527

Weighted-average common shares — diluted

 

48,382,433

 

 

48,202,980

 

 

48,400,407

 

 

48,147,725

 

 

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The Container Store Group, Inc.

Consolidated balance sheets

 

 

 

 

 

 

 

 

 

March 30,

 

March 31,

(In thousands)

    

2019

    

2018

Assets

 

 

(unaudited)

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

7,364

 

$

8,399

Accounts receivable, net

 

 

25,568

 

 

25,528

Inventory

 

 

108,650

 

 

97,362

Prepaid expenses

 

 

10,078

 

 

11,281

Income taxes receivable

 

 

1,003

 

 

15

Other current assets

 

 

11,705

 

 

11,609

Total current assets

 

 

164,368

 

 

154,194

Noncurrent assets:

 

 

 

 

 

 

Property and equipment, net

 

 

152,588

 

 

158,389

Goodwill

 

 

202,815

 

 

202,815

Trade names

 

 

225,150

 

 

229,401

Deferred financing costs, net

 

 

241

 

 

312

Noncurrent deferred tax assets, net

 

 

1,912

 

 

2,404

Other assets

 

 

1,670

 

 

1,854

Total noncurrent assets

 

 

584,376

 

 

595,175

Total assets

 

$

748,744

 

$

749,369

 

 

 

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The Container Store Group, Inc.

Consolidated balance sheets (continued)

 

 

 

 

 

 

 

 

 

    

March 30,

    

March 31,

 

(In thousands, except share and per share amounts)

    

2019

    

2018

 

Liabilities and shareholders’ equity

 

 

(unaudited)

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

58,734

 

$

43,692

 

Accrued liabilities

 

 

67,163

 

 

70,494

 

Revolving lines of credit

 

 

5,511

 

 

 —

 

Current portion of long-term debt

 

 

7,016

 

 

7,771

 

Income taxes payable

 

 

2,851

 

 

4,580

 

Total current liabilities

 

 

141,275

 

 

126,537

 

Noncurrent liabilities:

 

 

 

 

 

 

 

Long-term debt

 

 

254,960

 

 

277,394

 

Noncurrent deferred tax liabilities, net

 

 

51,702

 

 

54,839

 

Deferred rent and other long-term liabilities

 

 

36,114

 

 

41,892

 

Total noncurrent liabilities

 

 

342,776

 

 

374,125

 

Total liabilities

 

 

484,051

 

 

500,662

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.01 par value, 250,000,000 shares authorized; 48,142,319 shares issued at March 30, 2019 and 48,072,187 shares issued at March 31, 2018

 

 

481

 

 

481

 

Additional paid-in capital

 

 

863,978

 

 

861,263

 

Accumulated other comprehensive loss

 

 

(26,132)

 

 

(17,316)

 

Retained deficit

 

 

(573,634)

 

 

(595,721)

 

Total shareholders’ equity

 

 

264,693

 

 

248,707

 

Total liabilities and shareholders’ equity

 

$

748,744

 

$

749,369

 

 

 

 

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The Container Store Group, Inc.

Consolidated statements of cash flows

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

 

March 30,

 

March 31,

(In thousands)

    

2019

    

2018

Operating activities

 

 

(unaudited)

 

 

 

Net income

 

$

21,680

 

$

19,428

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

 

 

 

 

 

 

Depreciation and amortization

 

 

36,305

 

 

37,922

Stock-based compensation

 

 

2,846

 

 

2,026

(Gain) loss on disposal of assets

 

 

(63)

 

 

278

Loss on extinguishment of debt

 

 

2,082

 

 

2,369

Deferred tax benefit

 

 

(1,563)

 

 

(25,545)

Non-cash interest

 

 

2,351

 

 

2,664

Other

 

 

(60)

 

 

227

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,395)

 

 

3,192

Inventory

 

 

(14,688)

 

 

8,406

Prepaid expenses and other assets

 

 

1,510

 

 

(2,133)

Accounts payable and accrued liabilities

 

 

13,622

 

 

6,249

Income taxes

 

 

(2,428)

 

 

625

Other noncurrent liabilities

 

 

(5,303)

 

 

6,468

Net cash provided by operating activities

 

 

54,896

 

 

62,176

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

Additions to property and equipment

 

 

(33,670)

 

 

(27,646)

Proceeds from sale of property and equipment

 

 

899

 

 

96

Net cash used in investing activities

 

 

(32,771)

 

 

(27,550)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Borrowings on revolving lines of credit

 

 

55,201

 

 

47,486

Payments on revolving lines of credit

 

 

(49,484)

 

 

(47,486)

Borrowings on long-term debt

 

 

331,500

 

 

335,000

Payments on long-term debt and capital leases

 

 

(356,712)

 

 

(361,403)

Payment of debt issuance costs

 

 

(2,384)

 

 

(11,246)

Payment of taxes with shares withheld upon restricted stock vesting

 

 

(128)

 

 

(39)

Net cash used in financing activities

 

 

(22,007)

 

 

(37,688)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

(1,153)

 

 

725

 

 

 

 

 

 

 

Net decrease in cash

 

 

(1,035)

 

 

(2,337)

Cash at beginning of fiscal period

 

 

8,399

 

 

10,736

Cash at end of fiscal period

 

$

7,364

 

$

8,399

 

 

9

 


 

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, Adjusted EBITDA, and free cash flow. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in a table accompanying this release. These non-GAAP measures should not be considered as alternatives to net income as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. These non-GAAP measures are key metrics used by management, the Company’s board of directors, and Leonard Green and Partners, L.P., its controlling stockholder, to assess its financial performance.

 

The Company presents adjusted net income, adjusted net income per diluted share, and Adjusted EBITDA because it believes they assist investors in comparing the Company’s performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance and because the Company believes it is useful for investors to see the measures that management uses to evaluate the Company. These non-GAAP measures are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry. In evaluating these non-GAAP measures, you should be aware that in the future the Company will incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of these non-GAAP measures should not be construed to imply that its future results will be unaffected by any such adjustments. Management compensates for these limitations by relying on our GAAP results in addition to using non-GAAP measures supplementally. These non-GAAP measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

 

The Company defines adjusted net income as net income before restructuring charges, charges related to 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.

 

The Company defines EBITDA as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with its credit facilities and is one of the components for performance evaluation under its executive compensation programs. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including certain non-cash and other items that the Company does not consider in its evaluation of ongoing operating performance from period to period as discussed further below. The Company uses Adjusted EBITDA in connection with covenant compliance and executive performance evaluations, and to supplement GAAP measures of performance to evaluate the effectiveness of its business strategies, to make budgeting decisions and to compare its performance against that of other peer companies using similar measures. The Company believes it is useful for investors to see the measures that management uses to evaluate the Company, its executives and its covenant compliance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry.

The Company presents free cash flow, which the Company defines as net cash provided by operating activities in a period minus payments for property and equipment made in that period, because it believes it is a useful indicator of the Company’s overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for debt repayment, investment, and other discretionary and non-discretionary cash uses. Accordingly, we believe that free cash flow provides useful information to investors in understanding and evaluating our liquidity in the

 

10

 


 

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.

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

 

Fiscal Year

 

Fiscal Year 

 

 

Weeks Ended

 

Ended

 

2019 Outlook

 

 

March 30, 2019

 

March 31, 2018

 

March 30, 2019

 

March 31, 2018

 

Low

 

High

 

Numerator:

 

  

  

 

  

  

 

  

  

 

  

  

 

  

  

 

  

  

Net income (loss)

$

15,882

 

$

(399)

 

$

21,680

 

$

19,428

 

$

20,100

 

$

24,900

 

Elfa manufacturing facility closure (a)

 

 —

 

 

(49)

 

 

 —

 

 

803

 

 

 —

 

 

 —

 

Loss (gain) on disposal of real estate (b)

 

13

 

 

 —

 

 

(374)

 

 

 

 

 —

 

 

 —

 

Loss on extinguishment of debt (c)

 

 —

 

 

 —

 

 

2,082

 

 

2,369

 

 

 —

 

 

 —

 

Optimization Plan implementation charges (d)

 

 —

 

 

737

 

 

4,864

 

 

11,479

 

 

 —

 

 

 —

 

Taxes (e)

 

258

 

 

8,152

 

 

(7,820)

 

 

(20,485)

 

 

 —

 

 

 —

 

Adjusted net income

$

16,153

 

$

8,441

 

$

20,432

 

$

13,594

 

$

20,100

 

$

24,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

Weighted average common shares outstanding — diluted

 

48,382,433

 

 

48,202,980

 

 

48,400,407

 

 

48,147,725

 

 

49,000,000

 

 

49,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per diluted share

$

0.33

 

$

(0.01)

 

$

0.45

 

$

0.40

 

$

0.41

 

$

0.51

 

Adjusted net income per diluted share

$

0.33

 

$

0.18

 

$

0.42

 

$

0.28

 

$

0.41

 

$

0.51

 


(a)

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

(b)

Gain recorded as a result of the sale of a building in Lahti, Finland, recorded in fiscal 2018 in loss (gain) on disposal of assets, which we do not consider in our evaluation of our ongoing performance.

(c)

Loss recorded as a result of the amendment made to the Senior Secured Term Loan Facility in fiscal 2018 and the amendments made to the Senior Secured Term Loan Facility and the Revolving Credit Facility in fiscal 2017, which we do not consider in our evaluation of our ongoing performance.

(d)

Charges incurred as part of the implementation of our Optimization Plan, which include certain consulting costs recorded in SG&A expenses in fiscal 2018 and fiscal 2017, cash severance payments associated with the elimination of certain full-time positions at the TCS segment recorded in other expenses in fiscal 2017, and cash severance payments associated with organizational realignment at the Elfa segment recorded in other expenses in fiscal 2017, which we do not consider in our evaluation of ongoing performance.

(e)

Tax impact of adjustments to net income (loss), as well as the estimated impact of the Tax Cuts and Jobs Act recorded in fiscal 2017, the tax benefit recorded in the first quarter of fiscal 2018 as a result of a reduction in the Swedish tax rate, and the tax benefit recorded in the third quarter of fiscal 2018 as a result of the finalization of the

 

11

 


 

impact of the Tax Cuts and Jobs Act, which are considered to be unusual or infrequent tax items, all of which we do not consider in our evaluation of ongoing performance.

The table below reconciles the non-GAAP financial measure Adjusted EBITDA with the most directly comparable GAAP financial measure of GAAP net income (loss).

 

 

 

 

 

 

 

 

 

 

 

 

 

Thirteen Weeks Ended

 

Fiscal Year Ended

 

March 30, 2019

 

March 31, 2018

 

March 30, 2019

 

March 31, 2018

Net income (loss)

$

15,882

    

$

(399)

    

$

21,680

    

$

19,428

Depreciation and amortization

 

8,953

 

 

9,398

 

 

36,305

 

 

37,922

Interest expense, net

 

5,982

 

 

7,615

 

 

27,275

 

 

25,013

Income tax provision (benefit)

 

6,270

 

 

13,125

 

 

281

 

 

(12,723)

EBITDA

$

37,087

 

$

29,739

 

$

85,541

 

$

69,640

Pre-opening costs (a)

 

185

 

 

617

 

 

2,103

 

 

5,293

Non-cash rent (b)

 

(210)

 

 

(464)

 

 

(1,327)

 

 

(1,915)

Stock-based compensation (c)

 

859

 

 

437

 

 

2,846

 

 

2,026

Loss on extinguishment of debt (d)

 

 —

 

 

 —

 

 

2,082

 

 

2,369

Foreign exchange (gains) losses (e)

 

(9)

 

 

(290)

 

 

60

 

 

(596)

Optimization Plan implementation charges (f)

 

 —

 

 

737

 

 

4,864

 

 

11,479

Elfa manufacturing facility closure (g)

 

 —

 

 

(49)

 

 

 —

 

 

803

Other adjustments (h)

 

(119)

 

 

369

 

 

178

 

 

504

Adjusted EBITDA

$

37,793

 

$

31,096

 

$

96,347

 

$

89,603

 


(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.

(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 amendment made to the Senior Secured Term Loan Facility in fiscal 2018 and the amendments made to the Senior Secured Term Loan Facility and the Revolving Credit Facility in fiscal 2017, which we do not consider in our evaluation of our ongoing performance.

(e)

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

(f)

Charges incurred as part of the implementation of our Optimization Plan, which include certain consulting costs recorded in SG&A expenses in fiscal 2018 and in fiscal 2017, cash severance payments associated with the elimination of certain full-time positions at the TCS segment recorded in other expenses in fiscal 2017, and cash severance payments associated with organizational realignment at the Elfa segment recorded in other expenses in fiscal 2017, 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 fiscal 2017, recorded in other expenses, which we do not consider in our evaluation of our ongoing performance.

 

12

 


 

(h)

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

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended

 

 

March 30,

 

March 31,

 

    

2019

    

2018

Net cash provided by operating activities

 

$

54,896

 

$

62,176

Less: Additions to property and equipment

 

 

(33,670)

 

 

(27,646)

Free cash flow

 

$

21,226

 

$

34,530

 

 

 

13