00001411688--04-032020Q3falseContainer Store Group, Inc.Accelerated Filer0001411688us-gaap:CommonStockMember2020-09-272020-12-260001411688us-gaap:CommonStockMember2020-06-282020-09-260001411688us-gaap:CommonStockMember2020-03-292020-06-270001411688us-gaap:CommonStockMember2019-09-292019-12-280001411688us-gaap:CommonStockMember2019-06-302019-09-280001411688us-gaap:CommonStockMember2019-03-312019-06-290001411688us-gaap:RetainedEarningsMember2020-12-260001411688us-gaap:AdditionalPaidInCapitalMember2020-12-260001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-260001411688us-gaap:RetainedEarningsMember2020-09-260001411688us-gaap:AdditionalPaidInCapitalMember2020-09-260001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-260001411688us-gaap:RetainedEarningsMember2020-06-270001411688us-gaap:AdditionalPaidInCapitalMember2020-06-270001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-270001411688us-gaap:RetainedEarningsMember2020-03-280001411688us-gaap:AdditionalPaidInCapitalMember2020-03-280001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-280001411688us-gaap:RetainedEarningsMember2019-12-280001411688us-gaap:AdditionalPaidInCapitalMember2019-12-280001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-280001411688us-gaap:RetainedEarningsMember2019-09-280001411688us-gaap:AdditionalPaidInCapitalMember2019-09-280001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-280001411688us-gaap:RetainedEarningsMember2019-06-290001411688us-gaap:AdditionalPaidInCapitalMember2019-06-290001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-290001411688us-gaap:RetainedEarningsMember2019-03-300001411688us-gaap:AdditionalPaidInCapitalMember2019-03-300001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-300001411688us-gaap:CommonStockMember2020-12-260001411688us-gaap:CommonStockMember2020-09-260001411688us-gaap:CommonStockMember2020-06-270001411688us-gaap:CommonStockMember2020-03-280001411688us-gaap:CommonStockMember2019-12-280001411688us-gaap:CommonStockMember2019-09-280001411688us-gaap:CommonStockMember2019-06-290001411688us-gaap:CommonStockMember2019-03-300001411688us-gaap:IntersegmentEliminationMembertcs:ElfaMember2020-09-272020-12-260001411688us-gaap:IntersegmentEliminationMembertcs:ElfaMember2020-03-292020-12-260001411688us-gaap:IntersegmentEliminationMembertcs:ElfaMember2019-09-292019-12-280001411688us-gaap:IntersegmentEliminationMembertcs:ElfaMember2019-03-312019-12-2800014116882020-12-272021-03-270001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-272020-12-260001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-282020-09-260001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-292020-06-270001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-292019-12-280001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-302019-09-280001411688us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-03-312019-06-290001411688us-gaap:ForeignExchangeContractMember2020-03-292020-12-260001411688us-gaap:AccumulatedTranslationAdjustmentMember2020-03-292020-12-260001411688us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-03-292020-12-260001411688us-gaap:RetainedEarningsMember2020-09-272020-12-260001411688us-gaap:RetainedEarningsMember2020-06-282020-09-260001411688us-gaap:RetainedEarningsMember2020-03-292020-06-270001411688us-gaap:RetainedEarningsMember2019-09-292019-12-280001411688us-gaap:RetainedEarningsMember2019-06-302019-09-280001411688us-gaap:RetainedEarningsMember2019-03-312019-06-290001411688tcs:LgpMembersrt:MaximumMember2020-12-260001411688us-gaap:FairValueInputsLevel2Memberus-gaap:SecuredDebtMember2020-12-260001411688us-gaap:FairValueInputsLevel2Membertcs:FinanceLeaseObligationsMember2020-12-260001411688us-gaap:FairValueInputsLevel2Member2020-12-260001411688us-gaap:RevolvingCreditFacilityMemberus-gaap:FairValueInputsLevel2Member2020-03-280001411688us-gaap:FairValueInputsLevel2Memberus-gaap:SecuredDebtMember2020-03-280001411688us-gaap:FairValueInputsLevel2Membertcs:FinanceLeaseObligationsMember2020-03-280001411688tcs:The2019ElfaRevolvingCreditFacilityMemberus-gaap:FairValueInputsLevel2Member2020-03-280001411688us-gaap:FairValueInputsLevel2Member2020-03-280001411688us-gaap:RevolvingCreditFacilityMemberus-gaap:FairValueInputsLevel2Member2019-12-280001411688us-gaap:FairValueInputsLevel2Memberus-gaap:SecuredDebtMember2019-12-280001411688us-gaap:FairValueInputsLevel2Membertcs:FinanceLeaseObligationsMember2019-12-280001411688us-gaap:FairValueInputsLevel2Member2019-12-280001411688tcs:FinanceLeaseObligationsMember2020-12-260001411688us-gaap:SecuredDebtMember2020-03-280001411688us-gaap:RevolvingCreditFacilityMember2020-03-280001411688tcs:The2019ElfaTermLoanFacilityMember2020-03-280001411688tcs:FinanceLeaseObligationsMember2020-03-280001411688us-gaap:SecuredDebtMember2019-12-280001411688us-gaap:RevolvingCreditFacilityMember2019-12-280001411688tcs:FinanceLeaseObligationsMember2019-12-280001411688us-gaap:StandbyLettersOfCreditMember2020-12-260001411688srt:MinimumMember2020-12-260001411688srt:MaximumMember2020-12-260001411688us-gaap:SecuredDebtMember2020-03-292020-12-260001411688srt:MinimumMemberus-gaap:ForeignExchangeForwardMember2020-03-292020-12-260001411688srt:MaximumMemberus-gaap:ForeignExchangeForwardMember2020-03-292020-12-260001411688srt:MinimumMemberus-gaap:ForeignExchangeForwardMember2019-03-312019-12-280001411688srt:MaximumMemberus-gaap:ForeignExchangeForwardMember2019-03-312019-12-280001411688us-gaap:ForeignExchangeForwardMemberus-gaap:NotDesignatedAsHedgingInstrumentEconomicHedgeMember2020-03-292020-12-260001411688us-gaap:SecuredDebtMember2020-12-260001411688us-gaap:SecuredDebtMember2020-11-250001411688srt:MaximumMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-11-252020-11-250001411688srt:MaximumMemberus-gaap:BaseRateMember2020-11-252020-11-250001411688us-gaap:BaseRateMember2020-11-252020-11-2500014116882020-06-2700014116882019-09-2800014116882019-06-290001411688us-gaap:ForeignExchangeContractMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-03-292020-12-2600014116882019-03-300001411688us-gaap:FairValueMeasurementsRecurringMember2020-12-260001411688us-gaap:FairValueMeasurementsRecurringMember2020-03-280001411688us-gaap:FairValueMeasurementsRecurringMember2019-12-280001411688us-gaap:OperatingSegmentsMembertcs:TCSMember2020-12-260001411688us-gaap:OperatingSegmentsMembertcs:ElfaMember2020-12-260001411688us-gaap:IntersegmentEliminationMember2020-12-260001411688us-gaap:OperatingSegmentsMembertcs:TCSMember2019-12-280001411688us-gaap:OperatingSegmentsMembertcs:ElfaMember2019-12-280001411688us-gaap:IntersegmentEliminationMember2019-12-280001411688us-gaap:ForeignExchangeContractMemberus-gaap:CashFlowHedgingMemberus-gaap:DesignatedAsHedgingInstrumentMember2020-12-260001411688us-gaap:EmployeeStockOptionMember2020-09-272020-12-260001411688us-gaap:EmployeeStockOptionMember2020-03-292020-12-260001411688tcs:NonVestedRestrictedStockAwardsMember2020-03-292020-12-260001411688us-gaap:EmployeeStockOptionMember2019-09-292019-12-280001411688tcs:NonVestedRestrictedStockAwardsMember2019-09-292019-12-280001411688us-gaap:EmployeeStockOptionMember2019-03-312019-12-280001411688tcs:NonVestedRestrictedStockAwardsMember2019-03-312019-12-280001411688us-gaap:AdditionalPaidInCapitalMember2020-06-282020-09-2600014116882020-06-282020-09-260001411688us-gaap:AdditionalPaidInCapitalMember2020-09-272020-12-260001411688us-gaap:AdditionalPaidInCapitalMember2020-03-292020-06-2700014116882020-03-292020-06-270001411688us-gaap:AdditionalPaidInCapitalMember2019-09-292019-12-280001411688us-gaap:AdditionalPaidInCapitalMember2019-06-302019-09-2800014116882019-06-302019-09-280001411688us-gaap:AdditionalPaidInCapitalMember2019-03-312019-06-2900014116882019-03-312019-06-290001411688us-gaap:ForeignExchangeContractMember2020-12-260001411688us-gaap:AccumulatedTranslationAdjustmentMember2020-12-260001411688us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-12-260001411688us-gaap:ForeignExchangeContractMember2020-03-280001411688us-gaap:AccumulatedTranslationAdjustmentMember2020-03-280001411688us-gaap:AccumulatedDefinedBenefitPlansAdjustmentMember2020-03-280001411688tcs:ElfaMember2020-12-2600014116882019-03-312020-03-2800014116882020-09-260001411688us-gaap:OtherCurrentAssetsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-260001411688us-gaap:OtherCurrentAssetsMemberus-gaap:FairValueMeasurementsRecurringMember2020-03-280001411688us-gaap:OtherCurrentAssetsMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-280001411688us-gaap:SecuredDebtMember2020-11-252020-11-250001411688us-gaap:SecuredDebtMemberus-gaap:LondonInterbankOfferedRateLIBORMember2020-11-252020-11-250001411688us-gaap:OperatingSegmentsMembertcs:TCSMember2020-09-272020-12-260001411688us-gaap:OperatingSegmentsMembertcs:ElfaMember2020-09-272020-12-260001411688us-gaap:IntersegmentEliminationMember2020-09-272020-12-2600014116882020-09-272020-12-260001411688us-gaap:OperatingSegmentsMembertcs:TCSMember2020-03-292020-12-260001411688us-gaap:OperatingSegmentsMembertcs:ElfaMember2020-03-292020-12-260001411688us-gaap:IntersegmentEliminationMember2020-03-292020-12-260001411688us-gaap:OperatingSegmentsMembertcs:TCSMember2019-09-292019-12-280001411688us-gaap:OperatingSegmentsMembertcs:ElfaMember2019-09-292019-12-280001411688us-gaap:IntersegmentEliminationMember2019-09-292019-12-2800014116882019-09-292019-12-280001411688us-gaap:OperatingSegmentsMembertcs:TCSMember2019-03-312019-12-280001411688us-gaap:OperatingSegmentsMembertcs:ElfaMember2019-03-312019-12-280001411688us-gaap:IntersegmentEliminationMember2019-03-312019-12-2800014116882019-03-312019-12-2800014116882020-03-2800014116882019-12-2800014116882020-12-2600014116882021-01-2900014116882020-03-292020-12-26tcs:statexbrli:sharestcs:employeeiso4217:USDutr:sqftxbrli:puretcs:countrytcs:storeiso4217:USDxbrli:sharestcs:segment

Table of Contents

y

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 26, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-36161

THE CONTAINER STORE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

26-0565401

(State or other jurisdiction of incorporation or organization)

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

500 Freeport Parkway, Coppell, TX

75019

(Address of principal executive offices)

(Zip Code)

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

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TCS

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No

The registrant had 50,488,622 shares of its common stock outstanding as of January 29, 2021.

Table of Contents

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Unaudited Consolidated Balance Sheets as of December 26, 2020, March 28, 2020, and December 28, 2019

3

Unaudited Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks ended December 26, 2020 and December 28, 2019

5

Unaudited Consolidated Statements of Comprehensive Income for the Thirteen and Thirty-Nine Weeks ended December 26, 2020 and December 28, 2019

6

Unaudited Consolidated Statements of Cash Flows for the Thirty-Nine Weeks ended December 26, 2020 and December 28, 2019

7

Unaudited Consolidated Statements of Shareholders’ Equity for the Thirteen and Thirty-Nine Weeks ended December 26, 2020 and December 28, 2019

8

Notes to the Unaudited Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41

Item 4.

Controls and Procedures

41

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41

Item 3.

Default Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

43

2

Table of Contents

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

The Container Store Group, Inc.

Consolidated balance sheets

December 26,

March 28,

December 28,

(In thousands)

    

2020

    

2020

    

2019

Assets

(unaudited)

(unaudited)

Current assets:

Cash

$

27,895

$

67,755

$

13,971

Accounts receivable, net

 

31,799

 

24,721

 

29,438

Inventory

 

138,989

 

124,207

 

139,579

Prepaid expenses

 

10,143

 

8,852

 

10,435

Income taxes receivable

93

4,724

1,205

Other current assets

 

19,103

 

11,907

 

11,633

Total current assets

 

228,022

 

242,166

 

206,261

Noncurrent assets:

Property and equipment, net

 

134,746

 

147,540

 

153,515

Noncurrent operating lease assets

305,259

347,170

350,922

Goodwill

 

202,815

 

202,815

 

202,815

Trade names

 

230,187

 

222,769

 

224,956

Deferred financing costs, net

 

269

 

170

 

188

Noncurrent deferred tax assets, net

 

2,503

 

2,311

 

1,835

Other assets

 

4,381

 

1,873

 

1,790

Total noncurrent assets

 

880,160

 

924,648

 

936,021

Total assets

$

1,108,182

$

1,166,814

$

1,142,282

See accompanying notes.

3

Table of Contents

The Container Store Group, Inc.

Consolidated balance sheets (continued)

    

December 26,

    

March 28,

    

December 28,

(In thousands, except share and per share amounts)

    

2020

    

2020

    

2019

Liabilities and shareholders’ equity

(unaudited)

(unaudited)

Current liabilities:

Accounts payable

$

86,319

$

53,647

$

56,231

Accrued liabilities

 

88,080

 

66,046

 

67,658

Revolving lines of credit

 

 

9,050

 

Current portion of long-term debt

 

2,186

 

6,952

 

6,953

Current operating lease liabilities

54,719

62,476

63,163

Income taxes payable

 

8,859

 

 

2,504

Total current liabilities

 

240,163

 

198,171

 

196,509

Noncurrent liabilities:

Long-term debt

 

188,890

 

317,485

 

298,758

Noncurrent operating lease liabilities

291,710

317,284

320,536

Noncurrent deferred tax liabilities, net

 

51,465

 

50,178

 

48,363

Other long-term liabilities

 

13,415

 

11,988

 

9,947

Total noncurrent liabilities

 

545,480

 

696,935

 

677,604

Total liabilities

 

785,643

 

895,106

 

874,113

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock, $0.01 par value, 250,000,000 shares authorized; 48,573,694 shares issued at December 26, 2020; 48,316,559 shares issued at March 28, 2020; 48,316,559 shares issued at December 28, 2019

 

486

 

483

 

483

Additional paid-in capital

 

870,739

 

866,667

 

866,132

Accumulated other comprehensive loss

 

(12,738)

 

(36,295)

 

(26,771)

Retained deficit

 

(535,948)

 

(559,147)

 

(571,675)

Total shareholders’ equity

 

322,539

 

271,708

 

268,169

Total liabilities and shareholders’ equity

$

1,108,182

$

1,166,814

$

1,142,282

See accompanying notes.

4

Table of Contents

The Container Store Group, Inc.

Consolidated statements of operations

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

December 26,

December 28,

December 26,

December 28,

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

    

2020

    

2019

    

2020

    

2019

Net sales

$

275,478

$

228,657

$

675,405

$

674,609

Cost of sales (excluding depreciation and amortization)

 

115,991

 

94,292

 

291,621

 

283,633

Gross profit

 

159,487

 

134,365

 

383,784

 

390,976

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

 

115,870

 

111,972

 

303,328

 

334,281

Stock-based compensation

 

2,177

 

799

 

4,986

 

2,575

Pre-opening costs

 

95

 

2,482

 

111

 

5,988

Depreciation and amortization

 

8,498

 

9,689

 

26,270

 

28,137

Other (income) expenses

 

(13)

 

(1)

 

1,089

 

375

Loss (gain) on disposal of assets

 

18

 

(8)

 

12

 

(12)

Income from operations

 

32,842

 

9,432

 

47,988

 

19,632

Interest expense, net

 

4,099

 

5,134

 

13,540

 

16,245

Loss on extinguishment of debt

 

893

 

 

893

 

Income before taxes

27,850

 

4,298

33,555

 

3,387

Provision for income taxes

 

8,181

 

1,886

 

10,356

 

1,428

Net income

$

19,669

$

2,412

$

23,199

$

1,959

Net income per common share — basic

$

0.40

$

0.05

$

0.48

$

0.04

Net income per common share — diluted

$

0.40

$

0.05

$

0.47

$

0.04

Weighted-average common shares — basic

48,570,843

48,313,671

48,491,286

48,987,525

Weighted-average common shares — diluted

 

49,513,225

 

48,370,418

 

48,950,253

 

49,172,633

See accompanying notes.

5

Table of Contents

The Container Store Group, Inc.

Consolidated statements of comprehensive income

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

December 26,

December 28,

December 26,

December 28,

(In thousands) (unaudited)

    

2020

    

2019

    

2020

    

2019

Net income

$

19,669

$

2,412

$

23,199

$

1,959

Unrealized gain (loss) on financial instruments, net of tax provision (benefit) of $2,267, $846, $4,407, and ($154)

 

5,919

 

2,414

 

11,800

 

(515)

Pension liability adjustment

 

(341)

 

(111)

 

(697)

 

12

Foreign currency translation adjustment

 

6,425

 

3,321

 

12,454

 

(136)

Comprehensive income

$

31,672

$

8,036

$

46,756

$

1,320

See accompanying notes.

6

Table of Contents

The Container Store Group, Inc.

Consolidated statements of cash flows

Thirty-Nine Weeks Ended

December 26,

December 28,

(In thousands) (unaudited)

    

2020

    

2019

Operating activities

Net income

$

23,199

$

1,959

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

Depreciation and amortization

26,270

 

28,137

Stock-based compensation

4,986

 

2,575

Gain on disposal of assets

12

 

(12)

Loss on extinguishment of debt

893

Deferred tax benefit

(6,203)

 

(5,023)

Non-cash interest

1,393

 

1,396

Other

48

 

187

Changes in operating assets and liabilities:

Accounts receivable

(2,962)

 

(4,149)

Inventory

(10,430)

 

(32,127)

Prepaid expenses and other assets

(823)

 

1,216

Accounts payable and accrued liabilities

55,596

 

3,630

Net change in lease assets and liabilities

8,311

245

Income taxes

13,353

 

(547)

Other noncurrent liabilities

3,046

 

1,377

Net cash provided by (used in) operating activities

116,689

(1,136)

Investing activities

Additions to property and equipment

(11,670)

 

(29,296)

Proceeds from sale of property and equipment

65

 

12

Net cash used in investing activities

(11,605)

 

(29,284)

Financing activities

Borrowings on revolving lines of credit

36,292

 

51,335

Payments on revolving lines of credit

(46,202)

 

(56,700)

Borrowings on long-term debt

200,000

 

65,000

Payments on long-term debt

(330,403)

(22,512)

Payment of debt issuance costs

(5,579)

 

Payment of taxes with shares withheld upon restricted stock vesting

(412)

(372)

Net cash (used in) provided by financing activities

(146,304)

 

36,751

Effect of exchange rate changes on cash

1,360

 

276

Net (decrease) increase in cash

(39,860)

 

6,607

Cash at beginning of fiscal period

67,755

 

7,364

Cash at end of fiscal period

$

27,895

$

13,971

Supplemental information for non-cash investing and financing activities:

Purchases of property and equipment (included in accounts payable)

$

732

$

970

See accompanying notes.

7

Table of Contents

The Container Store Group, Inc.

Consolidated statements of shareholders’ equity

Accumulated

Additional

other

Total

(In thousands, except share amounts)

Par

Common stock

paid-in

comprehensive

Retained

shareholders’

(unaudited)

    

value

    

Shares

    

Amount

    

capital

    

(loss) income

    

deficit

    

equity

Balance at March 28, 2020

$

0.01

 

48,316,559

$

483

 

$

866,667

$

(36,295)

$

(559,147)

 

$

271,708

Net loss

 

 

 

 

 

 

(16,670)

 

 

(16,670)

Stock-based compensation

 

 

 

 

832

 

 

 

 

832

Vesting of restricted stock awards

174,758

2

(2)

0

Taxes related to net share settlement of restricted stock awards

(165)

(165)

Foreign currency translation adjustment

 

 

 

 

 

3,583

 

 

 

3,583

Unrealized gain on financial instruments, net of $1,393 tax provision

 

 

 

 

 

3,961

 

 

 

3,961

Pension liability adjustment

 

 

 

 

 

(219)

 

 

 

(219)

Balance at June 27, 2020

$

0.01

 

48,491,317

485

 

 

867,332

 

(28,970)

 

(575,817)

 

 

263,030

Net income

20,200

20,200

Stock-based compensation

1,836

1,836

Vesting of restricted stock awards

78,963

1

(1)

(0)

Taxes related to net share settlement of restricted stock awards

Foreign currency translation adjustment

2,446

2,446

Unrealized gain on financial instruments, net of $747 tax provision

1,920

1,920

Pension liability adjustment

(137)

(137)

Balance at September 26, 2020

$

0.01

48,570,280

486

869,167

(24,741)

(555,617)

289,295

Net income

19,669

19,669

Stock-based compensation

1,583

1,583

Vesting of restricted stock awards

3,414

0

(0)

0

Taxes related to net share settlement of restricted stock awards

(11)

(11)

Foreign currency translation adjustment

6,425

6,425

Unrealized gain on financial instruments, net of $2,267 tax provision

5,919

5,919

Pension liability adjustment

(341)

(341)

Balance at December 26, 2020

$

0.01

48,573,694

$

486

$

870,739

$

(12,738)

$

(535,948)

$

322,539

See accompanying notes.

8

Table of Contents

The Container Store Group, Inc.

Consolidated statements of shareholders’ equity (continued)

Accumulated

Additional

other

Total

(In thousands, except share amounts)

Par

Common stock

paid-in

comprehensive

Retained

shareholders’

(unaudited)

    

value

    

Shares

    

Amount

    

capital

    

(loss) income

    

deficit

    

equity

Balance at March 30, 2019

$

0.01

 

48,142,319

$

481

 

$

863,978

$

(26,132)

$

(573,634)

 

$

264,693

Net loss

 

 

 

 

 

 

(4,099)

 

 

(4,099)

Stock-based compensation

 

 

 

 

811

 

 

 

 

811

Vesting of restricted stock awards

140,878

2

(56)

(54)

Taxes related to net share settlement of restricted stock awards

(347)

(347)

Foreign currency translation adjustment

 

 

 

 

 

333

 

 

 

333

Unrealized gain on financial instruments, net of $(18) tax benefit

 

 

 

 

 

(128)

 

 

 

(128)

Pension liability adjustment

 

 

 

 

 

(2)

 

 

(2)

Balance at June 29, 2019

$

0.01

 

48,283,197

483

 

864,386

(25,929)

(577,733)

 

261,207

Net income

 

 

3,646

 

3,646

Stock-based compensation

 

 

965

 

965

Vesting of restricted stock awards

23,215

4

4

Taxes related to net share settlement of restricted stock awards

(8)

(8)

Foreign currency translation adjustment

(3,790)

(3,790)

Unrealized gain on financial instruments, net of $(981) tax benefit

(2,801)

(2,801)

Pension liability adjustment

125

125

Balance at September 28, 2019

$

0.01

48,306,412

483

865,347

(32,395)

(574,087)

259,348

Net income

2,412

2,412

Stock-based compensation

799

799

Vesting of restricted stock awards

10,147

Taxes related to net share settlement of restricted stock awards

(14)

(14)

Foreign currency translation adjustment

3,321

3,321

Unrealized gain on financial instruments, net of $846 tax provision

2,414

2,414

Pension liability adjustment

(111)

(111)

Balance at December 28, 2019

$

0.01

48,316,559

$

483

$

866,132

$

(26,771)

$

(571,675)

$

268,169

See accompanying notes.

9

Table of Contents

The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

(In thousands, except share amounts and unless otherwise stated)

December 26, 2020

1. Description of business and basis of presentation

These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended March 28, 2020, filed with the Securities and Exchange Commission (“SEC”) on June 17, 2020 (the “2019 Annual Report on Form 10-K”). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.

All references herein to “fiscal 2020” refer to the 53-week fiscal year ending April 3, 2021, “fiscal 2019” refer to the 52-week fiscal year ended March 28, 2020, and “fiscal 2018” refer to the 52-week fiscal year ended March 30, 2019.

Description of business

The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”). On November 6, 2013, the Company completed its initial public offering (the “IPO”), at which time LGP held a controlling interest in the Company as the majority shareholder. During the third quarter of fiscal 2020, LGP sold common stock of the Company, reducing their ownership to less than 50% of the Company’s outstanding common stock. Although LGP is no longer the majority shareholder, LGP continues to have significant influence over the Company. As of December 26, 2020, The Container Store, Inc. (“TCS”) operates 93 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 33 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers (including business customers), through its website and call center. The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. elfa® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.

Business Update Related to Coronavirus

The novel coronavirus (“COVID-19”) pandemic had a negative impact on the Company’s first quarter of fiscal 2020 operations and financial results. We experienced significant disruptions in store operations, including the temporary closure of all stores to in-store customer traffic, which adversely affected our business, results of operations and financial condition, and saw a significant increase in our curbside pick-up and online selling. Since the second quarter of fiscal 2020, all 93 stores were open with limited capacity. As a result, online sales somewhat moderated during the second and third quarters of fiscal 2020 as customers shifted to purchasing in-store, compared to the significant increase in online sales experienced while our stores were temporarily closed to in-store customer traffic in the first quarter of fiscal 2020. We will continue to review local, state, and federal mandates as we may need to temporarily adjust our operations to comply as COVID-19 and other uncertainties continue to unfold. The Company has taken actions to tightly manage costs, working capital and capital expenditures to preserve the Company’s financial health. As previously announced, the Company furloughed approximately 2,800 employees, primarily in its stores, as well as a portion of corporate employees, and reduced the base salaries of its executive officers and certain employees, due to COVID-19. As of the date of this filing, we have no furloughed employees and approximately 4,500 active employees and have returned temporarily reduced base salaries to pre-COVID-19 levels. We continue to prioritize the health and safety of our customers and employees by implementing strict health and safety protocols in our stores, including intensive and frequent cleaning procedures and limitations on the number of customers shopping in each store at any given time.

10

Table of Contents

Furthermore, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and the Company is implementing applicable benefits of the CARES Act. As such, we have deferred approximately $5,200 of employer payroll taxes as of December 26, 2020 and recorded an employee retention credit of approximately $1,000. We will continue to monitor guidance from the Centers for Disease Control and Prevention, local, state and federal guidance, and the impact of COVID-19 on the Company's business, results of operations, financial position and cash flows.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirty-nine weeks ended December 26, 2020 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter, attributable primarily to the timing and impact of Our Annual elfa® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

In July 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets. A customer’s accounting for the costs of the hosting component of the arrangement are not affected by the new guidance. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this standard in the first quarter of fiscal 2020 did not result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The Company is planning to adopt this standard in the first quarter of fiscal 2021. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In March 2020, the FASB issued, ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts and hedging relationships that

11

Table of Contents

reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in ASU 2020-04 are elective and are effective upon issuance for all entities. The adoption of this standard did not result in a material impact to the Company’s financial statements.

2.  Detail of certain balance sheet accounts

December 26,

March 28,

December 28,

    

2020

    

2020

    

2019

Accounts receivable, net:

Trade receivables, net

$

17,439

$

20,217

$

17,127

Credit card receivables

 

10,823

 

3,326

 

10,718

Other receivables

 

3,537

 

1,178

 

1,593

$

31,799

$

24,721

$

29,438

Inventory:

Finished goods

$

134,296

$

118,981

$

134,487

Raw materials

 

4,154

 

4,523

 

4,490

Work in progress

 

539

 

703

 

602

$

138,989

$

124,207

$

139,579

Accrued liabilities:

Accrued payroll, benefits and bonuses

$

29,451

$

19,112

$

22,528

Unearned revenue

17,913

12,976

13,579

Accrued transaction and property tax

14,673

12,509

12,348

Gift cards and store credits outstanding

11,815

9,208

10,180

Accrued lease liabilities

249

49

94

Accrued interest

1,151

1,483

1,540

Accrued sales returns

3,130

1,650

2,691

Other accrued liabilities

9,698

9,059

4,698

$

88,080

$

66,046

$

67,658

Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, Unearned revenue included in Accrued liabilities, and Gift cards and store credits outstanding included in Accrued liabilities in the Company's Consolidated Balance Sheets provided above. Unearned revenue was $12,976 as of March 28, 2020, and $12,384 was subsequently recognized into revenue for the thirty-nine weeks ended December 26, 2020. Gift cards and store credits outstanding was $9,208 as of March 28, 2020, and $2,343 was subsequently recognized into revenue for the thirty-nine weeks ended December 26, 2020. See Note 11 for disaggregated revenue disclosures.

3. Long-term debt and revolving lines of credit

On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of our domestic subsidiaries entered into a credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the lenders party thereto (the “Senior Secured Term Loan Facility”). On November 25, 2020, the Company entered into Amendment No. 7 (the “Seventh Amendment”) to the Senior Secured Term Loan Facility. In connection with the Seventh Amendment, the Company (a) paid down approximately $47,200 of the outstanding loans under the Senior Secured Term Loan Facility, which reduced the aggregate principal amount of the loans under the facility to $200,000 and (b) amended the Senior Secured Term Loan Facility to, among other things, extend the maturity date to January 31, 2026 and impose a 1.00% premium if a voluntary prepayment is made from the proceeds of a repricing transaction within the one year anniversary of the Seventh Amendment. Commencing on March 31, 2021, the Company will be required to make quarterly amortization payments of $500 on the term loan facility, with the balloon payment for the remaining balance due on January 31, 2026. Prior to the date of delivery of a compliance certificate for the fiscal quarter

12

Table of Contents

ended December 26, 2020, the applicable interest rate margin for LIBOR loans was 4.75%, subject to a LIBOR floor of 1.00%, and 3.75% for base rate loans and, thereafter, may step up to 5.00% for LIBOR Loans and 4.00% for base rate loans unless the consolidated leverage ratio achieved is less than or equal to 2.75 to 1.00. As of December 26, 2020, the aggregate principal amount in outstanding borrowings under the Senior Secured Term Loan Facility was $190,687, net of deferred financing costs. The Company recorded a loss on extinguishment of debt of $893 in the third quarter of fiscal 2020 in conjunction with the Seventh Amendment.

On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of our domestic subsidiaries entered into an asset-based revolving credit agreement with the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Wells Fargo Bank, National Association, as Syndication Agent (as amended, the “Revolving Credit Facility”). On November 25, 2020, the Company entered into Amendment No. 5 (the “Fifth Amendment”) to the Revolving Credit Facility. The Fifth Amendment amends the Revolving Credit Facility to extend the maturity date to the earlier of (a) November 25, 2025 and (b) October 31, 2025 if any portion of the Senior Secured Term Loan Facility remains outstanding on such date and the maturity date of the Senior Secured Term Loan Facility is not extended.

The Company capitalizes certain costs associated with issuance of various debt instruments. These deferred financing costs are amortized to interest expense on a straight-line method, which is materially consistent with the effective interest method, over the terms of the related debt agreements. In the thirty-nine weeks ended December 26, 2020, the Company capitalized $5,579 of fees associated with the Seventh Amendment which will be amortized through January 31, 2026.

Long-term debt and revolving lines of credit consist of the following:

December 26,

March 28,

December 28,

    

2020

    

2020

    

2019

Senior secured term loan facility

$

200,000

$

252,282

$

253,985

2019 Elfa term loan facility