Consolidated net sales increase of 5.0%,
inclusive of a 16.8% increase in the fiscal month of
September
Online sales increase of 86.4%
Earnings per diluted share of $0.41 compared
to $0.08 in second quarter of fiscal 2019
Strong Year-to-Date Operating Cash Flow of
$91.2 million and free cash flow* of $84.3 million
Announces exclusive co-branded product
collaboration with Marie Kondo
The Container Store Group, Inc. (NYSE: TCS) (the “Company”),
today announced financial results for the second quarter of fiscal
2020 ended September 26, 2020.
- Consolidated net sales were $248.2 million, up 5.0%, inclusive
of a 16.8% increase in the fiscal month of September. Net sales in
The Container Store retail business (“TCS”) were $233.0 million, up
5.3%. Online sales increased 86.4% in the second quarter of fiscal
2020. Elfa International AB (“Elfa”) third-party net sales were
$15.2 million, flat compared to the second quarter of fiscal 2019;
however, excluding the impact of foreign currency translation, Elfa
third-party net sales were down 6.6%.
- Consolidated net income and net income per diluted share
(“EPS”) were $20.2 million and $0.41 compared to net income of $3.6
million and $0.08 in the second quarter of fiscal 2019. Adjusted
net income per diluted share (“Adjusted EPS”)* was $0.43 compared
to $0.08 in the second quarter of fiscal 2019.
- Adjusted EBITDA* nearly doubled to $44.1 million in the second
quarter of fiscal 2020 compared to $22.4 million in the second
quarter of fiscal 2019.
- Net cash provided by operating activities was $91.2 million in
the twenty-six weeks ended September 26, 2020 (the “first half of
fiscal 2020”), compared to $5.8 million in the twenty-six weeks
ended September 28, 2019 (the “first half of fiscal 2019”). Free
cash flow* increased to $84.3 million compared to ($15.8) million
in the first half of fiscal 2019.
Melissa Reiff, Chairwoman and Chief Executive Officer commented,
“We are thrilled to announce that we achieved the best second
quarter sales, earnings and free cash flow in the Company’s
history. I am very proud of our second quarter results which
reflect the significant strides we have made on our multi-year
sales-driving initiatives across merchandising, marketing, stores
and online. The hard work of our teams across the organization and
disciplined execution of our strategic priorities enabled us to
benefit from the current stay-at-home phenomenon created by today’s
environment. Our focus on increasing relevancy with our marketing
and merchandising alliances resulted in the successful 2019 product
and marketing partnership we forged with The Home Edit. This
positioned us to capitalize on increased interest in the storage
and organization category resulting from their recently premiered
Netflix show in early September.”
Ms. Reiff continued, “We continue to build our brand, broaden
our appeal, increase our relevancy and fortify our position as the
category leader. As outlined in our separate press release, we are
delighted to announce our exclusive, elegant, and sustainably
sourced collection of co-branded products with Marie Kondo, which
is expected to be available in our stores and online beginning in
January 2021. We believe these strategic partnerships with leading,
innovative household names continue to ensure The Container Store
remains top of mind when it comes to storage and organization and
Custom Closets solutions.”
Ms. Reiff concluded, “We believe that many of the key factors
driving our strong second quarter performance have continued into
the third quarter of fiscal 2020. As we look ahead, we are excited
about the sales momentum we are driving and October trends to date
have improved from September levels. While the macro backdrop
remains uncertain, we are proud of our excellent execution and
believe we are well positioned to continue capitalizing on the many
opportunities that lie ahead.”
Second Quarter Fiscal 2020
Results
For the second quarter (thirteen weeks) ended September 26,
2020:
- Consolidated net sales were $248.2 million, up 5.0% compared to
the second quarter of fiscal 2019. TCS net sales were $233.0
million, an increase of 5.3%, with other product categories up
10.1%, contributing 550 basis points of the increase, and Custom
Closets remaining almost flat. Our online sales increased 86.4%
compared to the second quarter of fiscal 2019. Elfa third-party net
sales were $15.2 million, flat compared to the second quarter of
fiscal 2019; however, excluding the impact of foreign currency
translation, Elfa third-party net sales were down 6.6%. The Company
does not believe that comparable store sales is a meaningful metric
to present in the second quarter of fiscal 2020 because all stores
except one are considered comparable for purposes of the
calculation; therefore, the calculated increase would be materially
the same as the overall TCS net sales increase of 5.3%.
- Consolidated gross margin was 58.8%, an increase of 90 basis
points, compared to the second quarter of fiscal 2019. TCS gross
margin increased 50 basis points to 57.5%, primarily due to less
promotional activity and favorable mix of higher margin product
sales in the second quarter of fiscal 2020, partially offset by
increased shipping costs as a result of a higher mix of online
sales. Elfa gross margin increased 380 basis points primarily due
to favorable customer and product sales mix and to a lesser extent
lower direct material costs.
- Consolidated selling, general and administrative expenses
(“SG&A”) decreased by 11.2% to $101.2 million in the second
quarter of fiscal 2020 from $114.0 million in the second quarter of
fiscal 2019. SG&A as a percentage of net sales decreased 740
basis points primarily due to reductions in payroll, marketing
costs, transportation costs and other expenses, combined with
leverage of SG&A on higher sales during the quarter.
- Pre-opening costs declined to $7.0 thousand in the second
quarter of fiscal 2020 from $2.3 million in the second quarter of
fiscal 2019 primarily due to $1.7 million of net costs associated
with the opening of the second distribution center in the second
quarter of fiscal 2019. The company did not open any new stores in
the second quarter of fiscal 2020 and opened one new store in the
second quarter of fiscal 2019.
- Consolidated net interest expense decreased 16.9% to $4.5
million in the second quarter of fiscal 2020 from $5.4 million in
the second quarter of fiscal 2019. The decrease is primarily due to
lower interest rates, combined with a lower principal balance on
the Senior Secured Term Loan Facility.
- The effective tax rate was 31.0% in the second quarter of
fiscal 2020, as compared to 26.8% in the second quarter of fiscal
2019. The increase in the effective tax rate is primarily due to
the Company’s jurisdictional mix of income and additional tax
expense related to stock-based compensation.
- Net income was $20.2 million, or $0.41 per diluted share, in
the second quarter of fiscal 2020 compared to net income of $3.6
million, or $0.08 per diluted share in the second quarter of fiscal
2019. Adjusted net income* was $20.9 million, or $0.43 per diluted
share, in the second quarter of fiscal 2020 compared to adjusted
net income* of $3.9 million, or $0.08 per diluted share in the
second quarter of fiscal 2019.
- Adjusted EBITDA* was $44.1 million in the second quarter of
fiscal 2020 compared to $22.4 million in the second quarter of
fiscal 2019, driven by higher consolidated net sales, combined with
consolidated gross margin expansion of 90 basis points and a 740
basis point improvement in SG&A as a percentage of consolidated
net sales.
For the year-to-date (twenty-six weeks) ended September 26,
2020:
- Consolidated net sales were $399.9 million, down 10.3% as
compared to the first half of fiscal 2019. Net sales at TCS were
$372.4 million, down 10.6%, compared to the first half of fiscal
2019 and Elfa third-party net sales were $27.5 million, down 7.1%
compared to the first half of fiscal 2019. Declines in TCS and Elfa
net sales were due to the negative impact of COVID-19 during the
first quarter of fiscal 2020. As a result of the impact of the
COVID-19 pandemic on our Company stores and the Company’s policy of
excluding extended store closures from its comparable sales
calculation, the Company does not believe that comparable store
sales is a meaningful metric to present for fiscal 2020.
- Consolidated gross margin was 56.1%, a decrease of 140 basis
points compared to the first half of fiscal 2019. TCS gross margin
decreased 260 basis points to 54.6%, primarily due to increased
shipping costs as a result of a higher mix of online sales and
increased promotional activity, partially offset by a favorable mix
of higher margin product sales. Elfa gross margin increased 490
basis points primarily due to favorable customer and product sales
mix and to a lesser extent lower raw material prices.
- Consolidated SG&A decreased by 15.7% to $187.5 million from
$222.3 million in the first half of fiscal 2019. SG&A as a
percentage of net sales decreased 300 basis points. The decrease
was primarily due to reductions in payroll, marketing, and
transportation costs, partially offset by the deleverage of
occupancy costs in the first half of fiscal 2020.
- Pre-opening costs declined to $16.0 thousand in the first half
of fiscal 2020 from $3.5 million in the first half of fiscal 2019
primarily due to $2.8 million of net costs associated with the
opening of the second distribution center in the first half of
fiscal 2019. The Company opened no new stores in the first half of
fiscal 2020 as compared to opening one new store in the first half
of fiscal 2019.
- Other expenses increased to $1.1 million in the first half of
fiscal 2020 due to severance costs associated with the reduction in
workforce as a result of the COVID-19 pandemic, as compared to $0.4
million for charges primarily related to the closure of Elfa France
operations in the first half of fiscal 2019.
- Consolidated net interest expense decreased 15.0% to $9.4
million in the first half of fiscal 2020 from $11.1 million in the
first half of fiscal 2019. The decrease is primarily due to lower
interest rates, combined with a lower principal balance on the
Senior Secured Term Loan Facility.
- The effective tax rate was 38.1%, as compared to 50.3% in the
first half of fiscal 2019. The decrease in the effective tax rate
is primarily due to a shift in the Company’s jurisdictional mix of
income, offset by an increase in state income tax rates on deferred
balances.
- Net income was $3.5 million, or $0.07 per diluted share, in the
first half of fiscal 2020 compared to net loss of $0.5 million, or
($0.01) per diluted share in the first half of fiscal 2019.
Adjusted net income* was $5.4 million, or $0.11 per diluted share,
in the first half of fiscal 2020 compared to adjusted net loss* of
$0.2 million, or $0.00 per diluted share in the first half of
fiscal 2019.
- Adjusted EBITDA* was $48.5 million in the first half of fiscal
2020 compared to $33.1 million in the first half of fiscal
2019.
Balance sheet and liquidity highlights:
(In thousands)
September 26, 2020
September 28, 2019
Cash
$
61,847
$
9,029
Total debt, net of deferred financing
costs
$
245,032
$
285,756
Liquidity (1)
$
168,535
$
91,526
Free cash flow (2)
$
84,319
$
(15,779
)
(1) Cash plus availability on revolving credit facilities.
(2) Represents fiscal twenty-six week periods only. See
Reconciliation of GAAP to Non-GAAP Financial Measures table.
Conference Call Information
A conference call to discuss second quarter fiscal 2020
financial results is scheduled for today, October 20, 2020, 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 13711857. The replay will be available until November 20,
2020.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical fact should be considered
forward-looking statements, including statements regarding our
future opportunities; our goals, strategies, priorities and
initiatives; sales trends and momentum; our anticipated financial
performance; the availability of our new product line with Marie
Kondo and our plans in response to the outbreak of COVID-19.
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: the outbreak of COVID-19 and the associated impact on
our business, results of operations and financial condition; our
ability to continue to lease space on favorable terms; costs and
risks relating to new store openings; quarterly and seasonal
fluctuations in our operating results; cost increases that are
beyond our control; our inability to protect our brand; our failure
or inability to protect our intellectual property rights; overall
decline in the health of the economy, consumer spending, and the
housing market; our inability to source and market new products to
meet consumer preferences; failure to successfully anticipate
consumer preferences and demand; competition from other stores and
internet-based competition; vendors may sell similar or identical
products to our competitors; our and our vendors’ vulnerability to
natural disasters and other unexpected events; disruptions at our
Elfa manufacturing facilities; deterioration or change in vendor
relationships or events that adversely affect our vendors or their
ability to obtain financing for their operations, including
COVID-19; product recalls and/or product liability, as well as
changes in product safety and other consumer protection laws; risks
relating to operating two distribution centers; our dependence on
foreign imports for our merchandise; our reliance upon independent
third party transportation providers; our inability to effectively
manage our online sales; effects of a security breach or
cyber-attack of our website or information technology systems,
including relating to our use of third-party web service providers;
damage to, or interruptions in, our information systems as a result
of external factors, working from home arrangements, staffing
shortages and difficulties in updating our existing software or
developing or implementing new software; our indebtedness may
restrict our current and future operations, and we may not be able
to refinance our debt on favorable terms, or at all; fluctuations
in currency exchange rates; our inability to maintain sufficient
levels of cash flow to meet growth expectations; our fixed lease
obligations; disruptions in the global financial markets leading to
difficulty in borrowing sufficient amounts of capital to finance
the carrying costs of inventory to pay for capital expenditures and
operating costs; changes to global markets and inability to predict
future interest expenses; our reliance on key executive management;
employee furloughs and uncertainty about their ability to return to
work; our inability to find, train and retain key personnel; labor
relations difficulties; increases in health care costs and labor
costs; violations of the U.S. Foreign Corrupt Practices Act and
similar worldwide anti-bribery and anti-kickback laws; impairment
charges and effects of changes in estimates or projections used to
assess the fair value of our assets; effects of tax reform and
other tax fluctuations; and significant fluctuations in the price
of our common stock; substantial future sales of our common stock,
or the perception that such sales may occur, which could depress
the price of our common stock; risks related to being a public
company; our performance meeting guidance provided to the public;
anti-takeover provisions in our governing documents, which could
delay or prevent a change in control; and our failure to establish
and maintain effective internal controls.
These and other important factors discussed under the caption
“Risk Factors” in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission, (the “SEC”) on June 17, 2020
and our other reports filed with the SEC could cause actual results
to differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management’s estimates as of the date of this
press release. While we may elect to update such forward-looking
statements at some point in the future, we disclaim any obligation
to do so, even if subsequent events cause our views to change.
These forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the date of
this press release.
About The Container Store
The Container Store Group, Inc. (NYSE: TCS) is the nation’s
leading retailer of storage and organization products and solutions
– a concept they originated in 1978. Today, with locations
nationwide, the retailer offers more than 11,000 products designed
to help customers accomplish projects, maximize their space and
make the most of their home. The Container Store also offers a full
suite of custom closets designed to accommodate all sizes, styles
and budgets.
Visit www.containerstore.com for more information about store
locations, the product collection and services offered. Visit
www.containerstore.com/blog for inspiration, tips and real
solutions to everyday organization challenges, and
www.whatwestandfor.com to learn more about the company’s unique
culture.
* See Reconciliation of GAAP to Non-GAAP Financial Measures
table.
The Container Store Group, Inc.
Consolidated statements of
operations
Thirteen Weeks Ended
Twenty-Six Weeks Ended
(In thousands, except share and per
share amounts) (unaudited)
September 26, 2020
September 28, 2019
September 26, 2020
September 28, 2019
Net sales
$
248,241
$
236,432
$
399,927
$
445,952
Cost of sales (excluding depreciation and
amortization)
102,183
99,628
175,630
189,341
Gross profit
146,058
136,804
224,297
256,611
Selling, general, and administrative
expenses (excluding depreciation and amortization)
101,193
113,978
187,458
222,309
Stock-based compensation
1,977
965
2,809
1,776
Pre-opening costs
7
2,331
16
3,506
Depreciation and amortization
8,823
8,742
17,772
18,448
Other expenses
294
403
1,102
376
Gain on disposal of assets
—
—
(6)
(4)
Income from operations
33,764
10,385
15,146
10,200
Interest expense, net
4,491
5,402
9,441
11,111
Income (loss) before taxes
29,273
4,983
5,705
(911)
Provision (benefit) for income taxes
9,073
1,337
2,175
(458)
Net income (loss)
$
20,200
$
3,646
$
3,530
$
(453)
Net income (loss) per common share —
basic
$
0.42
$
0.08
$
0.07
$
(0.01)
Net income (loss) per common share —
diluted
$
0.41
$
0.08
$
0.07
$
(0.01)
Weighted-average common shares — basic
48,513,826
48,291,643
48,451,508
48,261,395
Weighted-average common shares —
diluted
48,782,505
48,417,474
48,630,246
48,261,395
The Container Store Group, Inc.
Consolidated balance sheets
September 26,
March 28,
September 28,
(In thousands)
2020
2020
2019
Assets
(unaudited)
(unaudited)
Current assets:
Cash
$
61,847
$
67,755
$
9,029
Accounts receivable, net
29,053
24,721
26,030
Inventory
117,715
124,207
133,200
Prepaid expenses
10,391
8,852
11,736
Income taxes receivable
93
4,724
2,603
Other current assets
12,926
11,907
10,518
Total current assets
232,025
242,166
193,116
Noncurrent assets:
Property and equipment, net
136,573
147,540
155,107
Noncurrent operating lease assets
304,390
347,170
362,609
Goodwill
202,815
202,815
202,815
Trade names
226,562
222,769
223,184
Deferred financing costs, net
135
170
206
Noncurrent deferred tax assets, net
2,444
2,311
1,803
Other assets
3,110
1,873
1,732
Total noncurrent assets
876,029
924,648
947,456
Total assets
$
1,108,054
$
1,166,814
$
1,140,572
The Container Store Group, Inc.
Consolidated balance sheets
(continued)
September 26,
March 28,
September 28,
(In thousands, except share and per
share amounts)
2020
2020
2019
Liabilities and shareholders’
equity
(unaudited)
(unaudited)
Current liabilities:
Accounts payable
$
85,680
$
53,647
$
74,376
Accrued liabilities
76,734
66,046
65,522
Revolving lines of credit
1,107
9,050
10,813
Current portion of long-term debt
6,970
6,952
6,936
Current operating lease liabilities
54,724
62,476
61,663
Income taxes payable
2,797
—
254
Total current liabilities
228,012
198,171
219,564
Noncurrent liabilities:
Long-term debt
236,955
317,485
268,007
Noncurrent operating lease liabilities
292,142
317,284
333,603
Noncurrent deferred tax liabilities,
net
48,556
50,178
49,516
Other long-term liabilities
13,094
11,988
10,534
Total noncurrent liabilities
590,747
696,935
661,660
Total liabilities
818,759
895,106
881,224
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000
shares authorized; 48,570,280 shares issued at September 26, 2020;
48,316,559 shares issued at March 28, 2020; 48,306,412 shares
issued at September 28, 2019
486
483
483
Additional paid-in capital
869,167
866,667
865,347
Accumulated other comprehensive loss
(24,741)
(36,295)
(32,395)
Retained deficit
(555,617)
(559,147)
(574,087)
Total shareholders’ equity
289,295
271,708
259,348
Total liabilities and shareholders’
equity
$
1,108,054
$
1,166,814
$
1,140,572
The Container Store Group, Inc.
Consolidated statements of cash
flows
Twenty-Six Weeks Ended
September 26,
September 28,
(In thousands) (unaudited)
2020
2019
Operating activities
Net income (loss)
$
3,530
$
(453)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization
17,772
18,448
Stock-based compensation
2,809
1,776
Gain on disposal of assets
(6)
(4)
Deferred tax benefit
(4,726)
(1,810)
Non-cash interest
931
931
Other
80
199
Changes in operating assets and
liabilities:
Accounts receivable
(2,529)
(1,858)
Inventory
8,748
(25,988)
Prepaid expenses and other assets
(2,266)
310
Accounts payable and accrued
liabilities
46,227
17,424
Net change in lease assets and
liabilities
9,672
122
Income taxes
7,493
(4,254)
Other noncurrent liabilities
3,448
912
Net cash provided by operating
activities
91,183
5,755
Investing activities
Additions to property and equipment
(6,864)
(21,534)
Proceeds from sale of property and
equipment
6
4
Net cash used in investing activities
(6,858)
(21,530)
Financing activities
Borrowings on revolving lines of
credit
22,242
35,428
Payments on revolving lines of credit
(30,849)
(29,676)
Borrowings on long-term debt
—
29,000
Payments on long-term debt
(81,482)
(16,775)
Payment of taxes with shares withheld upon
restricted stock vesting
(406)
(356)
Net cash (used in) provided by financing
activities
(90,495)
17,621
Effect of exchange rate changes on
cash
262
(181)
Net (decrease) increase in cash
(5,908)
1,665
Cash at beginning of fiscal period
67,755
7,364
Cash at end of fiscal period
$
61,847
$
9,029
Note Regarding Non-GAAP Information
This press release includes financial measures that are not
calculated in accordance with GAAP, including adjusted net income
(loss), adjusted net income (loss) per common share - diluted,
Adjusted EBITDA, and free cash flow. The Company has reconciled
these non-GAAP financial measures with the most directly comparable
GAAP financial measures in a table accompanying this release. These
non-GAAP measures should not be considered as alternatives to net
income or net loss as a measure of financial performance or cash
flows from operations as a measure of liquidity, or any other
performance measure derived in accordance with GAAP and they should
not be construed as an inference that the Company’s future results
will be unaffected by unusual or non-recurring items. These
non-GAAP measures are key metrics used by management, the Company’s
board of directors, and Leonard Green and Partners, L.P., its
controlling stockholder, to assess its financial performance.
The Company presents adjusted net income (loss), adjusted net
income (loss) per common share - diluted, and Adjusted EBITDA
because it believes they assist investors in comparing the
Company’s performance across reporting periods on a consistent
basis by excluding items that the Company does not believe are
indicative of its core operating performance and because the
Company believes it is useful for investors to see the measures
that management uses to evaluate the Company. These non-GAAP
measures are also frequently used by analysts, investors and other
interested parties to evaluate companies in the Company’s industry.
In evaluating these non-GAAP measures, you should be aware that in
the future the Company will incur expenses that are the same as or
similar to some of the adjustments in this presentation. The
Company’s presentation of these non-GAAP measures should not be
construed to imply that its future results will be unaffected by
any such adjustments. Management compensates for these limitations
by relying on our GAAP results in addition to using non-GAAP
measures supplementally. These non-GAAP measures are not
necessarily comparable to other similarly titled captions of other
companies due to different methods of calculation.
The Company defines adjusted net income (loss) as net income
(loss) before restructuring charges, charges related to the impact
of COVID-19 on business operations, severance charges associated
with COVID-19, charges related to an Elfa manufacturing facility
closure, charges related to the closure of Elfa France operations,
impairment charges related to intangible assets, loss on
extinguishment of debt, certain (gains) losses 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 (loss) per common share - diluted as adjusted net income
(loss) divided by the diluted weighted average common shares
outstanding. We use adjusted net income (loss) and adjusted net
income (loss) per common share - diluted to supplement GAAP
measures of performance to evaluate the effectiveness of our
business strategies, to make budgeting decisions and to compare our
performance against that of other peer companies using similar
measures. We present adjusted net income (loss) and adjusted net
income (loss) per common share - diluted because we believe they
assist investors in comparing our performance across reporting
periods on a consistent basis by excluding items that we do not
believe are indicative of our core operating performance and
because we believe it is useful for investors to see the measures
that management uses to evaluate the Company.
The Company defines EBITDA as net income (loss) before interest,
taxes, depreciation, and amortization. Adjusted EBITDA is
calculated in accordance with 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 (used in) operating activities in a period
minus payments for property and equipment made in that period,
because it believes it is a useful indicator of the Company’s
overall liquidity, as the amount of free cash flow generated in any
period is representative of cash that is available for debt
repayment, investment, and other discretionary and
non-discretionary cash uses. Accordingly, we believe that free cash
flow provides useful information to investors in understanding and
evaluating our liquidity in the same manner as management. Our
definition of free cash flow is limited in that it does not solely
represent residual cash flows available for discretionary
expenditures due to the fact that the measure does not deduct the
payments required for debt service and other contractual
obligations. Therefore, we believe it is important to view free
cash flow as a measure that provides supplemental information to
our Consolidated Statements of Cash Flows. Although other companies
report their free cash flow, numerous methods may exist for
calculating a company’s free cash flow. As a result, the method
used by our management to calculate our free cash flow may differ
from the methods used by other companies to calculate their free
cash flow.
Additionally, this press release refers to the decline in Elfa
third-party net sales after the conversion of Elfa’s net sales from
Swedish krona to U.S. dollars using the prior year’s conversion
rate, which is a financial measure not calculated in accordance
with GAAP. The Company believes the disclosure of Elfa third-party
net sales decline without the effects of currency exchange rate
fluctuations helps investors understand the Company’s underlying
performance.
The Container Store Group, Inc. Supplemental Information -
Reconciliation of GAAP to Non-GAAP Financial Measures (In
thousands, except share and per share amounts) (unaudited)
The table below reconciles the non-GAAP financial measures of
adjusted net income (loss) and adjusted net income (loss) per
common share - diluted with the most directly comparable GAAP
financial measures of GAAP net income (loss) and GAAP net income
(loss) per common share - diluted.
Thirteen
Twenty-Six
Weeks Ended
Weeks Ended
September 26, 2020
September 28, 2019
September 26, 2020
September 28, 2019
Numerator:
Net income (loss)
$
20,200
$
3,646
$
3,530
$
(453)
Elfa France closure (a)
—
403
—
403
COVID-19 costs (b)
273
—
1,496
—
Severance (c)
294
—
1,103
—
Taxes (d)
163
(112)
(722)
(112)
Adjusted net income (loss)
$
20,930
$
3,937
$
5,407
$
(162)
Denominator:
Weighted-average common shares outstanding
— diluted
48,782,505
48,417,474
48,630,246
48,261,395
Net income (loss) per common share —
diluted
$
0.41
$
0.08
$
0.07
$
(0.01)
Adjusted net income (loss) per common
share — diluted
$
0.43
$
0.08
$
0.11
$
(0.00)
________________
(a) Charges related to the closure of Elfa France operations in
the second quarter of fiscal 2019, which we do not consider in our
evaluation of ongoing performance.
(b) Includes incremental costs attributable to the COVID-19
pandemic, substantially all of which consist of hazard pay for
distribution center employees in the first quarter of fiscal 2020
and sanitization costs in the first and second quarters of fiscal
2020, which we do not consider in our evaluation of ongoing
performance.
(c) Includes costs incurred in the first and second quarters of
fiscal 2020 associated with the reduction in workforce as a result
of the COVID-19 pandemic and the related temporary store closures
in fiscal 2020, which we do not consider in our evaluation of
ongoing performance.
(d) Tax impact of adjustments to net income (loss) 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
Twenty-Six Weeks Ended
September 26, 2020
September 28, 2019
September 26, 2020
September 28, 2019
Net income (loss)
$
20,200
$
3,646
$
3,530
$
(453)
Depreciation and amortization
8,823
8,742
17,772
18,448
Interest expense, net
4,491
5,402
9,441
11,111
Income tax provision (benefit)
9,073
1,337
2,175
(458)
EBITDA
$
42,587
$
19,127
$
32,918
$
28,648
Pre-opening costs (a)
7
2,331
16
3,506
Non-cash lease expense (b)
(1,065)
(415)
10,073
(1,177)
Stock-based compensation (c)
1,977
965
2,809
1,776
Foreign exchange losses (gains) (d)
8
14
129
(61)
Elfa France closure (e)
—
403
—
403
COVID-19 costs (f)
273
—
1,496
—
Severance and other costs (g)
296
1
1,105
(26)
Adjusted EBITDA
$
44,083
$
22,426
$
48,546
$
33,069
________________
(a) Non-capital expenditures associated with opening new stores
and relocating stores, and costs associated with opening the second
distribution center, including marketing expenses, travel and
relocation costs, and training costs. We adjust for these costs to
facilitate comparisons of our performance from period to
period.
(b) Reflects the extent to which our annual GAAP operating lease
expense has been above or below our cash operating lease payments.
The amount varies depending on the average age of our lease
portfolio (weighted for size), as our GAAP operating lease expense
on younger leases typically exceeds our cash operating lease
payments, while our GAAP operating lease expense on older leases is
typically less than our cash operating lease payments. Non-cash
lease expense increased in the twenty-six weeks ended September 26,
2020 due to renegotiated terms with landlords due to COVID-19 that
resulted in deferral of $11.9 million of certain cash lease
payments and the modification of certain lease terms for a
substantial portion of our leased properties. In the second quarter
of fiscal 2019, lease expenses associated with the opening of the
second distribution center were excluded from Non-cash lease
expense and included in Pre-opening costs.
(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) Realized foreign exchange transactional gains/losses our
management does not consider in our evaluation of our ongoing
operations.
(e) Charges related to the closure of Elfa France operations in
the second quarter of fiscal 2019, which we do not consider in our
evaluation of ongoing performance.
(f) Includes incremental costs attributable to the COVID-19
pandemic, substantially all of which consist of hazard pay for
distribution center employees in the first quarter of fiscal 2020
and sanitization costs in the first and second quarters of fiscal
2020, which we do not consider in our evaluation of ongoing
performance.
(g) Severance and other costs include amounts our
management does not consider in our evaluation of our ongoing
operations. The fiscal 2020 amounts include costs incurred in the
first and second quarters of fiscal 2020 associated with the
reduction in workforce as a result of the COVID-19 pandemic and the
related temporary store closures in fiscal 2020.
The table below reconciles the non-GAAP financial measure of
free cash flow with the most directly comparable GAAP financial
measure of net cash provided by operating activities.
Twenty-Six Weeks Ended
September 26,
September 28,
2020
2019
Net cash provided by operating
activities
$
91,183
$
5,755
Less: Additions to property and
equipment
(6,864)
(21,534)
Free cash flow
$
84,319
$
(15,779)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201020006199/en/
Investors: ICR, Inc. Farah Soi/Caitlin Churchill 203-682-8200
Farah.Soi@icrinc.com Caitlin.Churchill@icrinc.com or Media: The
Container Store Group, Inc. Felipe Avila, 972-538-6674
publicrelations@containerstore.com
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