Net Sales Up 6.5%; Comparable Sales Up
1.9%
GAAP EPS of ($0.02); Adjusted EPS Up 50% to
$0.12
Raises Fiscal 2017 Total Sales, Comparable
Store Sales and Adjusted EPS Outlook
The Container Store Group, Inc. (NYSE: TCS) (the
“Company”), today announced financial results for the second
quarter of fiscal 2017 ended September 30, 2017.
- Consolidated net sales were $218.4
million, up 6.5%. Net sales in The Container Store retail business
(“TCS”) were $202.3 million, up 7.0%, inclusive of an estimated
$1.4 million impact due to lost sales associated with Hurricanes
Harvey and Irma. Elfa International AB (“Elfa”) third-party net
sales were $16.1 million, up 0.7%.
- Comparable store sales for the second
quarter of fiscal 2017 were up 1.9% inclusive of the negative
impact of the hurricanes. The Company estimates that the comparable
store sales headwind from the combined impact of Hurricane Harvey
in Texas and Hurricane Irma in Florida was approximately 70 basis
points.
- Consolidated net (loss) income per
share (“EPS”) was ($0.02) compared with $0.07 in the second quarter
of fiscal 2016. Adjusted net income per share (“Adjusted EPS”) was
$0.12 compared with $0.08 in the second quarter of fiscal 2016 (see
Reconciliation of GAAP to Non-GAAP Financial Measures table). Net
loss per share and adjusted net income per share in the second
quarter of fiscal 2017 include an estimated $0.01 per share
negative impact related to the impact of the hurricanes.
Melissa Reiff, Chief Executive Officer, stated, “We are happy to
deliver fiscal second quarter results that are ahead of our
expectations on both the top and the bottom line, despite
hurricane-related headwinds in our Texas and Florida markets, where
we experienced temporary store closings in approximately 12% of our
store base during the quarter. The improvement in our business was
broad-based across product categories and reflects the traction of
our sales revitalization initiatives which, in combination with our
efficiency and optimization efforts, is already driving an
encouraging improvement in profitability as illustrated by the 50%
increase in our Adjusted EPS in the second quarter.”
“We are encouraged by the progress we are making towards our
strategic priorities across merchandising, marketing, store
operations and customer experience, as well as our optimization
initiatives. With the first half of the year behind us, we are
raising our full year outlook and remain focused on building on our
progress and driving the sales and profitability improvements we
know this business is capable of,” added Reiff.
Second Quarter 2017
Results
For the second quarter (thirteen weeks) ended September 30,
2017:
- Consolidated net sales were $218.4
million, up 6.5% as compared to the second quarter of fiscal 2016.
Net sales at TCS were $202.3 million, up 7.0%, with the increase
driven by new store net sales, combined with a 1.9% increase in net
sales from comparable stores. Elfa third-party net sales were $16.1
million, up 0.7% compared to the second quarter of fiscal 2016,
primarily due to the positive impact of foreign currency
translation which increased third-party net sales by 4.8%,
partially offset by lower sales in Nordic markets.
- Consolidated gross margin was 57.9%, an
increase of 20 basis points compared to the second quarter of
fiscal 2016. TCS gross margin declined 20 basis points to 57.1%, as
increased costs associated with the installation services business
and growth in lower gross margin business-to-business sales were
partially offset by lower promotional activities and the benefit of
favorable foreign currency contracts during the quarter. Elfa gross
margin remained consistent at 38.2%. On a consolidated basis, gross
margin increased 20 basis points primarily due to increased sales
of higher-margin elfa® products during the second quarter of fiscal
2017.
- Consolidated selling, general and
administrative expenses (“SG&A”) were $106.3 million compared
to $95.5 million in the second quarter of fiscal 2016 and, as a
percentage of net sales, increased 210 basis points. The increase
in SG&A as a percentage of net sales was primarily due to
consulting costs incurred as part of the implementation of the
Optimization Plan, which contributed 310 basis points to the
increase. Partially offsetting the increase was a 100 basis point
improvement in SG&A due to ongoing savings and efficiency
efforts, inclusive of savings from the Optimization Plan, as well
as lower self-insurance costs, partially offset by increased
occupancy costs.
- Consolidated net interest expense
increased 39.7% to $5.9 million in the second quarter of fiscal
2017 from $4.2 million in the second quarter of fiscal 2016 due to
the previously announced amendment of our Senior Secured Term Loan
Facility in August 2017, which increased the applicable interest
rate margins. Additionally, the Company recorded $2.4 million as a
loss on extinguishment of debt as a result of the amendment to the
Senior Secured Term Loan Facility.
- The effective tax rate for the second
quarter of fiscal 2017 was -144.4%, as compared to 41.6% in the
second quarter of fiscal 2016. The decrease in the effective
tax rate was primarily due to changes in the mix of domestic and
foreign earnings, the expiration of certain stock-based
compensation awards, and the effect of state tax rate changes in
the thirteen weeks ended September 30, 2017.
- Net loss was $0.9 million, or ($0.02)
per share, in the second quarter of fiscal 2017 compared to net
income of $3.5 million, or $0.07 per share, in the second quarter
of fiscal 2016.
- Adjusted net income was $5.5 million,
or $0.12 per share, in the second quarter of fiscal 2017 compared
to adjusted net income of $3.7 million, or $0.08 per share in the
second quarter of fiscal 2016 (see Reconciliation of GAAP to
Non-GAAP Financial Measures table).
- Consolidated Adjusted EBITDA was $26.5
million, compared to $22.3 million in the second quarter of fiscal
2016 (see GAAP/Non-GAAP reconciliation table).
For the year-to-date (twenty-six weeks) ended September 30,
2017:
- Consolidated net sales were $401.5
million, up 5.0% as compared to the first half of fiscal 2016. Net
sales at TCS were $369.4 million, up 5.4%, primarily due to new
store sales, combined with a 0.4% increase in net sales from
comparable stores. Elfa third-party net sales were $32.1 million,
down 0.2% compared to the year-to-date ended October 1, 2016,
primarily due to the negative impact of foreign currency
translation which decreased third-party net sales by 1.2% as well
as lower sales in Nordic markets, partially offset by higher sales
in Russia.
- Consolidated gross margin was 57.3%, a
decrease of 100 basis points compared to the first half of fiscal
2016 due to decreases in gross margin at TCS and Elfa. TCS gross
margin declined 110 basis points to 56.8%, primarily due to higher
costs associated with our installation services business, combined
with a greater portion of sales generated by merchandise campaigns
during the first quarter of fiscal 2017, as well as strong sales
growth in lower gross margin business-to-business sales. Elfa
segment gross margin declined 140 basis points, primarily due to
higher direct materials costs.
- Consolidated selling, general and
administrative expenses (“SG&A”) were $203.0 million compared
to $187.8 million in the first half of fiscal 2016. SG&A as a
percentage of net sales increased 150 basis points primarily due to
consulting costs incurred as part of the Optimization Plan, which
contributed 170 basis points to the increase in the first half of
fiscal 2017. Additionally, the impact of the amended and restated
employment agreements entered into with key executives during the
first half of fiscal 2016, which led to the reversal of accrued
deferred compensation associated with the original employment
agreements, net of costs incurred to execute the agreements,
contributed a 100 basis points benefit in first half of fiscal
2016. This combined 270 basis points increase year-over-year was
partially offset by a 120 basis point improvement in SG&A as a
percentage of net sales, primarily due to ongoing savings and
efficiency efforts, inclusive of savings from the Optimization
Plan, as well as lower self-insurance costs, partially offset by
increased occupancy costs.
- Consolidated net interest expense
increased 21.4% to $10.1 million in the first half of fiscal 2017
from $8.3 million in the first half of fiscal 2016 due to the
previously announced amendment of our Senior Secured Term Loan
Facility in August 2017, which increased the applicable interest
rate margins. Additionally, the Company recorded $2.4 million as a
loss on extinguishment of debt as a result of the amendment to the
Senior Secured Term Loan Facility.
- The effective tax rate was 32.2%, as
compared to 50.3% in the first half of fiscal 2016. The decrease in
the effective tax rate is primarily due to changes in the mix
between domestic and foreign earnings, combined with the impact of
a pre-tax loss position in the twenty-six weeks ended September 30,
2017, as compared to a pre-tax income position in the twenty-six
weeks ended October 1, 2016.
- Net loss was $8.6 million, or ($0.18)
per share, in the first half of fiscal 2017 compared to net income
of $1.5 million, or $0.03 per share, in the first half of fiscal
2016.
- Adjusted net income was $0.1 million,
or $0.00 per share, in the first half of fiscal 2017 compared to
adjusted net loss of $0.6 million, or ($0.01) per share in the
first half of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP
Financial Measures table).
- Consolidated Adjusted EBITDA was $32.9
million in the first half of fiscal 2017 compared to $34.3 million
in the first half of fiscal 2016 (see GAAP/Non-GAAP reconciliation
table). The Adjusted EBITDA of $34.3 million in the first half of
fiscal 2016 included a benefit from the impact of amended and
restated employment agreements entered into with key executives
during the first quarter of 2016, net of costs incurred to execute
the agreements, of $3.9 million.
Balance sheet highlights:
(In thousands) September 30,
2017
October 1,
2016
Cash $10,145 $9,329 Total debt $310,641 $333,030 Liquidity* $85,899
$98,775 *Cash plus availability on revolving
credit facilities
Optimization Plan
In May 2017, the Company announced the implementation of a
four-part Optimization Plan to drive improved sales and
profitability. This plan includes sales initiatives, certain
full-time position eliminations at TCS, organizational realignment
at Elfa and ongoing savings and efficiency efforts. The Company
expects to incur pre-tax charges associated with the Optimization
Plan of approximately $11 million in fiscal 2017, or $0.14 on a per
share basis. The expected annualized pre-tax savings associated
with the Optimization Plan continue to be approximately $20
million, of which approximately $13 to $15 million, or $0.16 to
$0.19 on a per share basis, is expected to be realized in fiscal
2017, for an estimated net benefit of approximately $0.02 to $0.05
on a per share basis.
Outlook
The Company is increasing its net sales, comparable store sales,
and adjusted net income per common share outlook for fiscal 2017.
Net income per common share is being reduced due to $0.01 to $0.02
of costs expected to be incurred as a result of an approval of a
plan in the second fiscal quarter to close an Elfa manufacturing
facility by December 31, 2017.
Current Outlook Prior
Outlook Net sales $845 million to $865 million $830 million to
$850 million Net new store openings 4 4 Comparable
store sales Decrease 1% to increase 1% Decrease in the low single
digit range Net income per common share* $0.11 to $0.22
$0.13 to $0.23 Adjusted net income per common share ** $0.30
to $0.41 $0.27 to $0.40 Assumed tax rate 39% 39%
Estimated share count 49 million
49 million
* Includes the aforementioned Optimization Plan costs and
benefits, as well as an incremental $0.01 to $0.02 per share in
costs related to the expected closure of an Elfa manufacturing
facility**See Reconciliation of GAAP to Non-GAAP Financial Measures
table
Conference Call Information
A conference call to discuss second quarter fiscal 2017
financial results is scheduled for today, November 7, 2017, at 4:30
PM Eastern Time. Investors and analysts interested in participating
in the call are invited to dial 1-877-407-3982 (international
callers please dial (201) 493-6780) approximately 10 minutes prior
to the start of the call. A live audio webcast of the conference
call will be available online at www.containerstore.com in the
investor relations section of the website.
A taped replay of the conference call will be available within
two hours of the conclusion of the call and can be accessed both
online and by dialing 1-844-512-2921 (international replay number
is 1-412-317-6671). The pin number to access the telephone replay
is 13672235. The replay will be available through December 7, 2017
at 11:59 PM Eastern Time.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical fact should be considered
forward-looking statements, including statements about our
expectations regarding our goals, strategies, priorities and
initiatives, including our Optimization Plan and key strategic
priorities; sales and profitability improvements; expectations
regarding new store openings and relocations; anticipated financial
performance and tax rate for fiscal 2017; and anticipated charges
and savings in connection with our Optimization Plan.
These forward-looking statements are based on management’s
current expectations. These statements are neither promises nor
guarantees, but involve known and unknown risks, uncertainties and
other important factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements, including, but not limited to, the
following: our Optimization Plan may not result in improved sales
and profitability; our inability to open or relocate new stores, or
remodel existing stores, in the timeframe and at the locations we
anticipate; overall decline in the health of the economy, consumer
spending, and the housing market; our operating and financial
performance in a given period may not meet the guidance we provided
to the public; our inability to manage costs and risks relating to
new store openings; our inability to source and market new products
to meet consumer preferences; our failure to achieve or maintain
profitability; our dependence on a single distribution center for
all of our stores; effects of a security breach or cyber-attack of
our website or information technology systems; our vulnerability to
natural disasters and other unexpected events; our reliance upon
independent third party transportation providers; our inability to
protect our brand; our failure to successfully anticipate consumer
preferences and demand; our inability to manage our growth;
inability to locate available retail store sites on terms
acceptable to us; our inability to maintain sufficient levels of
cash flow to meet growth expectations; disruptions in the global
financial markets leading to difficulty in borrowing sufficient
amounts of capital to finance the carrying costs of inventory to
pay for capital expenditures and operating costs; fluctuations in
currency exchange rates; our inability to effectively manage our
online sales; competition from other stores and internet based
competition; our inability to obtain merchandise on a timely basis
at competitive prices as a result of changes in vendor
relationships; vendors may sell similar or identical products to
our competitors; our reliance on key executive management, and the
transition in our executive leadership; our inability to find,
train and retain key personnel; labor relations difficulties;
increases in health care costs and labor costs; our dependence on
foreign imports for our merchandise; violations of the U.S. Foreign
Corrupt Practices Act and similar worldwide anti bribery and
anti-kickback laws; and our indebtedness may restrict our current
and future operations.
These and other important factors discussed under the caption
“Risk Factors” in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission, or SEC, on June 1, 2017,
and our other reports filed with the SEC could cause actual results
to differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management’s estimates as of the date of this
press release. While we may elect to update such forward-looking
statements at some point in the future, we disclaim any obligation
to do so, even if subsequent events cause our views to change.
These forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the date of
this press release.
About The Container Store
The Container Store (NYSE: TCS) is the nation’s leading retailer
of storage and organization products — a concept they originated in
1978. Today, with locations nationwide, the retailer offers more
than 11,000 products designed to maximize any size space, a suite
of custom closet systems, and a wide variety of convenient online
and mobile shopping services. Visit www.containerstore.com for more
information about store locations, the product collection and
services offered. Visit www.containerstore.com/blog for inspiration
and real solutions to everyday storage challenges, and
www.whatwestandfor.com to learn more about the company’s unique
culture.
The Container Store Group, Inc.
Consolidated balance sheets (unaudited)
(In thousands, except share and per
share amounts) September 30, April 1, October
1, 2017 2017 2016
Assets Current assets: Cash $10,145 $10,736 $9,329 Accounts
receivable, net 26,083 27,476 27,896 Inventory 109,277 103,120
112,916 Prepaid expenses 11,519 10,550 10,368 Income taxes
receivable 1,456 16 - Other current assets 13,021
10,787 8,546 Total current assets 171,501
162,685 169,055 Noncurrent assets: Property and equipment, net
162,884 165,498 172,324 Goodwill 202,815 202,815 202,815 Trade
names 230,482 226,685 228,360 Deferred financing costs, net 335 320
366 Noncurrent deferred tax assets, net 2,240 2,139 1,286 Other
assets 1,696 1,692 1,659 Total
noncurrent assets 600,452 599,149
606,810 Total assets $771,953 $761,834
$775,865
Liabilities and
shareholders’ equity Current liabilities: Accounts payable
$61,224 $44,762 $60,287 Accrued liabilities 64,144 60,107 56,924
Revolving lines of credit - - 1,550 Current portion of long-term
debt 9,345 5,445 5,506 Income taxes payable 960 2,738
383 Total current liabilities 135,673 113,052
124,650 Noncurrent liabilities: Long-term debt 301,296 312,026
325,974 Noncurrent deferred tax liabilities, net 79,091 80,679
81,123 Deferred rent and other long-term liabilities 33,012
34,287 33,653 Total noncurrent
liabilities 413,399 426,992 440,750
Total liabilities 549,072 540,044 565,400
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000
shares authorized;48,063,222 shares issued at September 30,
2017;48,045,114 shares issued at April 1, 2017;47,995,450 shares
issued at October 1, 2016
481 480 480 Additional paid-in capital 860,196 859,102 857,816
Accumulated other comprehensive loss (14,095 ) (22,643 ) (19,212 )
Retained deficit (623,701 ) (615,149 ) (628,619 )
Total shareholders’ equity 222,881 221,790
210,465 Total liabilities and shareholders’ equity
$771,953 $761,834 $775,865
The Container Store
Group, Inc. Consolidated statements of operations
(unaudited) (In thousands, except share and
per share amounts) Thirteen Weeks Ended
Twenty-Six Weeks Ended September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Net sales $218,410 $205,060 $401,478 $382,508 Cost of sales
(excluding depreciation and amortization) 92,036
86,705 171,494 159,458 Gross profit 126,374 118,355
229,984 223,050 Selling, general, and administrative expenses
(excluding depreciation and amortization) 106,332 95,518 202,972
187,831 Stock-based compensation 510 391 1,004 756 Pre-opening
costs 1,418 2,544 2,804 3,640 Depreciation and amortization 9,505
9,478 19,047 18,825 Other expenses 623 108 4,157 657 Loss on
disposal of assets 102 44 153 41 Income
(loss) from operations 7,884 10,272 (153 ) 11,300 Interest expense,
net 5,873 4,205 10,098 8,315 Loss on extinguishment of debt 2,369
- 2,369 - (Loss) income before taxes
(358 ) 6,067 (12,620 ) 2,985 Provision (benefit) for income taxes
517 2,526 (4,068 ) 1,501 Net (loss) income
$(875 ) $3,541 $(8,552 ) $1,484 Net (loss) income per common
share - basic and diluted $(0.02 ) $0.07 $(0.18 ) $0.03
Weighted-average common shares outstanding - basic 48,058,231
47,991,445 48,053,084 47,989,210 Weighted-average common shares
outstanding - diluted 48,058,231 48,001,112 48,053,084 47,995,766
The Container Store Group, Inc.
Consolidated statements of cash flows (unaudited)
Twenty-Six Weeks Ended
(In thousands) September 30, 2017
October 1, 2016
Operating activities Net (loss) income $(8,552
) $1,484 Adjustments to reconcile net (loss) income to net cash
provided by operating activities: Depreciation and amortization
19,047 18,825 Stock-based compensation 1,004 756 Loss on disposal
of property and equipment 153 41 Loss on extinguishment of debt
2,369 - Deferred tax (benefit) provision (4,338 ) 37 Noncash
interest 1,146 960 Other 283 (145 ) Changes in operating assets and
liabilities: Accounts receivable 2,599 (6,340 ) Inventory (2,259 )
(28,031 ) Prepaid expenses and other assets (1,312 ) 6,633 Accounts
payable and accrued liabilities 17,808 22,489 Income taxes (3,261 )
1,304 Other noncurrent liabilities (1,731 ) (4,595 ) Net
cash provided by operating activities 22,956 13,418
Investing activities Additions to property and equipment
(13,129 ) (15,214 ) Proceeds from sale of property and equipment 18
7 Net cash used in investing activities
(13,111 ) (15,207 )
Financing activities Borrowings
on revolving lines of credit 19,694 24,166 Payments on revolving
lines of credit (19,694 ) (26,192 ) Borrowings on long-term debt
330,000 20,000 Payments on long-term debt (329,551 ) (15,760 )
Payment of taxes with shares withheld upon restricted stock vesting
(39 ) - Payment of debt issuance costs (11,234 ) -
Net cash (used in) provided by financing activities (10,824 ) 2,214
Effect of exchange rate changes on cash 388 95
Net (decrease) increase in cash (591 ) 520 Cash at beginning
of period 10,736 8,809 Cash at end of period
$10,145 $9,329 Supplemental information for non-cash
investing and financing activities: Purchases of property and
equipment (included in accounts payable) $945 $817 Capital lease
obligation incurred $91 $620
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 diluted share, and Adjusted
EBITDA. The Company has reconciled these non-GAAP financial
measures with the most directly comparable GAAP financial measures
in a table accompanying this release. These non-GAAP measures
should not be considered as alternatives to net income (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 these
non-GAAP measures because it believes they assist investors in
comparing the Company’s performance across reporting periods on a
consistent basis by excluding items that the Company does not
believe are indicative of its core operating performance and
because the Company believes it is useful for investors to see the
measures that management uses to evaluate the Company. These
non-GAAP measures are also frequently used by analysts, investors
and other interested parties to evaluate companies in the Company’s
industry. In evaluating these non-GAAP measures, you should be
aware that in the future the Company will incur expenses that are
the same as or similar to some of the adjustments in this
presentation. The Company’s presentation of these non-GAAP measures
should not be construed to imply that its future results will be
unaffected by any such adjustments. Management compensates for
these limitations by relying on our GAAP results in addition to
using non-GAAP measures supplementally. These non-GAAP measures are
not necessarily comparable to other similarly titled captions of
other companies due to different methods of calculation.
The Company defines adjusted net income (loss) as net income
(loss) available to common shareholders before distributions
accumulated to preferred shareholders, stock-based compensation and
other costs in connection with our IPO, charges related to an Elfa
manufacturing facility closure, impairment charges related to
intangible assets, losses on extinguishment of debt, certain gains
on disposal of assets, certain management transition costs incurred
and benefits realized, charges incurred as part of the
implementation of our Optimization Plan, and the tax impact of
these adjustments and other unusual or infrequent tax items. We
define adjusted net income (loss) per diluted share 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 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 (loss) and adjusted net
income (loss) per diluted share because we believe they assist
investors in comparing our performance across reporting periods on
a consistent basis by excluding items that we do not believe are
indicative of our core operating performance and because we believe
it is useful for investors to see the measures that management uses
to evaluate the Company.
We have included a presentation of adjusted net income (loss)
for the thirteen and twenty-six weeks ended October 1, 2016 to show
the net impact of the amended and restated employment agreements
entered into with key executives during the twenty-six weeks ended
October 1, 2016 (“management transition costs (benefits)”).
Although we disclosed the net positive impact of the amended and
restated employment agreements in our discussions of earnings per
share and SG&A in our earnings press releases in fiscal 2016,
we did not include in those press releases a presentation of
adjusted net income. However, in the thirteen and twenty-six weeks
ended September 30, 2017, our Optimization Plan has caused us to
incur similar charges that we believe are not indicative of our
core operating performance, and we expect to continue to incur such
charges in the remainder of fiscal 2017. As a result, we believe
that adjusting net income in the thirteen and twenty-six weeks
ended October 1, 2016 for management transition costs (benefits),
in addition to adjusting net loss for the thirteen and twenty-six
weeks ended September 30, 2017 for charges incurred as part of the
implementation of our Optimization Plan will assist investors in
comparing our core operating performance across reporting periods
on a consistent basis. Likewise, we believe that presenting full
year fiscal 2017 adjusted net income guidance and fiscal 2016
adjusted net income as a comparative measure, will assist investors
in evaluating our anticipated financial performance as it relates
to our core operations.
The Company defines EBITDA as net income before interest, taxes,
depreciation, and amortization. Adjusted EBITDA is calculated in
accordance with its credit facilities and is one of the components
for performance evaluation under its executive compensation
programs. Adjusted EBITDA reflects further adjustments to EBITDA to
eliminate the impact of certain items, including certain non-cash
and other items that the Company does not consider in its
evaluation of ongoing operating performance from period to period
as discussed further below. The Company uses Adjusted EBITDA in
connection with covenant compliance and executive performance
evaluations, and to supplement GAAP measures of performance to
evaluate the effectiveness of its business strategies, to make
budgeting decisions and to compare its performance against that of
other peer companies using similar measures. The Company believes
it is useful for investors to see the measures that management uses
to evaluate the Company, its executives and its covenant
compliance. EBITDA and Adjusted EBITDA are also frequently used by
analysts, investors and other interested parties to evaluate
companies in the Company’s industry.
The Container Store Group, Inc. Supplemental Information
- Reconciliation of GAAP to Non-GAAP Financial Measures(In
thousands, except share and per share
amounts)(unaudited)
The table below reconciles the non-GAAP financial measures of
adjusted net income (loss) and adjusted net income (loss) per
diluted share with the most directly comparable GAAP financial
measures of GAAP net (loss) income and GAAP net (loss) income per
diluted share.
Thirteen Weeks Ended
Twenty-Six Weeks Ended Fiscal Year 2017 Outlook
Fiscal Year Ended
September 30, 2017
October 1, 2016
September 30, 2017
October 1, 2016
Low
High
April 1, 2017
Numerator: Net (loss) income $(875 ) $3,541 $(8,552 ) $1,484 $5,600
$10,900 $14,953
Management transition costs (a)
- 108 - (3,253 ) - - (2,852 ) Elfa manufacturing facility closure
(b) 517 - 517 - 1,000 1,000 - Loss on extinguishment of debt (c)
2,369 - 2,369 - 2,369 2,369 - Optimization Plan implementation
charges (d) 6,786 - 10,320 - 11,000 11,000 - Taxes (e) (3,253 )
4 (4,584 ) 1,193 (5,069 )
(5,069 ) 1,292 Adjusted net income (loss) $5,544
$3,653 $70 $(576 ) $14,900 $20,200 $13,393 Denominator:
Weighted average common shares outstanding – diluted 48,058,231
48,001,112 48,053,084 47,995,766 49,000,000 49,000,000 48,016,010
Net (loss) income per common share - diluted $(0.02 ) $0.07
$(0.18 ) $0.03 $0.11 $0.22 $0.31 Adjusted net income (loss) per
common share - diluted $0.12 $0.08 $0.00 $(0.01 ) $0.30 $0.41 $0.28
(a) Certain management transition costs
incurred and benefits realized, including the impact of amended and
restated employment agreements entered into with key executives
during fiscal 2016, which resulted in the reversal of accrued
deferred compensation associated with the original employment
agreements, net of costs incurred to execute the agreements,
partially offset by cash severance payments, which we do not
consider in our evaluation of ongoing performance. (b)
Charges related to the expected closure of an Elfa manufacturing
facility in Lahti, Finland in December 2017, recorded in other
expenses, which we do not consider in our evaluation of our ongoing
performance. (c) Loss recorded as a result of the amendments
made to the Senior Secured Term Loan Facility and the Revolving
Credit Facility in August 2017, which we do not consider in our
evaluation of our ongoing operations. (d) Charges incurred
to implement our Optimization Plan, which includes certain
consulting costs recorded in selling, general and administrative
expenses, cash severance payments associated with the elimination
of certain full-time positions at the TCS segment recorded in other
expenses, and cash severance payments associated with
organizational realignment at the Elfa segment recorded in other
expenses, which we do not consider in our evaluation of ongoing
performance. (e) Tax impact of adjustments to net (loss)
income, which we do not consider in our evaluation of ongoing
performance.
The table below reconciles the non-GAAP financial measure
Adjusted EBITDA with the most directly comparable GAAP financial
measure of GAAP net (loss) income.
Thirteen Weeks Ended Twenty-Six Weeks
Ended September 30,
2017
October 1,
2016
September 30,
2017
October 1,
2016
Net (loss) income $(875 ) $3,541 $(8,552 ) $1,484
Depreciation and amortization 9,505 9,478 19,047 18,825 Interest
expense, net 5,873 4,205 10,098 8,315 Provision (benefit) for
income taxes 517 2,526 (4,068 ) 1,501
EBITDA $15,020 $19,750 $16,525 $30,125 Pre-opening costs (a) 1,418
2,544 2,804 3,640 Non-cash rent (b) (276 ) (254 ) (737 ) (672 )
Stock-based compensation (c) 510 391 1,004 756 Loss on
extinguishment of debt (d) 2,369 - 2,369 - Foreign exchange losses
(gains) (e) 130 (306 ) 54 (264 ) Optimization Plan implementation
charges (f) 6,786 - 10,320 - Elfa manufacturing facility closure
(g) 517 - 517 - Other adjustments (h) 42 175
90 747 Adjusted EBITDA $26,516 $22,300 $32,946
$34,332 (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 amendments made to the Senior Secured Term Loan
Facility and the Revolving Credit Facility in August 2017, which we
do not consider in our evaluation of our ongoing operations.
(e) Realized foreign exchange transactional gains/losses our
management does not consider in our evaluation of our ongoing
operations. (f) Charges incurred to implement our
Optimization Plan, which include certain consulting costs recorded
in selling, general and administrative expenses, cash severance
payments associated with the elimination of certain full-time
positions at the TCS segment recorded in other expenses, and cash
severance payments associated with organizational realignment at
the Elfa segment recorded in other expenses, which we do not
consider in our evaluation of ongoing performance. (g)
Charges related to the expected closure of an Elfa manufacturing
facility in Lahti, Finland in December 2017, recorded in other
expenses, which we do not consider in our evaluation of our ongoing
performance. (h) Other adjustments include amounts our
management does not consider in our evaluation of our ongoing
operations, including certain severance and other charges.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171107006507/en/
Investors:ICR, Inc.Farah Soi/Shannon
Devine203-682-8200Farah.Soi@icrinc.comShannon.Devine@icrinc.comorMedia:The
Container Store Group, Inc.Mara Richter,
972-538-6893publicrelations@containerstore.com
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