Consolidated Net Sales up 3.1%; Comparable
Sales down 0.2%GAAP EPS of $0.59; Adjusted EPS of
$0.11Narrows Fiscal 2017 Outlook Ranges
The Container Store Group, Inc. (NYSE: TCS) (the
“Company”), today announced financial results for the third quarter
of fiscal 2017 ended December 30, 2017.
- Consolidated net sales were $223.0
million, up 3.1%. Net sales in The Container Store retail business
(“TCS”) were $203.9 million, up 2.4%. Elfa International AB
(“Elfa”) third-party net sales were $19.1 million, up 10.5%,
primarily due to the positive impact of foreign currency
translation.
- Comparable store sales for the third
quarter of fiscal 2017 decreased 0.2%, with holiday departments’
sales contributing an approximate 1.0% decline.
- Consolidated net income per share
(“EPS”) was $0.59, inclusive of a $0.50 per share provisional
benefit from the Tax Cuts and Jobs Act (“Tax Act”), compared with
$0.11 in the third quarter of fiscal 2016. Adjusted net income per
share (“Adjusted EPS”) was $0.11 compared with $0.11 in the third
quarter of fiscal 2016 (see Reconciliation of GAAP to Non-GAAP
Financial Measures table).
- The Company opened three stores,
inclusive of one relocation, in the third quarter of fiscal 2017,
and had 90 stores at the end of the third quarter of fiscal 2017,
as compared to 86 stores as of December 31, 2016.
Melissa Reiff, Chief Executive Officer, stated, “In the fiscal
third quarter we made further progress with our core Custom Closets
offering and delivered continued improvement in all of our
non-closet categories, with the exception of our holiday
departments, which typically represent a small percentage of our
annual sales, but historically have had a notable impact on our
fiscal third quarter sales. While the softness in our holiday
categories is disappointing, we were prudent in our buying for
holiday and disciplined in selling through the related inventory,
as evidenced by our strong gross margin performance and healthy
ending inventory position. With the holiday season behind us, and
with a strong start to Our Annual elfa® Sale that has continued
into the fiscal fourth quarter, we expect comparable store sales in
the fiscal fourth quarter to improve from the fiscal third quarter,
as reflected in our implied fiscal fourth quarter comparable store
sales outlook of flat to up low single digits.”
“We are also very pleased with the progress being made on each
of our key strategic priorities. Given our year-to-date
performance, as well as the expected impact of the Tax Act, we have
narrowed our outlook ranges for fiscal 2017 and look forward to
building on this progress as we close out the fiscal year,”
concluded Reiff.
Third Quarter 2017
Results
For the third quarter (thirteen weeks) ended December 30,
2017:
- Consolidated net sales were $223.0
million, up 3.1% as compared to the third quarter of fiscal 2016.
Net sales at TCS were $203.9 million, up 2.4%, with the increase
driven by new store net sales, partially offset by a 0.2% decrease
in net sales from comparable stores. Elfa third-party net sales
were $19.1 million, up 10.5% compared to the third quarter of
fiscal 2016, primarily due to the positive impact of foreign
currency translation, which increased third-party net sales by
8.3%, as well as higher sales in Russia.
- Consolidated gross margin was 58.6%, an
increase of 50 basis points compared to the third quarter of fiscal
2016. TCS gross margin increased 110 basis points to 58.1%, as
lower cost of goods associated with the Optimization Plan and the
benefit of favorable foreign currency contracts were partially
offset by higher costs associated with our installation services
business during the quarter. Elfa segment gross margin declined 150
basis points primarily due to higher direct materials costs. On a
consolidated basis, gross margin increased 50 basis points as the
increase in TCS gross margin was partially offset by the decrease
in Elfa gross margin.
- Consolidated selling, general and
administrative expenses (“SG&A”) were $103.9 million compared
to $100.2 million in the third quarter of fiscal 2016 and, as a
percentage of net sales, increased 30 basis points. The increase in
SG&A as a percentage of net sales was primarily due to an
increase in marketing and technology-related expenses, as well as
deleveraging of occupancy costs associated with comparable store
net sales declines during the quarter, partially offset by ongoing
savings and efficiency efforts.
- Consolidated net interest expense
increased 77.2% to $7.3 million in the third quarter of fiscal 2017
from $4.1 million in the third quarter of fiscal 2016 due to the
previously announced amendment of our Senior Secured Term Loan
Facility in August 2017, which increased the applicable interest
rate margins.
- The effective tax rate for the third
quarter of fiscal 2017 was -330.1%, as compared to 39.7% in the
third quarter of fiscal 2016. The decrease in the effective
tax rate was primarily due to the initial estimated impact of the
Tax Act enacted in the third quarter of fiscal 2017, which was
largely driven by the remeasurement of deferred tax balances.
- Consolidated net income was $28.4
million, or $0.59 per share (inclusive of $0.50 per share
provisional benefit from the Tax Act), in the third quarter of
fiscal 2017 compared to net income of $5.1 million, or $0.11 per
share, in the third quarter of fiscal 2016.
- Consolidated adjusted net income was
$5.1 million, or $0.11 per share, in the third quarter of fiscal
2017 compared to adjusted net income of $5.2 million, or $0.11 per
share in the third quarter of fiscal 2016 (see Reconciliation of
GAAP to Non-GAAP Financial Measures table).
- Consolidated Adjusted EBITDA was $25.6
million, compared to $25.3 million in the third quarter of fiscal
2016 (see Reconciliation of GAAP to Non-GAAP Financial Measures
table).
For the year-to-date (thirty-nine weeks) ended December 30,
2017:
- Consolidated net sales were $624.5
million, up 4.3% as compared to the first thirty-nine weeks of
fiscal 2016. Net sales at TCS were $573.3 million, up 4.3%,
primarily due to new store sales, combined with a 0.2% increase in
net sales from comparable stores. Elfa third-party net sales were
$51.2 million, up 3.5% compared to the year-to-date ended December
31, 2016, primarily due to the positive impact of foreign currency
translation, which increased third-party net sales by 2.1%, as well
as higher sales in Russia.
- Consolidated gross margin was 57.7%, a
decrease of 50 basis points compared to the first thirty-nine weeks
of fiscal 2016 due to decreases in gross margin at TCS and Elfa.
TCS gross margin declined 30 basis points to 57.3%, primarily due
to higher costs associated with our installation services business
and a greater portion of sales generated by merchandise campaigns,
partially offset by lower cost of goods associated with the
Optimization Plan. Elfa segment gross margin declined 150
basis points primarily due to higher direct materials costs.
- Consolidated selling, general and
administrative expenses (“SG&A”) were $306.9 million compared
to $288.0 million in the first thirty-nine weeks of fiscal 2016.
SG&A as a percentage of net sales increased 100 basis points
primarily due to consulting costs incurred as part of the
Optimization Plan, which contributed 105 basis points to the
increase in the first thirty-nine weeks of fiscal 2017.
Additionally, the impact of the amended and restated employment
agreements entered into with key executives during the first half
of fiscal 2016, which led to the reversal of accrued deferred
compensation associated with the original employment agreements,
net of costs incurred to execute the agreements, contributed a 65
basis points benefit in first thirty-nine weeks of fiscal 2016.
This combined 170 basis point increase period-over-period was
partially offset by a 70 basis point improvement in SG&A as a
percentage of net sales, primarily due to ongoing savings and
efficiency efforts, inclusive of savings from the Optimization
Plan, as well as lower self-insurance costs, partially offset by
increased occupancy costs and an increase in marketing and
technology-related expenses.
- Consolidated net interest expense
increased 39.9% to $17.4 million in the first thirty-nine weeks of
fiscal 2017 from $12.4 million in the first thirty-nine weeks of
fiscal 2016 due to the previously announced amendment of our Senior
Secured Term Loan Facility in August 2017, which increased the
applicable interest rate margins. Additionally, the Company
recorded $2.4 million as a loss on extinguishment of debt as a
result of the amendment to the Senior Secured Term Loan
Facility.
- The effective tax rate was 429.3%, as
compared to 42.5% in the first thirty-nine weeks of fiscal 2016.
The increase in the effective tax rate is primarily due to the
initial estimated impact of the Tax Act enacted in the third
quarter of fiscal 2017, which was largely driven by the
remeasurement of deferred tax balances, combined with the impact of
a pre-tax loss position in the thirty-nine weeks ended December 30,
2017, as compared to a pre-tax income position in the thirty-nine
weeks ended December 31, 2016.
- Consolidated net income was $19.8
million, or $0.41 per share (inclusive of $0.50 per share
provisional benefit from the Tax Act), in the first thirty-nine
weeks of fiscal 2017 compared to net income of $6.6 million, or
$0.14 per share, in the first thirty-nine weeks of fiscal
2016.
- Consolidated adjusted net income was
$5.2 million, or $0.11 per share, in the first thirty-nine weeks of
fiscal 2017 compared to adjusted net income of $4.7 million, or
$0.10 per share in the first thirty-nine weeks of fiscal 2016 (see
Reconciliation of GAAP to Non-GAAP Financial Measures table).
- Consolidated Adjusted EBITDA was $58.5
million in the first thirty-nine weeks of fiscal 2017 compared to
$59.7 million in the first thirty-nine weeks of fiscal 2016 (see
Reconciliation of GAAP to Non-GAAP Financial Measures table). The
Adjusted EBITDA of $59.7 million in the first thirty-nine weeks of
fiscal 2016 included a benefit from the impact of amended and
restated employment agreements entered into with key executives
during the first quarter of 2016, net of costs incurred to execute
the agreements, of $3.9 million.
Balance sheet highlights:
(In thousands)
December 30, 2017 December 31, 2016
Cash
$22,653 $18,491 Total debt $314,103 $338,290 Liquidity* $102,636
$106,384 *Cash plus availability on revolving
credit facilities
Optimization Plan
In May 2017, the Company announced the implementation of a
four-part Optimization Plan to drive improved sales and
profitability. This plan includes sales initiatives, certain
full-time position eliminations at TCS that were concluded in the
fiscal first quarter, organizational realignment at Elfa and
ongoing savings and efficiency efforts. The Company expects to
incur pre-tax charges associated with the Optimization Plan of
approximately $11 million in fiscal 2017, or $0.15 on a per share
basis. The expected annualized pre-tax savings associated with the
Optimization Plan continue to be approximately $20 million, of
which approximately $12 to $14 million, or $0.16 to $0.19 on a per
share basis, is now expected to be realized in fiscal 2017, for an
estimated net benefit of approximately $0.01 to $0.04 on a per
share basis.
Outlook
The Company is revising its outlook for fiscal 2017 to
incorporate year-to-date fiscal 2017 actual results, as well as the
impact of the Tax Act, which was enacted in the third quarter of
fiscal 2017.
Current Outlook Prior Outlook
Net sales $850 million to $860 million $845 million
to $865 million Net new store openings 4 4 Comparable store sales
0% to increase 1% Decrease 1% to increase 1% Net income per common
share(1) $0.60 to $0.66(2) $0.11 to $0.22 Adjusted net income per
common share(3) $0.31 to $0.37 $0.30 to $0.41 Assumed tax rate
35%(4) 39% Estimated share count 49 million 49
million (1) Includes the aforementioned Optimization Plan costs and
benefits. (2) Includes a $0.50 per share provisional benefit
related to the remeasurement of deferred tax balances as well as a
$0.01 to $0.02 per share tax benefit related to the reduction in
the statutory rate from the Tax Act. Does not include any
provisional amounts for the one-time transition tax on foreign
earnings as the Company is not able to determine a reasonable
estimate. (3) See Reconciliation of GAAP to Non-GAAP Financial
Measures Table. (4) Does not include any provisional amounts
recognized for deferred tax balances under the Tax Act or the tax
impact of adjustments to net income (see footnote “e” in
Reconciliation of GAAP to Non-GAAP Financial Measures Table).
Including these items would result in an expected GAAP effective
tax rate of approximately -170% for fiscal 2017. The Company is not
able to estimate any future adjustments to the provisional amount
recognized for the remeasurement of deferred tax balances. The
assumed tax rate also does not include any provisional amounts for
one-time transition taxes on foreign earnings, as the Company is
not able to determinate a reasonable estimate.
Conference Call Information
A conference call to discuss third quarter fiscal 2017 financial
results is scheduled for today February 6, 2018, at 4:30 PM Eastern
Time. Investors and analysts interested in participating in the
call are invited to dial 1-877-407-3982 (international callers
please dial (201) 493-6780) approximately 10 minutes prior to the
start of the call. A live audio webcast of the conference call will
be available online at www.containerstore.com in the investor
relations section of the website.
A taped replay of the conference call will be available within
two hours of the conclusion of the call and can be accessed both
online and by dialing 1-844-512-2921 (international replay number
is 1-412-317-6671). The pin number to access the telephone replay
is 13675601. The replay will be available through March 6, 2018 at
11:59 PM Eastern Time.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical fact should be considered
forward-looking statements, including statements about our
expectations regarding our goals, strategies, priorities and
initiatives, including our Optimization Plan and key strategic
priorities; sales and profitability improvements; expectations
regarding new store openings and relocations; anticipated financial
performance and tax rate for fiscal 2017; anticipated benefits of
tax reform; and anticipated charges and savings in connection with
our Optimization Plan.
These forward-looking statements are based on management’s
current expectations. These statements are neither promises nor
guarantees, but involve known and unknown risks, uncertainties and
other important factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements, including, but not limited to, the
following: our Optimization Plan may not result in improved sales
and profitability; our inability to open or relocate new stores, or
remodel existing stores, in the timeframe and at the locations we
anticipate; overall decline in the health of the economy, consumer
spending, and the housing market; our operating and financial
performance in a given period may not meet the guidance we provided
to the public; our inability to manage costs and risks relating to
new store openings; our inability to source and market new products
to meet consumer preferences; our failure to achieve or maintain
profitability; our dependence on a single distribution center for
all of our stores; effects of a security breach or cyber-attack of
our website or information technology systems; our vulnerability to
natural disasters and other unexpected events; our reliance upon
independent third party transportation providers; our inability to
protect our brand; our failure to successfully anticipate consumer
preferences and demand; our inability to manage our growth;
inability to locate available retail store sites on terms
acceptable to us; our inability to maintain sufficient levels of
cash flow to meet growth expectations; disruptions in the global
financial markets leading to difficulty in borrowing sufficient
amounts of capital to finance the carrying costs of inventory to
pay for capital expenditures and operating costs; fluctuations in
currency exchange rates; our inability to effectively manage our
online sales; competition from other stores and internet based
competition; our inability to obtain merchandise on a timely basis
at competitive prices as a result of changes in vendor
relationships; vendors may sell similar or identical products to
our competitors; our reliance on key executive management, and the
transition in our executive leadership; our inability to find,
train and retain key personnel; labor relations difficulties;
increases in health care costs and labor costs; our dependence on
foreign imports for our merchandise; violations of the U.S. Foreign
Corrupt Practices Act and similar worldwide anti bribery and
anti-kickback laws; effects of tax reform; and our indebtedness may
restrict our current and future operations.
These and other important factors discussed under the caption
“Risk Factors” in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission, or SEC, on June 1, 2017,
and our other reports filed with the SEC could cause actual results
to differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management’s estimates as of the date of this
press release. While we may elect to update such forward-looking
statements at some point in the future, we disclaim any obligation
to do so, even if subsequent events cause our views to change.
These forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the date of
this press release.
About The Container Store
The Container Store (NYSE: TCS) is the nation’s leading retailer
of storage and organization products — a concept they originated in
1978. Today, with locations nationwide, the retailer offers more
than 11,000 products designed to maximize any size space, a suite
of custom closet systems, and a wide variety of convenient online
and mobile shopping services. Visit www.containerstore.com for more
information about store locations, the product collection and
services offered. Visit www.containerstore.com/blog for inspiration
and real solutions to everyday storage challenges, and
www.whatwestandfor.com to learn more about the company’s unique
culture.
The Container Store
Group, Inc.
Consolidated balance sheets
(unaudited)
(In thousands, except share and per share
amounts) December 30, April 1, December
31, 2017 2017 2016
Assets Current assets: Cash $22,653 $10,736 $18,491 Accounts
receivable, net 29,548 27,476 31,344 Inventory 110,391 103,120
109,009 Prepaid expenses 11,668 10,550 10,815 Income taxes
receivable 1,450 16 - Other current assets 10,338
10,787 12,319 Total current assets 186,048
162,685 181,978 Noncurrent assets: Property and equipment, net
160,836 165,498 166,428 Goodwill 202,815 202,815 202,815 Trade
names 230,379 226,685 226,050 Deferred financing costs, net 329 320
343 Noncurrent deferred tax assets, net 2,308 2,139 1,080 Other
assets 1,684 1,692 1,420 Total
noncurrent assets 598,351 599,149
598,136 Total assets $784,399 $761,834
$780,114
Liabilities and
shareholders’ equity Current liabilities: Accounts payable
$53,757 $44,762 $49,057 Accrued liabilities 73,539 60,107 64,552
Current portion of long-term debt 9,465 5,445 5,390 Income taxes
payable 1,690 2,738 4,156 Total
current liabilities 138,451 113,052 123,155 Noncurrent liabilities:
Long-term debt 304,638 312,026 332,900 Noncurrent deferred tax
liabilities, net 56,706 80,679 79,672 Deferred rent and other
long-term liabilities 32,941 34,287
33,020 Total noncurrent liabilities 394,285
426,992 445,592 Total liabilities 532,736
540,044 568,747 Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000
sharesauthorized; 48,072,187 shares issued at December 30,2017;
48,045,114 shares issued at April 1, 2017;48,003,359 shares issued
at December 31, 2016
481 480 480 Additional paid-in capital 860,827 859,102 858,460
Accumulated other comprehensive loss (14,323 ) (22,643 ) (24,047 )
Retained deficit (595,322 ) (615,149 ) (623,526 )
Total shareholders’ equity 251,663 221,790
211,367 Total liabilities and shareholders’ equity
$784,399 $761,834 $780,114
The Container Store
Group, Inc.
Consolidated statements of operations
(unaudited)
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
(In thousands, except share
andper share amounts)
December 30,2017
December 31,2016
December 30,2017
December 31,2016
Net sales $222,986 $216,380 $624,464 $598,888
Cost of sales (excludingdepreciation and
amortization)
92,425 90,678 263,919 250,136 Gross
profit 130,561 125,702 360,545 348,752
Selling, general, andadministrative
expenses(excluding depreciation andamortization)
103,894 100,206 306,866 288,037 Stock-based compensation 585 599
1,589 1,355 Pre-opening costs 1,872 2,918 4,676 6,558 Depreciation
and amortization 9,477 9,236 28,524 28,061 Other expenses 751 182
4,908 839 Loss on disposal of assets 83 - 236
41 Income from operations 13,899 12,561 13,746 23,861
Interest expense, net 7,300 4,119 17,398 12,434 Loss on
extinguishment of debt - - 2,369 -
Income (loss) before taxes 6,599 8,442 (6,021 ) 11,427
(Benefit) provision for incometaxes
(21,780 ) 3,350 (25,848 ) 4,851 Net income $28,379
$5,092 $19,827 $6,576
Net income per common share- basic and
diluted
$0.59 $0.11 $0.41 $0.14
Weighted-average commonshares outstanding
- basic
48,067,754 47,999,535 48,057,974 47,992,652
Weighted-average commonshares outstanding
- diluted
48,167,882 48,022,499 48,128,682
48,002,495
The Container Store
Group, Inc.
Consolidated statements of cash
flows (unaudited)
Thirty-Nine Weeks Ended (In thousands)
December 30,2017
December 31,2016
Operating activities Net income $19,827 $6,576
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 28,524 28,061
Stock-based compensation 1,589 1,355 Loss on disposal of property
and equipment 236 41 Loss on extinguishment of debt 2,369 -
Deferred tax benefit (27,255 ) (1,044 ) Noncash interest 1,905
1,441 Other 326 (135 ) Changes in operating assets and liabilities:
Accounts receivable (727 ) (9,843 ) Inventory (2,665 ) (25,686 )
Prepaid expenses and other assets 233 2,932 Accounts payable and
accrued liabilities 19,627 19,882 Income taxes (2,461 ) 5,089 Other
noncurrent liabilities (2,136 ) (4,794 ) Net cash provided
by operating activities 39,392 23,875
Investing
activities Additions to property and equipment (20,101 )
(21,010 ) Proceeds from sale of property and equipment 19
7 Net cash used in investing activities (20,082 )
(21,003 )
Financing activities Borrowings on
revolving lines of credit 47,054 43,135 Payments on revolving lines
of credit (47,054 ) (46,653 ) Borrowings on long-term debt 335,000
30,000 Payments on long-term debt (331,885 ) (19,121 ) Payment of
taxes with shares withheld upon restricted stock vesting (39 ) -
Payment of debt issuance costs (11,246 ) - Net cash
(used in) provided by financing activities (8,170 ) 7,361
Effect of exchange rate changes on cash 777 (551 )
Net increase in cash 11,917 9,682 Cash at beginning of period
10,736 8,809 Cash at end of period
$22,653 $18,491
Note Regarding Non-GAAP Information
This press release includes financial measures that are not
calculated in accordance with GAAP, including adjusted net income,
adjusted net income per diluted share, and Adjusted EBITDA. The
Company has reconciled these non-GAAP financial measures with the
most directly comparable GAAP financial measures in a table
accompanying this release. These non-GAAP measures should not be
considered as alternatives to net income as a measure of financial
performance or cash flows from operations as a measure of
liquidity, or any other performance measure derived in accordance
with GAAP and they should not be construed as an inference that the
Company’s future results will be unaffected by unusual or
non-recurring items. These non-GAAP measures are key metrics used
by management, the Company’s board of directors, and Leonard Green
and Partners, L.P., its controlling stockholder, to assess its
financial performance. The Company presents these non-GAAP measures
because it believes they assist investors in comparing the
Company’s performance across reporting periods on a consistent
basis by excluding items that the Company does not believe are
indicative of its core operating performance and because the
Company believes it is useful for investors to see the measures
that management uses to evaluate the Company. These non-GAAP
measures are also frequently used by analysts, investors and other
interested parties to evaluate companies in the Company’s industry.
In evaluating these non-GAAP measures, you should be aware that in
the future the Company will incur expenses that are the same as or
similar to some of the adjustments in this presentation. The
Company’s presentation of these non-GAAP measures should not be
construed to imply that its future results will be unaffected by
any such adjustments. Management compensates for these limitations
by relying on our GAAP results in addition to using non-GAAP
measures supplementally. These non-GAAP measures are not
necessarily comparable to other similarly titled captions of other
companies due to different methods of calculation.
The Company defines adjusted net income as net income available
to common shareholders before distributions accumulated to
preferred shareholders, stock-based compensation and other costs in
connection with our IPO, charges related to an Elfa manufacturing
facility closure, impairment charges related to intangible assets,
losses on extinguishment of debt, certain gains on disposal of
assets, certain management transition costs incurred and benefits
realized, charges incurred as part of the implementation of our
Optimization Plan, and the tax impact of these adjustments and
other unusual or infrequent tax items. We define adjusted net
income per diluted share as adjusted net income divided by the
diluted weighted average common shares outstanding. We use adjusted
net income and adjusted net income per diluted share to supplement
GAAP measures of performance to evaluate the effectiveness of our
business strategies, to make budgeting decisions and to compare our
performance against that of other peer companies using similar
measures. We present adjusted net income and adjusted net income
per diluted share because we believe they assist investors in
comparing our performance across reporting periods on a consistent
basis by excluding items that we do not believe are indicative of
our core operating performance and because we believe it is useful
for investors to see the measures that management uses to evaluate
the Company.
We have included a presentation of adjusted net income for the
thirteen and thirty-nine weeks ended December 31, 2016 to show the
net impact of the amended and restated employment agreements
entered into with key executives during the thirty-nine weeks ended
December 31, 2016 (“management transition costs (benefits)”).
Although we disclosed the net positive impact of the amended and
restated employment agreements in our discussions of earnings per
share and SG&A in our earnings press releases in fiscal 2016,
we did not include in those press releases a presentation of
adjusted net income. However, in the thirteen and thirty-nine weeks
ended December 30, 2017, our Optimization Plan has caused us to
incur similar charges that we believe are not indicative of our
core operating performance, and we expect to continue to incur such
charges in the remainder of fiscal 2017. As a result, we believe
that adjusting net income in the thirteen and thirty-nine weeks
ended December 31, 2016 for management transition costs (benefits),
in addition to adjusting net loss for the thirteen and thirty-nine
weeks ended December 30, 2017 for charges incurred as part of the
implementation of our Optimization Plan will assist investors in
comparing our core operating performance across reporting periods
on a consistent basis. Likewise, we believe that presenting full
year fiscal 2017 adjusted net income guidance and fiscal 2016
adjusted net income as a comparative measure, will assist investors
in evaluating our anticipated financial performance as it relates
to our core operations.
The Company defines EBITDA as net income before interest, taxes,
depreciation, and amortization. Adjusted EBITDA is calculated in
accordance with its credit facilities and is one of the components
for performance evaluation under its executive compensation
programs. Adjusted EBITDA reflects further adjustments to EBITDA to
eliminate the impact of certain items, including certain non-cash
and other items that the Company does not consider in its
evaluation of ongoing operating performance from period to period
as discussed further below. The Company uses Adjusted EBITDA in
connection with covenant compliance and executive performance
evaluations, and to supplement GAAP measures of performance to
evaluate the effectiveness of its business strategies, to make
budgeting decisions and to compare its performance against that of
other peer companies using similar measures. The Company believes
it is useful for investors to see the measures that management uses
to evaluate the Company, its executives and its covenant
compliance. EBITDA and Adjusted EBITDA are also frequently used by
analysts, investors and other interested parties to evaluate
companies in the Company’s industry.
The Container Store Group, Inc. Supplemental Information
- Reconciliation of GAAP to Non-GAAP Financial Measures(In
thousands, except share and per share
amounts)(unaudited)
The table below reconciles the non-GAAP financial measures of
adjusted net income and adjusted net income per diluted share with
the most directly comparable GAAP financial measures of GAAP net
income and GAAP net income per diluted share.
Thirteen Weeks Ended Thirty-Nine Weeks
Ended Fiscal Year 2017 Outlook
Fiscal YearEnded
December 30,2017
December 31,2016
December 30,2017
December 31,2016
Low
High
April 1,2017
Numerator: Net income $28,379 $5,092 $19,827 $6,576 $29,400 $32,340
$14,953
Management transitioncosts (a)
- 182 - (3,071 ) - - (2,852 )
Elfa manufacturing facilityclosure (b)
335 - 852 - 1,000 1,000 -
Loss on extinguishment ofdebt (c)
- - 2,369 - 2,369 2,369 -
Optimization Planimplementation charges
(d)
422 - 10,742 - 11,000 11,000 - Taxes (e) (24,053 ) (46 )
(28,637 ) 1,147 (28,579 )
(28,579 ) 1,292 Adjusted net income $5,083 $5,228
$5,153 $4,652 $15,190 $18,130 $13,393 Denominator:
Weighted average commonshares outstanding
– diluted
48,167,882 48,022,499 48,128,682 48,002,495 49,000,000 49,000,000
48,016,010
Net income per commonshare - diluted
$0.59 $0.11 $0.41 $0.14 $0.60 $0.66 $0.31
Adjusted net income percommon share -
diluted
$0.11 $0.11 $0.11 $0.10 $0.31 $0.37 $0.28 (a) Certain
management transition costs incurred and benefits realized,
including the impact of amended and restated employment agreements
entered into with key executives during fiscal 2016, which resulted
in the reversal of accrued deferred compensation associated with
the original employment agreements, net of costs incurred to
execute the agreements, partially offset by cash severance
payments, which we do not consider in our evaluation of ongoing
performance. (b) Charges related to the closure of an Elfa
manufacturing facility in Lahti, Finland in December 2017, recorded
in other expenses, which we do not consider in our evaluation of
our ongoing performance. (c) Loss recorded as a result of the
amendments made to the Senior Secured Term Loan Facility and the
Revolving Credit Facility in August 2017, which we do not consider
in our evaluation of our ongoing operations. (d) Charges incurred
to implement our Optimization Plan, which includes certain
consulting costs recorded in selling, general and administrative
expenses, cash severance payments associated with the elimination
of certain full-time positions at the TCS segment recorded in other
expenses, and cash severance payments associated with
organizational realignment at the Elfa segment recorded in other
expenses, which we do not consider in our evaluation of ongoing
performance. (e) Tax impact of adjustments to net income, as well
as the estimated impact of the Tax Cuts and Jobs Act enacted in the
third quarter of fiscal 2017, which is considered to be an unusual
or infrequent tax item, all of which we do not consider in our
evaluation of ongoing performance.
The table below reconciles the non-GAAP financial measure
Adjusted EBITDA with the most directly comparable GAAP financial
measure of GAAP net income.
Thirteen Weeks Ended Thirty-Nine Weeks
Ended
December 30,2017
December 31,2016
December 30,2017
December 31,2016
Net income $28,379 $5,092 $19,827 $6,576 Depreciation
and amortization 9,477 9,236 28,524 28,061 Interest expense, net
7,300 4,119 17,398 12,434 (Benefit) provision for income taxes
(21,780 ) 3,350 (25,848 ) 4,851 EBITDA $23,376
$21,797 $39,901 $51,922 Pre-opening costs (a) 1,872 2,918 4,676
6,558 Non-cash rent (b) (714 ) (298 ) (1,451 ) (970 ) Stock-based
compensation (c) 585 599 1,589 1,355 Loss on extinguishment of debt
(d) - - 2,369 - Foreign exchange (gains) losses (e) (360 ) 53 (306
) (211 ) Optimization Plan implementation charges (f) 422 - 10,742
- Elfa manufacturing facility closure (g) 335 - 852 - Other
adjustments (h) 45 249 135 996
Adjusted EBITDA $25,561 $25,318 $58,507 $59,650 (a)
Non-capital expenditures associated with opening new stores and
relocating stores, including rent, marketing expenses, travel and
relocation costs, and training costs. We adjust for these costs to
facilitate comparisons of our performance from period to period.
(b) Reflects the extent to which our annual GAAP rent expense has
been above or below our cash rent payment due to lease accounting
adjustments. The adjustment varies depending on the average age of
our lease portfolio (weighted for size), as our GAAP rent expense
on younger leases typically exceeds our cash cost, while our GAAP
rent expense on older leases is typically less than our cash cost.
(c) Non-cash charges related to stock-based compensation programs,
which vary from period to period depending on volume and vesting
timing of awards. We adjust for these charges to facilitate
comparisons from period to period. (d) Loss recorded as a result of
the amendments made to the Senior Secured Term Loan Facility and
the Revolving Credit Facility in August 2017, which we do not
consider in our evaluation of our ongoing operations. (e) Realized
foreign exchange transactional gains/losses our management does not
consider in our evaluation of our ongoing operations. (f) Charges
incurred to implement our Optimization Plan, which include certain
consulting costs recorded in selling, general and administrative
expenses, cash severance payments associated with the elimination
of certain full-time positions at the TCS segment recorded in other
expenses, and cash severance payments associated with
organizational realignment at the Elfa segment recorded in other
expenses, which we do not consider in our evaluation of ongoing
performance. (g) Charges related to the closure of an Elfa
manufacturing facility in Lahti, Finland in December 2017, recorded
in other expenses, which we do not consider in our evaluation of
our ongoing performance. (h) Other adjustments include amounts our
management does not consider in our evaluation of our ongoing
operations, including certain severance and other charges.
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version on businesswire.com: http://www.businesswire.com/news/home/20180206006166/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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