Net Sales up 2.8%; Comparable Store Sales up
1.3%
EPS of $0.07; Adjusted EPS of $0.10
Reiterates Fiscal 2018 Outlook
The Container Store Group, Inc. (NYSE:TCS) (the “Company”),
today announced financial results for the second quarter of fiscal
2018 ended September 29, 2018.
- Consolidated net sales were $224.5
million, up 2.8%. Net sales in The Container Store retail business
(“TCS”) were $208.9 million, up 3.3%. Elfa International AB
(“Elfa”) third-party net sales were $15.6 million, down 3.1% due to
foreign currency translation.
- Consolidated net income and net income
per share (“EPS”) were $3.2 million and $0.07 compared to net loss
of $0.9 million and ($0.02), respectively, in the second quarter of
fiscal 2017. Adjusted net income per share (“Adjusted EPS”) was
$0.10 compared to $0.12 in the second quarter of fiscal 2017 (see
Reconciliation of GAAP to Non-GAAP Financial Measures table). EPS
and Adjusted EPS in the second quarter of fiscal 2018 includes
$0.02 per share of incremental interest expense, and $0.03 per
share in incremental marketing expense related to the brand
campaign launch, when compared to the second quarter of fiscal
2017.
- Adjusted EBITDA, which excludes losses
on extinguishment of debt and Optimization Plan costs, among other
adjustments (see Reconciliation of GAAP to Non-GAAP Financial
Measures table), was $24.3 million compared to $26.5 million in the
prior year period. Consolidated gross margin expansion of 30 basis
points was offset by a 150 basis points increase in consolidated
selling, general and administrative expenses (“SG&A”) resulting
primarily from the expected 100 basis points increase in marketing
expense related to the second quarter brand campaign launch.
“We continued to make progress against our key strategic
initiatives in the second quarter and also completed a debt
refinancing that extends the maturity of our credit facility while
generating approximately $0.07 per share in annualized interest
savings,” said Melissa Reiff, Chief Executive Officer. “To Own
Custom Closets is our number one strategic priority and we saw
continued momentum in our Custom Closets sales in the quarter,
along with strong omni-channel growth and effective digital
marketing campaigns. However, elements of our merchandise campaign
test and learn efforts, mostly around our other product categories,
did not resonate with customers as well as we expected, curtailing
our comparable store sales and earnings performance for the
quarter.”
Reiff added, “Once we cycled the merchandise campaign changes,
we were pleased to see our other product categories return to
positive comparable store sales territory and based on our
year-to-date financial and operational performance, we are
reiterating our full year outlook.”
New and Existing Stores
During the second quarter of fiscal 2018, the Company opened one
new store in Oklahoma City, Oklahoma completing its planned two new
store openings for the fiscal year. The Company relocated its
Tysons Corner, Virginia store on October 20, 2018, and plans to
relocate its Cherry Creek store in Denver, Colorado on November 10,
2018.
Second Quarter Fiscal 2018
Results
For the second quarter (thirteen weeks) ended
September 29, 2018:
- Consolidated net sales were $224.5
million, up 2.8% as compared to the second quarter of fiscal 2017.
Net sales at TCS were $208.9 million, up 3.3%, with the increase
driven by incremental sales from new stores, as well as a
comparable store sales increase of 1.3%. Elfa third-party net sales
were $15.6 million, down 3.1% compared to the second quarter ended
September 30, 2017, due to the negative impact of foreign
currency translation during the quarter which decreased third-party
net sales by 9.3%, partially offset by higher sales in Nordic
markets.
- Consolidated gross margin was 58.2%, an
increase of 30 basis points compared to the second quarter of
fiscal 2017. TCS gross margin increased 70 basis points to
57.8%, primarily due to lower cost of goods associated with the
Optimization Plan, partially offset by higher promotional
activities and increased costs associated with shipping services.
Elfa gross margin declined 330 basis points primarily due to higher
direct materials costs attributable to a shift in product mix and a
weaker Swedish krona.
- Consolidated SG&A expense decreased
by 0.6% to $105.7 million from $106.3 million in the second quarter
of fiscal 2017. SG&A as a percentage of net sales
decreased 160 basis points. This was primarily due to consulting
costs incurred as part of the implementation of the Optimization
Plan in the second quarter of fiscal 2017, which contributed 310
basis points to the decrease in the second quarter of fiscal 2018.
The decrease was partially offset by a 150 basis points increase in
SG&A expense as a percentage of net sales primarily due to
increased marketing expense associated with the branding campaign
launch in the second quarter of fiscal 2018, as well as higher
payroll and self-insurance costs.
- Pre-opening costs decreased to $0.9
million in the second quarter of fiscal 2018 compared to $1.4
million in the second quarter of fiscal 2017. The decrease is
primarily due to the incurrence of pre-opening costs in the second
quarter of fiscal 2017 for two stores that opened early in the
third quarter of fiscal 2017. The Company opened one new store in
each of the second quarters of fiscal 2018 and 2017.
- Consolidated net interest expense
increased 25.6% to $7.4 million in the second quarter of fiscal
2018 from $5.9 million in the second quarter of fiscal 2017. In
September 2018, the Company amended its Senior Secured Term Loan
Facility, which decreased the applicable interest rate margins.
This amendment partly offset the effects of a previous amendment in
August 2017, which increased the applicable interest rate margins.
Additionally, the Company recorded a loss on extinguishment of debt
of $2.1 million and $2.4 million in the second quarters of fiscal
2018 and 2017, respectively, as a result of the amendments to the
Senior Secured Term Loan Facility.
- The effective tax rate was 30.4%, as
compared to -144.4% in the second quarter of fiscal 2017. The
increase in the effective tax rate is primarily due to the impact
of a pre-tax income position in the second quarter of fiscal 2018,
as compared to a pre-tax loss position in the second quarter of
fiscal 2017.
- Net income was $3.2 million, or $0.07
per share, in the second quarter of fiscal 2018 compared to net
loss of $0.9 million, or ($0.02) per share in the second quarter of
fiscal 2017. Adjusted net income was $4.7 million, or $0.10 per
share, in the second quarter of fiscal 2018 compared to adjusted
net income of $5.5 million, or $0.12 per share in the second
quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP
Financial Measures table).
- Adjusted EBITDA was $24.3 million in
the second quarter of fiscal 2018 compared to $26.5 million in the
second quarter of fiscal 2017 (see Reconciliation of GAAP to
Non-GAAP Financial Measures table).
For the year-to-date (twenty-six weeks) ended
September 29, 2018:
- Consolidated net sales were $420.3
million, up 4.7% as compared to the first half of fiscal 2017. Net
sales at TCS were $389.0 million, up 5.3%, with the increase driven
by a comparable store sales increase of 2.9%, as well as
incremental sales from new stores. Elfa third-party net sales were
$31.3 million, down 2.5% compared to the first half of fiscal 2017,
due to the negative impact of foreign currency translation which
decreased third-party net sales by 3.7%, partially offset by higher
sales in Nordic markets.
- Consolidated gross margin was 58.4%, an
increase of 110 basis points compared to the first half of fiscal
2017. TCS gross margin increased 110 basis points to 57.9%,
primarily due to lower cost of goods associated with the
Optimization Plan, partially offset by increased costs associated
with shipping services and higher promotional activities. Elfa
gross margin declined 260 basis points primarily due to higher
direct materials costs attributable to a shift in product mix and a
weaker Swedish krona.
- Consolidated SG&A expense increased
by 4.6% to $212.3 million from $203.0 million in the first half of
fiscal 2017. SG&A as a percentage of net sales decreased
10 basis points. The Company incurred consulting costs as part of
the implementation of the Optimization Plan in each of the first
twenty-six weeks of fiscal 2018 and 2017; however, we incurred less
of these consulting costs in the first half of fiscal 2018, which
contributed 50 basis points to the decrease in SG&A as a
percentage of net sales. The decrease was partially offset by a 40
basis points increase in SG&A expense as a percentage of
net sales primarily due to increased marketing expense associated
with the branding campaign launch in the second quarter of fiscal
2018.
- Pre-opening costs decreased to $1.2
million in the first half of fiscal 2018 compared to $2.8 million
in the first half of fiscal 2017. The decrease is primarily due to
the incurrence of pre-opening costs in the first half of fiscal
2017 for two stores that opened early in the third quarter of
fiscal 2017. The Company opened two new stores in each of the first
twenty-six weeks of fiscal 2018 and 2017.
- Other expenses decreased to $0.2
million in the first half of fiscal 2018 compared to $4.2 million
in the first half of fiscal 2017. The decrease is primarily due to
severance costs incurred in the first half of fiscal 2017 to
implement the Optimization Plan.
- Consolidated net interest expense
increased 51.4% to $15.3 million in the first half of fiscal 2018
from $10.1 million in the first half of fiscal 2017 due to the
amendment of our Senior Secured Term Loan Facility in the second
quarter of fiscal 2017, which increased the applicable interest
rate margins.
- The effective tax rate was 36.9%, as
compared to 32.2% in the first half of fiscal 2017. The
increase in the effective tax rate is primarily due to the benefit
for the remeasurement of deferred tax balances recorded in the
first quarter of fiscal 2018 as a result of a change in the Swedish
tax rate.
- Net loss was $3.5 million, or ($0.07)
per share, in the first half of fiscal 2018 compared to net loss of
$8.6 million, or ($0.18) per share in the first half of fiscal
2017. Adjusted net income was $0.7 million, or $0.02 per share, in
the first half of fiscal 2018 compared to adjusted net income of
$0.1 million, or $0.00 per share in the first half of fiscal 2017
(see Reconciliation of GAAP to Non-GAAP Financial Measures
table).
- Adjusted EBITDA was $36.7 million in
the first half of fiscal 2018 compared to $32.9 million in the
first half of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP
Financial Measures table).
Balance sheet and liquidity
highlights:
(In thousands)
September 29,2018
September 30,2017
Cash $ 7,212 $ 10,145 Total debt, net of deferred financing costs $
290,469 $ 310,641 Liquidity (1) $ 80,798 $ 85,899 Free cash flow
(2) $ (2,533) $ 9,827 (1)
Cash plus availability on revolving credit
facilities
(2)
Represents fiscal twenty-six week periods
only. See reconciliation of GAAP to Non-GAAP Measures table.
Outlook
The Company is reiterating its outlook for fiscal 2018 as
follows:
Current Outlook Net sales
(1) $885 million to $895 million Net new store openings 4,
including 2 relocations Comparable store sales Up 1.5% to up 2.5%
Net income per common share (2) $0.30 to $0.40 Adjusted net income
per common share (3) $0.41 to $0.51 Assumed tax rate (4) 30%
Estimated share count 49 million
___________________________
(1)
Reflects a $5 million currency headwind,
as outlined in the 8-K filed on September 17, 2018 in conjunction
with the Senior Secured Term Loan Facility amendment, due to the
weakening of the SEK to USD and the related impact of foreign
currency translation on the Company’s consolidated statement of
operations.
(2)
Includes $4.9 million of consulting costs
to complete the fiscal 2017 Optimization Plan, or $0.08 per diluted
share, which was incurred in the first quarter of fiscal 2018. Also
reflects expected $2 million reduction in interest expense, or
$0.03 per share, related to the Senior Secured Term Loan Facility
amendment and approximately $2 million in debt extinguishment
costs.
(3)
See Reconciliation of GAAP to Non-GAAP
Financial Measures Table. Also reflects aforementioned interest
expense savings of $2 million or $0.03 per share.
(4)
During fiscal 2017, the Company recorded
provisional estimates for remeasurement of deferred tax balances
and for transition taxes on foreign earnings. The Company is
currently not able to estimate any future adjustments to the
provisional amount recognized for the remeasurement of deferred tax
balances or future adjustments to transition taxes on foreign
earnings, which is permissible during the allotted one-year
measurement period under the Tax Cuts and Jobs Act, ending on
December 22, 2018. Accordingly, the assumed tax rate does not
reflect any impact of any potential future adjustments to the
provisional amounts initially recorded.
Conference Call Information
A conference call to discuss second quarter fiscal 2018
financial results is scheduled for today, October 30, 2018, 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 13683585. The replay will be available until November 30,
2018.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. All statements contained in this press release that do not
relate to matters of historical fact should be considered
forward-looking statements, including statements about our future
opportunities; expectations regarding our goals, strategies,
priorities and initiatives; expectations regarding new store
openings and relocations; and anticipated financial performance and
tax rate for fiscal 2018.
These forward-looking statements are based on management’s
current expectations. These statements are neither promises nor
guarantees, but involve known and unknown risks, uncertainties and
other important factors that may cause our actual results,
performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by
the forward-looking statements, including, but not limited to, the
following: our optimization plan may not result in improved sales
and profitability; our inability to open or relocate new stores, or
remodel existing stores, in the timeframe and at the locations we
anticipate; overall decline in the health of the economy, consumer
spending, and the housing market; our inability to manage costs and
risks relating to new store openings; our inability to source and
market new products to meet consumer preferences; our failure to
achieve or maintain profitability; risks relating to the opening of
a second distribution center; effects of a security breach or
cyber-attack of our website or information technology systems,
including relating to our use of third-party web service providers;
our vulnerability to natural disasters and other unexpected events;
our reliance upon independent third party transportation providers;
our inability to protect our brand; our failure to successfully
anticipate consumer preferences and demand; our inability to manage
our growth; inability to locate available retail store sites on
terms acceptable to us; our inability to maintain sufficient levels
of cash flow to meet growth expectations; disruptions in the global
financial markets leading to difficulty in borrowing sufficient
amounts of capital to finance the carrying costs of inventory to
pay for capital expenditures and operating costs; fluctuations in
currency exchange rates; our inability to effectively manage our
online sales; competition from other stores and internet based
competition; our inability to obtain merchandise on a timely basis
at competitive prices as a result of changes in vendor
relationships; vendors may sell similar or identical products to
our competitors; our reliance on key executive management, and the
transition in our executive leadership; our inability to find,
train and retain key personnel; labor relations difficulties;
increases in health care costs and labor costs; our dependence on
foreign imports for our merchandise; violations of the U.S. Foreign
Corrupt Practices Act and similar worldwide anti bribery and
anti-kickback laws; our indebtedness may restrict our current and
future operations, and we may not be able to refinance our debt on
favorable terms, or at all; effects of tax reform; and uncertainty
with respect to tax and trade policies, tariffs and government
regulations affecting trade between the United States and other
countries.
These and other important factors discussed under the caption
“Risk Factors” in our Annual Report on Form 10-K filed with
the Securities and Exchange Commission, or SEC, on May 31, 2018,
and our other reports filed with the SEC could cause actual results
to differ materially from those indicated by the forward-looking
statements made in this press release. Any such forward-looking
statements represent management’s estimates as of the date of this
press release. While we may elect to update such forward-looking
statements at some point in the future, we disclaim any obligation
to do so, even if subsequent events cause our views to change.
These forward-looking statements should not be relied upon as
representing our views as of any date subsequent to the date of
this press release.
About The Container Store
The Container Store (NYSE:TCS) is the nation’s leading retailer
of storage and organization products — a concept they
originated in 1978. Today, with locations nationwide, the retailer
offers more than 10,000 products designed to save space and time, a
suite of custom closet systems and an array of digital shopping
services. Visit www.containerstore.com for more information about
store locations, the product collection and services offered. Visit
www.containerstore.com/blog for real solutions from the really
organized and www.whatwestandfor.com to learn more about the
company’s unique culture.
The Container Store
Group, Inc.
Consolidated statements of
operations
(In thousands, except share and Thirteen Weeks Ended
Twenty-Six Weeks Ended per share amounts) (unaudited)
September 29, 2018 September 30, 2017 September
29, 2018 September 30, 2017 Net sales $ 224,453 $
218,410 $ 420,276 $ 401,478 Cost of sales (excluding depreciation
and amortization) 93,878 92,036 174,930
171,494 Gross profit 130,575 126,374 245,346 229,984
Selling, general, and administrative
expenses(excluding depreciation and amortization)
105,656 106,332 212,261 202,972 Stock-based compensation 769 510
1,355 1,004 Pre-opening costs 881 1,418 1,227 2,804 Depreciation
and amortization 9,128 9,505 18,465 19,047 Other expenses 24 623
217 4,157 Loss on disposal of assets — 102 40
153 Income (loss) from operations 14,117 7,884 11,781 (153)
Interest expense, net 7,377 5,873 15,285 10,098 Loss on
extinguishment of debt 2,082 2,369 2,082
2,369 Income (loss) before taxes 4,658 (358) (5,586)
(12,620) Provision (benefit) for income taxes 1,417
517 (2,063) (4,068) Net income (loss) $ 3,241 $ (875)
$ (3,523) $ (8,552) Net income (loss) per common share — basic and
diluted $ 0.07 $ (0.02) $ (0.07) $ (0.18) Weighted-average
common shares — basic 48,138,907 48,058,231 48,138,907 48,053,084
Weighted-average common shares — diluted 48,519,166 48,058,231
48,138,907 48,053,084
The Container Store Group, Inc.
Consolidated balance sheets
September 29,
March 31,
September 30,
(In thousands) 2018 2018 2017
Assets (unaudited) (unaudited) Current assets:
Cash $ 7,212 $ 8,399 $ 10,145 Accounts receivable, net 25,400
25,528 26,083 Inventory 110,801 97,362 109,277 Prepaid expenses
11,021 11,281 11,519 Income taxes receivable 3,394 15 1,456 Other
current assets 10,562 11,609 13,021 Total
current assets 168,390 154,194 171,501 Noncurrent assets: Property
and equipment, net 149,259 158,389 162,884 Goodwill 202,815 202,815
202,815 Trade names 226,939 229,401 230,482 Deferred financing
costs, net 276 312 335 Noncurrent deferred tax assets, net 1,979
2,404 2,240 Other assets 1,796 1,854 1,696
Total noncurrent assets 583,064 595,175
600,452 Total assets $ 751,454 $ 749,369 $ 771,953
The Container Store Group, Inc.
Consolidated balance sheets
(continued)
September 29,
March 31,
September 30, (In thousands, except share and per share
amounts) 2018 2018 2017 Liabilities and
shareholders’ equity (unaudited) (unaudited)
Current liabilities: Accounts payable $ 62,313 $ 43,692 $ 61,224
Accrued liabilities 63,497
70,494
64,144 Revolving lines of credit 1,128 — — Current portion of
long-term debt 7,052 7,771 9,345 Income taxes payable 1,851 4,580
960 Other current liabilities 702 — — Total
current liabilities 136,543 126,537 135,673 Noncurrent liabilities:
Long-term debt 282,289 277,394 301,296 Noncurrent deferred tax
liabilities, net 50,630 54,839 79,091 Deferred rent and other
long-term liabilities 41,020 41,892 33,012
Total noncurrent liabilities 373,939 374,125
413,399 Total liabilities 510,482 500,662 549,072 Shareholders’
equity:
Common stock, $0.01 par value, 250,000,000
shares authorized;48,138,907 shares issued at September 29,
2018;48,072,187 shares issued at March 31, 2018;48,063,222 shares
issued at September 30, 2017
481 481 481 Additional paid-in capital 862,495 861,263 860,196
Accumulated other comprehensive loss (23,167) (17,316) (14,095)
Retained deficit (598,837) (595,721) (623,701)
Total shareholders’ equity 240,972 248,707
222,881 Total liabilities and shareholders’ equity $ 751,454 $
749,369 $ 771,953
The Container Store Group, Inc.
Consolidated statements of cash
flows
Twenty-Six Weeks
Ended September 29, September 30, (In
thousands) (unaudited) 2018 2017 Operating
activities Net loss $ (3,523) $ (8,552) Adjustments to
reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 18,465 19,047 Stock-based
compensation 1,355 1,004 Loss on disposal of assets 40 153 Loss on
extinguishment of debt 2,082 2,369 Deferred tax benefit (2,927)
(4,338) Non-cash interest 1,418 1,146 Other — 283 Changes in
operating assets and liabilities: Accounts receivable (373) 2,599
Inventory (17,066) (2,259) Prepaid expenses and other assets 1,875
(1,312) Accounts payable and accrued liabilities 13,304 17,808
Income taxes (6,083) (3,261) Other noncurrent liabilities
(431) (1,731) Net cash provided by operating activities
8,136 22,956
Investing activities Additions to
property and equipment (10,669) (13,129) Proceeds from sale of
property and equipment 7 18 Net cash used in
investing activities (10,662) (13,111)
Financing
activities Borrowings on revolving lines of credit 45,404
19,694 Payments on revolving lines of credit (19,267) (19,694)
Borrowings on long-term debt 272,500 330,000 Payments on long-term
debt and capital leases (294,497) (329,551) Payment of debt
issuance costs (2,244) (11,234) Payment of taxes with shares
withheld upon restricted stock vesting (122) (39) Net
cash provided by (used in) financing activities 1,774 (10,824)
Effect of exchange rate changes on cash (435)
388 Net decrease in cash (1,187) (591) Cash at beginning of
fiscal period 8,399 10,736 Cash at end of fiscal
period $ 7,212 $ 10,145 Supplemental information for
non-cash investing and financing activities: Purchases of property
and equipment (included in accounts payable) $ 1,192 $ 945 Capital
lease obligation incurred $ 132 $ 91
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, 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 (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 diluted share, and Adjusted EBITDA because it
believes they assist investors in comparing the Company’s
performance across reporting periods on a consistent basis by
excluding items that the Company does not believe are indicative of
its core operating performance and because the Company believes it
is useful for investors to see the measures that management uses to
evaluate the Company. These non-GAAP measures are also
frequently used by analysts, investors and other interested parties
to evaluate companies in the Company’s industry. In evaluating
these non-GAAP measures, you should be aware that in the future the
Company will incur expenses that are the same as or similar to some
of the adjustments in this presentation. The Company’s presentation
of these non-GAAP measures should not be construed to imply that
its future results will be unaffected by any such adjustments.
Management compensates for these limitations by relying on our GAAP
results in addition to using non-GAAP measures supplementally.
These non-GAAP measures are not necessarily comparable to other
similarly titled captions of other companies due to different
methods of calculation.
The Company defines adjusted net income (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.
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.
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 income (loss) and GAAP net income (loss) per
diluted share.
Thirteen
Twenty-Six Fiscal Year Fiscal Year Weeks
Ended Weeks Ended 2018 Outlook Ended
September 29,2018
September 30,2017
September 29,2018
September 30,2017
Low High
March 31,2018
Numerator: Net income (loss) $ 3,241 $ (875) $ (3,523) $ (8,552) $
14,900 $ 19,800 $ 19,428 Elfa manufacturing facility closure (a) —
517 — 517 — — 803 Loss on extinguishment of debt (b) 2,082 2,369
2,082 2,369 2,082 2,082 2,369 Optimization Plan implementation
charges (c) — 6,786 4,864 10,320 4,864 4,864 11,479 Taxes (d)
(575) (3,253) (2,687) (4,584)
(1,800) (1,800) (20,485) Adjusted net income $ 4,748
$ 5,544 $ 736 $ 70 $ 20,046 $ 24,946 $ 13,594 Denominator:
Weighted average common shares outstanding — diluted 48,519,166
48,058,231 48,138,907 48,053,084 49,000,000 49,000,000 48,147,725
Net income (loss) per diluted share $ 0.07 $ (0.02) $ (0.07)
$ (0.18) $ 0.30 $ 0.40 $ 0.40 Adjusted net income per diluted share
$ 0.10 $ 0.12 $ 0.02 $ 0.00 $ 0.41 $ 0.51 $ 0.28
___________________________
(a) Charges related to the closure of an Elfa manufacturing
facility in Lahti, Finland in fiscal 2017, recorded in other
expenses, which we do not consider in our evaluation of our ongoing
performance. (b) Loss recorded as a result of the amendment
made to the Senior Secured Term Loan Facility in fiscal 2018 and
the amendment made to the Senior Secured Term Loan Facility and the
Revolving Credit Facility in fiscal 2017, which we do not consider
in our evaluation of our ongoing performance. (c) Charges
incurred as part of the implementation of our Optimization Plan,
which include certain consulting costs recorded in SG&A
expenses in fiscal 2018 and fiscal 2017, cash severance payments
associated with the elimination of certain full-time positions at
the TCS segment recorded in other expenses in fiscal 2017, and cash
severance payments associated with organizational realignment at
the Elfa segment recorded in other expenses in fiscal 2017, which
we do not consider in our evaluation of ongoing performance.
(d) Tax impact of adjustments to net income (loss), as well as the
estimated impact of the Tax Cuts and Jobs Act enacted in fiscal
2017 and the tax benefit recorded in the first quarter of fiscal
2018 as a result of a reduction in the Swedish tax rate, 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 29, 2018 September 30, 2017 September
29, 2018 September 30, 2017 Net income (loss) $ 3,241 $
(875) $ (3,523) $ (8,552) Depreciation and amortization 9,128 9,505
18,465 19,047 Interest expense, net 7,377 5,873 15,285 10,098
Income tax provision (benefit) 1,417 517
(2,063) (4,068) EBITDA $ 21,163 $ 15,020 $ 28,164 $ 16,525
Pre-opening costs (a)
881 1,418 1,227 2,804 Non-cash rent (b) (581) (276) (1,218) (737)
Stock-based compensation (c) 769 510 1,355 1,004 Loss on
extinguishment of debt (d) 2,082 2,369 2,082 2,369 Foreign exchange
losses (e) 9 130 47 54 Optimization Plan implementation charges (f)
— 6,786 4,864 10,320 Elfa manufacturing facility closure (g) — 517
— 517 Other adjustments (h) 24 42 217
90 Adjusted EBITDA $ 24,347 $ 26,516 $ 36,738 $ 32,946
________________________
(a) Non-capital expenditures associated with opening new
stores and relocating stores, including rent, marketing expenses,
travel and relocation costs, and training costs. We adjust for
these costs to facilitate comparisons of our performance from
period to period. (b) Reflects the extent to which our
annual GAAP rent expense has been above or below our cash rent
payment due to lease accounting adjustments. The adjustment varies
depending on the average age of our lease portfolio (weighted for
size), as our GAAP rent expense on younger leases typically exceeds
our cash cost, while our GAAP rent expense on older leases is
typically less than our cash cost. (c) Non-cash charges
related to stock-based compensation programs, which vary from
period to period depending on volume and vesting timing of awards.
We adjust for these charges to facilitate comparisons from period
to period. (d) Loss recorded as a result of the amendment
made to the Senior Secured Term Loan Facility in fiscal 2018 and
the amendment made to the Senior Secured Term Loan Facility and the
Revolving Credit Facility in fiscal 2017, which we do not consider
in our evaluation of our ongoing performance. (e) Realized
foreign exchange transactional gains/losses our management does not
consider in our evaluation of our ongoing operations. (f)
Charges incurred as part of the implementation of our Optimization
Plan, which include certain consulting costs recorded in SG&A
expenses in the first quarter of fiscal 2018, cash severance
payments associated with the elimination of certain full-time
positions at the TCS segment recorded in other expenses in the
first quarter of fiscal 2017, and cash severance payments
associated with organizational realignment at the Elfa segment
recorded in other expenses in the first quarter of fiscal 2017,
which we do not consider in our evaluation of ongoing performance.
(g) Charges related to the closure of an Elfa manufacturing
facility in Lahti, Finland in fiscal 2017, recorded in other
expenses, which we do not consider in our evaluation of our ongoing
performance. (h) Other adjustments include amounts our
management does not consider in our evaluation of our ongoing
operations, including certain severance and other charges.
The table below reconciles the non-GAAP financial measure of
free cash flow with the most directly comparable GAAP financial
measure of net cash provided by operating activities.
Twenty-Six Weeks Ended
September 29, September 30, 2018
2017 Net cash provided by operating activities $ 8,136 $
22,956 Less: Additions to property and equipment (10,669)
(13,129) Free cash flow $ (2,533) $ 9,827
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181030005984/en/
Investors:ICR, Inc.Farah Soi/Caitlin Morahan,
203-682-8200Farah.Soi@icrinc.comCaitlin.Morahan@icrinc.comorMedia:The
Container Store Group, Inc.Mara Richter,
972-538-6893publicrelations@containerstore.com
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