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The Container Store Group, Inc. Announces First Quarter 2015 Financial Results

July 7, 2015 4:05 PM

Company Exceeds Outlook on Comparable Store Sales and EPS, Maintains Targets for Fiscal 2015

Key Strategic Initiatives on Track for Full Rollout in 2015 and Having a Notable Impact

DALLAS--(BUSINESS WIRE)-- The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the first quarter of fiscal 2015 ended May 30, 2015.

“Our first quarter financial performance exceeded our expectations, as we delivered better than forecasted comparable store sales and improved gross margin,” said Kip Tindell, Chairman and Chief Executive Officer. “The implementation of our three major strategic initiatives – TCS Closets, Contained Home and POP! – remains on track, as planned, and we’re encouraged by the start of the ‘snowballing effect’ on their results. As we expected, we’ve seen that, in general, our stores with the strongest comparable store sales increases are the ones that have had TCS Closets and Contained Home the longest. In fact, if we isolate our seven Dallas-area stores, TCS Closets alone added three percentage points of incremental comparable store sales to those stores in the first quarter of fiscal 2015. We remain confident in, and are maintaining, our previously stated sales and EPS outlook for the fiscal year.”

New stores

The Company opened a store in Tucson, AZ (Tucson Mall) on May 30th and completed its first store opening for the second quarter on June 27th in Overland Park, KS (Hawthorne Plaza). In total, including the two aforementioned locations, the Company plans to open 10 new stores, including one relocation, in fiscal year 2015:

First Quarter 2015 Results

For the first quarter ended May 30, 2015, on a consolidated basis:

Balance sheet highlights:

(In thousands) May 30, 2015 May 31, 2014
Cash

$9,829

$8,610

Total debt $346,243 $361,576
Liquidity* $82,709 $68,790
*Cash plus availability on revolving credit facilities

Outlook

For fiscal 2015, consolidated net sales are expected to be $800 to $815 million, based on the Company’s expected store openings and a comparable store sales change of -2% to 0%. Net income is expected to be $0.30 to $0.38 per diluted common share based on estimated diluted common shares outstanding of 49 million. This assumes a tax rate of approximately 39% for the full year. Adjusted EBITDA is expected to be between $85 and $91 million.

This outlook incorporates approximately $4.5 million of expenses, or $0.06 per diluted common share, associated with the implementation of the above outlined key strategic initiatives.

Conference Call Information

A conference call to discuss first quarter fiscal 2015 financial results is scheduled for today, July 7, 2015, 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 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 (877) 870-5176 (international replay number is (858) 384-5517). The pin number to access the telephone replay is 13612302. The replay will be available through July 14, 2015 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 expectations regarding the new POP!, Contained Home and TCS Closets programs, including without limitation plans to roll out TCS Closets and Contained Home to all stores in fiscal 2015 and plans to create deeper relationships with customers in connection with POP!, expectations for new store openings and relocations, guidance regarding annual square footage growth, and statements regarding our anticipated financial performance, expenses and liquidity.

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 inability to successfully implement our three major initiatives — POP!, Contained Home and TCS Closets — in the timeframe we expect or at all; our inability to open or relocate new 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; the risk that our operating and financial performance in a given period will not meet the guidance we provided to the public; the risk that significant new business initiatives may not be successful; our dependence on a single distribution center for all of our stores; 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 lease space on favorable terms; fluctuations in currency exchange rates; risks related to a security breach or cyber-attack of our website or information technology systems, and other damage to such systems; effects of competition on our business; our inability to effectively manage our online sales; risks related to our inability to obtain capital on satisfactory terms or at all; 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; 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; 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; material damage to or interruptions in our information technology systems; 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 May 8, 2015, 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 and the only retailer solely devoted to the storage and organization category of retailing. The company originated the concept of storage and organization retailing when it opened its first store in 1978. Today, the retailer has 72 store locations nationwide that each average 25,000 square feet. The Container Store has over 10,500 products to help customers save space and, ultimately, save them time. As the pace of modern life accelerates and being organized is not a luxury anymore but a necessity, The Container Store is devoted to making customers more productive, relaxed and happier by selling customized, complete solutions. Since its inception, the retailer has nurtured an employee-first culture and couples its one-of-kind product collection with a high level of customer service delivered by its highly trained organization experts. The company has been named to FORTUNE magazine’s 100 Best Companies To Work For® — 16 years in a row. Visit containerstore.com for more information about store locations, the product collection and services offered. To find out more about The Container Store’s unique culture, Foundation Principles and devotion to Conscious Capitalism, visit the retailer’s culture blog at whatwestandfor.com or read Chairman & CEO Kip Tindell’s new book UNCONTAINABLE: How Passion, Commitment, and Conscious Capitalism Built a Business Where Everyone Thrives (available at The Container Store, uncontainable.com and anywhere books are sold).

The Container Store Group, Inc.

Consolidated balance sheets (unaudited)

(In thousands, except share and per share amounts) May 30, February 28, May 31,
2015 2015 2014
Assets
Current assets:
Cash $9,829 $24,994 $8,610
Accounts receivable, net 21,929 24,319 29,267
Inventory 103,619 83,724 94,626
Prepaid expenses 6,476 7,895 7,953
Income taxes receivable 908 1,698 600
Deferred tax assets, net 3,256 3,256 3,967
Other current assets 10,686 11,056 10,958
Total current assets 156,703 156,942 155,981
Noncurrent assets:
Property and equipment, net 170,851 169,053 164,779
Goodwill 202,815 202,815 202,815
Trade names 228,593 229,433 240,021
Deferred financing costs, net 7,253 7,742 9,210
Noncurrent deferred tax assets, net 2,186 1,739 1,179
Other assets 1,622 1,333 1,211
Total noncurrent assets 613,320 612,115 619,215
Total assets $770,023 $769,057 $775,196
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable $57,035 $48,904 $47,846
Accrued liabilities 52,991 59,891 54,420
Revolving lines of credit 7,407 2,834 23,529
Current portion of long-term debt 5,274 5,319 5,741
Income taxes payable 5 2,188 640
Deferred tax liabilities, net - - 29
Total current liabilities 122,712 119,136 132,205
Noncurrent liabilities:
Long-term debt 333,562 326,775 332,306
Noncurrent deferred tax liabilities, net 79,843 82,965 82,638
Deferred rent and other long-term liabilities 37,764 38,319 36,354
Total noncurrent liabilities 451,169 448,059 451,298
Total liabilities 573,881 567,195 583,503
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 47,983,804 shares issued and outstanding at May 30, 2015; 47,983,660 shares issued and outstanding at February 28, 2015; 47,974,829 shares issued and outstanding at May 31, 2014 480 480 480
Additional paid-in capital 855,648 855,322 854,174
Accumulated other comprehensive loss (19,189 ) (18,342 ) (1,111 )
Retained deficit (640,797 ) (635,598 ) (661,850 )
Total shareholders’ equity 196,142 201,862 191,693
Total liabilities and shareholders’ equity $770,023 $769,057 $775,196

The Container Store Group, Inc.

Consolidated statements of operations (unaudited)

Thirteen Weeks Ended
(In thousands, except share and per share amounts) May 30, 2015 May 31, 2014
Net sales $169,833 $173,438
Cost of sales (excluding depreciation and amortization) 70,505 72,586
Gross profit 99,328 100,852
Selling, general, and administrative expenses (excluding depreciation and amortization) 93,941 90,912
Stock-based compensation 328 277
Pre-opening costs 1,056 2,987
Depreciation and amortization 8,037 7,256
Other expenses - 525
Loss on disposal of assets 5 100
Loss from operations (4,039 ) (1,205 )
Interest expense, net 4,168 4,302
Loss before taxes (8,207 ) (5,507 )
Benefit for income taxes (3,008 ) (1,928 )
Net loss $(5,199 ) $(3,579 )
Basic and diluted net loss per common share $(0.11 ) $(0.07 )
Weighted-average common shares outstanding - basic and diluted 47,983,738 47,946,616

The Container Store Group, Inc.

Consolidated statements of cash

flows (unaudited)

Thirteen Weeks Ended

(In thousands) May 30, 2015 May 31, 2014
Operating activities
Net loss $(5,199 ) $(3,579 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 8,037 7,256
Stock-based compensation 328 277
Excess tax benefit from stock-based compensation - (15 )
Loss on disposal of property and equipment 5 100
Deferred tax benefit (3,043 ) (2,106 )
Noncash interest 489 489
Other 83 -
Changes in operating assets and liabilities:
Accounts receivable 2,023 2,558
Inventory (19,811 ) (9,728 )
Prepaid expenses and other assets 1,009 5,369
Accounts payable and accrued liabilities 4,415 (5,489 )
Income taxes (1,524 ) (3,340 )
Other noncurrent liabilities (416 ) 445
Net cash used in operating activities (13,604 ) (7,763 )
Investing activities
Additions to property and equipment (13,332 ) (13,418 )
Proceeds from sale of property and equipment 188 -
Net cash used in investing activities (13,144 ) (13,418 )
Financing activities
Borrowings on revolving lines of credit 13,967 18,334
Payments on revolving lines of credit (9,327 ) (9,961 )
Borrowings on long-term debt 8,000 8,000
Payments on long-term debt (1,320 ) (5,172 )
Proceeds from the exercise of stock options 3 587
Excess tax benefit from stock-based compensation - 15
Net cash provided by financing activities 11,323 11,803
Effect of exchange rate changes on cash 260 (58 )
Net decrease in cash (15,165 ) (9,436 )
Cash at beginning of period 24,994 18,046
Cash at end of period $9,829 $8,610
Supplemental information for non-cash investing and financing activities:
Purchases of property and equipment (included in accounts payable) $2,194 $2,098
Capital lease obligation incurred $231 $-

Note Regarding Non-GAAP Information

This press release includes financial measures that are not calculated in accordance with GAAP, including adjusted net loss, adjusted net loss per diluted common share, adjusted EBITDA and net sales after the conversion of Elfa’s net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate. The Company believes the disclosure of net sales without the effects of currency exchange rate fluctuations helps investors understand the Company’s underlying performance. The Company has reconciled all non-GAAP financial measures apart from net sales adjusted for currency exchange rate fluctuations with the most directly comparable GAAP financial measures in a table accompanying this release. The Company believes that the non-GAAP financial measures used in this press release not only provide its management with comparable financial data for internal financial analysis but also provide meaningful supplemental information to investors. Specifically, these non-GAAP financial measures allow investors to better understand the performance of the Company’s business and facilitate a meaningful evaluation of its fiscal 2015 quarterly and annual results on a comparable basis with its fiscal 2014 quarterly and annual results. In evaluating these non-GAAP financial measures, investors should be aware that in the future the Company may incur expenses or be involved in transactions that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of non-GAAP financial measures should not be construed to imply that its future results will be unaffected by any such adjustments. The Company has provided this information as a means to evaluate the results of its ongoing operations. Other companies in the Company’s industry may calculate these items differently than it does. Each of these measures is not a measure of performance under GAAP and should not be considered as a substitute for the most directly comparable financial measures prepared in accordance with GAAP. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.

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 loss and adjusted net loss per diluted common share with the most directly comparable GAAP financial measures of GAAP net loss available to common shareholders and GAAP net loss per diluted common share.

Thirteen Weeks Ended
May 30, 2015 May 31, 2014
Numerator:
Net loss available to common shareholders $(5,199 ) $(3,579 )
Distributions accumulated to preferred shareholders - -
IPO-related stock-based compensation - -
IPO costs - -
Restructuring charges - -
Goodwill and trade name impairment - -
Gain on disposal of subsidiary and real estate - -
Loss on extinguishment of debt - -
Certain taxes - -
Adjusted net loss $(5,199 ) $(3,579 )
Denominator:
Weighted average common shares outstanding – diluted 47,983,738 47,946,616
Adjusted net loss per diluted common share $(0.11 ) $(0.07 )

The table below reconciles the non-GAAP financial measure adjusted EBITDA with the most directly comparable GAAP financial measure of GAAP net loss.

Thirteen Weeks Ended

May 30, 2015

May 31, 2014

Net loss $(5,199 ) $(3,579 )
Depreciation and amortization 8,037 7,256
Interest expense, net 4,168 4,302
Income tax benefit (3,008 ) (1,928 )
EBITDA $3,998 $6,051
Pre-opening costs 1,056 2,987
Noncash rent (691 ) 410
Stock-based compensation 328 277
Foreign exchange losses (gains) 45 (72 )
Other adjustments 18 549
Adjusted EBITDA $4,754 $10,202

Investors:

ICR, Inc.

Farah Soi/Anne Rakunas, 203-682-8200

[email protected]

or

Media:

The Container Store

Casey Shilling, 972-538-6621

[email protected]

Source: The Container Store Group, Inc.

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