Upgrade to SI Premium - Free Trial

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

October 5, 2015 4:05 PM

Company Reports 0.1% Comparable Store Sales Increase; Sees Traction from Growth Initiatives, with TCS Closets’ Impact on Comparable Store Sales Doubling from Last Quarter; Plans Spring 2016 Launch of Customer Financing Program

COPPELL, Texas--(BUSINESS WIRE)-- The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the second quarter and year-to-date ended August 29, 2015.

“Our sales performance in the second quarter exceeded our expectations with positive comparable store sales, a result of even more strategic customer engagement and service initiatives, coupled with the ‘snowballing effect’ of our major initiatives,” said Kip Tindell, Chairman and Chief Executive Officer. “The benefit from TCS Closets to our comparable store sales more than doubled from the first quarter to second quarter of fiscal 2015.”

Tindell continued, “I am proud of the solid execution across our entire organization during the ongoing rollout of our major strategic initiatives, including TCS Closets and Contained Home. With initiatives of this magnitude and complexity, we believe it is vitally important to make the appropriate investments in order to ensure their future success. We remain on track for the full rollout of our initiatives by the end of fiscal 2015, and with each market’s launch we continue to improve our visual displays, training and selling processes, allowing us to further leverage our investments to date. We have streamlined the path to purchase options for TCS Closets, which has already increased our capacity and shortened the turnaround time for custom closet orders by approximately 28% from first quarter to second quarter of fiscal 2015.”

An evolution of the Company’s customer engagement strategy also continues, with even more compelling, relevant and strategic communications based on a customer’s individual purchase behavior and lifestyle. These ongoing test and learn customer touch points are allowing the Company to further improve the effectiveness of its customer engagement efforts in order to maximize sales and profitability.

“Our intense and ongoing focus on solutions-based selling and the number of units sold in each transaction also continues to become more and more impactful and is another driver of our second quarter sales increase,” Tindell concluded.

New stores

The Company’s new store performance continues to be very strong. Over the past 3 years, as of the end of the second quarter fiscal 2015, the 17 new stores that were open for 12 months had an average Adjusted EBITDA margin of approximately 19% in their first year of operation. Additionally, through myriad efficiencies, the Company has substantially reduced payroll associated with opening a new store, ultimately realizing an approximate 25% reduction in its grand opening expenses when comparing the average amount spent per new store opening in fiscal 2015 to fiscal 2014. The Company is on track to meet its targeted 12% square footage growth for fiscal 2015. It opened three new stores and relocated one store during the first half of the fiscal year to end the quarter with 73 stores. Two additional stores have opened since the end of the second quarter and there are four stores currently under construction and scheduled to open in fiscal 2015:

In addition to its major strategic initiatives, the Company continues to focus on shorter term, sales-growth opportunities. The Company just announced it has signed an agreement to partner with Synchrony Financial to implement a new customer financing program, with a planned launch in spring 2016. The Company’s newly re-branded business-to-business sales function, Business Solutions: Your Dedicated Source for Storage and Organization Solutions for your Business, while still in its infancy, is growing at a rapid rate. And the Company continues to focus on enhancements to its mobile and multi-channel shopping experience with improved search engine optimization, video content and community question and answer functionality, while also using its website to grow the brand with initiatives like the June 2015 launch of Container StoriesSM, its lifestyle blog.

Second Quarter 2015 Results

For the second quarter (thirteen weeks) ended August 29, 2015, on a consolidated basis:

For the year-to-date (twenty-six weeks) ended August 29, 2015, on a consolidated basis:

Balance sheet highlights:

(In thousands) August 29, 2015 August 30, 2014
Cash $16,379 $15,298
Total debt $362,648 $366,028
Liquidity* $71,512 $73,434
*Cash plus availability on revolving credit facilities

Outlook

For fiscal 2015, the Company continues to expect consolidated net sales to be $800 to $815 million. However, it is narrowing its outlook for change in comparable store sales for fiscal 2015 to -1% to 0% from the previously provided -2% to 0%. Net income is still expected to be $0.30 to $0.38 per diluted share based on estimated diluted shares outstanding of 49 million. This assumes a tax rate of approximately 39% for the full year.

This outlook now incorporates approximately $5.5 million of expenses, or $0.07 per diluted share, associated with the implementation of the above outlined key strategic initiatives. The Company expects to make additional incremental expense investments, primarily payroll-related, to complete implementation of the key strategic initiatives in fiscal 2015, for an estimated increase of $1 million, or $0.01 compared to original Outlook.

Conference Call Information

A conference call to discuss second quarter fiscal 2015 financial results is scheduled for today, October 5, 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 13619529. The replay will be available through October 12, 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, the impact of our focus on solutions-based selling and the number of units sold in each transaction, anticipated sales increases, 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 75 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 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) August 29, February 28, August 30,
2015 2015 2014
Assets
Current assets:
Cash $16,379 $24,994 $15,298
Accounts receivable, net 25,661 24,319 27,732
Inventory 105,722 83,724 95,708
Prepaid expenses 10,084 7,895 9,675
Income taxes receivable 1,447 1,698 2,257
Deferred tax assets, net 3,256 3,256 3,967
Other current assets 8,910 11,056 9,798
Total current assets 171,459 156,942 164,435
Noncurrent assets:
Property and equipment, net 174,589 169,053 170,562
Goodwill 202,815 202,815 202,815
Trade names 228,838 229,433 237,821
Deferred financing costs, net 6,764 7,742 8,721
Noncurrent deferred tax assets, net 2,483 1,739 1,158
Other assets 1,747 1,333 1,064
Total noncurrent assets 617,236 612,115 622,141
Total assets $788,695 $769,057 $786,576
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable $47,469 $48,904 $46,600
Accrued liabilities 58,532 59,891 57,032
Revolving lines of credit 9,981 2,834 16,779
Current portion of long-term debt 5,256 5,319 5,985
Income taxes payable 259 2,188 1,305
Deferred tax liabilities, net - - 29
Total current liabilities 121,497 119,136 127,730
Noncurrent liabilities:
Long-term debt 347,411 326,775 343,264
Noncurrent deferred tax liabilities, net 81,395 82,965 83,555
Deferred rent and other long-term liabilities 38,555 38,319 36,469
Total noncurrent liabilities 467,361 448,059 463,288
Total liabilities 588,858 567,195 591,018
Shareholders’ equity:

Common stock, $0.01 par value, 250,000,000 shares

authorized; 47,986,975 shares issued and outstanding at

August 29, 2015; 47,983,660 shares issued and

outstanding at February 28, 2015; 47,979,297 shares

issued and outstanding at August 30, 2014

480 480 480
Additional paid-in capital 856,027 855,322 854,516
Accumulated other comprehensive loss (18,546) (18,342) (4,543)
Retained deficit (638,124) (635,598) (654,895)
Total shareholders’ equity 199,837 201,862 195,558
Total liabilities and shareholders’ equity $788,695 $769,057 $786,576

The Container Store Group, Inc.

Consolidated statements of operations (unaudited)

(In thousands, except share and
per share amounts) Thirteen Weeks Ended Twenty-Six Weeks Ended
August 29, 2015 August 30, 2014 August 29, 2015 August 30, 2014
Net sales $195,482 $193,247 $365,315 $366,685

Cost of sales (excluding

depreciation and amortization)

81,657 79,581 152,162 152,167
Gross profit 113,825 113,666 213,153 214,518

Selling, general, and

administrative expenses

(excluding depreciation and

amortization)

93,579 90,261 187,520 181,173
Stock-based compensation 349 269 677 546
Pre-opening costs 2,820 2,359 3,876 5,346
Depreciation and amortization 8,378 7,567 16,415 14,823
Other expenses - 282 - 807
Loss on disposal of assets 7 114 12 214
Income from operations 8,692 12,814 4,653 11,609
Interest expense, net 4,230 4,383 8,398 8,685
Income (loss) before taxes 4,462 8,431 (3,745) 2,924
Provision (benefit) for income taxes 1,789 1,476 (1,219) (452)
Net income (loss) $2,673 $6,955 $(2,526) $3,376
Net income (loss) per common share - basic and diluted $0.06 $0.14 $(0.05) $0.07
Weighted-average common shares outstanding - basic 47,985,181 47,976,500 47,984,459 47,961,558
Weighted-average common shares outstanding - diluted 48,027,676 48,539,762 47,984,459 48,611,985

The Container Store Group, Inc.

Consolidated statements of cash flows (unaudited)

Twenty-Six Weeks Ended

(In thousands) August 29, 2015 August 30, 2014
Operating activities
Net (loss) income $(2,526) $3,376

Adjustments to reconcile net (loss) income to net cash (used in) provided by operating

activities:

Depreciation and amortization 16,415 14,823
Stock-based compensation 677 546
Excess tax benefit from stock-based compensation - (10)
Loss on disposal of property and equipment 12 214
Deferred tax benefit (1,979) (442)
Noncash interest 978 978
Other 137 -
Changes in operating assets and liabilities:
Accounts receivable (1,755) 3,495
Inventory (21,495) (11,494)
Prepaid expenses and other assets (699) 4,921
Accounts payable and accrued liabilities 931 (1,751)
Income taxes (1,797) (4,316)
Other noncurrent liabilities 318 844
Net cash (used in) provided by operating activities (10,783) 11,184
Investing activities
Additions to property and equipment (25,847) (30,917)
Proceeds from investment grant 479 -
Proceeds from sale of property and equipment 191 6
Net cash used in investing activities (25,177) (30,911)
Financing activities
Borrowings on revolving lines of credit 29,529 45,523
Payments on revolving lines of credit (22,344) (43,383)
Borrowings on long-term debt 23,000 25,015
Payments on long-term debt (2,640) (10,533)
Proceeds from the exercise of stock options 59 664
Excess tax benefit from stock-based compensation - 10
Net cash provided by financing activities 27,604 17,296
Effect of exchange rate changes on cash (259) (317)
Net decrease in cash (8,615) (2,748)
Cash at beginning of period 24,994 18,046
Cash at end of period $16,379 $15,298
Supplemental information for non-cash investing and financing activities:
Purchases of property and equipment (included in accounts payable) $1,897 $1,116
Capital lease obligation incurred 358 -

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 common share, adjusted EBITDA and net sales after the conversion of Elfa International AB third-party net sales from Swedish krona to U.S. dollars using the prior year 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 income (loss) and adjusted net income (loss) per diluted common share with the most directly comparable GAAP financial measures of GAAP net income (loss) available to common shareholders and GAAP net income (loss) per diluted common share.

Thirteen Weeks Ended Twenty-Six Weeks Ended
August 29, 2015

August 30, 2014 August 29, 2015

August 30, 2014
Numerator:
Net income (loss) available to common shareholders $2,673 $6,955 $(2,526) $3,376
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 - (1,839) - (1,839)
Adjusted net income (loss) $2,673 $5,116 $(2,526) $1,537
Denominator:
Weighted average common shares outstanding – diluted 48,027,676 48,539,762 47,984,459 48,611,985
Adjusted net income (loss) per diluted common share $0.06 $0.11 $(0.05) $0.03

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
August 29, 2015 August 30, 2014 August 29, 2015 August 30, 2014
Net income (loss) $2,673 $6,955 $(2,526) $3,376
Depreciation and amortization 8,378 7,567 16,415 14,823
Interest expense, net 4,230 4,383 8,398 8,685
Provision (benefit) for income taxes 1,789 1,476 (1,219) (452)
EBITDA $17,070 $20,381 $21,068 $26,432
Pre-opening costs 2,820 2,359 3,876 5,346
Noncash rent (435) 40 (1,126) 450
Stock-based compensation 349 269 677 546
Foreign exchange (gains) losses (26) 21 19 (51)
Other adjustments 17 308 35 857
Adjusted EBITDA $19,795 $23,378 $24,549 $33,580

Investor:

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.

Categories

Press Releases

Next Articles