y
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |||||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Non-accelerated filer ☐ | |
Smaller reporting company | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The registrant had
TABLE OF CONTENTS
2
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial statements |
The Container Store Group, Inc.
Consolidated balance sheets
July 1, | April 1, | July 2, | ||||||||
(In thousands) |
| 2023 |
| 2023 |
| 2022 |
| |||
Assets | (unaudited) | (unaudited) | ||||||||
Current assets: | ||||||||||
Cash | $ | | $ | | $ | | ||||
Accounts receivable, net |
| |
| |
| | ||||
Inventory |
| |
| |
| | ||||
Prepaid expenses |
| |
| |
| | ||||
Income taxes receivable | | | | |||||||
Other current assets |
| |
| |
| | ||||
Total current assets |
| |
| |
| | ||||
Noncurrent assets: | ||||||||||
Property and equipment, net |
| |
| |
| | ||||
Noncurrent operating lease right-of-use assets | | | | |||||||
Goodwill |
| |
| |
| | ||||
Trade names |
| |
| |
| | ||||
Deferred financing costs, net |
| |
| |
| | ||||
Noncurrent deferred tax assets, net |
| |
| |
| | ||||
Other assets |
| |
| |
| | ||||
Total noncurrent assets |
| |
| |
| | ||||
Total assets | $ | | $ | | $ | |
See accompanying notes.
3
The Container Store Group, Inc.
Consolidated balance sheets (continued)
| July 1, |
| April 1, |
| July 2, |
| ||||
(In thousands, except share and per share amounts) |
| 2023 |
| 2023 |
| 2022 |
| |||
Liabilities and shareholders’ equity | (unaudited) | (unaudited) | ||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | | $ | | $ | | ||||
Accrued liabilities |
| |
| |
| | ||||
Current borrowings on revolving lines of credit |
| — |
| |
| | ||||
Current portion of long-term debt |
| |
| |
| | ||||
Current operating lease liabilities | | | | |||||||
Income taxes payable |
| |
| |
| | ||||
Total current liabilities |
| |
| |
| | ||||
Noncurrent liabilities: | ||||||||||
Long-term debt |
| |
| |
| | ||||
Noncurrent operating lease liabilities | | | | |||||||
Noncurrent deferred tax liabilities, net |
| |
| |
| | ||||
Other long-term liabilities |
| |
| |
| | ||||
Total noncurrent liabilities |
| |
| |
| | ||||
Total liabilities |
| |
| |
| | ||||
Commitments and contingencies (Note 6) | ||||||||||
Shareholders’ equity: | ||||||||||
Common stock, $ |
| |
| |
| | ||||
Additional paid-in capital |
| |
| |
| | ||||
Accumulated other comprehensive loss |
| ( |
| ( |
| ( | ||||
Retained deficit |
| ( |
| ( |
| ( | ||||
Total shareholders’ equity |
| |
| |
| | ||||
Total liabilities and shareholders’ equity | $ | | $ | | $ | |
See accompanying notes.
4
The Container Store Group, Inc.
Consolidated statements of operations
Thirteen Weeks Ended |
| |||||||
July 1, | July 2, |
| ||||||
(In thousands, except share and per share amounts) (unaudited) |
| 2023 |
| 2022 |
|
| ||
Net sales | $ | | $ | | ||||
Cost of sales (excluding depreciation and amortization) |
| |
| | ||||
Gross profit |
| |
| | ||||
Selling, general, and administrative expenses (excluding depreciation and amortization) |
| |
| | ||||
Stock-based compensation |
| |
| | ||||
Pre-opening costs |
| |
| | ||||
Depreciation and amortization |
| |
| | ||||
Other expenses |
| |
| — | ||||
Loss on disposal of assets |
| |
| | ||||
(Loss) income from operations |
| ( |
| | ||||
Interest expense, net |
| |
| | ||||
(Loss) income before taxes | ( |
| | |||||
(Benefit) provision for income taxes |
| ( |
| | ||||
Net (loss) income | $ | ( | $ | | ||||
Net (loss) income per common share — basic | $ | ( | $ | | ||||
Net (loss) income per common share — diluted | $ | ( | $ | | ||||
Weighted-average common shares — basic | | | ||||||
Weighted-average common shares — diluted |
| |
| |
See accompanying notes.
5
The Container Store Group, Inc.
Consolidated statements of comprehensive (loss) income
Thirteen Weeks Ended | ||||||||
July 1, | July 2, | |||||||
(In thousands) (unaudited) |
| 2023 |
| 2022 |
|
| ||
Net (loss) income | $ | ( | $ | | ||||
Unrealized (loss) on financial instruments, net of tax benefit of ($ |
| — |
| ( | ||||
Pension liability adjustment |
| |
| | ||||
Foreign currency translation adjustment |
| ( |
| ( | ||||
Comprehensive (loss) income | $ | ( | $ | |
See accompanying notes.
6
The Container Store Group, Inc.
Consolidated statements of cash flows
Thirteen Weeks Ended | ||||||||
July 1, | July 2, | |||||||
(In thousands) (unaudited) |
| 2023 |
| 2022 |
|
| ||
Operating activities | ||||||||
Net (loss) income | $ | ( | $ | | ||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||
Depreciation and amortization | |
| | |||||
Stock-based compensation | |
| | |||||
Loss on disposal of assets | |
| | |||||
Deferred tax benefit | ( |
| ( | |||||
Non-cash interest | |
| | |||||
Other | |
| | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | |
| ( | |||||
Inventory | ( |
| ( | |||||
Prepaid expenses and other assets | |
| ( | |||||
Accounts payable and accrued liabilities | ( |
| ( | |||||
Net change in lease assets and liabilities | | | ||||||
Income taxes | ( |
| | |||||
Other noncurrent liabilities | ( |
| ( | |||||
Net cash (used in) provided by operating activities | ( | | ||||||
Investing activities | ||||||||
Additions to property and equipment | ( |
| ( | |||||
Investments in non-qualified plan trust | ( | ( | ||||||
Proceeds from non-qualified plan trust redemptions | | | ||||||
Proceeds from sale of property and equipment | |
| — | |||||
Net cash used in investing activities | ( |
| ( | |||||
Financing activities | ||||||||
Borrowings on revolving lines of credit | |
| | |||||
Payments on revolving lines of credit | ( |
| ( | |||||
Borrowings on long-term debt | |
| | |||||
Payments on long-term debt | ( | ( | ||||||
Payment of taxes with shares withheld upon restricted stock vesting | ( | ( | ||||||
Proceeds from the exercise of stock options | — |
| | |||||
Net cash provided by financing activities | |
| | |||||
Effect of exchange rate changes on cash | |
| ( | |||||
Net increase in cash | |
| | |||||
Cash at beginning of fiscal period | |
| | |||||
Cash at end of fiscal period | $ | | $ | | ||||
Purchases of property and equipment (included in accounts payable) | $ | $ | | |||||
Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | | |||||
Additions to right-of-use assets in exchange for operating lease liabilities | $ | $ | |
See accompanying notes.
7
The Container Store Group, Inc.
Consolidated statements of shareholders’ equity
Accumulated | |||||||||||||||||
Additional | other | Total | |||||||||||||||
(In thousands, except share amounts) | Common stock | paid-in | comprehensive | Retained | shareholders’ | ||||||||||||
(unaudited) |
| Shares |
| Amount |
| capital |
| (loss) income |
| deficit |
| equity | |||||
Balance at April 1, 2023 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net loss | — |
| — |
|
| — |
| — |
| ( |
|
| ( | ||||
Stock-based compensation | — |
| — |
|
| |
| — |
| — |
|
| | ||||
Vesting of restricted stock awards | | | ( | — | — | — | |||||||||||
Taxes related to net share settlement of restricted stock awards | — | — | ( | — | — | ( | |||||||||||
Foreign currency translation adjustment | — |
| — |
|
| — |
| ( |
| — |
|
| ( | ||||
Pension liability adjustment | — |
| — |
|
| — |
| |
| — |
|
| | ||||
Balance at July 1, 2023 | | $ | |
| $ | | $ | ( | $ | ( |
| $ | |
Accumulated | |||||||||||||||||
Additional | other | Total | |||||||||||||||
(In thousands, except share amounts) | Common stock | paid-in | comprehensive | Retained | shareholders’ | ||||||||||||
(unaudited) |
| Shares |
| Amount |
| capital |
| loss |
| deficit |
| equity | |||||
Balance at April 2, 2022 | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net income | — |
| — |
|
| — |
| — |
| | | ||||||
Stock-based compensation | — |
| — |
|
| |
| — |
| — |
|
| | ||||
Stock options exercised | | | | — | — | | |||||||||||
Vesting of restricted stock awards | | | ( | — | — | — | |||||||||||
Taxes related to net share settlement of restricted stock awards | — | — | ( | — | — | ( | |||||||||||
Foreign currency translation adjustment | — |
| — |
|
| — |
| ( |
| — |
|
| ( | ||||
Unrealized loss on financial instruments, net of $ | — |
| — |
|
| — |
| ( |
| — |
|
| ( | ||||
Pension liability adjustment | — |
| — |
|
| — |
| |
| — |
|
| | ||||
Balance at July 2, 2022 | | | | ( | | |
See accompanying notes.
8
The Container Store Group, Inc.
Notes to consolidated financial statements (unaudited)
(In thousands, except share amounts and unless otherwise stated)
July 1, 2023
1. Description of business and basis of presentation
These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended April 1, 2023, filed with the Securities and Exchange Commission (“SEC”) on May 26, 2023 (the “2022 Annual Report on Form 10-K”). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.
All references herein to “fiscal 2023” refer to the
Description of business
Our operations consist of
The Container Store, Inc. (“TCS”): The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions to accomplish their projects through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”), with the remainder held by certain employees of The Container Store, Inc. On November 6, 2013, the Company completed the initial public offering (the “IPO”), of its common stock at which time LGP held a controlling interest in the Company as the majority shareholder. During fiscal 2020, LGP sold some of the common stock of the Company, reducing their ownership to less than
Today, TCS includes The Container Store Custom Spaces (“Custom Spaces”) consisting of our elfa® Classic, elfa® Décor, Avera® and PrestonTM systems, which are wholly-owned and manufactured by TCS. Custom Spaces includes metal-based and wood-based custom space products and in-home installation services. Our vision is to deepen our relationship with our customers, expand our reach and strengthen our capabilities, all while transforming lives through the power of organization.
The Container Store, Inc. consists of our retail stores, website and call center (which includes business sales), as well as our in-home services business. As of July 1, 2023, we operated
Elfa: The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors that are customizable for any area of the home. elfa® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately
9
Seasonality
Our unique offering of organizing solutions, custom spaces, and in-home services makes us less susceptible to holiday season shopping patterns than many retailers. Our quarterly results fluctuate, depending upon a variety of factors, including our product offerings, promotional events, store openings, the weather, remodeling or relocations, shifts in the timing of holidays, timing of delivery of orders, competitive factors and general economic conditions, including economic downturns as a result of unforeseen events such as pandemics, inflation, and supply chain disruptions, among other things. Accordingly, our results of operations may fluctuate on a seasonal and quarterly basis, relative to corresponding periods in prior years. In addition, we may take certain pricing or marketing actions that could have a disproportionate effect on our business, financial condition and results of operations in a particular quarter or selling season.
2. Detail of certain balance sheet accounts
July 1, | April 1, | July 2, | |||||||
| 2023 |
| 2023 |
| 2022 | ||||
Accounts receivable, net: | |||||||||
Trade receivables, net | $ | | $ | | $ | | |||
Credit card receivables |
| |
| |
| | |||
Other receivables |
| |
| |
| | |||
$ | | $ | | $ | | ||||
Inventory: | |||||||||
Finished goods | $ | | $ | | $ | | |||
Raw materials |
| |
| |
| | |||
Work in progress |
| |
| |
| | |||
$ | | $ | | $ | | ||||
Accrued liabilities: | |||||||||
Accrued payroll, benefits and bonuses | $ | | $ | | $ | | |||
Unearned revenue | | | | ||||||
Accrued transaction and property tax | | | | ||||||
Gift cards and store credits outstanding | | | | ||||||
Accrued sales returns | | | | ||||||
Accrued interest | | | | ||||||
Other accrued liabilities | | | | ||||||
$ | | $ | | $ | |
Contract balances as a result of transactions with customers primarily consist of trade receivables included in accounts receivable, net, unearned revenue, and gift cards and store credits outstanding included in accrued liabilities in the Company’s consolidated balance sheets. Unearned revenue was $
10
3. Leases
We conduct all of our U.S. operations from leased facilities that include our support center, distribution centers, manufacturing facilities, and
Lease expense on operating leases is recorded on a straight-line basis over the term of the lease, commencing on the date the Company takes possession of the leased property and is recorded in selling, general and administrative expenses (“SG&A”).
We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. Our variable lease payments include lease payments that are based on a percentage of sales.
Upon lease commencement, we recognize the lease liability measured at the present value of the fixed future minimum lease payments. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement. We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the lease liability include the discount rate applied to present value of the future lease payments and the exercise of renewal options.
Many of our leases contain renewal options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement as exercise of the options is not reasonably certain. We remeasure the lease liability and right-of-use asset when we are reasonably certain to exercise a renewal option.
Discount Rate
Our leases do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment.
The components of lease costs for the thirteen weeks ended July 1, 2023 and July 2, 2022 were as follows:
Thirteen Weeks Ended | ||||||
July 1, 2023 | July 2, 2022 | |||||
Operating lease costs | $ | | $ | | ||
Variable lease costs |
| |
| | ||
Total lease costs | $ | | $ | |
We do not have sublease income and do not recognize lease assets or liabilities for short-term leases, defined as operating leases with initial terms of less than 12 months. Our short-term lease costs were not material for the thirteen weeks ended July 1, 2023 and July 2, 2022.
11
Weighted average remaining operating lease term and incremental borrowing rate as of July 1, 2023 and July 2, 2022 were as follows:
Thirteen Weeks Ended | |||||
July 1, 2023 | July 2, 2022 | ||||
Weighted average remaining lease term (years) | |||||
Weighted average incremental borrowing rate | | % | % |
As of July 1, 2023, future minimum lease payments under our operating lease liabilities were as follows:
| Operating leases (1) | ||
Within 1 year (remaining) | $ | | |
2 years |
| | |
3 years |
| | |
4 years |
| | |
5 years |
| | |
Thereafter |
| | |
Total lease payments | $ | | |
Less amount representing interest | | ||
Total lease liability | $ | | |
Less current lease liability | | ||
Total noncurrent lease liability | $ | |
(1) Operating lease payments exclude approximately $ |
4. Net (loss) income per common share
Basic net (loss) income per common share is computed as net (loss) income divided by the weighted-average number of common shares for the period. Net (loss) income per common share - diluted is computed as net (loss) income divided by the weighted-average number of common shares for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. Potentially dilutive securities are excluded from the computation of net (loss) income per common share - diluted if their effect is anti-dilutive.
The following is a reconciliation of net (loss) income and the number of shares used in the basic and diluted net (loss) income per common share calculations:
Thirteen Weeks Ended |
| |||||||
July 1, | July 2, |
| ||||||
| 2023 |
| 2022 |
|
| |||
Numerator: | ||||||||
Net (loss) income | $ | ( | $ | | ||||
Denominator: | ||||||||
Weighted-average common shares — basic |
| |
| | ||||
Nonvested restricted stock awards and other dilutive securities | — | | ||||||
Weighted-average common shares — diluted | | | ||||||
Net (loss) income per common share — basic | $ | ( | $ | | ||||
Net (loss) income per common share — diluted | $ | ( | $ | | ||||
Antidilutive securities not included: | ||||||||
Stock options outstanding | |
| | |||||
Nonvested restricted stock awards | | |
12
5. Income taxes
The benefit for income taxes in the thirteen weeks ended July 1, 2023 was $
6. Commitments and contingencies
In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $
The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material adverse effect on the Company’s consolidated financial statements on an individual basis or in the aggregate.
7. Accumulated other comprehensive loss
Accumulated other comprehensive loss (“AOCL”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCL, net of tax, are shown below for the thirteen weeks ended July 1, 2023:
Pension | Foreign | ||||||||
liability | currency | ||||||||
| adjustment |
| translation |
| Total | ||||
Balance at April 1, 2023 | $ | ( | $ | ( | $ | ( | |||
Other comprehensive income (loss) before reclassifications, net of tax | | ( | ( | ||||||
Amounts reclassified to earnings, net of tax | — | — | — | ||||||
Net current period other comprehensive income (loss) |
| |
| ( |
| ( | |||
Balance at July 1, 2023 | $ | ( | $ | ( | $ | ( | |||
13
8. Fair value measurements
Under GAAP, the Company is required to a) measure certain assets and liabilities at fair value and b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include:
● | Level 1—Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. |
● | Level 2—Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
● | Level 3—Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques. |
As of July 1, 2023, April 1, 2023 and July 2, 2022, the Company held certain items that are required to be measured at fair value on a recurring basis. These items are included in the non-qualified retirement plan, which consists of investments purchased by employee contributions to retirement savings accounts. The fair value amount of the non-qualified retirement plan is measured using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds.
The following items are measured at fair value on a recurring basis, subject to the requirements of ASC 820, Fair Value Measurements:
July 1, | April 1, | July 2, | ||||||||||||
Description |
|
| Balance Sheet Location |
| 2023 |
| 2023 |
| 2022 |
| ||||
Assets |
| |||||||||||||
Nonqualified retirement plan |
| N/A |
| Other current assets | $ | | $ | | $ | | ||||
Total assets | $ | | $ | | $ | |
The fair value of long-term debt was estimated using quoted prices as well as recent transactions for similar types of borrowing arrangements (Level 2 valuations). As of July 1, 2023, April 1, 2023 and July 2, 2022, the estimated fair value of the Company’s long-term debt, including current maturities, was as follows:
July 1, | April 1, | July 2, | ||||||||
| 2023 |
| 2023 |
| 2022 |
| ||||
Senior secured term loan facility | $ | | $ | | $ | | ||||
2019 Elfa revolving facilities | — | | | |||||||
Obligations under finance leases | | | | |||||||
Revolving credit facility |
| |
| |
| | ||||
Total fair value of debt | $ | | $ | | $ | |
14
9. Segment reporting
The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s
The Elfa segment includes the manufacturing business that produces elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately
The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance.
Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net (loss) income before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.
Thirteen Weeks Ended July 1, 2023 |
| TCS |
| Elfa |
| Eliminations |
| Total | ||||
Net sales to third parties | $ | | $ | | $ | — | $ | | ||||
Intersegment sales |
| — |
| |
| ( |
| — | ||||
Adjusted EBITDA |
| |
| |
| |
| | ||||
Interest expense, net | | | — | | ||||||||
Assets (1) | | | ( | |
Thirteen Weeks Ended July 2, 2022 |
| TCS |
| Elfa |
| Eliminations |
| Total | ||||
Net sales to third parties | $ | | $ | | $ | — | $ | | ||||
Intersegment sales | — | | ( | — | ||||||||
Adjusted EBITDA | | | ( | | ||||||||
Interest expense, net | | | — | | ||||||||
Assets (1) | | | ( | |
(1) | Tangible assets in the Elfa column are located outside of the United States. |
15
A reconciliation of income before taxes to Adjusted EBITDA is set forth below:
Thirteen Weeks Ended | |||||||
| July 1, |
| July 2, |
| |||
2023 | 2022 | ||||||
(Loss) income before taxes | $ | ( | $ | | |||
Add: |
|
| |||||
Depreciation and amortization |
| |
| | |||
Interest expense, net |
| |
| | |||
Pre-opening costs (a) |
| |
| | |||
Non-cash lease expense (b) |
| ( |
| | |||
Stock-based compensation (c) |
| |
| | |||
Foreign exchange gains (d) |
| ( |
| ( | |||
Severance charges (e) | | — | |||||
Adjusted EBITDA | $ | | $ | |
(a) | Non-capital expenditures associated with opening new stores and relocating stores, including 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 operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. |
(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) | Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations. |
(e) | TCS segment severance charges associated with the elimination of certain positions recorded in other expenses in the first quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance. |
10. Stock-based compensation
On June 1, 2023, the Company granted time-based and performance-based restricted stock awards under the Company’s Amended and Restated 2013 Incentive Award Plan to certain officers and employees of the Company. The total number of restricted shares granted was