10-Q 1 tcs-20221001x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2022

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: 001-36161

THE CONTAINER STORE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

26-0565401

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

500 Freeport Parkway, Coppell, TX

75019

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (972) 538-6000

(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

Common Stock, par value $0.01 per share

TCS

New York Stock Exchange

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. Yes  No

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). Yes  No

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 

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  No

The registrant had 50,628,656 shares of its common stock outstanding as of October 28, 2022.

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

Item 1.

Financial statements

Unaudited consolidated balance sheets as of October 1, 2022, April 2, 2022, and October 2, 2021

3

Unaudited consolidated statements of operations for the thirteen and twenty-six weeks ended October 1, 2022 and October 2, 2021

5

Unaudited consolidated statements of comprehensive income for the thirteen and twenty-six weeks ended October 1, 2022 and October 2, 2021

6

Unaudited consolidated statements of cash flows for the twenty-six weeks ended October 1, 2022 and October 2, 2021

7

Unaudited consolidated statements of shareholders’ equity for the thirteen and twenty-six weeks ended October 1, 2022 and October 2, 2021

8

Notes to the unaudited consolidated financial statements

10

Item 2.

Management’s discussion and analysis of financial condition and results of operations

22

Item 3.

Quantitative and qualitative disclosures about market risk

37

Item 4.

Controls and procedures

38

PART II.

OTHER INFORMATION

Item 1.

Legal proceedings

38

Item 1A.

Risk factors

38

Item 2.

Unregistered sales of equity securities and use of proceeds

39

Item 3.

Default upon senior securities

39

Item 4.

Mine safety disclosures

39

Item 5.

Other information

39

Item 6.

Exhibits

40

2

PART I.

FINANCIAL INFORMATION

Item 1.

Financial statements

The Container Store Group, Inc.

Consolidated balance sheets

October 1,

April 2,

October 2,

(In thousands)

2022

    

2022

    

2021

    

Assets

(unaudited)

(unaudited)

Current assets:

Cash

$

19,814

$

14,252

$

23,137

Accounts receivable, net

 

28,624

 

30,225

 

31,035

Inventory

 

190,142

 

192,783

 

173,141

Prepaid expenses

 

17,474

 

11,628

 

12,690

Income taxes receivable

1,309

1,687

840

Other current assets

 

9,639

 

9,836

 

13,354

Total current assets

 

267,002

 

260,411

 

254,197

Noncurrent assets:

Property and equipment, net

 

147,302

 

140,198

 

130,733

Noncurrent operating lease right-of-use assets

356,605

347,519

304,194

Goodwill

 

221,159

 

221,159

 

202,815

Trade names

 

218,882

 

224,938

 

227,476

Deferred financing costs, net

 

176

 

203

 

229

Noncurrent deferred tax assets, net

 

471

 

865

 

905

Other assets

 

2,062

 

2,284

 

2,660

Total noncurrent assets

 

946,657

 

937,166

 

869,012

Total assets

$

1,213,659

$

1,197,577

$

1,123,209

See accompanying notes.

3

The Container Store Group, Inc.

Consolidated balance sheets (continued)

October 1,

    

April 2,

    

October 2,

    

(In thousands, except share and per share amounts)

2022

    

2022

    

2021

    

Liabilities and shareholders’ equity

(unaudited)

(unaudited)

Current liabilities:

Accounts payable

$

79,892

$

84,059

$

86,232

Accrued liabilities

 

79,447

 

89,004

 

85,848

Current borrowings on revolving lines of credit

 

13,660

 

1,790

 

59

Current portion of long-term debt

 

2,066

 

2,096

 

2,136

Current operating lease liabilities

56,204

52,540

50,177

Income taxes payable

 

218

 

6,026

 

2,852

Total current liabilities

 

231,487

 

235,515

 

227,304

Noncurrent liabilities:

Long-term debt

 

158,465

 

158,564

 

164,194

Noncurrent operating lease liabilities

322,830

317,345

278,235

Noncurrent deferred tax liabilities, net

 

49,804

 

50,493

 

46,650

Other long-term liabilities

 

6,393

 

7,564

 

12,108

Total noncurrent liabilities

 

537,492

 

533,966

 

501,187

Total liabilities

 

768,979

 

769,481

 

728,491

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock, $0.01 par value, 250,000,000 shares authorized; 50,104,829 shares issued at October 1, 2022; 49,635,447 shares issued at April 2, 2022; 49,545,153 shares issued at October 2, 2021

 

501

 

496

 

495

Additional paid-in capital

 

875,550

 

874,190

 

871,545

Accumulated other comprehensive loss

 

(38,451)

 

(27,444)

 

(21,325)

Retained deficit

 

(392,920)

 

(419,146)

 

(455,997)

Total shareholders’ equity

 

444,680

 

428,096

 

394,718

Total liabilities and shareholders’ equity

$

1,213,659

$

1,197,577

$

1,123,209

See accompanying notes.

4

The Container Store Group, Inc.

Consolidated statements of operations

Thirteen Weeks Ended

Twenty-Six Weeks Ended

 

October 1,

October 2,

October 1,

October 2,

 

(In thousands, except share and per share amounts) (unaudited)

    

2022

    

2021

    

2022

    

2021

 

 

Net sales

$

272,672

$

275,954

$

535,306

$

521,269

Cost of sales (excluding depreciation and amortization)

 

118,242

 

112,416

 

230,788

 

211,407

Gross profit

 

154,430

 

163,538

 

304,518

 

309,862

Selling, general, and administrative expenses (excluding depreciation and amortization)

 

118,655

 

114,062

 

240,564

 

224,210

Stock-based compensation

 

536

 

1,086

 

1,737

 

1,955

Pre-opening costs

 

583

 

72

 

619

 

666

Depreciation and amortization

 

9,549

 

8,544

 

18,555

 

16,745

Loss (gain) on disposal of assets

 

80

 

 

81

 

(5)

Income from operations

 

25,027

 

39,774

 

42,962

 

66,291

Interest expense, net

 

3,783

 

3,186

 

7,006

 

6,371

Income before taxes

21,244

 

36,588

35,956

 

59,920

Provision for income taxes

 

5,497

 

9,393

 

9,730

 

15,053

Net income

$

15,747

$

27,195

$

26,226

$

44,867

Net income per common share — basic

$

0.31

$

0.55

$

0.53

$

0.91

Net income per common share — diluted

$

0.31

$

0.54

$

0.52

$

0.88

Weighted-average common shares — basic

50,000,945

49,468,324

49,860,252

49,274,611

Weighted-average common shares — diluted

 

50,350,549

 

50,217,614

 

50,324,456

 

51,112,668

See accompanying notes.

5

The Container Store Group, Inc.

Consolidated statements of comprehensive income

Thirteen Weeks Ended

Twenty-Six Weeks Ended

October 1,

October 2,

October 1,

October 2,

(In thousands) (unaudited)

    

2022

    

2021

    

2022

    

2021

    

    

Net income

$

15,747

$

27,195

$

26,226

$

44,867

Unrealized gain (loss) on financial instruments, net of tax provision (benefit) of $20, ($398), ($19) and ($347)

 

80

 

(1,161)

 

(33)

 

(1,018)

Pension liability adjustment

 

178

 

72

 

392

 

15

Foreign currency translation adjustment

 

(5,468)

 

(2,022)

 

(11,366)

 

(1,319)

Comprehensive income

$

10,537

$

24,084

$

15,219

$

42,545

See accompanying notes.

6

The Container Store Group, Inc.

Consolidated statements of cash flows

Twenty-Six Weeks Ended

October 1,

October 2,

(In thousands) (unaudited)

    

2022

    

2021

    

    

Operating activities

Net income

$

26,226

$

44,867

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

18,555

 

16,745

Stock-based compensation

1,737

 

1,955

Loss (gain) on disposal of assets

81

 

(5)

Deferred tax expense

396

 

454

Non-cash interest

942

 

940

Other

492

 

(247)

Changes in operating assets and liabilities:

Accounts receivable

(2,655)

 

(2,105)

Inventory

(935)

 

(42,836)

Prepaid expenses and other assets

(5,685)

 

(4,587)

Accounts payable and accrued liabilities

(6,713)

 

17,359

Net change in lease assets and liabilities

102

(4,493)

Income taxes

(5,600)

 

(5,562)

Other noncurrent liabilities

(153)

 

30

Net cash provided by operating activities

26,790

22,515

Investing activities

Additions to property and equipment

(32,047)

 

(14,585)

Investments in non-qualified plan trust

(879)

(130)

Proceeds from non-qualified plan trust redemptions

467

2,592

Proceeds from sale of property and equipment

34

 

5

Net cash used in investing activities

(32,425)

 

(12,118)

Financing activities

Borrowings on revolving lines of credit

44,104

 

24,923

Payments on revolving lines of credit

(30,855)

 

(24,863)

Borrowings on long-term debt

15,000

 

5,000

Payments on long-term debt

(16,053)

(5,597)

Payment of taxes with shares withheld upon restricted stock vesting

(712)

(4,677)

Proceeds from the exercise of stock options

340

 

226

Net cash provided by (used in) financing activities

11,824

 

(4,988)

Effect of exchange rate changes on cash

(627)

 

41

Net increase in cash

5,562

 

5,450

Cash at beginning of fiscal period

14,252

 

17,687

Cash at end of fiscal period

$

19,814

$

23,137

Supplemental information:

Purchases of property and equipment (included in accounts payable)

$

6,223

$

3,083

Cash paid for amounts included in the measurement of operating lease liabilities

$

44,980

$

48,755

Additions to right-of-use assets

$

34,938

$

18,698

See accompanying notes.

7

The Container Store Group, Inc.

Consolidated statements of shareholders’ equity

Accumulated

Additional

other

Total

(In thousands, except share amounts)

Par

Common stock

paid-in

comprehensive

Retained

shareholders’

(unaudited)

    

value

    

Shares

    

Amount

    

capital

    

loss

    

deficit

    

equity

Balance at April 2, 2022

$

0.01

 

49,635,447

$

496

$

874,190

$

(27,444)

$

(419,146)

$

428,096

Net income

 

 

 

 

 

 

10,479

 

 

10,479

Stock-based compensation

 

 

 

 

1,201

 

 

 

 

1,201

Stock options exercised

73,594

1

339

340

Vesting of restricted stock awards

232,295

2

(2)

Taxes related to net share settlement of restricted stock awards

(712)

(712)

Foreign currency translation adjustment

 

 

 

 

 

(5,898)

 

 

 

(5,898)

Unrealized gain on financial instruments, net of $39 tax benefit

 

 

 

 

 

(113)

 

 

 

(113)

Pension liability adjustment

 

 

 

 

 

214

 

 

 

214

Balance at July 2, 2022

$

0.01

 

49,941,336

$

499

 

$

875,016

$

(33,241)

$

(408,667)

 

$

433,607

Net income

15,747

15,747

Stock-based compensation

536

536

Vesting of restricted stock awards

163,493

2

(2)

Taxes related to net share settlement of restricted stock awards

Foreign currency translation adjustment

(5,468)

(5,468)

Unrealized gain on financial instruments, net of $20 tax provision

80

80

Pension liability adjustment

178

178

Balance at October 1, 2022

$

0.01

50,104,829

501

875,550

(38,451)

(392,920)

444,680

See accompanying notes.

8

The Container Store Group, Inc.

Consolidated statements of shareholders’ equity (continued)

Accumulated

Additional

other

Total

(In thousands, except share amounts)

Par

Common stock

paid-in

comprehensive

Retained

shareholders’

(unaudited)

    

value

    

Shares

    

Amount

    

capital

    

loss

    

deficit

    

equity

Balance at April 3, 2021

$

0.01

 

48,838,261

$

488

 

$

873,048

$

(19,003)

$

(500,864)

 

$

353,669

Net income

 

 

 

 

 

 

17,672

 

 

17,672

Stock-based compensation

 

 

 

 

869

 

 

 

 

869

Stock options exercised

52,183

1

225

226

Vesting of restricted stock awards

526,771

5

(5)

Taxes related to net share settlement of restricted stock awards

(3,677)

(3,677)

Foreign currency translation adjustment

 

 

 

 

 

703

 

 

 

703

Unrealized gain on financial instruments, net of $51 tax provision

 

 

 

 

 

143

 

 

 

143

Pension liability adjustment

 

 

 

 

 

(57)

 

 

 

(57)

Balance at July 3, 2021

$

0.01

 

49,417,215

$

494

 

$

870,460

$

(18,214)

$

(483,192)

 

$

369,548

Net income

 

 

27,195

 

27,195

Stock-based compensation

 

 

1,086

 

1,086

Vesting of restricted stock awards

127,938

1

(1)

Taxes related to net share settlement of restricted stock awards

Foreign currency translation adjustment

(2,022)

(2,022)

Unrealized gain on financial instruments, net of $398 tax benefit

(1,161)

(1,161)

Pension liability adjustment

72

72

Balance at October 2, 2021

$

0.01

49,545,153

495

871,545

(21,325)

(455,997)

394,718

See accompanying notes.

9

The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

(In thousands, except share amounts and unless otherwise stated)

October 1, 2022

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 2, 2022, filed with the Securities and Exchange Commission (“SEC”) on June 2, 2022 (the “2021 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. Consistent with our disclosures in the 2021 Annual Report on Form 10-K, the Company has revised the fiscal 2021 interim period presentation of the purchases and sales of the underlying investments held in the rabbi trust related to the nonqualified retirement plan in the Consolidated statement of cash flows from operating activities to investing activities. See “Note 1. Nature of business and summary of significant accounting policies” of the Notes to consolidated financial statements in our 2021 Annual Report on Form 10-K for additional information.

The following table presents the effects of the changes in presentation of these cash flows, compared to the previously reported Consolidated statements of cash flows:

Twenty-Six Weeks Ended October 2, 2021

(In thousands)(unaudited)

    

As Reported

Adjustment

As Corrected

Prepaid expenses and other assets

$

(2,125)

$

(2,462)

$

(4,587)

Net cash provided by operating activities

24,977

(2,462)

22,515

Investments in non-qualified plan trust

(130)

(130)

Proceeds from non-qualified plan trust redemptions

2,592

2,592

Net cash used in investing activities

$

(14,580)

$

2,462

$

(12,118)

All references herein to “fiscal 2022” refer to the 52-week fiscal year ending April 1, 2023, “fiscal 2021” refer to the 52-week fiscal year ended April 2, 2022, and “fiscal 2020” refer to the 53-week fiscal year ended April 3, 2021.

Description of business

Our operations consist of two reportable segments:

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 50% of the Company’s outstanding common stock. Although LGP is no longer the majority shareholder, LGP continues to have significant influence over the Company.

Today, TCS includes The Container Store Custom Spaces (“Custom Spaces”) consisting of our elfa® Classic, elfa® Décor, Avera® and PrestonTM lines. 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 October 1, 2022, TCS operates 95 stores with an average size of approximately

10

25,000 square feet (19,000 selling square feet) in 33 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers, through its website, responsive mobile site and app, call center and in-home design consultants. On December 30, 2021, the Company completed the acquisition of Closet Parent Company, Inc. (“Closet Works”), a designer, manufacturer and supplier of wood-based custom home storage and organization solutions, which is included in the TCS reportable segment. Closet Works, based in Chicago, Illinois, services the United States by offering customized solutions for closets, garages, home offices, pantries, laundry rooms, murphy beds and built-in wall units.

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 30 countries around the world, with a concentration in the Nordic region of Europe.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the twenty-six weeks ended October 1, 2022 are not necessarily indicative of the operating results for the full year. Our storage and organization product and services offering makes us less susceptible to holiday season shopping patterns than many retailers. In fiscal 2021, sales and profitability did not follow historical patterns due to various factors, including changes in promotional strategy and cadence. Fiscal 2022 sales and profitability patterns are expected to be largely consistent with fiscal 2021.

Recent accounting pronouncements

In July 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard requires recognition of full lifetime expected losses upon initial recognition of the financial instrument. The Company adopted this standard in the first quarter of fiscal 2022. The adoption of this standard did not result in a material impact to the Company’s financial statements.

11

2.  Detail of certain balance sheet accounts

October 1,

April 2,

October 2,

    

2022

    

2022

    

2021

Accounts receivable, net:

Trade receivables, net

$

18,191

$

19,170

$

19,010

Credit card receivables

 

8,779

 

9,308

 

9,650

Other receivables

 

1,654

 

1,747

 

2,375

$

28,624

$

30,225

$

31,035

Inventory:

Finished goods

$

181,422

$

186,025

$

166,818

Raw materials

 

8,175

 

5,769

 

5,634

Work in progress

 

545

 

989

 

689

$

190,142

$

192,783

$

173,141

Accrued liabilities:

Accrued payroll, benefits and bonuses

$

21,658

$

32,316

$

26,192

Unearned revenue

22,124

22,603

22,406

Accrued transaction and property tax

14,930

15,056

15,202

Gift cards and store credits outstanding

12,274

11,921

10,304

Accrued sales returns

3,985

3,197

3,195

Accrued interest

197

121

2,692

Other accrued liabilities

4,279

3,790

5,857

$

79,447

$

89,004

$

85,848

Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, Unearned revenue included in Accrued liabilities, and Gift cards and store credits outstanding included in Accrued liabilities in the Company’s Consolidated balance sheets. Unearned revenue was $22,603 as of April 2, 2022, and $18,028 was subsequently recognized into revenue for the twenty-six weeks ended October 1, 2022. Gift cards and store credits outstanding was $11,921 as of April 2, 2022, and $2,471 was subsequently recognized into revenue for the twenty-six weeks ended October 1, 2022. See Note 11 for disaggregated revenue disclosures.

3. Leases

We conduct all of our U.S. operations from leased facilities that include our corporate headquarters, distribution centers, manufacturing facilities, and 95 store locations. The corporate headquarters, distribution centers, manufacturing facilities, and stores are leased under operating leases that generally expire over the next 1 to 15 years. We also lease computer hardware under operating leases that generally expire over the next few years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company also has finance leases at our Elfa segment which are immaterial.

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

12

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 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 and twenty-six weeks ended October 1, 2022 and October 2, 2021 were as follows:

Thirteen Weeks Ended

Twenty-Six Weeks Ended

October 1, 2022

October 2, 2021

October 1, 2022

October 2, 2021

Operating lease costs

$

22,678

$

21,859

$

45,182

$

43,695

Variable lease costs

 

379

 

518

 

749

 

818

Total lease costs

$

23,057

$

22,377

$

45,931

$

44,513

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 and twenty-six weeks ended October 1, 2022 and October 2, 2021.

Weighted average remaining operating lease term and incremental borrowing rate as of October 1, 2022 and October 2, 2021 were as follows:

Twenty-Six Weeks Ended

October 1, 2022

October 2, 2021

Weighted average remaining lease term (years)

6.7

6.5

Weighted average incremental borrowing rate

10.7

%

13.1

%

13