Container Store Group, Inc. [TCS] Filings

10-Q 1 tcs-20230701x10q.htm 10-Q

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 July 1, 2023


☐	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 51,392,282 shares of its common stock outstanding as of July 28, 2023.

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TABLE OF CONTENTS



PART I.	FINANCIAL INFORMATION

Item 1.	Financial statements

	Unaudited consolidated balance sheets as of July 1, 2023, April 1, 2023, and July 2, 2022	3

	Unaudited consolidated statements of operations for the thirteen weeks ended July 1, 2023 and July 2, 2022	5

	Unaudited consolidated statements of comprehensive (loss) income for the thirteen weeks ended July 1, 2023 and July 2, 2022	6

	Unaudited consolidated statements of cash flows for the thirteen weeks ended July 1, 2023 and July 2, 2022	7

	Unaudited consolidated statements of shareholders’ equity for the thirteen weeks ended July 1, 2023 and July 2, 2022	8

	Notes to the unaudited consolidated financial statements	9

Item 2.	Management’s discussion and analysis of financial condition and results of operations	17

Item 3.	Quantitative and qualitative disclosures about market risk	30

Item 4.	Controls and procedures	30

PART II.	OTHER INFORMATION

Item 1.	Legal proceedings	31

Item 1A.	Risk factors	31

Item 2.	Unregistered sales of equity securities, use of proceeds, and issuer purchases of equity securities	31

Item 3.	Default upon senior securities	31

Item 4.	Mine safety disclosures	31

Item 5.	Other information	31

Item 6.	Exhibits	32

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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	$	12,155	$	6,958	$	23,206
Accounts receivable, net		21,870		25,870		30,466
Inventory		170,512		170,637		190,752
Prepaid expenses		14,624		14,989		14,612
Income taxes receivable		964		858		808
Other current assets		9,985		10,914		9,826
Total current assets		230,110		230,226		269,670
Noncurrent assets:
Property and equipment, net		157,747		158,702		144,175
Noncurrent operating lease right-of-use assets		353,402		347,959		365,053
Goodwill		23,447		23,447		221,159
Trade names		219,894		221,278		221,633
Deferred financing costs, net		137		150		190
Noncurrent deferred tax assets, net		517		568		636
Other assets		2,702		2,844		1,923
Total noncurrent assets		757,846		754,948		954,769
Total assets	$	987,956	$	985,174	$	1,224,439

See accompanying notes.

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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	$	53,305	$	52,637	$	68,920
Accrued liabilities		68,218		74,673		81,743
Current borrowings on revolving lines of credit		—		2,423		11,541
Current portion of long-term debt		2,055		2,063		2,072
Current operating lease liabilities		59,996		57,201		54,605
Income taxes payable		670		1,318		10,464
Total current liabilities		184,244		190,315		229,345
Noncurrent liabilities:
Long-term debt		183,333		163,385		173,502
Noncurrent operating lease liabilities		320,845		314,100		332,800
Noncurrent deferred tax liabilities, net		45,062		49,338		48,309
Other long-term liabilities		5,394		5,851		6,876
Total noncurrent liabilities		554,634		532,674		561,487
Total liabilities		738,878		722,989		790,832
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 49,390,882 shares issued at July 1, 2023; 49,181,562 shares issued at April 1, 2023; 49,941,336 shares issued at July 2, 2022		494		492		499
Additional paid-in capital		872,536		872,204		875,016
Accumulated other comprehensive loss		(34,113)		(32,509)		(33,241)
Retained deficit		(589,839)		(578,002)		(408,667)
Total shareholders’ equity		249,078		262,185		433,607
Total liabilities and shareholders’ equity	$	987,956	$	985,174	$	1,224,439

See accompanying notes.

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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	$	207,112	$	262,634
Cost of sales (excluding depreciation and amortization)		92,563		112,546
Gross profit		114,549		150,088
Selling, general, and administrative expenses (excluding depreciation and amortization)		111,380		121,909
Stock-based compensation		474		1,201
Pre-opening costs		185		36
Depreciation and amortization		10,512		9,006
Other expenses		2,453		—
Loss on disposal of assets		1		1
(Loss) income from operations		(10,456)		17,935
Interest expense, net		4,967		3,223
(Loss) income before taxes		(15,423)		14,712
(Benefit) provision for income taxes		(3,586)		4,233
Net (loss) income	$	(11,837)	$	10,479

Net (loss) income per common share — basic	$	(0.24)	$	0.21
Net (loss) income per common share — diluted	$	(0.24)	$	0.21

Weighted-average common shares — basic		49,252,869		49,719,559
Weighted-average common shares — diluted		49,252,869		50,312,855

See accompanying notes.

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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	$	(11,837)	$	10,479
Unrealized (loss) on financial instruments, net of tax benefit of ($39)		—		(113)
Pension liability adjustment		59		214
Foreign currency translation adjustment		(1,663)		(5,898)
Comprehensive (loss) income	$	(13,441)	$	4,682

See accompanying notes.

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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	$	(11,837)	$	10,479
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization		10,512		9,006
Stock-based compensation		474		1,201
Loss on disposal of assets		1		1
Deferred tax benefit		(3,975)		(1,325)
Non-cash interest		471		471
Other		193		81
Changes in operating assets and liabilities:
Accounts receivable		5,894		(2,101)
Inventory		(234)		(59)
Prepaid expenses and other assets		1,173		(2,415)
Accounts payable and accrued liabilities		(8,707)		(17,280)
Net change in lease assets and liabilities		4,101		7
Income taxes		(739)		5,271
Other noncurrent liabilities		(315)		(165)
Net cash (used in) provided by operating activities		(2,988)		3,172

Investing activities
Additions to property and equipment		(8,898)		(17,620)
Investments in non-qualified plan trust		(128)		(767)
Proceeds from non-qualified plan trust redemptions		83		60
Proceeds from sale of property and equipment		1		—
Net cash used in investing activities		(8,942)		(18,327)

Financing activities
Borrowings on revolving lines of credit		12,799		23,834
Payments on revolving lines of credit		(15,180)		(13,528)
Borrowings on long-term debt		20,000		15,000
Payments on long-term debt		(518)		(530)
Payment of taxes with shares withheld upon restricted stock vesting		(140)		(712)
Proceeds from the exercise of stock options		—		340
Net cash provided by financing activities		16,961		24,404

Effect of exchange rate changes on cash		166		(295)

Net increase in cash		5,197		8,954
Cash at beginning of fiscal period		6,958		14,252
Cash at end of fiscal period	$	12,155	$	23,206

Purchases of property and equipment (included in accounts payable)	$	4,678	$	6,486
Cash paid for amounts included in the measurement of operating lease liabilities	$	23,474	$	22,254
Additions to right-of-use assets in exchange for operating lease liabilities	$	19,429	$	30,321

See accompanying notes.

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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	49,181,562	$	492	$	872,204	$	(32,509)	$	(578,002)	$	262,185
Net loss	—		—		—		—		(11,837)		(11,837)
Stock-based compensation	—		—		474		—		—		474
Vesting of restricted stock awards	209,320		2		(2)		—		—		—
Taxes related to net share settlement of restricted stock awards	—		—		(140)		—		—		(140)
Foreign currency translation adjustment	—		—		—		(1,663)		—		(1,663)
Pension liability adjustment	—		—		—		59		—		59
Balance at July 1, 2023	49,390,882	$	494	$	872,536	$	(34,113)	$	(589,839)	$	249,078


						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	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 loss on financial instruments, net of $39 tax benefit	—		—		—		(113)		—		(113)
Pension liability adjustment	—		—		—		214		—		214
Balance at July 2, 2022	49,941,336		499		875,016		(33,241)		408,667		433,607

See accompanying notes.

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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 52-week fiscal year ending March 30, 2024, and “fiscal 2022” refer to the 52-week fiscal year ended April 1, 2023.

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 Preston^TM 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 97 stores with an average size of approximately 24,000 square feet (18,000 selling square feet) in 34 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, in-home design specialists and in-home design organizers. We operate the C Studio manufacturing facility in Elmhurst, Illinois, which designs and manufactures the Company’s premium wood-based custom space product offering, and is included in the TCS reportable segment.

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.

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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	$	12,727	$	16,911	$	17,992
Credit card receivables		7,351		7,523		10,541
Other receivables		1,792		1,436		1,933
	$	21,870	$	25,870	$	30,466
Inventory:
Finished goods	$	160,198	$	160,108	$	182,523
Raw materials		9,024		9,289		6,902
Work in progress		1,290		1,240		1,327
	$	170,512	$	170,637	$	190,752
Accrued liabilities:
Accrued payroll, benefits and bonuses	$	18,907	$	24,224	$	21,795
Unearned revenue		17,036		15,700		24,747
Accrued transaction and property tax		11,789		14,072		14,306
Gift cards and store credits outstanding		12,978		13,002		12,441
Accrued sales returns		2,999		3,366		4,170
Accrued interest		245		189		188
Other accrued liabilities		4,264		4,120		4,096
	$	68,218	$	74,673	$	81,743

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 $15,700 as of April 1, 2023, and $11,928 was subsequently recognized into revenue for the thirteen weeks ended July 1, 2023. Gift cards and store credits outstanding was $13,002 as of April 1, 2023, and $1,764 was subsequently recognized into revenue for the thirteen weeks ended July 1, 2023. See Note 9 for disaggregated revenue disclosures.

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3. Leases

We conduct all of our U.S. operations from leased facilities that include our support center, distribution centers, manufacturing facilities, and 97 store locations. The support center, 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 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	$	23,284	$	22,304
Variable lease costs		163		369
Total lease costs	$	23,447	$	22,673

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.

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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)	6.5		6.9
Weighted average incremental borrowing rate	10.2	%	10.7	%

As of July 1, 2023, future minimum lease payments under our operating lease liabilities were as follows:


	Operating leases⁽¹⁾
Within 1 year (remaining)	$	71,509
2 years		89,827
3 years		81,722
4 years		71,587
5 years		59,737
Thereafter		147,301
Total lease payments	$	521,683
Less amount representing interest		140,842
Total lease liability	$	380,841
Less current lease liability		59,996
Total noncurrent lease liability	$	320,845

(1) Operating lease payments exclude approximately $49,719 of legally binding minimum lease payments for six leases signed but not yet commenced.

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	$	(11,837)	$	10,479
Denominator:
Weighted-average common shares — basic		49,252,869		49,719,559
Nonvested restricted stock awards and other dilutive securities		—		593,296
Weighted-average common shares — diluted		49,252,869		50,312,855

Net (loss) income per common share — basic	$	(0.24)	$	0.21
Net (loss) income per common share — diluted	$	(0.24)	$	0.21
Antidilutive securities not included:
Stock options outstanding		1,711,246		1,541,235
Nonvested restricted stock awards		613,394		252,582

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5. Income taxes

The benefit for income taxes in the thirteen weeks ended July 1, 2023 was $3,586 as compared to a provision for income taxes of $4,233 in the thirteen weeks ended July 2, 2022. The effective tax rate for the thirteen weeks ended July 1, 2023 was 23.3%, as compared to 28.8% in the thirteen weeks ended July 2, 2022. During the thirteen weeks ended July 1, 2023 and July 2, 2022, the effective tax rate rose above the U.S. statutory rate of 21%, primarily due to U.S. state income taxes, and the impact of the global intangible low-taxed income provision.

6. Commitments and contingencies

In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $3,905 as of July 1, 2023.

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	$	(1,117)	$	(31,392)	$	(32,509)

Other comprehensive income (loss) before reclassifications, net of tax		59		(1,663)		(1,604)
Amounts reclassified to earnings, net of tax		—		—		—
Net current period other comprehensive income (loss)		59		(1,663)		(1,604)

Balance at July 1, 2023	$	(1,058)	$	(33,055)	$	(34,113)

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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	$	4,012	$	3,743	$	3,847
Total assets			$	4,012	$	3,743	$	3,847

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	$	152,625	$	153,915	$	153,640
2019 Elfa revolving facilities		—		2,423		11,541
Obligations under finance leases		117		136		135
Revolving credit facility		25,000		5,000		15,000
Total fair value of debt	$	177,742	$	161,474	$	180,316

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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 two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as in-home services. We operate the C Studio manufacturing facility in Elmhurst, Illinois, which designs and manufactures the Company’s premium wood-based custom space product offering. We determined that TCS and C Studio have similar economic characteristics and meet the aggregation criteria set forth in ASC 280, Segment Reporting. Therefore, we have combined these two operating segments into the TCS reportable segment.

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 30 countries around the world, with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

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	$	195,127	$	11,985	$	—	$	207,112
Intersegment sales		—		12,552		(12,552)		—
Adjusted EBITDA		774		1,953		192		2,919
Interest expense, net		4,885		82		—		4,967
Assets (1)		899,462		96,987		(8,493)		987,956


Thirteen Weeks Ended July 2, 2022	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	246,771	$	15,863	$	—	$	262,634
Intersegment sales		—		11,720		(11,720)		—
Adjusted EBITDA		25,097		3,251		(160)		28,188
Interest expense, net		3,135		88		—		3,223
Assets (1)		1,126,112		102,138		(3,811)		1,224,439

(1)	Tangible assets in the Elfa column are located outside of the United States.

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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	$	(15,423)	$	14,712
Add:
Depreciation and amortization		10,512		9,006
Interest expense, net		4,967		3,223
Pre-opening costs (a)		185		36
Non-cash lease expense (b)		(174)		34
Stock-based compensation (c)		474		1,201
Foreign exchange gains (d)		(75)		(24)
Severance charges (e)		2,453		—
Adjusted EBITDA	$	2,919	$	28,188

(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 1,586,596 with a grant-date fair value of $2.48 per share. The time-based restricted stock awards will vest over 3 years. The performance-based restricted stock awards vest based on achievement of fiscal 2023 performance targets and are also subject to time-based vesting requirements over

Container Store Group, Inc. [TCS] Filings
10-Q	[2023-08-02]
10-K	[2023-05-26]
10-Q	[2023-02-08]
10-Q	[2022-11-02]
10-Q	[2022-08-03]
10-K	[2022-06-02]
10-Q	[2022-02-09]
10-Q	[2021-11-03]
10-Q	[2021-08-04]
10-K	[2021-06-03]
10-Q	[2021-02-03]
10-Q	[2020-10-21]
10-Q	[2020-07-29]
10-K	[2020-06-17]
10-Q	[2020-02-05]
10-Q	[2019-10-30]
10-Q	[2019-07-31]
10-K	[2019-05-30]
10-Q	[2019-02-06]
10-Q	[2018-11-01]
10-Q	[2018-08-02]
10-K	[2018-05-31]
10-Q	[2018-02-07]
10-Q	[2017-11-08]
10-Q	[2017-08-03]
10-K	[2017-06-01]
10-Q	[2017-02-08]
10-Q	[2016-11-10]
10-Q	[2016-08-10]
10-K	[2016-05-10]
10-Q	[2016-01-07]
10-Q	[2015-10-07]
10-Q	[2015-07-08]
10-K	[2015-05-08]
10-Q	[2015-01-09]
10-Q	[2014-10-10]
10-Q	[2014-07-11]
10-K	[2014-05-28]
10-Q	[2014-01-10]
S-1	[2013-09-30]