10-Q 1 tcs-20220101x10q.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 January 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 50,646,109 shares of its common stock outstanding as of February 4, 2022.

TABLE OF CONTENTS

PART I.

FINANCIAL INFORMATION

Item 1.

Financial statements

Unaudited consolidated balance sheets as of January 1, 2022, April 3, 2021, and December 26, 2020

3

Unaudited consolidated statements of operations for the thirteen and thirty-nine weeks ended January 1, 2022 and December 26, 2020

5

Unaudited consolidated statements of comprehensive income for the thirteen and thirty-nine weeks ended January 1, 2022 and December 26, 2020

6

Unaudited consolidated statements of cash flows for the thirty-nine weeks ended January 1, 2022 and December 26, 2020

7

Unaudited consolidated statements of shareholders’ equity for the thirteen and thirty-nine weeks ended January 1, 2022 and December 26, 2020

8

Notes to the unaudited consolidated financial statements

10

Item 2.

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

23

Item 3.

Quantitative and qualitative disclosures about market risk

39

Item 4.

Controls and procedures

39

PART II.

OTHER INFORMATION

Item 1.

Legal proceedings

40

Item 1A.

Risk factors

40

Item 2.

Unregistered sales of equity securities and use of proceeds

41

Item 3.

Default upon senior securities

41

Item 4.

Mine safety disclosures

41

Item 5.

Other information

41

Item 6.

Exhibits

42

2

PART I.

FINANCIAL INFORMATION

Item 1.

Financial statements

The Container Store Group, Inc.

Consolidated balance sheets

January 1,

April 3,

December 26,

(In thousands)

    

2022

    

2021

    

2020

Assets

(unaudited)

(unaudited)

Current assets:

Cash

$

19,008

$

17,687

$

27,895

Accounts receivable, net

 

32,565

 

28,949

 

31,799

Inventory

 

196,641

 

130,619

 

138,989

Prepaid expenses

 

13,076

 

11,429

 

10,143

Income taxes receivable

1,055

93

93

Other current assets

 

9,997

 

14,547

 

19,103

Total current assets

 

272,342

 

203,324

 

228,022

Noncurrent assets:

Property and equipment, net

 

134,810

 

131,884

 

134,746

Noncurrent operating lease right-of-use assets

342,980

307,147

305,259

Goodwill

 

221,183

 

202,815

 

202,815

Trade names

 

226,182

 

227,669

 

230,187

Deferred financing costs, net

 

216

 

255

 

269

Noncurrent deferred tax assets, net

 

796

 

2,305

 

2,503

Other assets

 

2,576

 

3,070

 

4,381

Total noncurrent assets

 

928,743

 

875,145

 

880,160

Total assets

$

1,201,085

$

1,078,469

$

1,108,182

See accompanying notes.

3

The Container Store Group, Inc.

Consolidated balance sheets (continued)

    

January 1,

    

April 3,

    

December 26,

(In thousands, except share and per share amounts)

    

2022

    

2021

    

2020

Liabilities and shareholders’ equity

(unaudited)

(unaudited)

Current liabilities:

Accounts payable

$

70,983

$

68,546

$

86,319

Accrued liabilities

 

98,273

 

86,551

 

88,080

Current borrowings on revolving lines of credit

 

 

 

Current portion of long-term debt

 

2,117

 

2,166

 

2,186

Current operating lease liabilities

52,486

50,847

54,719

Income taxes payable

 

416

 

6,803

 

8,859

Total current liabilities

 

224,275

 

214,913

 

240,163

Noncurrent liabilities:

Long-term debt

 

196,626

 

163,818

 

188,890

Noncurrent operating lease liabilities

313,414

285,022

291,710

Noncurrent deferred tax liabilities, net

 

50,925

 

48,923

 

51,465

Other long-term liabilities

 

9,208

 

12,124

 

13,415

Total noncurrent liabilities

 

570,173

 

509,887

 

545,480

Total liabilities

 

794,448

 

724,800

 

785,643

Commitments and contingencies (Note 7)

Shareholders’ equity:

Common stock, $0.01 par value, 250,000,000 shares authorized; 49,618,747 shares issued at January 1, 2022; 48,838,261 shares issued at April 3, 2021; 48,573,694 shares issued at December 26, 2020

 

496

 

488

 

486

Additional paid-in capital

 

873,088

 

873,048

 

870,739

Accumulated other comprehensive loss

 

(24,643)

 

(19,003)

 

(12,738)

Retained deficit

 

(442,304)

 

(500,864)

 

(535,948)

Total shareholders’ equity

 

406,637

 

353,669

 

322,539

Total liabilities and shareholders’ equity

$

1,201,085

$

1,078,469

$

1,108,182

See accompanying notes.

4

The Container Store Group, Inc.

Consolidated statements of operations

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

January 1,

December 26,

January 1,

December 26,

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

    

2022

    

2020

    

2022

    

2020

Net sales

$

267,304

$

275,478

$

788,573

$

675,405

Cost of sales (excluding depreciation and amortization)

 

114,956

 

115,991

 

326,363

 

291,621

Gross profit

 

152,348

 

159,487

 

462,210

 

383,784

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

 

120,268

 

115,870

 

344,478

 

303,328

Stock-based compensation

 

1,204

 

2,177

 

3,159

 

4,986

Pre-opening costs

 

20

 

95

 

686

 

111

Depreciation and amortization

 

8,667

 

8,498

 

25,412

 

26,270

Other (income) expenses

 

 

(13)

 

 

1,089

(Gain) loss on disposal of assets

 

(9)

 

18

 

(14)

 

12

Income from operations

 

22,198

 

32,842

 

88,489

 

47,988

Interest expense, net

 

3,213

 

4,099

 

9,584

 

13,540

Loss on extinguishment of debt

 

 

893

 

 

893

Income before taxes

18,985

 

27,850

78,905

 

33,555

Provision for income taxes

 

5,292

 

8,181

 

20,345

 

10,356

Net income

$

13,693

$

19,669

$

58,560

$

23,199

Net income per common share — basic

$

0.28

$

0.40

$

1.19

$

0.48

Net income per common share — diluted

$

0.27

$

0.40

$

1.16

$

0.47

Weighted-average common shares — basic

49,611,468

48,570,843

49,386,897

48,491,286

Weighted-average common shares — diluted

 

50,298,101

 

49,513,225

 

50,310,320

 

48,950,253

See accompanying notes.

5

The Container Store Group, Inc.

Consolidated statements of comprehensive income

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

January 1,

December 26,

January 1,

December 26,

(In thousands) (unaudited)

    

2022

    

2020

    

2022

    

2020

Net income

$

13,693

$

19,669

$

58,560

$

23,199

Unrealized (loss) gain on financial instruments, net of tax (benefit) provision of ($385), $2,267, ($732), and $4,407

 

(1,087)

 

5,919

 

(2,105)

 

11,800

Pension liability adjustment

 

99

 

(341)

 

114

 

(697)

Foreign currency translation adjustment

 

(2,330)

 

6,425

 

(3,649)

 

12,454

Comprehensive income

$

10,375

$

31,672

$

52,920

$

46,756

See accompanying notes.

6

The Container Store Group, Inc.

Consolidated statements of cash flows

Thirty-Nine Weeks Ended

January 1,

December 26,

(In thousands) (unaudited)

    

2022

    

2020

Operating activities

Net income

$

58,560

$

23,199

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

Depreciation and amortization

25,412

 

26,270

Stock-based compensation

3,159

 

4,986

(Gain) loss on disposal of assets

(14)

 

12

Loss on extinguishment of debt

893

Deferred tax expense (benefit)

4,459

 

(6,203)

Non-cash interest

1,412

 

1,393

Other

(264)

 

48

Changes in operating assets and liabilities (exclusive of effects of acquisition):

Accounts receivable

(3,729)

 

(2,962)

Inventory

(64,945)

 

(10,430)

Prepaid expenses and other assets

(767)

 

(823)

Accounts payable and accrued liabilities

11,161

 

55,596

Net change in lease assets and liabilities

(5,680)

8,311

Income taxes

(8,221)

 

13,353

Other noncurrent liabilities

(2,614)

 

3,046

Net cash provided by operating activities

17,929

116,689

Investing activities

Additions to property and equipment

(24,029)

 

(11,670)

Closet Works acquisition, net of cash acquired

(19,445)

Proceeds from sale of property and equipment

17

 

65

Net cash used in investing activities

(43,457)

 

(11,605)

Financing activities

Borrowings on revolving lines of credit

48,913

 

36,292

Payments on revolving lines of credit

(48,913)

 

(46,202)

Borrowings on long-term debt

38,000

 

200,000

Payments on long-term debt

(6,633)

(330,403)

Payment of debt issuance costs

 

(5,579)

Payment of taxes with shares withheld upon restricted stock vesting

(4,677)

(412)

Proceeds from the exercise of stock options

566

 

Net cash provided by (used in) financing activities

27,256

 

(146,304)

Effect of exchange rate changes on cash

(407)

 

1,360

Net increase (decrease) in cash

1,321

 

(39,860)

Cash at beginning of fiscal period

17,687

 

67,755

Cash at end of fiscal period

$

19,008

$

27,895

Supplemental information for non-cash investing:

Purchases of property and equipment (included in accounts payable)

$

3,978

$

732

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 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 loss 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

Net income

13,693

13,693

Stock-based compensation

1,204

1,204

Stock options exercised

73,594

1

339

340

Vesting of restricted stock awards

Taxes related to net share settlement of restricted stock awards

Foreign currency translation adjustment

(2,330)

(2,330)

Unrealized loss on financial instruments, net of $385 tax benefit

(1,087)

(1,087)

Pension liability adjustment

99

99

Balance at January 1, 2022

$

0.01

49,618,747

$

496

$

873,088

$

(24,643)

$

(442,304)

$

406,637

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 March 28, 2020

$

0.01

 

48,316,559

$

483

 

$

866,667

$

(36,295)

$

(559,147)

 

$

271,708

Net loss

 

 

 

 

 

 

(16,670)

 

 

(16,670)

Stock-based compensation

 

 

 

 

832

 

 

 

 

832

Vesting of restricted stock awards

174,758

2

(2)

Taxes related to net share settlement of restricted stock awards

(165)

(165)

Foreign currency translation adjustment

 

 

 

 

 

3,583

 

 

 

3,583

Unrealized gain on financial instruments, net of $1,393 tax provision

 

 

 

 

 

3,961

 

 

 

3,961

Pension liability adjustment

 

 

 

 

 

(219)

 

 

(219)

Balance at June 27, 2020

$

0.01

 

48,491,317

485

 

867,332

(28,970)

(575,817)

 

263,030

Net income

 

 

20,200

 

20,200

Stock-based compensation

 

 

1,836

 

1,836

Vesting of restricted stock awards

78,963

1

(1)

Foreign currency translation adjustment

2,446

2,446

Unrealized gain on financial instruments, net of $747 tax provision

1,920

1,920

Pension liability adjustment

(137)

(137)

Balance at September 26, 2020

$

0.01

48,570,280

486

869,167

(24,741)

(555,617)

289,295

Net income

19,669

19,669

Stock-based compensation

1,583

1,583

Vesting of restricted stock awards

3,414

Taxes related to net share settlement of restricted stock awards

(11)

(11)

Foreign currency translation adjustment

6,425

6,425

Unrealized gain on financial instruments, net of $2,267 tax provision

5,919

5,919

Pension liability adjustment

(341)

(341)

Balance at December 26, 2020

$

0.01

48,573,694

$

486

$

870,739

$

(12,738)

$

(535,948)

$

322,539

See accompanying notes.

9

The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

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

January 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 3, 2021, filed with the Securities and Exchange Commission (“SEC”) on June 3, 2021 (the “2020 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, with the exception of business combinations discussed further below. 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 2021” refer to the 52-week fiscal year ending April 2, 2022, “fiscal 2020” refer to the 53-week fiscal year ended April 3, 2021, and “fiscal 2019” refer to the 52-week fiscal year ended March 28, 2020.

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 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”). On November 6, 2013, the Company completed its initial public offering, at which time LGP held a controlling interest in the Company as the majority shareholder. During fiscal 2020, LGP sold 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. As of January 1, 2022, TCS operates 94 stores with an average size of approximately 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 (including business customers), through its website, mobile site, 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 for total cash consideration of $21,438 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. 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.

10

Business Update Related to Coronavirus

The novel coronavirus (“COVID-19”) pandemic had a negative impact on the Company’s fiscal 2020 operations and financial results. We experienced significant disruptions in store operations, including the temporary closure of all stores to in-store customer traffic, which adversely affected our business, results of operations and financial condition, and saw a significant increase in our curbside pick-up and online selling. During the third quarter of fiscal 2021, all stores were open. We continued to see a shift back to brick and mortar stores and a decrease in online channel sales year-over year. We will continue to review local, state, and federal mandates as we may need to temporarily adjust our operations to comply as COVID-19 and other uncertainties continue to unfold. We continue to prioritize the health and safety of our customers and employees by implementing strict health and safety protocols in our stores. We will continue to monitor guidance from the Centers for Disease Control and Prevention, local, state and federal guidance, and the impact of COVID-19 on the Company's business, results of operations, financial position and cash flows.

Seasonality

The Company’s business has historically been moderately seasonal in nature and, therefore, the results of operations for the thirty-nine weeks ended January 1, 2022 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter, attributable primarily to the timing and impact of promotional campaigns. However, we do not expect fiscal 2021 sales and profitability to follow historical patterns due to various factors, including changes in promotional strategy and cadence and anticipated supply chain cost headwinds.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. The cost of an acquired company is assigned to the tangible and identifiable intangible assets purchased and the liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of the purchase price over the fair value of tangible and intangible assets acquired is assigned to goodwill. The transaction costs associated with business combinations are expensed as they are incurred. We recognize any adjustments to provisional amounts and goodwill that are identified during the measurement period in the reporting period in which the adjustment amounts are determined, with the effect on current period earnings of changes in depreciation, amortization or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.

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 will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2022. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim

11

periods within those fiscal years, with early adoption permitted. The adoption of this standard in the first quarter of fiscal 2021 did not result in a material impact to the Company’s financial statements.

In November 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contracts Assets and Contract Liabilities from Contracts with Customers, which requires companies to apply Accounting Standard Codification (“ASC”) 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination on the acquisition date. This new guidance creates an exception to the general recognition and measurement principle noted in ASC 805, Business Combinations, which requires the acquirer in a business combination to recognize and measure the assets acquired at fair value at the acquisition date. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and interim periods, for all public business entities. Early adoption is permitted, including adoption in an interim period. ASU 2021-08 should be applied prospectively; however, an entity that elects to early adopt in an interim period should apply the amendments to all business combinations that occurred during the fiscal year that includes that interim period. The Company early adopted this standard in the third quarter of fiscal 2021. The adoption of this standard is expected to result in an immaterial impact to the Company’s financial statements.

2.  Detail of certain balance sheet accounts

January 1,

April 3,

December 26,

    

2022

    

2021

    

2020

Accounts receivable, net:

Trade receivables, net

$

17,056

$

18,784

$

17,439

Credit card receivables

 

13,009

 

8,445

 

10,823

Other receivables

 

2,500

 

1,720

 

3,537

$

32,565

$

28,949

$

31,799

Inventory:

Finished goods

$

188,780

$

126,311

$

134,296

Raw materials

 

6,809

 

3,614

 

4,154

Work in progress

 

1,052

 

694

 

539

$

196,641

$

130,619

$

138,989

Accrued liabilities:

Accrued payroll, benefits and bonuses

$

27,160

$

30,028

$

29,451

Unearned revenue

32,110

19,503

17,913

Accrued transaction and property tax

15,944

15,660

14,673

Gift cards and store credits outstanding

12,735

9,862

11,815

Accrued interest

151

95

1,151

Accrued sales returns

3,534

3,381

3,130

Other accrued liabilities

6,639

8,022

9,947

$

98,273

$

86,551

$

88,080

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 $19,503 as of April 3, 2021, and $18,840 was subsequently recognized into revenue for the thirty-nine weeks ended January 1, 2022. Gift cards and store credits outstanding was $9,862 as of April 3, 2021, and $2,777 was subsequently recognized into revenue for the thirty-nine weeks ended January 1, 2022. See Note 11 for disaggregated revenue disclosures.

12

3. Leases

We conduct all of our U.S. operations from leased facilities that include our support center, warehouse facilities, and 94 store locations. The support center, warehouse facilities, and stores are under operating leases that generally expire over the next 1 to 20 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 that 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 do 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 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.

During fiscal 2020, the Company renegotiated terms with landlords as a result of the COVID-19 pandemic, which resulted in the deferral of approximately $11,900 of certain cash lease payments, of which the remaining $400 is expected to be repaid in the fourth quarter of fiscal 2021.

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 thirty-nine weeks ended January 1, 2022 and December 26, 2020 were as follows:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

January 1, 2022