Container Store Group, Inc. [TCS] Filings

10-Q 1 tcs-20220101x10q.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 January 1, 2022


☐	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.

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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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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

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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.

Table of Contents

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

Container Store Group, Inc. [TCS] Filings
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]