The Container Store Group, Inc. Announces Third Quarter Fiscal 2020 Financial Results

Record consolidated net sales of $275.5 million, up 20.5%; Custom Closets up 19.5%

Online sales nearly doubled

Earnings per diluted share of $0.40 and adjusted earnings per diluted share of $0.42, compared to $0.05 in third quarter of fiscal 2019

Strong year-to-date operating cash flow of $116.7 million and free cash flow* of $105.0 million

COPPELL, Texas–(BUSINESS WIRE)–The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the third quarter of fiscal 2020 ended December 26, 2020.

• Consolidated net sales were $275.5 million, up 20.5%. Net sales in The Container Store retail business (“TCS”) were $256.5 million, up 21.0%, inclusive of the 19.5% increase in Custom Closets. Online sales increased 98.1% in the third quarter of fiscal 2020. Elfa International AB (“Elfa”) third-party net sales were $19.0 million, up 13.5% compared to the third quarter of fiscal 2019; excluding the impact of foreign currency translation, Elfa third-party net sales were up 3.3%.
• Consolidated net income and net income per diluted share (“EPS”) were $19.7 million and $0.40 compared to $2.4 million and $0.05, respectively, in the third quarter of fiscal 2019. Adjusted net income per diluted share (“Adjusted EPS”)* was $0.42 compared to $0.05 in the third quarter of fiscal 2019.
• Adjusted EBITDA* was $42.4 million in the third quarter of fiscal 2020 compared to $22.0 million in the third quarter of fiscal 2019.
• Net cash provided by operating activities was $116.7 million in the thirty-nine weeks ended December 26, 2020 compared to ($1.1) million in the thirty-nine weeks ended December 28, 2019. Free cash flow* increased to $105.0 million compared to ($30.4) million in the thirty-nine weeks ended December 28, 2019.
• The Company utilized $52.3 million of cash to pay down principal on the Senior Secured Term Loan Facility in the thirty-nine weeks ended December 26, 2020.

Melissa Reiff, Chairwoman commented, “Our third quarter results meaningfully exceeded our original expectations. The strong customer demand we saw in the second quarter persisted into the third quarter, and our entire organization continued to make significant strides against our strategic priorities positioning us extremely well to capitalize on our business opportunities. Our Custom Closets business significantly accelerated in the third quarter as compared to the second quarter and, combined with strong performance from our other product categories, drove our record-breaking sales.”

Ms. Reiff continued, “I am very proud of our teams and the accomplishments we have made the last several years, and specifically these past 11 months. With our business firing on all cylinders both financially and operationally, and the strength of our performance quarter-to-date, we are very confident we will end our fiscal year with strong momentum.

This is the ideal time for our previously announced leadership transition of my CEO and President responsibilities to Satish Malhotra, which occurred yesterday. Satish and I will ensure a smooth transition until my retirement March 1, 2021. And as we look ahead, I am confident that our business is well-positioned to continue to drive results into our next chapter of growth.”

Third Quarter Fiscal 2020 Results

For the third quarter (thirteen weeks) ended December 26, 2020:

• Consolidated net sales were $275.5 million, up 20.5% compared to the third quarter of fiscal 2019. TCS net sales were $256.5 million, an increase of 21.0% with other product categories up 22.2%, contributing 1,260 basis points of the increase, and Custom Closets up 19.5%, contributing 840 basis points of the increase. Our online sales increased 98.1% compared to the third quarter of fiscal 2019. Elfa third-party net sales were $19.0 million, up 13.5% compared to the third quarter of fiscal 2019 and, excluding the impact of foreign currency translation, Elfa third-party net sales were up 3.3%. The Company does not believe that comparable store sales is a meaningful metric to present in the third quarter of fiscal 2020 because all stores except one are considered comparable for purposes of the calculation; therefore, the calculated increase would be materially the same as the overall TCS net sales increase of 21.0%.
• Consolidated gross margin was 57.9%, a decrease of 90 basis points, compared to the third quarter of fiscal 2019. TCS gross margin decreased 40 basis points to 57.2%, primarily due to increased shipping costs as a result of a higher mix of online sales combined with incremental shipping surcharges instituted by third party carriers, partially offset by less promotional activity and a favorable mix of higher margin product sales in the third quarter of fiscal 2020. Elfa gross margin increased 260 basis points primarily due to lower direct material costs.
• Consolidated selling, general and administrative expenses (“SG&A”) increased by 3.5% to $115.9 million in the third quarter of fiscal 2020 from $112.0 million in the third quarter of fiscal 2019. SG&A as a percentage of net sales decreased 690 basis points primarily due to leverage of occupancy and payroll costs on higher sales during the quarter, combined with reductions in marketing costs and other expenses.
• Pre-opening costs declined to $95.0 thousand in the third quarter of fiscal 2020 from $2.5 million in the third quarter of fiscal 2019 primarily due to $2.2 million of net costs associated with the opening of the second distribution center in the third quarter of fiscal 2019. The Company did not open any new stores in the third quarter of fiscal 2020 and opened one relocation store in the third quarter of fiscal 2019.
• Consolidated net interest expense decreased 20.2% to $4.1 million in the third quarter of fiscal 2020 from $5.1 million in the third quarter of fiscal 2019. The decrease is primarily due to lower interest rates, combined with a lower principal balance on the Senior Secured Term Loan Facility. In the third quarter of fiscal 2020, the Company amended its Senior Secured Term Loan Facility and incurred a loss on extinguishment of debt of $0.9 million. See Debt Refinance section below for further information.
• The effective tax rate was 29.4% in the third quarter of fiscal 2020, as compared to 43.9% in the third quarter of fiscal 2019. The decrease in the effective tax rate is primarily due to the impact of discrete items on higher pre-tax income in the third quarter of fiscal 2020.
• Net income was $19.7 million, or $0.40 per diluted share, in the third quarter of fiscal 2020 compared to net income of $2.4 million, or $0.05 per diluted share in the third quarter of fiscal 2019. Adjusted net income* was $20.7 million, or $0.42 per diluted share, in the third quarter of fiscal 2020 compared to adjusted net income* of $2.4 million, or $0.05 per diluted share in the third quarter of fiscal 2019.
• Adjusted EBITDA* was $42.4 million in the third quarter of fiscal 2020 compared to $22.0 million in the third quarter of fiscal 2019, driven by higher consolidated net sales and a 690 basis point improvement in SG&A as a percentage of consolidated net sales, partially offset by consolidated gross margin decline of 90 basis points.

For the year-to-date (thirty-nine weeks) ended December 26, 2020:

• Consolidated net sales were $675.4 million, up 0.1% as compared to the thirty-nine weeks ended December 28, 2019. Net sales at TCS were $628.9 million, up 0.1%, with other product categories up 1.0%, contributing 60 basis points of the increase, and Custom Closets partially reducing the increase by 50 bps. Our online sales increased 124.7% compared to the thirty-nine weeks ended December 28, 2019. Elfa third-party net sales were $46.5 million, up 0.4% compared to the thirty-nine weeks ended December 28, 2019; however, excluding the impact of foreign currency translation, Elfa third-party net sales were down 4.8%. TCS and Elfa net sales were negatively impacted by COVID-19 during the first quarter of fiscal 2020. As a result of the impact of the COVID-19 pandemic on our Company stores and the Company’s policy of excluding extended store closures from its comparable sales calculation, the Company does not believe that comparable store sales is a meaningful metric to present for fiscal 2020.
• Consolidated gross margin was 56.8%, a decrease of 120 basis points compared to the thirty-nine weeks ended December 28, 2019. TCS gross margin decreased 160 basis points to 55.7%, primarily due to increased shipping costs as a result of a higher mix of online sales and increased promotional activity, partially offset by a favorable mix of higher margin product sales. Elfa gross margin increased 400 basis points primarily due to favorable customer and product sales mix and lower direct material costs.
• Consolidated SG&A decreased by 9.3% to $303.3 million from $334.3 million in the thirty-nine weeks ended December 28, 2019. SG&A as a percentage of net sales decreased 470 basis points. The decrease was primarily due to reductions in payroll, marketing, and other costs in the thirty-nine weeks ended December 26, 2020.
• Pre-opening costs declined to $0.1 million in the thirty-nine weeks ended December 26, 2020 from $6.0 million in the thirty-nine weeks ended December 28, 2019 primarily due to $5.0 million of net costs associated with the opening of the second distribution center in the thirty-nine weeks ended December 28, 2019. The Company opened no new stores in the thirty-nine weeks ended December 26, 2020 as compared to opening two new stores, including one relocation, in the thirty-nine weeks ended December 28, 2019.
• Other expenses increased to $1.1 million in the thirty-nine weeks ended December 26, 2020 due to severance costs associated with the reduction in workforce as a result of the COVID-19 pandemic, as compared to $0.4 million for charges primarily related to the closure of Elfa France operations in the thirty-nine weeks ended December 28, 2019.
• Consolidated net interest expense decreased 16.7% to $13.5 million in the thirty-nine weeks ended December 26, 2020 from $16.2 million in the thirty-nine weeks ended December 28, 2019. The decrease is primarily due to lower interest rates, combined with a lower principal balance on the Senior Secured Term Loan Facility. As discussed above, the Company incurred a loss on extinguishment of debt of $0.9 million in the thirty-nine weeks ended December 26, 2020 in connection with the amendment to its Senior Secured Term Loan Facility. See Debt Refinance section below for further information.
• The effective tax rate was 30.9%, as compared to 42.2% in the thirty-nine weeks ended December 28, 2019. The decrease in the effective tax rate is primarily due to the impact of discrete items on higher pre-tax income in the thirty-nine weeks ended December 26, 2020.
• Net income was $23.2 million, or $0.47 per diluted share, in the thirty-nine weeks ended December 26, 2020 compared to net income of $2.0 million, or $0.04 per diluted share in the thirty-nine weeks ended December 28, 2019. Adjusted net income* was $26.1 million, or $0.53 per diluted share, in the thirty-nine weeks ended December 26, 2020 compared to adjusted net income* of $2.2 million, or $0.05 per diluted share in the thirty-nine weeks ended December 28, 2019.
• Adjusted EBITDA* was $91.0 million in the thirty-nine weeks ended December 26, 2020 compared to $55.1 million in the thirty-nine weeks ended December 28, 2019.

Debt Refinance

On November 25, 2020, the Company entered into Amendment No. 7 (the “Seventh Amendment”) to the Senior Secured Term Loan Facility. In connection with the Seventh Amendment, the Company (a) paid down $47.2 million of the outstanding loans under the Senior Secured Term Loan Facility, which reduced the aggregate principal amount of the loans under the facility to $200.0 million and (b) amended the Senior Secured Term Loan Facility to, among other things, extend the maturity date to January 31, 2026 and impose a 1.00% premium if a voluntary prepayment is made from the proceeds of a repricing transaction within the one year anniversary of the Seventh Amendment. Commencing on March 31, 2021, the Company will be required to make quarterly amortization payments of $0.5 million on the term loan facility, with the balloon payment for the remaining balance due on January 31, 2026. Prior to the date of delivery of a compliance certificate for the fiscal quarter ended December 26, 2020, the applicable interest rate margin for LIBOR loans was 4.75%, subject to a LIBOR floor of 1.00%, and 3.75% for base rate loans and, thereafter, may step up to 5.00% for LIBOR Loans and 4.00% for base rate loans unless the consolidated leverage ratio achieved is less than or equal to 2.75 to 1.00. As of December 26, 2020, the aggregate principal amount in outstanding borrowings under the Senior Secured Term Loan Facility was $190.7 million, net of deferred financing costs.

On November 25, 2020, the Company also entered into Amendment No. 5 (the “Fifth Amendment”) to the Revolving Credit Facility. The Fifth Amendment amends the Revolving Credit Facility to extend the maturity date to the earlier of (a) November 25, 2025 and (b) October 31, 2025 if any portion of the Senior Secured Term Loan Facility remains outstanding on such date and the maturity date of the Senior Secured Term Loan Facility is not extended.

Outlook

The Company currently expects fiscal fourth quarter sales growth of 20% to 25% inclusive of the benefit from the 53^rd week. Diluted earnings per share for the fiscal fourth quarter are expected to be $0.51 to $0.56, or $0.52 to $0.57 on an adjusted* basis, resulting in full fiscal 2020 diluted earnings per share of $0.98 to $1.03 or $1.05 to $1.10 on an adjusted* basis.

The 53^rd week is expected to contribute approximately $13.0 million to sales and approximately $0.05 to earnings per share in the fiscal fourth quarter.

Conference Call Information

A conference call to discuss third quarter fiscal 2020 financial results is scheduled for today, February 2, 2021, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 (international callers please dial (201) 493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.containerstore.com.

A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing (844) 512-2921 (international callers please dial (412) 317-6671). The pin number to access the telephone replay is 13714830. The replay will be available until March 2, 2021.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding our future opportunities; our goals, strategies, priorities and initiatives; sales trends and momentum; and our anticipated financial performance.

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: the outbreak of COVID-19 and the associated impact on our business, results of operations and financial condition; our ability to continue to lease space on favorable terms; costs and risks relating to new store openings; quarterly and seasonal fluctuations in our operating results; cost increases that are beyond our control; our inability to protect our brand; our failure or inability to protect our intellectual property rights; overall decline in the health of the economy, consumer spending, and the housing market; our inability to source and market new products to meet consumer preferences; failure to successfully anticipate consumer preferences and demand; competition from other stores and internet-based competition; vendors may sell similar or identical products to our competitors; our and our vendors’ vulnerability to natural disasters and other unexpected events; disruptions at our Elfa manufacturing facilities; deterioration or change in vendor relationships or events that adversely affect our vendors or their ability to obtain financing for their operations, including COVID-19; product recalls and/or product liability, as well as changes in product safety and other consumer protection laws; risks relating to operating two distribution centers; our dependence on foreign imports for our merchandise; our reliance upon independent third party transportation providers; our inability to effectively manage our online sales; effects of a security breach or cyber-attack of our website or information technology systems, including relating to our use of third-party web service providers; damage to, or interruptions in, our information systems as a result of external factors, working from home arrangements, staffing shortages and difficulties in updating our existing software or developing or implementing new software; our indebtedness may restrict our current and future operations, and we may not be able to refinance our debt on favorable terms, or at all; fluctuations in currency exchange rates; our inability to maintain sufficient levels of cash flow to meet growth expectations; our fixed lease obligations; disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital to finance the carrying costs of inventory to pay for capital expenditures and operating costs; changes to global markets and inability to predict future interest expenses; our reliance on key executive management; employee furloughs and uncertainty about their ability to return to work; our inability to find, train and retain key personnel; labor relations difficulties; increases in health care costs and labor costs; violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws; impairment charges and effects of changes in estimates or projections used to assess the fair value of our assets; effects of tax reform and other tax fluctuations; and significant fluctuations in the price of our common stock; substantial future sales of our common stock, or the perception that such sales may occur, which could depress the price of our common stock; risks related to being a public company; our performance meeting guidance provided to the public; anti-takeover provisions in our governing documents, which could delay or prevent a change in control; and our failure to establish and maintain effective internal controls.

These and other important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, (the “SEC”) on June 17, 2020 and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management’s estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

About The Container Store

The Container Store Group, Inc. (NYSE: TCS) is the nation’s leading retailer of storage and organization products and solutions – a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 11,000 products designed to help customers accomplish projects, maximize their space and make the most of their home. The Container Store also offers a full suite of custom closets designed to accommodate all sizes, styles and budgets.

Visit www.containerstore.com for more information about store locations, the product collection and services offered. Visit www.containerstore.com/blog for inspiration, tips and real solutions to everyday organization challenges, and www.whatwestandfor.com to learn more about the company’s unique culture.

* See Reconciliation of GAAP to Non-GAAP Financial Measures table.

Contacts

Investors:

ICR, Inc.

Farah Soi/Caitlin Churchill

203-682-8200

Farah.Soi@icrinc.com
Caitlin.Churchill@icrinc.com
or

Media:

The Container Store Group, Inc.

Katelyn Clinton, 972-538-6491

publicrelations@containerstore.com

Read full story here