The Container Store Group, Inc. (NYSE:TCS) Q4 2023 Earnings Call Transcript May 14, 2024 8:00 AM ET Company Participants Caitlin Churchill - IR Satish Malhotra - CEO Jeff Miller - CFO Conference Call Participants Christopher Horvers - JP Morgan Kate McShane - Goldman Sachs Operator Greetings. Welcome to Container Store's Fourth Quarter of Full Year Fiscal 2023 Earnings Call. At this time all participants are in listen only mode. A question-and-answer session will follow the formal presentation. [Operator In ...

[Financial Results Overview](index=1&type=section&id=The%20Container%20Store%20Group%2C%20Inc.%20Announces%20Fourth%20Quarter%20and%20Full%20Fiscal%20Year%202023%20Financial%20Results) Fiscal 2023 saw significant sales and adjusted earnings declines, with cost discipline yielding positive free cash flow and a strategic focus on Custom Spaces [Financial Highlights](index=1&type=section&id=Financial%20Highlights) Fiscal 2023 saw significant sales and adjusted earnings declines, with an accelerated downturn in Q4 Fiscal Year 2023 vs. Fiscal Year 2022 Performance | Metric | Fiscal 2023 | Fiscal 2022 | Change | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $847.8M | - | Down 19.0% | | Comparable Store Sales | - | - | Down 19.7% | | Net Loss per Diluted Share | ($2.09) | ($3.21) | Improved | | Adjusted Net (Loss)/Income per Diluted Share | ($0.32) | $0.75 | Declined | Q4 Fiscal 2023 vs. Q4 Fiscal 2022 Performance | Metric | Q4 Fiscal 2023 | Q4 Fiscal 2022 | Change | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | - | - | Down 20.7% | | Comparable Store Sales | - | - | Down 21.8% | | Net Loss per Diluted Share | ($1.24) | ($3.85) | Improved | | Adjusted Net (Loss)/Income per Diluted Share | ($0.04) | $0.18 | Declined | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management noted Custom Space strength and positive free cash flow from cost discipline, with future focus on Custom Spaces - The company experienced continued pressure on its general merchandise assortment while seeing relative strength in its premium Custom Space offerings[4](index=4&type=chunk) - Strong cost discipline led to **positive free cash flow** for the fiscal year[4](index=4&type=chunk) - Future plans include leaning into Custom Spaces, enhancing in-home design services, and building awareness through marketing to capitalize on opportunities when market conditions normalize[4](index=4&type=chunk) [Detailed Financial Performance](index=2&type=section&id=Detailed%20Financial%20Performance) The company experienced significant sales declines in both Q4 and full fiscal year 2023, impacted by general merchandise weakness and impairment charges [Fourth Quarter Fiscal 2023 Results](index=2&type=section&id=Fourth%20Quarter%20Fiscal%202023%20Results) Q4 2023 saw consolidated net sales decline 20.7%, driven by general merchandise, despite gross margin improvement and significant impairment charges Q4 Fiscal 2023 Performance Breakdown | Metric | Value | YoY Change | | :--- | :--- | :--- | | Consolidated Net Sales | $206.0M | -20.7% | | Comparable Store Sales | - | -21.8% | | - General Merchandise | - | -26.7% | | - Custom Spaces+ | - | -14.2% | | Online Sales | - | -30.8% | | Consolidated Gross Margin | 59.4% | +50 bps | | SG&A Expenses | $107.0M | -13.9% | - A non-cash trade names impairment charge of $73.8 million was recorded, consisting of a $63.8 million impairment for the TCS trade name and a $10.1 million impairment for the Elfa trade name[6](index=6&type=chunk) Q4 Fiscal 2023 Profitability | Metric | Q4 FY2023 | Q4 FY2022 | | :--- | :--- | :--- | | Net Loss | ($61.4M) | ($189.3M) | | Net Loss per Share | ($1.24) | ($3.85) | | Adjusted Net (Loss)/Income* | ($2.0M) | $8.8M | | Adjusted Net (Loss)/Income per Share* | ($0.04) | $0.18 | | Adjusted EBITDA* | $15.4M | $29.2M | [Full Fiscal Year 2023 Results](index=3&type=section&id=Fiscal%20Year%202023%20Results) Fiscal 2023 consolidated net sales decreased 19.0%, with improved gross margin and reduced SG&A, but significant impairment charges led to a net loss Full Fiscal Year 2023 Performance Breakdown | Metric | Value | YoY Change | | :--- | :--- | :--- | | Consolidated Net Sales | $847.8M | -19.0% | | Comparable Store Sales | - | -19.7% | | - General Merchandise | - | -21.9% | | - Custom Spaces+ | - | -15.4% | | Online Sales | - | -23.7% | | Consolidated Gross Margin | 57.7% | +30 bps | | SG&A Expenses | $439.5M | -9.7% | - Total non-cash impairment charges of $97.3 million were recorded in fiscal 2023, compared to $197.7 million in fiscal 2022. This included a $23.4 million goodwill impairment and $73.8 million in trade name impairments[8](index=8&type=chunk) Full Fiscal Year 2023 Profitability | Metric | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | | Net Loss | ($103.3M) | ($158.9M) | | Net Loss per Share | ($2.09) | ($3.21) | | Adjusted Net (Loss)/Income* | ($15.9M) | $37.2M | | Adjusted Net (Loss)/Income per Share* | ($0.32) | $0.75 | | Adjusted EBITDA* | $48.1M | $115.4M | [Balance Sheet and Operations](index=4&type=section&id=Balance%20Sheet%20and%20Operations) The company expanded its store footprint, improved liquidity with positive free cash flow, and maintained a stable balance sheet despite increased debt [Store Operations](index=4&type=section&id=New%20and%20Existing%20Stores) The company expanded its store base to 102 in fiscal 2023 and plans further expansion and relocation in fiscal 2024 - The company's store base increased from 97 to 102 stores during fiscal 2023[10](index=10&type=chunk) - In fiscal 2024, the company plans to open four new stores, relocate one store, and close one store[10](index=10&type=chunk) [Balance Sheet and Liquidity](index=4&type=section&id=Balance%20sheet%20and%20liquidity%20highlights) The company ended fiscal 2023 with $21.0 million cash, $176.8 million total debt, and achieved positive free cash flow of $6.9 million Balance Sheet and Liquidity Highlights (as of March 30, 2024) | (In thousands) | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Cash | $21,000 | $6,958 | | Total debt, net | $176,777 | $167,871 | | Liquidity | $112,276 | $106,997 | | Free cash flow* (FY) | $6,895 | ($4,918) | [Share Repurchase](index=4&type=section&id=Share%20repurchase) No share repurchases occurred in fiscal 2023, with $25 million remaining under the existing authorization - There were no share repurchases during fiscal 2023[12](index=12&type=chunk) - $25 million remains available under the company's share repurchase authorization[12](index=12&type=chunk) [Outlook and Strategic Initiatives](index=4&type=section&id=Outlook%20and%20Strategic%20Initiatives) The company observes improving sales trends in early fiscal 2024, driven by Custom Spaces, and has initiated a formal review of strategic alternatives [Fiscal 2024 To Date Commentary](index=4&type=section&id=Fiscal%202024%20To%20Date%20Commentary) Sales trends in Q1 fiscal 2024 improved compared to Q4 fiscal 2023, driven by Custom Spaces despite ongoing general merchandise challenges - Year-over-year sales trends have improved in Q1 fiscal 2024 to date when compared to Q4 fiscal 2023[13](index=13&type=chunk) - Performance is driven by relative strength in the Custom Spaces business, with year-over-year growth in Elfa and Preston product lines[13](index=13&type=chunk) - The general merchandise category remains challenged, resulting in **double-digit total sales declines**, though less severe than in Q4 2023[13](index=13&type=chunk) [Review of Strategic Alternatives](index=4&type=section&id=Review%20of%20Strategic%20Alternatives) The Board initiated a formal review of strategic alternatives to maximize stakeholder value, suspending financial guidance indefinitely - The Board of Directors has initiated a formal review process to evaluate strategic alternatives for the company[14](index=14&type=chunk) - The board and management believe the company's **current market value is not reflective of its intrinsic value** and are committed to **maximizing value for stakeholders**[14](index=14&type=chunk)[15](index=15&type=chunk) - The company is **suspending financial guidance** and has not set a deadline for the completion of the strategic review[17](index=17&type=chunk) [Consolidated Financial Statements](index=7&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements reflect significant sales declines, net losses, and balance sheet shifts due to impairment charges in fiscal 2023 [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20statements%20of%20operations) Fiscal 2023 net sales decreased 19.0% to $847.8 million, resulting in a significant operating loss and a net loss of $103.3 million Fiscal Year Ended (In thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Net sales | $847,779 | $1,047,258 | | Gross profit | $488,765 | $600,963 | | (Loss) from operations | ($104,734) | ($127,595) | | Net (loss) income | ($103,287) | ($158,856) | | Net (loss) income per share — diluted | ($2.09) | ($3.21) | [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20balance%20sheets) As of March 30, 2024, total assets decreased due to impairment, while total liabilities increased, leading to a significant reduction in shareholders' equity Assets (In thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Total current assets | $230,548 | $230,226 | | Goodwill | $0 | $23,447 | | Tradenames | $146,449 | $221,278 | | Total assets | $936,365 | $985,174 | Liabilities and Shareholders' Equity (In thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Total current liabilities | $193,087 | $190,315 | | Long-term debt | $174,611 | $163,385 | | Total liabilities | $776,674 | $722,989 | | Total shareholders' equity | $159,691 | $262,185 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20statements%20of%20cash%20flows) Fiscal 2023 saw positive net cash from operations and reduced cash used in investing, resulting in a $14.0 million increase in cash balance Fiscal Year Ended (In thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $46,789 | $59,305 | | Net cash used in investing activities | ($39,221) | ($64,411) | | Net cash provided by (used in) financing activities | $6,400 | ($1,669) | | Net increase (decrease) in cash | $14,042 | ($7,294) | | Cash at end of fiscal period | $21,000 | $6,958 | [Non-GAAP Financial Measures Reconciliation](index=11&type=section&id=Note%20Regarding%20Non-GAAP%20Information) The company provides reconciliations for non-GAAP measures like adjusted net income, Adjusted EBITDA, and free cash flow to offer clearer performance insights [Explanation of Non-GAAP Measures](index=11&type=section&id=Explanation%20of%20Non-GAAP%20Measures) The company uses non-GAAP measures like adjusted net income, Adjusted EBITDA, and free cash flow to provide clearer insights into core operating performance - **Adjusted net income (loss)** is defined as net income (loss) excluding items like restructuring charges, severance, impairment charges, and legal settlements to evaluate business strategies[38](index=38&type=chunk) - **Adjusted EBITDA** is used for covenant compliance and performance evaluation, further adjusting EBITDA for non-cash items like stock-based compensation and pre-opening costs[39](index=39&type=chunk) - **Free cash flow** is defined as net cash provided by operating activities minus payments for property and equipment, serving as a useful indicator of overall liquidity[40](index=40&type=chunk) [Reconciliation of GAAP to Non-GAAP Net Income (Loss)](index=12&type=section&id=Reconciliation%20of%20GAAP%20to%20Non-GAAP%20Financial%20Measures) GAAP net loss of $103.3 million for fiscal 2023 was adjusted to a non-GAAP net loss of $15.9 million, primarily due to impairment and severance charges Reconciliation of GAAP to Non-GAAP Net (Loss) Income (Fiscal Year Ended, in thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | **Net (loss) income** | **($103,287)** | **($158,856)** | | Impairment charges | $97,279 | $197,712 | | Severance charges | $4,125 | $383 | | Legal settlement | $3,117 | ($2,600) | | Taxes and other | ($17,102) | $596 | | **Adjusted net (loss) income** | **($15,868)** | **$37,235** | [Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA](index=13&type=section&id=Reconciliation%20of%20GAAP%20Net%20Income%20(Loss)%20to%20Adjusted%20EBITDA) Adjusted EBITDA for fiscal 2023 significantly declined to $48.1 million from $115.4 million, after adjusting for non-cash and special items Reconciliation to Adjusted EBITDA (Fiscal Year Ended, in thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | **Net (loss) income** | **($103,287)** | **($158,856)** | | Depreciation and amortization | $44,333 | $38,905 | | Interest expense, net | $20,672 | $16,171 | | (Benefit) provision for income taxes | ($22,119) | $15,090 | | **EBITDA** | **($60,401)** | **($88,690)** | | Impairment charges | $97,279 | $197,712 | | Stock-based compensation | $1,870 | $3,382 | | Other adjustments | $9,346 | $3,022 | | **Adjusted EBITDA** | **$48,094** | **$115,426** | [Reconciliation to Free Cash Flow](index=14&type=section&id=Reconciliation%20of%20Net%20Cash%20Provided%20by%20Operating%20Activities%20to%20Free%20Cash%20Flow) The company achieved **positive free cash flow** of $6.9 million in fiscal 2023, a significant improvement from a negative free cash flow in the prior year Free Cash Flow Reconciliation (Fiscal Year Ended, in thousands) | | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $46,789 | $59,305 | | Less: Additions to property and equipment | ($39,894) | ($64,223) | | **Free cash flow** | **$6,895** | **($4,918)** |

Financial Performance - Net sales for the thirteen weeks ended December 30, 2023, were $214.9 million, a decrease of 14.8% compared to $252.2 million for the same period in 2022[88]. - Gross profit for the thirty-nine weeks ended December 30, 2023, was $366.4 million, down 18.1% from $448.0 million in the prior year[88]. - The company reported a net loss of $6.4 million for the thirteen weeks ended December 30, 2023, compared to a net income of $4.2 million for the same period in 2022[88]. - Adjusted EBITDA for the thirteen weeks ended December 30, 2023, was $12.8 million, down from $22.2 million in the same period of 2022[94]. - Net sales for the thirty-nine weeks ended December 30, 2023 decreased by $145,800, or 18.5%, totaling $641,742[109]. - TCS net sales decreased by $36,786, or 15.4%, with comparable store sales down 16.8%, including a 26.3% decrease in online sales[100]. - Gross profit for the thirteen weeks ended December 30, 2023 decreased by $18,224, or 12.7%, while consolidated gross margin increased to 58.3% from 56.9%[101]. Expenses and Costs - Selling, general, and administrative expenses for the thirty-nine weeks ended December 30, 2023, were $332.5 million, a decrease of 8.2% from $362.1 million in the same period of 2022[88]. - Selling, general, and administrative expenses (excluding depreciation and amortization) increased to 52.0% of net sales from 48.2% year-over-year, reflecting higher operational costs[89]. - The company incurred impairment charges of $23.4 million for the thirty-nine weeks ended December 30, 2023, which were not present in the prior year[88]. - A non-cash goodwill impairment charge of $23,447 was recorded in the thirty-nine weeks ended December 30, 2023, compared to zero in the same period of 2022[114]. - Interest expense for the thirty-nine weeks ended December 30, 2023, increased to $15.4 million from $11.4 million in the previous year, reflecting a rise of 35.5%[88]. Store Operations - The company operates 100 stores as of December 30, 2023, with an average size of approximately 24,000 square feet[83]. - The number of stores at the end of the period remained stable at 100, unchanged from the previous year[89]. - The company opened two new stores during the third fiscal quarter of 2023 and plans to open two additional small format stores and four new stores in fiscal 2024[123]. Cash Flow and Capital Expenditures - Net cash provided by operating activities was $26,673 for the thirty-nine weeks ended December 30, 2023, compared to $18,856 for the same period in 2022[126]. - Total capital expenditures for the thirty-nine weeks ended December 30, 2023 were $33,376, with $16,700 allocated for store investments and $12,078 for technology[132]. - The company generated negative free cash flow of $6,703 for the thirty-nine weeks ended December 30, 2023, an improvement from negative free cash flow of $27,702 in the prior year[140]. - The company expects total capital expenditures to be in the range of $40,000 to $45,000 for technology infrastructure and new store development in fiscal 2023[121]. Debt and Credit Facilities - As of December 30, 2023, the company had $75,980 of unused borrowing availability under the Revolving Credit Facility[125]. - The aggregate principal amount in outstanding borrowings under the Senior Secured Term Loan Facility was $160,185 as of December 30, 2023[142]. - The aggregate principal amount of the Revolving Credit Facility is $100,000, with borrowings accruing interest at 1.25% plus SOFR[146]. - The Revolving Credit Facility allows for swing line advances of up to $15,000 and the issuance of letters of credit of up to $40,000[147]. - As of December 30, 2023, the company was in compliance with all covenants under the Revolving Credit Facility, with no Event of Default occurring[150]. Future Strategies - Future strategies include focusing on market expansion and new product development to enhance overall performance and mitigate losses[91].

The Container Store Group, Inc. (NYSE:TCS) Q3 2023 Results Conference Call February 6, 2024 4:30 PM ET Company Participants Caitlin Churchill - IR Satish Malhotra - CEO Jeff Miller - CFO Conference Call Participants Christopher Horvers - JP Morgan Kate McShane - Goldman Sachs Steven Forbes - Guggenheim Securities Operator Greetings, and welcome to The Container Store Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce ...

Table of Contents 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 September 30, 2023 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) (State or ot ...

Financial Data and Key Metrics Changes - For Q2 2023, consolidated net sales were $219.7 million, down 19.4% from $272.7 million in the prior year [12][35] - Adjusted income per share was $0.01, exceeding expectations, driven by SG&A reduction efforts [12][44] - Consolidated gross margin increased by 100 basis points to 57.6% compared to 56.6% last year [39] - Net loss for the quarter was $23.7 million or $0.48 per share, compared to a net income of $15.7 million or $0.31 per diluted share in the same quarter last year [44] Business Line Data and Key Metrics Changes - Retail business net sales were $208.5 million, a 19.8% decrease from $259.9 million last year, with a 20.4% decline in general merchandise categories impacting comparable store sales [30] - Custom spaces comp store sales declined 19.3%, negatively impacting overall comp store sales [30] - Elfa third-party net sales decreased by 12.5% to $11.2 million, primarily due to a decline in Nordic markets [38] Market Data and Key Metrics Changes - Online channel sales decreased by 21.7% year-over-year, with website-generated sales down 16.4% [36] - Unearned revenue decreased to $18.3 million from $22.1 million last year, reflecting reduced customer spending [37] Company Strategy and Development Direction - The company aims to deepen customer relationships and expand its reach, positioning itself for market share gains when conditions normalize [13][29] - A focus on premium and upscale product offerings is intended to attract new customers and enhance existing customer experiences [16][20] - The company plans to launch Garage+ by Elfa in November, bridging entry-level and premium offerings [25] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging quarter due to inflationary pressures and increased interest rates, leading to a decline in customer traffic and purchasing [9][11] - The outlook for the second half of the fiscal year has been adjusted to reflect lower revenue expectations and challenges in gross profit [11][48] - Management remains confident in their strategy and believes they are navigating the current environment with discipline [29] Other Important Information - The company plans to open 5 new small-format stores in fiscal 2023, with a focus on enhancing customer spaces [26][61] - A new employee recognition program, TCS Appreciates, was launched to acknowledge team contributions [28] Q&A Session Summary Question: Expectations for holiday promotions compared to last year - Management indicated that they will manage promotional activities with scrutiny, similar to Q2, and do not anticipate significant changes compared to last year, aside from the annual Elfa promotion [64][65]

Q2 Fiscal 2023 Results (continued) Forward-Looking Statements • Q2 Fiscal 2023 Financial Results • Strategic Priorities Update • Q3 & Full Year Fiscal 2023 Financial Outlook • Appendix Q2 Fiscal 2023 Financial Results []] C 3 2 3 and the problem of the states Q2 Fiscal 2023 Results $219.7M Consolidated Net Sales ($0.48) Net Loss Per Diluted Share** | --- | --- | |-------|-------| | | | | $0.01 | | 19.4% decrease vs. Q2-22 $0.79 decrease vs. Q2-22 $0.27 decrease vs. Q2-22 57.6% Gross Margin (8.1%) Operating ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) 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 ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1 ...

Confidential ©2023 The Container Store Inc. All rights reserved. 20 Below is a reconciliation of the non-GAAP financial measures of adjusted net (loss) income and adjusted net (loss) income per common share – diluted to the GAAP financial measures of net (loss) income and net (loss) income per common share - diluted: ש The Container Store® AUGUST 1, 2023 This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained ...

Start Time: 16:30 January 1, 0000 5:07 PM ET The Container Store Group, Inc. (NYSE:TCS) Q1 2023 Earnings Conference Call August 01, 2023, 16:30 PM ET Company Participants Satish Malhotra - President and CEO Jeff Miller - CFO Caitlin Churchill - IR, ICR Conference Call Participants Steven Forbes - Guggenheim Securities Ryan Meyers - Lake Street Capital Markets Kate McShane - Goldman Sachs Operator Greetings, and welcome to The Container Store First Quarter 2023 Earnings Call. At this time, all participants a ...