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 ...

Part I [Business Overview](index=10&type=section&id=Item%201.%20Business) The Container Store Group is a leading specialty retailer of organizing solutions and custom spaces, generating $1.0 billion in fiscal 2022 sales - The company operates through two main segments: The Container Store (TCS), which accounted for approximately **95% of consolidated net sales** in fiscal 2022, and Elfa, which accounted for the remaining 5%[22](index=22&type=chunk) - The company's strategic vision is to achieve **$2 billion in annual sales** by focusing on three pillars: deepening customer relationships, expanding its reach, and strengthening capabilities[24](index=24&type=chunk)[37](index=37&type=chunk) - A significant portion of sales comes from exclusive or proprietary products; in fiscal 2022, **over half of annual sales** were from such products, with Elfa-produced items accounting for approximately **31% of TCS retail sales**[40](index=40&type=chunk)[48](index=48&type=chunk) Company Structure and Operations (Fiscal 2022) | Segment | Description | Store Count | FY2022 Net Sales (Share) | | :--- | :--- | :--- | :--- | | **The Container Store (TCS)** | Retail stores, website, call center, in-home services, and C Studio manufacturing | 97 | ~$991.4 million (95%) | | **Elfa** | Swedish subsidiary designing and manufacturing shelving, drawer systems, and sliding doors. Sells to TCS and third parties in ~30 countries | N/A | ~$55.9 million (5% to third parties) | [General Business Description](index=10&type=section&id=General) The company is a leading U.S. specialty retailer of organizing solutions, operating primarily through its TCS and Elfa segments - The company is the only national retailer solely devoted to organizing solutions, custom spaces, and in-home services[21](index=21&type=chunk) - The company operates **97 stores** in 34 states and the District of Columbia, with an average size of 24,000 square feet[22](index=22&type=chunk) - The company owns and operates C Studio Manufacturing, Inc in Elmhurst, Illinois, which produces the premium wood-based custom space product line, Preston™[22](index=22&type=chunk)[42](index=42&type=chunk) [Strategic Priorities](index=12&type=section&id=Strategic%20Priorities) The company's growth strategy focuses on deepening customer relationships, expanding its market reach, and strengthening operational capabilities - **Deepening Customer Relationships:** The Organized Insider Loyalty Program accounted for **nearly 80% of sales** since its introduction, with members spending approximately **57% more** than non-members[28](index=28&type=chunk) - **Expanding Reach:** The company opened three new small-format stores in fiscal 2022 and plans to open six more in fiscal 2023, with a long-term potential for an additional **76 new stores**[30](index=30&type=chunk) - **Strengthening Capabilities:** Investments were made in mobile express check-out, an upgraded in-store Custom Spaces design tool, and ESG initiatives, including offsetting **100% of energy use** with renewable energy[35](index=35&type=chunk)[36](index=36&type=chunk) [Key Differentiators](index=14&type=section&id=Our%20Key%20Differentiators) The company differentiates through its Custom Spaces offerings, vertically integrated Elfa business, and a curated, exclusive product assortment - The Container Store Custom Spaces, featuring exclusive brands like elfa®, Avera®, and Preston™, is a key differentiator; Elfa-produced products accounted for approximately **31% of TCS retail sales** in fiscal 2022[39](index=39&type=chunk)[40](index=40&type=chunk) - The multi-channel retail model is integral, with online channels collectively accounting for approximately **26% of TCS net sales** in fiscal 2022[45](index=45&type=chunk) - **Over half of annual sales** in fiscal 2022 came from exclusive or proprietary products, including **28% from private label products**[48](index=48&type=chunk) - The company maintains strong, long-lasting vendor relationships, with 15 of its top 20 vendors having been partners for **at least 10 years**[50](index=50&type=chunk) [Environmental, Social and Governance (ESG)](index=20&type=section&id=Environmental%2C%20Social%20and%20Governance) The company is advancing its ESG strategy by tracking emissions, using renewable energy, and ensuring supply chain ethics - The company published its first Sustainability Report in fiscal 2022 and is tracking **Scope 1 and Scope 2 GHG emissions**[36](index=36&type=chunk)[54](index=54&type=chunk) - The company offsets **100% of energy use** in its stores, distribution centers, and support center with renewable wind energy[36](index=36&type=chunk)[54](index=54&type=chunk) - As of April 1, 2023, the company had approximately **5,100 employees**, and the CEO has signed the CEO Action Pledge for Diversity & Inclusion[62](index=62&type=chunk)[63](index=63&type=chunk) - The company has a **zero-tolerance policy against modern slavery** and human trafficking and contractually requires suppliers to comply with labor laws[67](index=67&type=chunk)[68](index=68&type=chunk) [Manufacturing](index=24&type=section&id=Manufacturing) The company operates one domestic and three international manufacturing facilities for its Preston™, elfa®, and Avera® product lines - The company has one domestic manufacturing facility in Illinois for its Preston™ brand and three international facilities (two in Sweden, one in Poland) for its elfa® and Avera® brands[73](index=73&type=chunk)[74](index=74&type=chunk) [Distribution](index=24&type=section&id=Distribution) The company's distribution network is centered around two primary facilities in Texas and Maryland totaling 1.7 million square feet - TCS operates two primary distribution centers: one in Coppell, TX (~1.1M sq. ft.) and a second in Aberdeen, MD (~600,000 sq. ft.)[77](index=77&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from economic sensitivity, supply chain dependencies, IT threats, and financial leverage - **Consumer Behavior Risks:** Business is sensitive to economic conditions that influence discretionary spending, and failure to anticipate consumer demand can lead to inventory issues[99](index=99&type=chunk)[101](index=101&type=chunk) - **Supply Chain Risks:** Approximately **57% of merchandise** was purchased from foreign vendors in fiscal 2022 (including **33% from China**), exposing the company to tariffs and geopolitical risks[140](index=140&type=chunk)[141](index=141&type=chunk) - **Information Technology Risks:** The company is heavily reliant on IT systems and faces threats from cyber-attacks and the need to comply with complex data privacy laws like the CCPA and CPRA[115](index=115&type=chunk)[122](index=122&type=chunk) - **Liquidity and Financial Risks:** The company has significant debt (**$167.9 million** as of April 1, 2023) and is exposed to currency exchange rate fluctuations[153](index=153&type=chunk)[159](index=159&type=chunk) - **Accounting Risks:** The company recorded a significant non-cash goodwill impairment charge of **$197.7 million** in fiscal 2022 due to lower than expected operating results and changes in projections[187](index=187&type=chunk) [Unresolved Staff Comments](index=66&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments - None[212](index=212&type=chunk) [Properties](index=66&type=section&id=Item%202.%20Properties) The company leases all 97 retail stores and its U.S. facilities, while its subsidiary Elfa owns three manufacturing facilities in Europe - As of April 1, 2023, the company leases all **97 of its retail stores** across 34 states and the District of Columbia[213](index=213&type=chunk) - Key leased facilities include a **1.1 million sq. ft.** support/distribution center in Coppell, TX, and a **600,000 sq. ft.** distribution center in Aberdeen, MD[213](index=213&type=chunk) - Elfa owns its three manufacturing facilities, located in Västervik, Sweden; Mullsjö, Sweden; and Koszalin, Poland[214](index=214&type=chunk) [Legal Proceedings](index=66&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to ordinary course legal proceedings not expected to have a material adverse effect on its financial condition - The company is involved in ordinary course legal proceedings, but management does not expect them to have a **material adverse effect**[215](index=215&type=chunk) [Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no mine safety disclosures - None[216](index=216&type=chunk) Part II [Market for Common Equity and Related Matters](index=70&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE under "TCS," and it does not currently expect to pay cash dividends - Common stock is traded on the NYSE under the symbol **"TCS"**[224](index=224&type=chunk) - The company **does not currently expect to pay cash dividends**[225](index=225&type=chunk) [[Reserved]](index=70&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=71&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Fiscal 2022 saw a 4.3% sales decline to $1.05 billion and a net loss of $158.9 million, driven by a $197.7 million goodwill impairment - A non-cash goodwill impairment charge of **$197.7 million** was the primary driver of the significant net loss in fiscal 2022[268](index=268&type=chunk) - Free cash flow was **negative $4.9 million** in fiscal 2022, a significant decrease from the positive $23.6 million generated in fiscal 2021, primarily due to higher capital expenditures[305](index=305&type=chunk)[306](index=306&type=chunk) Fiscal 2022 vs. Fiscal 2021 Performance | Metric | Fiscal 2022 | Fiscal 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,047.3M | $1,094.1M | (4.3)% | | Comparable Store Sales | (3.7)% | N/A | N/A | | Gross Margin | 57.4% | 58.2% | (80 bps) | | Net (Loss) Income | ($158.9M) | $81.7M | (294.4)% | | Adjusted EBITDA | $115.4M | $159.0M | (27.4)% | | Adjusted Net Income | $37.2M | $82.9M | (55.1)% | [Results of Operations (Fiscal 2022 vs. 2021)](index=79&type=section&id=Results%20of%20Operations) Fiscal 2022 net sales fell 4.3% due to lower comparable sales, while a $197.7 million goodwill charge drove an operating loss - Consolidated SG&A expenses increased as a percentage of net sales by **330 basis points to 46.4%**, primarily due to deleverage on lower sales[267](index=267&type=chunk) - The company recorded a non-cash goodwill impairment charge of **$197.7 million** in fiscal 2022, with no such charge in fiscal 2021[268](index=268&type=chunk) Net Sales Breakdown (FY2022 vs FY2021) | Component | Change in Net Sales (in thousands) | | :--- | :--- | | **FY2021 Net Sales** | **$1,094,119** | | Comparable Store Sales Decrease | ($38,707) | | Non-Comparable Sales Increase | $6,893 | | Elfa Third-Party Sales Decrease (ex-FX) | ($5,026) | | Foreign Currency Translation Impact | ($10,021) | | **FY2022 Net Sales** | **$1,047,258** | Gross Margin by Segment | Segment | FY2022 Gross Margin | FY2021 Gross Margin | Basis Point Change | | :--- | :--- | :--- | :--- | | TCS | 57.1% | 57.6% | (50) bps | | Elfa | 32.7% | 31.9% | +80 bps | | **Consolidated** | **57.4%** | **58.2%** | **(80) bps** | [Liquidity and Capital Resources](index=89&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity through cash from operations and credit facilities, ending fiscal 2022 with $167.9 million in total debt - As of April 1, 2023, the company had total outstanding debt of **$167.9 million** and an additional **$100.0 million of availability** under its revolving credit facilities[153](index=153&type=chunk)[286](index=286&type=chunk) - The company expects total capital expenditures for fiscal 2023 to be in the range of **$45 million to $50 million**[287](index=287&type=chunk) - A **$30 million share repurchase program** was authorized in August 2022; as of April 1, 2023, the company had repurchased $5 million worth of common stock[291](index=291&type=chunk)[503](index=503&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | Fiscal 2022 | Fiscal 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $59,305 | $56,990 | | Net cash used in investing activities | ($64,411) | ($50,422) | | Net cash used in financing activities | ($1,669) | ($9,381) | | **Free Cash Flow (Non-GAAP)** | **($4,918)** | **$23,601** | [Critical Accounting Estimates](index=99&type=section&id=Critical%20Accounting%20Estimates) Key estimates include inventory valuation, lease accounting, and intangible asset valuation, with goodwill impairment being a major factor in fiscal 2022 - **Inventories:** Estimates for obsolescence and shrinkage reserves are critical, based on historical trends and future sales price estimates[326](index=326&type=chunk)[327](index=327&type=chunk) - **Leases:** Key judgments include determining the incremental borrowing rate to present value lease payments and assessing lease renewal options[335](index=335&type=chunk) - **Goodwill and Intangibles:** The company tests goodwill for impairment annually; this process resulted in a total non-cash goodwill impairment charge of **$197.7 million** for the TCS segment in fiscal 2022[337](index=337&type=chunk)[340](index=340&type=chunk)[428](index=428&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=109&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable - Not applicable[357](index=357&type=chunk) [Financial Statements and Supplementary Data](index=110&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The audited financial statements received an unqualified opinion, with critical audit matters related to goodwill and lease valuations - The independent auditor, Ernst & Young LLP, issued an **unqualified opinion** on the financial statements and internal controls[360](index=360&type=chunk)[361](index=361&type=chunk) - **Critical Audit Matters** identified were the valuation of goodwill (due to a material impairment) and the valuation of operating lease assets and liabilities[365](index=365&type=chunk)[371](index=371&type=chunk) Consolidated Balance Sheet Summary (in thousands) | Account | April 1, 2023 | April 2, 2022 | | :--- | :--- | :--- | | Total current assets | $230,226 | $260,411 | | Total noncurrent assets | $754,948 | $937,166 | | **Total assets** | **$985,174** | **$1,197,577** | | Total current liabilities | $190,315 | $235,515 | | Total noncurrent liabilities | $532,674 | $533,966 | | **Total liabilities** | **$722,989** | **$769,481** | | **Total shareholders' equity** | **$262,185** | **$428,096** | Consolidated Statement of Operations Summary (in thousands) | Account | Fiscal Year 2022 | Fiscal Year 2021 | | :--- | :--- | :--- | | Net sales | $1,047,258 | $1,094,119 | | Gross profit | $600,963 | $636,237 | | (Loss) income from operations | ($127,595) | $125,454 | | **Net (loss) income** | **($158,856)** | **$81,718** | [Changes in and Disagreements With Accountants](index=173&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosures) There were no changes in or disagreements with accountants on accounting and financial disclosure - None[546](index=546&type=chunk) [Controls and Procedures](index=173&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective - Management concluded that **disclosure controls and procedures were effective** as of April 1, 2023[548](index=548&type=chunk) - Management concluded that **internal control over financial reporting was effective** as of April 1, 2023, based on the COSO framework (2013)[551](index=551&type=chunk) - The independent registered public accounting firm issued an **unqualified opinion** on the effectiveness of the company's internal control over financial reporting[553](index=553&type=chunk) [Other Information](index=175&type=section&id=Item%209B.%20Other%20Information) There is no other information to report - None[561](index=561&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=175&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20That%20Prevent%20Inspections) This item is not applicable - Not applicable[562](index=562&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=175&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information is incorporated by reference from the company's 2023 Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[564](index=564&type=chunk) [Executive Compensation](index=175&type=section&id=Item%2011.%20Executive%20Compensation) Information is incorporated by reference from the company's 2023 Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[565](index=565&type=chunk) [Security Ownership and Related Stockholder Matters](index=175&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information is incorporated by reference from the company's 2023 Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[566](index=566&type=chunk) [Certain Relationships, Related Transactions, and Director Independence](index=175&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information is incorporated by reference from the company's 2023 Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[567](index=567&type=chunk) [Principal Accounting Fees and Services](index=175&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information is incorporated by reference from the company's 2023 Proxy Statement - The required information is incorporated by reference from the definitive Proxy Statement for the 2023 Annual Meeting of Stockholders[568](index=568&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=177&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements and exhibits filed with the report, omitting inapplicable schedules - The consolidated financial statements are included in Part II, Item 8 of this report[569](index=569&type=chunk) - All financial statement schedules have been omitted because they are not applicable or the information is included elsewhere[570](index=570&type=chunk) [Form 10-K Summary](index=185&type=section&id=Item%2016.%20Form%2010-K%20Summary) There is no Form 10-K summary provided - None[579](index=579&type=chunk)

The Container Store Group, Inc. (NYSE:TCS) Q4 2022 Earnings Conference Call May 16, 2023 4:30 PM ET Company Participants Caitlin Churchill - Investor Relations, ICR Satish Malhotra - President and Chief Executive Officer Jeff Miller - Chief Financial Officer Conference Call Participants Anders Myhre - Guggenheim Partners Ryan Meyers - Lake Street Capital Markets Kate McShane - Goldman Sachs Christopher Horvers - JPMorgan Operator Greetings and welcome to The Container Store Fourth Quarter 2022 Earnings Call ...

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 December 31, 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 26-0 ...

The Container Store Group, Inc. (NYSE:TCS) Q3 2022 Earnings Conference Call February 7, 2023 4:30 PM ET Company Participants Caitlin Churchill - Investor Relations, ICR, Inc. Satish Malhotra - President and Chief Executive Officer Jeff Miller - Chief Financial Officer Conference Call Participants Steven Forbes - Guggenheim Partners Ryan Meyers - Lake Street Capital Markets, LLC Christopher Horvers - JPMorgan Chase & Co. Operator Greetings, and welcome to The Container Store Third Quarter 2022 Earnings Confe ...

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 October 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 26-056 ...

| --- | --- | --- | --- | --- | |------------------|-------|-------|-------|-------| | | | | | | | | | | | | | Q2FY22 Earnings | | | | | | NYSE: TCS | | | | | | November 1, 2022 | | | | | Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking statements, including statements re ...

Financial Data and Key Metrics Changes - Consolidated net sales declined by 1.2% year-over-year to $272.7 million, with adjusted earnings per diluted share at $0.27 compared to $0.54 in the prior year [10][44] - Consolidated gross margin decreased to 56.6% from 59.3% last year, primarily due to commodity and freight increases [40] - Net income on a GAAP basis was $15.7 million or $0.31 per diluted share, down from $27.2 million or $0.54 per diluted share in the previous year [44] Business Line Data and Key Metrics Changes - Retail business net sales were $259.9 million, a 0.2% increase year-over-year, with a comparable store sales decrease of 0.8% driven by a 4.6% decline in general merchandise categories [36] - Customer space sales increased by 7.1% compared to fiscal 2021, contributing 230 basis points to comparable store sales [36] - Online channel sales decreased by 0.7% year-over-year, but including curbside pickup, website sales increased by 5.4% [38] Market Data and Key Metrics Changes - Comp store sales performance was up 7% compared to last year, partially offsetting the decline in general merchandise [23] - Average daily sales for the back-to-college event doubled compared to last year, with an average ticket 33% higher [17] - The loyalty program saw over 126,000 customers tier up in Q2, with loyalty members having a 61% higher average ticket than non-loyalty members [18] Company Strategy and Development Direction - The company remains committed to its strategic initiatives to support long-term growth and a $2 billion revenue goal, despite macroeconomic headwinds [13] - Focus on expanding reach and strengthening capabilities, including the introduction of new product lines and in-home installation services [28][34] - Plans to open 76 stores by the end of fiscal '27, with a third of these expected to open by the end of fiscal 2024 [31] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging consumer environment with changing discretionary spending patterns due to inflation and rising interest rates [9][59] - The company expects continued macro headwinds in Q3, leading to a comparable store sales decline of high single digits [49] - Confidence in long-term growth remains, with a strong balance sheet and focus on operational discipline [55] Other Important Information - Capital expenditures for fiscal 2022 are projected to be in the range of $60 million to $65 million, representing 5.5% to 6.5% of total sales [66] - Free cash flow in the first half of the year was a use of $5.3 million, compared to $7.9 million generated in the same period last year [47] - The company repurchased approximately 940,000 shares for $5 million under a stock repurchase program [47] Q&A Session Summary Question: Commentary on customer engagement with the Preston line - Management noted that customers are changing their discretionary spending patterns, spending more on fewer items, but engagement with the Preston line has been strong, with average space values over $6,000 [59][61] Question: Update on capital expenditures - Capital expenditures for fiscal 2022 are still projected to be in the $60 million to $65 million range, with a focus on strategic objectives to reach the $2 billion revenue goal [66][68] Question: Insights on elevated ticket prices - Average ticket prices have increased due to higher pricing and promotional activity, but customers are purchasing fewer items overall [71][72] Question: Strengths in product categories - Strength was noted in the kitchen area, particularly with private label products, as new customers often start their journey in the kitchen department [74] Question: Changes in consumer cadence over the quarter - Significant traffic declines were observed starting in early August, but traffic has moderated since then [76][77] Question: SG&A performance and future expectations - SG&A performance in Q2 is expected to be a baseline for Q3, but could fluctuate based on seasonal trends [81]

| --- | --- | --- | --- | --- | |------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | Q1FY22 Earnings | | | | | | NYSE: TCS | | | | | | August 2, 2022 | | | | | Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this presentation that do not relate to matters of historical fact should be considered forward-looking statements, including sta ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents unaudited consolidated financial statements for Q1 FY2022, showing increased net sales, decreased net income, and total assets reaching $1.22 billion [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20statements) Presents unaudited consolidated financial statements for Q1 FY2022, including balance sheets, operations, comprehensive income, cash flows, and shareholders' equity Consolidated Statement of Operations Highlights (Thirteen Weeks Ended) | Metric | July 2, 2022 (in thousands) | July 3, 2021 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | $262,634 | $245,315 | +7.1% | | Gross Profit | $150,088 | $146,324 | +2.6% | | Income from Operations | $17,935 | $26,517 | -32.4% | | Net Income | $10,479 | $17,672 | -40.7% | | Diluted EPS | $0.21 | $0.35 | -40.0% | Consolidated Balance Sheet Highlights (in thousands) | Metric | July 2, 2022 (in thousands) | July 3, 2021 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $269,670 | $215,243 | | Total Assets | $1,224,439 | $1,084,526 | | Total Current Liabilities | $229,345 | $209,906 | | Total Liabilities | $790,832 | $714,978 | | Total Shareholders' Equity | $433,607 | $369,548 | Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | Thirteen Weeks Ended July 2, 2022 (in thousands) | Thirteen Weeks Ended July 3, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,172 | $3,737 | | Net cash used in investing activities | ($18,327) | ($7,561) | | Net cash provided by (used in) financing activities | $24,404 | ($3,571) | | Net increase (decrease) in cash | $8,954 | ($7,175) | [Notes to the Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20unaudited%20consolidated%20financial%20statements) Details accounting policies, segment performance, the $21.4 million Closet Works acquisition, and a new $30 million share repurchase program - The company operates two reportable segments: The Container Store (TCS) for retail and online sales, and Elfa, a Swedish shelving systems manufacturer[21](index=21&type=chunk)[25](index=25&type=chunk) - On December 30, 2021, Closet Works was acquired for **$21.4 million** in cash, adding **$18.3 million** in goodwill to the TCS segment[43](index=43&type=chunk)[44](index=44&type=chunk)[46](index=46&type=chunk) - A new stock repurchase program was approved on August 1, 2022, authorizing the purchase of up to **$30 million** of common stock[73](index=73&type=chunk) Segment Performance (Thirteen Weeks Ended July 2, 2022, in thousands) | Segment | Net Sales to Third Parties (in thousands) | Adjusted EBITDA (in thousands) | | :--- | :--- | :--- | | TCS | $246,771 | $25,097 | | Elfa | $15,863 | $3,251 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=26&type=section&id=Item%202.%20Management%27s%20discussion%20and%20analysis%20of%20financial%20condition%20and%20results%20of%20operations) Management discusses Q1 FY2022 results, noting increased net sales, gross margin decline, higher SG&A, and details on liquidity and capital expenditures - Net sales for Q1 FY22 increased **7.1% to $262.6 million**, driven by a **5.1% increase in comparable store sales**, with Custom Closets sales growing **14.7%**[102](index=102&type=chunk) - Consolidated gross margin decreased by **250 basis points to 57.1%**, primarily due to a **140 basis point decline** in the TCS segment's gross margin from increased freight costs[103](index=103&type=chunk) - Selling, general and administrative (SG&A) expenses increased by **10.7% year-over-year**, rising to **46.4% of net sales** from 44.9%, driven by higher compensation, benefits, and marketing costs[105](index=105&type=chunk) - Total capital expenditures for fiscal 2022 are expected to be between **$60 million and $65 million**, allocated towards technology, store updates, Elfa, and new store openings[110](index=110&type=chunk) [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Details Q1 FY2022 operational results, showing increased TCS net sales, decreased Elfa third-party sales, and a gross margin contraction Net Sales Breakdown (Thirteen Weeks Ended, in thousands) | Segment | July 2, 2022 (in thousands) | July 3, 2021 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | TCS Net Sales | $246,771 | $228,729 | +7.9% | | Elfa Third-Party Net Sales | $15,863 | $16,586 | -4.4% | | **Total Net Sales** | **$262,634** | **$245,315** | **+7.1%** | - Comparable store sales increased by **5.1%**, with Custom Closets up **14.7%** and general merchandise categories up **0.8%**[102](index=102&type=chunk) - Adjusted EBITDA decreased to **$28.2 million** for the quarter compared to **$33.5 million** in the prior-year period[91](index=91&type=chunk)[96](index=96&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Discusses liquidity, cash on hand, available credit, negative free cash flow from increased capital expenditures, and outstanding debt Cash Flow and Liquidity Summary (in thousands) | Metric | Thirteen Weeks Ended July 2, 2022 (in thousands) | | :--- | :--- | | Cash at end of period | $23,206 | | Net cash provided by operating activities | $3,172 | | Additions to property and equipment | ($17,620) | | Free Cash Flow (Non-GAAP) | ($14,448) | - Capital expenditures totaled **$17.6 million**, with **$12.2 million** invested in technology, a significant increase from **$7.6 million** in the prior-year quarter[120](index=120&type=chunk)[121](index=121&type=chunk) - As of July 2, 2022, **$160.4 million** was outstanding under the Senior Secured Term Loan Facility and **$15.0 million** under the Revolving Credit Facility[125](index=125&type=chunk)[131](index=131&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20qualitative%20disclosures%20about%20market%20risk) Outlines market risks from foreign currency, interest rate volatility on variable-rate debt, and inflationary pressures, with mitigation strategies - The company hedges **100%** of Elfa's inventory purchases in Swedish krona using forward contracts to mitigate foreign currency risk[151](index=151&type=chunk)[152](index=152&type=chunk) - The company faces interest rate risk on **$193.5 million** of variable-rate borrowings as of July 2, 2022[153](index=153&type=chunk) - Inflationary pressures on commodity and freight prices are being mitigated through vendor negotiations, supply chain management, and pricing adjustments[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20procedures) Management concluded disclosure controls and procedures were effective as of July 2, 2022, with no material changes to internal control over financial reporting - Disclosure controls and procedures were deemed **effective** by management, including the CEO and CFO, as of July 2, 2022[156](index=156&type=chunk) - No material changes to internal control over financial reporting were identified during the quarter[157](index=157&type=chunk) [PART II. OTHER INFORMATION](index=52&type=section&id=PART%20II.%20OTHER%20INFORMATION) Covers legal proceedings, risk factors, and equity sales, noting no material adverse effects or changes to previously disclosed risk factors [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20proceedings) The company is involved in ordinary legal proceedings, with no expected material adverse effect on financial condition or results of operations - Various legal proceedings and claims arising in the ordinary course of business are not expected to have a **material adverse effect** on the company[158](index=158&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20factors) No material changes to the company's risk factors were reported from those disclosed in the 2021 Annual Report on Form 10-K - No material changes to previously disclosed risk factors from the 2021 Annual Report on Form 10-K were reported[159](index=159&type=chunk)