The Container Store(TCS) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for The Container Store Group, Inc., detailing financial position, operations, cash flows, and key accounting policies Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 29, 2018 | Mar 31, 2018 | Dec 30, 2017 | | :--- | :--- | :--- | :--- | | Total Current Assets | $186,445 | $154,194 | $186,048 | | Total Assets | $772,022 | $749,369 | $784,399 | | Total Current Liabilities | $135,953 | $126,537 | $138,451 | | Total Liabilities | $520,584 | $500,662 | $532,736 | | Total Shareholders' Equity | $251,438 | $248,707 | $251,663 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Thirteen Weeks Ended Dec 29, 2018 | Thirteen Weeks Ended Dec 30, 2017 | Thirty-Nine Weeks Ended Dec 29, 2018 | Thirty-Nine Weeks Ended Dec 30, 2017 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $221,637 | $222,986 | $641,913 | $624,464 | | Gross Profit | $130,057 | $130,561 | $375,403 | $360,545 | | Income from Operations | $11,403 | $13,899 | $23,184 | $13,746 | | Net Income | $9,321 | $28,379 | $5,798 | $19,827 | | Net Income per Share (Diluted) | $0.19 | $0.59 | $0.12 | $0.41 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | Thirty-Nine Weeks Ended Dec 29, 2018 | Thirty-Nine Weeks Ended Dec 30, 2017 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,823 | $39,392 | | Net cash used in investing activities | ($20,413) | ($20,082) | | Net cash provided by (used in) financing activities | $15,737 | ($8,170) | | Net increase in cash | $12,570 | $11,917 | - On September 14, 2018, the Company amended its Senior Secured Term Loan Facility, extending the maturity to September 2023, decreasing the interest rate margin, and repaying $20,000 of the outstanding loans, resulting in a loss on extinguishment of debt of $2,082[33][34] - The significant decrease in net income for the thirteen weeks ended Dec 29, 2018, compared to the prior year, is primarily due to a large tax benefit of $21.8 million recorded in the 2017 period related to the Tax Cuts and Jobs Act, with accounting finalized in Q3 2018[39][40][42] - Subsequent to the quarter end, on January 24, 2019, the company announced a management succession plan, with CEO Melissa Reiff becoming Chairman and Sharon Tindell retiring, succeeded by John Gehre as CMO[69][70] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, noting Q3 sales decline but 39-week growth, impacted by the Optimization Plan, with improved gross margin but higher SG&A, and details on liquidity and debt amendments Results of Operations Q3 net sales decreased 0.6% with comparable store sales down 0.8%, while 39-week net sales grew 2.8% with comparable store sales up 1.5%, and gross margin improved but SG&A increased Q3 FY2018 vs Q3 FY2017 Performance (Thirteen Weeks Ended) | Metric | Dec 29, 2018 | Dec 30, 2017 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $221.6M | $223.0M | -0.6% | | Comparable Store Sales | -0.8% | -0.2% | -60 bps | | Gross Margin | 58.7% | 58.6% | +10 bps | | SG&A as % of Sales | 49.0% | 46.6% | +240 bps | | Adjusted Net Income (Non-GAAP) | $3.5M | $5.1M | -31.4% | | Adjusted EPS (Non-GAAP) | $0.07 | $0.11 | -36.4% | YTD FY2018 vs YTD FY2017 Performance (Thirty-Nine Weeks Ended) | Metric | Dec 29, 2018 | Dec 30, 2017 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $641.9M | $624.5M | +2.8% | | Comparable Store Sales | +1.5% | +0.2% | +130 bps | | Gross Margin | 58.5% | 57.7% | +80 bps | | SG&A as % of Sales | 50.0% | 49.1% | +90 bps | | Adjusted Net Income (Non-GAAP) | $4.3M | $5.2M | -17.3% | | Adjusted EPS (Non-GAAP) | $0.09 | $0.11 | -18.2% | - The company's Optimization Plan, launched in fiscal 2017, is expected to be completed in fiscal 2018, with approximately $4.9 million of pre-tax charges incurred in Q1 fiscal 2018 related to its price optimization initiative[84][85] Liquidity and Capital Resources Liquidity is primarily from cash operations and credit facilities, with $21.0 million cash on hand and $53.3 million available credit, though free cash flow was negative $3.5 million due to capital expenditures Cash Flow and Liquidity Summary (Thirty-Nine Weeks Ended, in thousands) | Metric | Dec 29, 2018 | Dec 30, 2017 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,823 | $39,392 | | Additions to property and equipment | ($21,328) | ($20,101) | | Free Cash Flow (Non-GAAP) | ($3,505) | $19,291 | - As of December 29, 2018, the company had $21.0 million in cash, $53.3 million of availability under its $100 million Revolving Credit Facility, and approximately $15.8 million available under the Elfa Revolving Credit Facility[119] - Capital expenditures for the 39-week period totaled $21.3 million, primarily for a new distribution center in Aberdeen, Maryland, expected to be operational in late fiscal 2019[126] - The Senior Secured Term Loan Facility was amended to extend maturity to 2023 and lower interest rates, with a principal amount of $270.8 million at quarter-end, and the company was in compliance with all debt covenants[135][136][137] Quantitative and Qualitative Disclosures About Market Risk The company's market risk profile has not materially changed since March 31, 2018, with full disclosure available in its Annual Report on Form 10-K - There have been no material changes to the company's market risk profile since March 31, 2018[160] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 29, 2018, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 29, 2018[163] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[164] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings not expected to materially affect its financial condition or operations - The company is subject to ordinary course legal proceedings which are not expected to have a material adverse effect on the business[166] Risk Factors No material changes to risk factors were reported since the prior fiscal year's Annual Report on Form 10-K - No material changes to risk factors were reported for the period[167] Other Items (Items 2, 3, 4, 5, 6) The company reported no unregistered sales of equity securities, no defaults upon senior securities, and no other material information for the quarter - The company reported no activity for the following items: Unregistered Sales of Equity Securities and Use of Proceeds, Default Upon Senior Securities, Mine Safety Disclosures, and Other Information[168][169][170][171]