The Container Store(TCS) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Q2 2020 financial statements reflect significant profitability improvement and substantial six-month operating cash flow growth Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | Sep 26, 2020 | Mar 28, 2020 | Sep 28, 2019 | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash | $61,847 | $67,755 | $9,029 | | Inventory | $117,715 | $124,207 | $133,200 | | Total Assets | $1,108,054 | $1,166,814 | $1,140,572 | | Liabilities & Equity | | | | | Long-term debt | $236,955 | $317,485 | $268,007 | | Total Liabilities | $818,759 | $895,106 | $881,224 | | Total Shareholders' Equity | $289,295 | $271,708 | $259,348 | Consolidated Statements of Operations Highlights (Unaudited) | (In thousands, except per share) | Thirteen Weeks Ended Sep 26, 2020 | Thirteen Weeks Ended Sep 28, 2019 | Twenty-Six Weeks Ended Sep 26, 2020 | Twenty-Six Weeks Ended Sep 28, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $248,241 | $236,432 | $399,927 | $445,952 | | Gross profit | $146,058 | $136,804 | $224,297 | $256,611 | | Income from operations | $33,764 | $10,385 | $15,146 | $10,200 | | Net income (loss) | $20,200 | $3,646 | $3,530 | $(453) | | Diluted EPS | $0.41 | $0.08 | $0.07 | $(0.01) | Consolidated Statements of Cash Flows Highlights (Unaudited) | (In thousands) | Twenty-Six Weeks Ended Sep 26, 2020 | Twenty-Six Weeks Ended Sep 28, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,183 | $5,755 | | Net cash used in investing activities | $(6,858) | $(21,530) | | Net cash (used in) provided by financing activities | $(90,495) | $17,621 | | Net (decrease) increase in cash | $(5,908) | $1,665 | Notes to the Unaudited Consolidated Financial Statements Notes detail business operations, COVID-19 impact, and segment performance, highlighting Q2 store reopenings, deferred lease payments, and strong TCS retail segment results - The COVID-19 pandemic caused significant disruptions, including the temporary closure of all 93 stores in Q1 2020, with all stores reopening in Q2 2020 with limited capacity, leading to a moderation in online sales as customers returned to in-store purchasing[23][80] - In response to COVID-19, the company furloughed approximately 2,800 employees and reduced executive salaries, with all employees active and salaries restored to pre-COVID levels as of the filing date[23][82] - The company renegotiated lease terms due to the pandemic, resulting in the deferral of approximately $11.9 million of certain cash lease payments[41] Segment Performance (Thirteen Weeks Ended) | (In thousands) | Sep 26, 2020 | Sep 28, 2019 | | :--- | :--- | :--- | | TCS Segment | | | | Net sales to third parties | $233,004 | $221,235 | | Adjusted EBITDA | $38,278 | $18,661 | | Elfa Segment | | | | Net sales to third parties | $15,237 | $15,197 | | Adjusted EBITDA | $5,736 | $5,950 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial results, highlighting strong Q2 2020 recovery driven by sales growth, online surge, and cost-cutting, leading to improved profitability and strong liquidity Results of Operations Operational results show Q2 net sales up 5.0% to $248.2 million and net income surging to $20.2 million, driven by online sales and SG&A reductions, contrasting with a 10.3% six-month sales decrease due to Q1 store closures Q2 2020 vs Q2 2019 Performance | Metric | Q2 2020 | Q2 2019 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $248.2M | $236.4M | +$11.8M | +5.0% | | Gross Profit | $146.1M | $136.8M | +$9.3M | +6.8% | | Gross Margin | 58.8% | 57.9% | +90 bps | N/A | | SG&A Expenses | $101.2M | $114.0M | -$12.8M | -11.2% | | Net Income | $20.2M | $3.6M | +$16.6M | +455% | - Online sales were a key driver, increasing 86.4% in Q2 2020 and 138.2% in the first half of fiscal 2020 compared to the same periods in the prior year[101][111] - Q2 2020 SG&A expenses decreased by 740 basis points as a percentage of sales, primarily due to reductions in payroll, marketing, and transportation costs[106] - For the twenty-six weeks ended September 26, 2020, consolidated net sales decreased 10.3% year-over-year, primarily due to the negative impact of COVID-19 on store operations in the first quarter[111] Liquidity and Capital Resources The company actively managed liquidity in response to COVID-19, resulting in strong cash position, credit availability, robust operating cash flow, and positive free cash flow - As of September 26, 2020, the company had $61.8 million of cash and $95.5 million of additional availability under its Revolving Credit Facility[123] - To preserve liquidity during the pandemic, the company extended payment terms, reduced merchandise purchases, and substantially reduced planned capital expenditures for fiscal 2020[121] Free Cash Flow (Non-GAAP) | (In thousands) | Twenty-Six Weeks Ended Sep 26, 2020 | Twenty-Six Weeks Ended Sep 28, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $91,183 | $5,755 | | Less: Additions to property and equipment | $(6,864) | $(21,534) | | Free cash flow | $84,319 | $(15,779) | - The company's Senior Secured Term Loan Facility had an outstanding principal amount of $248.9 million as of September 26, 2020[142] Quantitative and Qualitative Disclosures About Market Risk This item is noted as not applicable for this reporting period - The company has indicated that there are no applicable quantitative and qualitative disclosures about market risk for this period[163] Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 26, 2020, with no material changes in internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[165][166] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[167] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings incidental to its business, none expected to have a material adverse effect on financial condition or results of operations - The company is subject to various legal proceedings incidental to its business, none of which are expected to have a material adverse effect[168] Risk Factors No material changes to risk factors were reported since the last Annual Report on Form 10-K - No material changes to risk factors were reported since the last Annual Report on Form 10-K[169] Other Information This section discloses key executive employment updates, including new and amended agreements for various officers, and the subsequent retirement announcement of the Chief Administrative Officer - The company entered into new employment agreements with Melissa Collins (Chief Marketing Officer) and John Gehre (Chief Merchandising Officer) on October 18, 2020[173] - Amended and restated employment agreements were executed for Melissa Reiff (President and CEO) and Jodi Taylor (Chief Administrative Officer) on October 18, 2020[180] - On October 19, 2020, Jodi Taylor, Chief Administrative Officer and Secretary, notified the company of her retirement, effective March 1, 2021[182] Exhibits This section lists exhibits filed with the Form 10-Q, including new and amended employment agreements for key executives and standard SEC-required certifications