The Container Store(TCS) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION 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 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 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][25] - 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][44][46] - A new stock repurchase program was approved on August 1, 2022, authorizing the purchase of up to $30 million of common stock[73] 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) 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] - 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] - 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] - 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] Results of Operations 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] - Adjusted EBITDA decreased to $28.2 million for the quarter compared to $33.5 million in the prior-year period[91][96] Liquidity and Capital Resources 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][121] - 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][131] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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][152] - The company faces interest rate risk on $193.5 million of variable-rate borrowings as of July 2, 2022[153] - Inflationary pressures on commodity and freight prices are being mitigated through vendor negotiations, supply chain management, and pricing adjustments[154] Item 4. Controls and Procedures 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] - No material changes to internal control over financial reporting were identified during the quarter[157] PART II. OTHER INFORMATION Covers legal proceedings, risk factors, and equity sales, noting no material adverse effects or changes to previously disclosed risk factors Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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]