The Container Store(TCS) - 2024 Q4 - Annual Results

Financial Results Overview 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 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 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] - Strong cost discipline led to positive free cash flow for the fiscal year[4] - 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] Detailed Financial Performance 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 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] 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 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] 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 The company expanded its store footprint, improved liquidity with positive free cash flow, and maintained a stable balance sheet despite increased debt Store Operations 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] - In fiscal 2024, the company plans to open four new stores, relocate one store, and close one store[10] Balance Sheet and Liquidity 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 No share repurchases occurred in fiscal 2023, with $25 million remaining under the existing authorization - There were no share repurchases during fiscal 2023[12] - $25 million remains available under the company's share repurchase authorization[12] Outlook and Strategic Initiatives 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 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] - Performance is driven by relative strength in the Custom Spaces business, with year-over-year growth in Elfa and Preston product lines[13] - The general merchandise category remains challenged, resulting in double-digit total sales declines, though less severe than in Q4 2023[13] Review of Strategic Alternatives 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] - 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][15] - The company is suspending financial guidance and has not set a deadline for the completion of the strategic review[17] Consolidated Financial Statements 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 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 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 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 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 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] - 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] - 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] Reconciliation of GAAP to Non-GAAP Net Income (Loss) 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 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 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) |