The Container Store Group, Inc. Announces First Quarter Fiscal 2018 Financial Results
COPPELL, Texas--(BUSINESS WIRE)--Jul 31, 2018--The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the first quarter of fiscal 2018 ended June 30, 2018.Consolidated net sales were $195.8 million, up 6.9%. Net sales in The Container Store retail business (“TCS”) were $180.1 million, up 7.8%. Elfa International AB (“Elfa”) third-party net sales were $15.7 million, down 1.9%. Comparable store sales were up 4.7%. This includes an approximate 190 basis point benefit from recognition of Custom Closets orders placed in the fourth quarter of fiscal 2017 that were delivered and installed in the first quarter of fiscal 2018. Consolidated net loss and net loss per share (“EPS”) were $6.8 million and ($0.14) compared with $7.7 million and ($0.16), respectively, in the first quarter of fiscal 2017. Adjusted net loss per share (“Adjusted EPS”) was ($0.08) compared with ($0.11) in the first quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table). Adjusted EBITDA, which excludes Optimization Plan costs, among other adjustments (see Reconciliation of GAAP to Non-GAAP Financial Measures table), increased 92.7% to $12.4 million from $6.4 million in the prior year period, primarily driven by consolidated gross margin expansion of 200 basis points and an 80 basis point improvement in SG&A expense as a percentage of consolidated net sales.
“We are very pleased that our strong fiscal fourth quarter momentum carried through the first quarter of fiscal 2018 with improving trends in our Custom Closets business as well as ongoing positive comparable store sales contribution from our other product categories, as our sales revitalization and optimization initiatives continued to deliver positive results. These broad-reaching initiatives span product and visual merchandising, marketing campaigns, our stores – including the exciting redesign of our Dallas flagship store, which was completed in June 2018 - and e-commerce channels as well as our product costs and overall expenses,” said Melissa Reiff, Chief Executive Officer.
Reiff added, “We are encouraged by our progress and excited about the opportunities that lie ahead. Our entire organization is focused on the disciplined execution of our strategy and each of our initiatives as we realize our vision to be a beloved brand and the first choice for customized organization solutions and services. Given our strong start to the year we are raising our top and bottom line outlook for fiscal 2018.”
New and Existing Stores
During the first quarter of fiscal 2018, the Company opened one new store in Bridgewater, New Jersey. During the remainder of fiscal 2018, the Company plans to open one additional location in Oklahoma City, Oklahoma and also plans to relocate its Cherry Creek store in Denver, Colorado and its Tysons Corner, Virginia store.
First Quarter Fiscal 2018 Results
For the first quarter (thirteen weeks) ended June 30, 2018:Consolidated net sales were $195.8 million, up 6.9% as compared to the first quarter of fiscal 2017. Net sales at TCS were $180.1 million, up 7.8%, with the increase driven by a comparable store sales increase of 4.7%, as well as incremental net sales from new stores. Elfa third-party net sales were $15.7 million, down 1.9% compared to the first quarter ended July 1, 2017, primarily due to lower sales in Nordic and other markets, partially offset by the positive impact of foreign currency translation during the quarter which increased third-party net sales by 1.2%. Consolidated gross margin was 58.6%, an increase of 200 basis points compared to the first quarter of fiscal 2017. TCS gross margin increased 140 basis points to 57.9%, primarily due to lower cost of goods associated with the Optimization Plan. Elfa gross margin declined 170 basis points primarily due to higher direct materials costs, partially offset by production efficiencies. On a consolidated basis, gross margin increased 200 basis points primarily due to increased sales of higher-margin elfa® products during the first quarter of fiscal 2018. Consolidated selling, general and administrative expenses (“SG&A”) increased by 10.3% to $106.6 million from $96.6 million in the first quarter of fiscal 2017. SG&A as a percentage of net sales increased 160 basis points. This was primarily due to the final consulting costs incurred as part of the implementation of the Optimization Plan, which contributed 240 basis points to the increase in the first quarter of fiscal 2018. The increase was partially offset by an 80 basis point improvement in SG&A expense as a percentage of net sales primarily due to ongoing savings and efficiency efforts. Pre-opening costs decreased to $0.3 million in the first quarter of fiscal 2018 compared to $1.4 million in the first quarter of fiscal 2017. The Company opened one new store in each of the first quarters of fiscal 2018 and 2017. The decrease is primarily due to the incurrence of pre-opening costs in the first quarter of fiscal 2017 for a store that opened early in the second quarter of fiscal 2017. Other expenses decreased to $0.2 million in the first quarter of fiscal 2018 compared to $3.5 million in the first quarter of fiscal 2017. The decrease is due to severance costs incurred in the first quarter of fiscal 2017 to implement the Optimization Plan. Consolidated net interest expense increased 87% to $7.9 million in the first quarter of fiscal 2018 from $4.2 million in the first quarter of fiscal 2017 due to the amendment of our Senior Secured Term Loan Facility in fiscal 2017, which increased the applicable interest rate margins. The effective tax rate was 34.0%, as compared to 37.4% in the first quarter ended July 1, 2017. The decrease in the effective tax rate is primarily due to lower statutory rates as a result of the Tax Cuts and Jobs Act enacted in fiscal 2017, partially offset by a benefit for the remeasurement of deferred tax balances recorded in the first quarter of fiscal 2018 as a result of a change in the Swedish tax rate. Net loss was $6.8 million, or ($0.14) per share, in the first quarter of fiscal 2018 compared to net loss of $7.7 million, or ($0.16) per share in the first quarter of fiscal 2017. Adjusted net loss was $4.0 million, or ($0.08) per share, in the first quarter of fiscal 2018 compared to adjusted net loss of $5.5 million, or ($0.11) per share in the first quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table). Adjusted EBITDA was $12.4 million in the first quarter of fiscal 2018 compared to $6.4 million in the first quarter of fiscal 2017 (see Reconciliation of GAAP to Non-GAAP Financial Measures table).
Balance sheet and liquidity highlights:
The Company is raising its outlook for fiscal 2018 as follows:
Conference Call Information
A conference call to discuss first quarter fiscal 2018 financial results is scheduled for today, July 31, 2018, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 (international callers please dial (201) 493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.containerstore.com.
A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing (844) 512-2921 (international callers please dial (412) 317-6671). The pin number to access the telephone replay is 13681548. The replay will be available until August 31, 2018.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including statements about our future opportunities; expectations regarding our goals, strategies, priorities and initiatives; becoming the first choice for customized organization solutions and services; expectations regarding new store openings and relocations; and anticipated financial performance and tax rate for fiscal 2018.
These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: our optimization plan may not result in improved sales and profitability; our inability to open or relocate new stores, or remodel existing stores, in the timeframe and at the locations we anticipate; overall decline in the health of the economy, consumer spending, and the housing market; our inability to manage costs and risks relating to new store openings; our inability to source and market new products to meet consumer preferences; our failure to achieve or maintain profitability; risks relating to the opening of a second distribution center; effects of a security breach or cyber-attack of our website or information technology systems, including relating to our use of third-party web service providers; our vulnerability to natural disasters and other unexpected events; our reliance upon independent third party transportation providers; our inability to protect our brand; our failure to successfully anticipate consumer preferences and demand; our inability to manage our growth; inability to locate available retail store sites on terms acceptable to us; our inability to maintain sufficient levels of cash flow to meet growth expectations; disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital to finance the carrying costs of inventory to pay for capital expenditures and operating costs; fluctuations in currency exchange rates; our inability to effectively manage our online sales; competition from other stores and internet based competition; our inability to obtain merchandise on a timely basis at competitive prices as a result of changes in vendor relationships; vendors may sell similar or identical products to our competitors; our reliance on key executive management, and the transition in our executive leadership; our inability to find, train and retain key personnel; labor relations difficulties; increases in health care costs and labor costs; our dependence on foreign imports for our merchandise; violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti bribery and anti-kickback laws; our indebtedness may restrict our current and future operations, and we may not be able to refinance our debt on favorable terms, or at all; effects of tax reform; and uncertainty with respect to tax and trade policies, tariffs and government regulations affecting trade between the United States and other countries.
These and other important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on May 31, 2018, and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management’s estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.
About The Container Store
The Container Store (NYSE: TCS) is the nation’s leading retailer of storage and organization products — a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 10,000 products designed to save space and time, a suite of custom closet systems and an array of digital shopping services. Visit www.containerstore.com for more information about store locations, the product collection and services offered. Visit www.containerstore.com/blog for real solutions from the really organized and www.whatwestandfor.com to learn more about the company’s unique culture.
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