The Container Store Group, Inc. announces consolidated net sales up by 0.3% for 2Q FY2016

  • Consolidated Net Sales Up Slightly and Improved Net Income Associated with SG&A Savings Program
  • Continues to See Positive Impact from TCS Closets®, Launches Pilot of elfa® Sliding Doors

COPPELL, Texas, 2016-Nov-11 — /EPR Retail News/ — The Container Store Group, Inc. (NYSE:TCS) (the “Company”), today (11/09/2016) announced financial results for the second quarter of fiscal 2016 ended October 1, 2016. In light of the Company’s previously announced fiscal year end change, all references to prior year results are based on the recast second quarter of fiscal 2015 ended October 3, 2015.

  • Consolidated net sales were $205.1 million, up 0.3%. Net sales in The Container Store retail business were $189.1 million, up 0.9%. Elfa International AB third-party net sales were $16.0 million, down 6.0%.
  • Comparable store sales for the second quarter of fiscal 2016 were down 4.2%.
  • Consolidated net income per diluted share (EPS) was $0.07 compared with $0.07 in the second quarter ended October 3, 2015.
  • The Company opened two new stores in the second quarter of fiscal 2016, has opened two new stores in the third fiscal quarter-to-date and has plans to open two additional locations in the remainder of the third fiscal quarter. The Company had 82 stores at the end of the second quarter of fiscal 2016, as compared to 75 as of October 3, 2015.

Melissa Reiff, Chief Executive Officer, stated, “We are pleased with our earnings performance in the second fiscal quarter of 2016. And while there is still work to be done to drive consistent growth in top line performance, we experienced improving sales trends in September and now in early third fiscal quarter, as we have encountered more comparable cadence of merchandising campaigns and promotional activities. Our 2016 SG&A savings program is gaining traction as evidenced by the leveraging of expenses in a challenging sales environment. This commitment to strong cost discipline drove SG&A efficiencies and contributed to EPS of $0.07.”

Reiff continued, “We believe we are making progress on many fronts to evolve our customer shopping experience in order to improve sales and profitability. Our new customer financing program, while still in its infancy, is driving incremental sales, and our TCS Closets line drove 200 basis points of comparable store sales growth this quarter. We are also working on mid- and long-term goals, strategies and priorities while we simultaneously execute near-term initiatives such as the pilot of elfa® Sliding Doors in our two Manhattan stores.”

“We are cautiously optimistic about the second half of the fiscal year. However, after factoring in our first half results and our expectations for the remainder of the fiscal year, we are updating our annual sales outlook. We are pleased to reiterate our previously provided annual EPS outlook due in part to the continued positive impact of our SG&A Savings Program,” Reiff concluded.

Second Quarter 2016 Results

For the second quarter (thirteen weeks) ended October 1, 2016:

  • Consolidated net sales were $205.1 million, up 0.3% as compared to the second quarter ended October 3, 2015. Net sales in The Container Store retail business (“TCS”) were $189.1 million, up 0.9% as compared to the second quarter ended October 3, 2015, primarily due to new store sales, partially offset by a 4.2% decrease in comparable store sales. Elfa International AB (“Elfa”) third party net sales were $16.0 million, down 6.0% compared to the second quarter ended October 3, 2015, primarily due to lower sales in Russia and the Nordic markets during the quarter.
  • Consolidated gross margin was 57.7%, a decline of 20 basis points compared to the second quarter ended October 3, 2015. TCS gross margin declined 10 basis points to 57.3%, as an increased mix of lower margin products and services was partially offset by the impact of a stronger U.S. dollar. Elfa gross margin remained consistent at 38.2%. On a consolidated basis, gross margin decreased 20 basis points primarily due to the decline in TCS gross margin.
  • Consolidated selling, general and administrative expenses (“SG&A”) decreased by 0.6% to $95.5 million from $96.1 million in the second quarter ended October 3, 2015. SG&A as a percentage of net sales decreased 40 basis points, primarily due to decreased spending associated with the Company’s SG&A savings program and a positive impact from foreign currency exchange rates, partially offset by deleveraging of occupancy costs associated with negative comparable store sales growth.
  • Consolidated net interest expense remained consistent at $4.2 million.
  • The effective tax rate for the second quarter of fiscal 2016 was 41.6%, as compared to 41.1% in the second quarter ended October 3, 2015. The increase in the effective tax rate is primarily due to a change in mix between projected domestic and foreign earnings.
  • Net income was $3.5 million, or $0.07 per share, in the second quarter of fiscal 2016 compared to net income of $3.3 million, or $0.07 per share, in the second quarter ended October 3, 2015.
  • Consolidated Adjusted EBITDA was $22.3 million compared to $21.9 million in the second quarter ended October 3, 2015, (see GAAP/Non-GAAP reconciliation table).

For the year-to-date (twenty-six weeks) ended October 1, 2016:

  • Consolidated net sales were $382.5 million, up 2.2% as compared to the year-to-date ended October 3, 2015. Net sales at TCS were $350.3 million, up 2.8% as compared to the year-to-date ended October 3, 2015, primarily due to new store sales, partially offset by a 3.0% decrease in comparable store sales. Elfa third-party net sales were$32.2 million, down 3.9% compared to the year-to-date ended October 3, 2015, primarily due to lower sales in Russia.
  • Consolidated gross margin was 58.3%, an increase of 10 basis points compared to the year-to-date ended October 3, 2015. TCS gross margin declined 10 basis points to 57.9%, as an increased mix of lower margin products and services was partially offset by the impact of a stronger U.S. dollar. Elfa gross margin improved 150 basis points primarily due to lower direct materials costs and improved production efficiencies, partially offset by higher freight costs. On a consolidated basis, gross margin improved as the improvement in Elfa gross margin was partially offset by the decline in TCS gross margin.
  • Consolidated selling, general and administrative expenses (“SG&A”) decreased by 1.3% to $187.8 million from $190.4 million in the year-to-date ended October 3, 2015. SG&A as a percentage of net sales decreased 170 basis points. This was primarily due to the impact of the reversal of accrued deferred compensation of $3.9 million, or 100 basis points, which occurred in the first quarter of 2016. Additionally, the Company’s SG&A savings program contributed to decreased spending. The Company also experienced a positive impact from foreign currency exchange rates and lower healthcare costs during the first half of fiscal 2016. The positive impact of these items was partially offset by deleveraging of occupancy costs associated with negative comparable store sales growth during the first half of fiscal 2016.
  • Consolidated net interest expense decreased to $8.3 million from $8.4 million in the year-to-date ended October 3, 2015.
  • The effective tax rate was 50.3%, as compared to 29.6% in the year-to-date ended October 3, 2015. The increase in the effective tax rate was primarily due to a shift in mix between projected domestic and foreign earnings, combined with the impact of a pre-tax income position in the first half of fiscal 2016, as compared to a pre-tax loss position in the first half of fiscal 2015.
  • Net income was $1.5 million, or $0.03 per share, compared to net loss of $2.4 million, or ($0.05) per share, in the year-to-date ended October 3, 2015. Net income of $1.5 million in the first half of fiscal 2016 includes a benefit from the impact of amended and restated employment agreements entered into with key executives, net of costs incurred related to management transition and income taxes, of approximately $1.6 million, or $0.03 per share.
  • Consolidated Adjusted EBITDA was $34.3 million compared to $26.6 million in the year-to-date ended October 3, 2015, (see GAAP/Non-GAAP reconciliation table). The Adjusted EBITDA of $34.3 million in the first half of fiscal 2016 includes a benefit from the impact of amended and restated employment agreements entered into with key executives during the first quarter of 2016, net of costs incurred to execute the agreements, of $3.9 million.

Outlook

The Company is updating its fiscal 2016 sales outlook and now expects consolidated net sales to be $820 to $830 million, based on its planned store openings, and a comparable store sales range of -3.0% to -1.5%. Net income for fiscal 2016 is still expected to be $0.20 to $0.30 per diluted common share based on estimated diluted common shares outstanding of 49 million. This assumes a tax rate of approximately 39% for the full fiscal year.

Conference Call Information

A conference call to discuss second quarter fiscal 2016 financial results is scheduled for today, November 9, 2016, 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 www.containerstore.com in the investor relations section of the website.

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 (877) 870-5176 (international replay number is (858) 384-5517). The pin number to access the telephone replay is 13647884. The replay will be available through December 9, 2016 at 11:59 PM Eastern Time.

Forward-Looking Statements

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 expectations regarding driving consistent sales and profit growth, expectations regarding our goals, strategies, priorities and initiatives, including the 2016 SG&A savings program, new customer financing program and elfa® Sliding Doors initiative, expectations for new store openings and relocations, and statements regarding our anticipated financial performance.

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 inability to successfully implement our planned fiscal 2016 initiatives in the timeframe we expect or at all; our inability to open or relocate new 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; our dependence on a single distribution center for all of our stores; effects of a security breach or cyber-attack of our website or information technology systems; 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; and our indebtedness may restrict our current and future operations.

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 10, 2016, 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 and the only retailer solely devoted to the storage and organization category of retailing. The Company originated the concept of storage and organization retailing when it opened its first store in 1978. Today, the retailer has 84 store locations nationwide that each average 25,000 square feet. The Container Store has over 11,000 products to help customers save space and, ultimately, save them time. As the pace of modern life accelerates and being organized is not a luxury anymore but a necessity, The Container Store is devoted to making customers more productive, relaxed and happier by selling customized, complete solutions. Since its inception, the retailer has nurtured an employee-first culture and couples its one-of-kind product collection with a high level of customer service delivered by its highly trained organization experts. The Company has been named to FORTUNE magazine’s 100 Best Companies To Work For® — 17 years in a row. Visit www.containerstore.com for more information about store locations, the product collection and services offered. To find out more about The Container Store’s unique culture, Foundation PrinciplesTM and devotion to Conscious Capitalism®, visit the retailer’s culture blog at www.whatwestandfor.com

Investors:
ICR, Inc.
Farah Soi/Anne Rakunas
203.682.8200
Farah.Soi@icrinc.com

Media:
The Container Store
Audrey Robertson
972.538.6623
AudreyR@containerstore.com

Source: The Container Store Group, Inc.