The Container Store Group Q4 FY 2016: strong fourth quarter performance that exceeded our expectations

  • Fourth Quarter Earnings Per Share More Than Doubles to $0.17; SG&A Savings and Efficiency Program Continues to Drive Financial Results
  • Improvement in Comparable Store Sales to -0.2%
  • Expects Fiscal 2017 Earnings Per Share of $0.25 to $0.35

COPPELL, Texas, 2017-May-25 — /EPR Retail News/ — The Container Store Group, Inc. (NYSE:TCS) (the “Company”), today (05/23/2017) announced financial results for the fourth quarter and fiscal year 2016 ended April 1, 2017. In light of the Company’s previously announced fiscal year end change, all references to prior fourth quarter and fiscal year results are based on the recast fourth quarter and fiscal year 2015 ended April 2, 2016.

For the fourth quarter of fiscal 2016:

  • Consolidated net sales were $221.0 million, up 5.3%. Net sales in The Container Store retail business were $203.3 million, up 5.8%. Elfa International AB third-party net sales were $17.8 million, up 0.5%.
  • Comparable store sales were down 0.2%. The Easter timing shift benefited the quarter’s comparable store sales by approximately 0.6%.
  • Consolidated net income per share (EPS) was $0.17 compared with $0.07, an increase of 143%.

“We are very pleased to have completed fiscal 2016 with strong fourth quarter performance that exceeded our expectations across all financial metrics. Our Custom Closets business continues to positively contribute to comparable store sales and we’ve seen sales trends improve in our other product categories driven by new and more targeted marketing campaigns, as well as merchandising improvements,” said Melissa Reiff, Chief Executive Officer.

Reiff continued, “In fiscal 2016 we implemented our SG&A savings and efficiency program, which drove a substantial improvement in profitability with a full year operating income increase of 67% compared to fiscal 2015 and a three-fold increase in earnings per share to $0.31.”

“As we begin fiscal 2017, we remain committed to consistently driving top and bottom line performance that we believe The Container Store is capable of delivering. We have initiatives in progress to drive sales productivity improvements, including a complete re-design of our flagship store in Dallas, which we believe will provide us insight for the development of new store formats and the evolution of our existing stores’ layout and customer experience. In addition, today we are announcing a four-part plan to optimize our consolidated business and drive improved sales and profitability,” Reiff concluded.

As previously announced, the Company plans to open the following locations in fiscal 2017:

  • Cleveland, Ohio (First Quarter)
  • Albuquerque, New Mexico (Second Quarter)
  • Livingston, New Jersey (Third Quarter)
  • Staten Island, New York (Third Quarter)
  • Relocation of its Chestnut Hill, Massachusetts store (Third Quarter)

Fourth Quarter and Full Fiscal Year 2016 Results

For the fourth quarter (thirteen weeks) ended April 1, 2017:

  • Consolidated net sales were $221.0 million, up 5.3% as compared to the fourth quarter ended April 2, 2016. Net sales in The Container Store retail business (“TCS”) were $203.3 million, up 5.8% as compared to the fourth quarter ended April 2, 2016, primarily due to new store sales, partially offset by a 0.2% decrease in comparable store sales. Elfa International AB (“Elfa”) third party net sales were $17.8 million, up 0.5% compared to the fourth quarter ended April 2, 2016, primarily due to improved sales in the Nordic markets during the quarter, almost completely offset by the impact of foreign currency translation during the quarter, which reduced third party net sales by 5.2%.
  • Consolidated gross margin was 57.6%, a decline of 20 basis points compared to the fourth quarter ended April 2, 2016. TCS gross margin declined 80 basis points to 56.0%, primarily due to an increased mix of lower-margin product and service sales and, to a lesser extent, increased sales associated with promotional activities during the fourth quarter of fiscal 2016. Elfa gross margin increased 360 basis points to 42.8% primarily due to improved production efficiencies during the quarter. On a consolidated basis, gross margin declined 20 basis points, as the improvement in Elfa gross margin was more than offset by the decline in TCS gross margin.
  • Consolidated selling, general and administrative expenses (“SG&A”) decreased by 0.5% to $99.9 million from $100.4 million in the fourth quarter ended April 2, 2016. SG&A as a percentage of net sales decreased 260 basis points, primarily due to decreased costs as a result of the Company’s SG&A savings program, as well as lower healthcare costs.
  • Pre-opening costs decreased to $0.3 million in the fourth quarter of fiscal 2016 compared to $2.0 million in the fourth quarter ended April 2, 2016. The Company did not open any new stores in the fourth quarter of fiscal 2016 as compared to two new stores in the fourth quarter ended April 2, 2016.
  • Consolidated net interest expense increased slightly to $4.3 million.
  • The consolidated effective tax rate for the fourth quarter of fiscal 2016 was 35.2%, as compared to 36.2% in the fourth quarter ended April 2, 2016. The decrease in the effective tax rate is primarily due to changes in the mix of domestic and foreign earnings.
  • Consolidated net income was $8.4 million, or $0.17 per share, in the fourth quarter of fiscal 2016 compared to net income of $3.4 million, or $0.07 per share, in the fourth quarter ended April 2, 2016.
  • Consolidated Adjusted EBITDA was $26.9 million compared to $20.6 million in the fourth quarter ended April 2, 2016, (see GAAP/Non-GAAP reconciliation table).

For the year (fifty-two weeks) ended April 1, 2017:

  • Consolidated net sales were $819.9 million, up 2.9% as compared to the recast fiscal year ended April 2, 2016. Net sales at TCS were $752.7 million, up 3.4% as compared to the recast fiscal year ended April 2, 2016, primarily due to new store sales, partially offset by a 2.4% decrease in comparable store sales. Elfa third-party net sales were $67.3 million, down 3.1% compared to the recast fiscal year ended April 2, 2016, primarily due to the impact of foreign currency translation during the fiscal year, which reduced third party net sales by 2.4%, as well as lower sales in Russia.
  • Consolidated gross margin was 58.1%, a decline of 20 basis points compared to the recast fiscal year ended April 2, 2016. TCS gross margin declined 60 basis points to 57.1%, as an increased mix of lower margin products and services combined with increased sales associated with promotional activities was partially offset by the impact of a stronger U.S. dollar. Elfa gross margin improved 120 basis points primarily due to improved production efficiencies. On a consolidated basis, gross margin declined 20 basis points, as the improvement in Elfa gross margin was more than offset by the decline in TCS gross margin.
  • Consolidated selling, general and administrative expenses (“SG&A”) decreased by 1.7% to $387.9 million from $394.6 million in the recast fiscal year ended April 2, 2016. SG&A as a percentage of net sales decreased 220 basis points. This was primarily due to decreased costs as a result of the Company’s SG&A savings program, as well as the reversal of accrued deferred compensation of $3.9 million, which occurred in the first quarter of fiscal 2016. The Company also experienced lower healthcare costs and a positive impact from foreign currency exchange rates during fiscal 2016. The positive impact of these items was partially offset by deleveraging of occupancy costs associated with negative comparable store sales growth.
  • Pre-opening costs decreased to $6.9 million in fiscal 2016 compared to $9.0 million in the recast fiscal year ended April 2, 2016. The Company opened seven new stores in fiscal 2016 as compared to ten new stores (inclusive of one relocation) in the recast fiscal year ended April 2, 2016.
  • Consolidated net interest expense decreased slightly to $16.7 million.
  • The consolidated effective tax rate was 38.6%, as compared to 37.4% in the recast fiscal year ended April 2, 2016. The increase in the effective tax rate is primarily due to changes in the mix of domestic and foreign earnings, combined with the expensing of certain deferred tax assets due to the expiration of certain stock based compensation awards.
  • Consolidated net income was $15.0 million, or $0.31 per share, compared to net income of $4.9 million, or $0.10per share, in the recast fiscal year ended April 2, 2016. Net income of $15.0 million in 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 $1.8 million, or $0.04 per share.
  • Consolidated Adjusted EBITDA was $86.6 million compared to $68.4 million in the recast fiscal year ended April 2, 2016, (see GAAP/Non-GAAP reconciliation table). The Adjusted EBITDA of $86.6 million in 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.

Investors:
ICR, Inc.
Farah Soi/Shannon Devine
203-682-8200
Farah.Soi@icrinc.com/Shannon.Devine@icrinc.com

Source: The Container Store Group, Inc.