Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Jul. 01, 2017 | Jul. 26, 2017 | |
Document and Entity Information | ||
Entity Registrant Name | Container Store Group, Inc. | |
Entity Central Index Key | 1,411,688 | |
Document Type | 10-Q | |
Document Period End Date | Jul. 1, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --03-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Common Stock Outstanding | 48,287,362 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q1 |
Consolidated balance sheets
Consolidated balance sheets - USD ($) $ in Thousands | Jul. 01, 2017 | Apr. 01, 2017 | Jul. 02, 2016 |
Current assets: | |||
Cash | $ 7,216 | $ 10,736 | $ 8,189 |
Accounts receivable, net | 27,490 | 27,476 | 25,035 |
Inventory | 105,006 | 103,120 | 104,144 |
Prepaid expenses | 16,131 | 10,550 | 14,817 |
Income taxes receivable | 668 | 16 | 770 |
Other current assets | 13,683 | 10,787 | 9,852 |
Total current assets | 170,194 | 162,685 | 162,807 |
Noncurrent assets: | |||
Property and equipment, net | 163,876 | 165,498 | 173,937 |
Goodwill | 202,815 | 202,815 | 202,815 |
Trade names | 229,009 | 226,685 | 228,699 |
Deferred financing costs, net | 297 | 320 | 389 |
Noncurrent deferred tax assets, net | 2,226 | 2,139 | 1,269 |
Other assets | 1,824 | 1,692 | 1,826 |
Total noncurrent assets | 600,047 | 599,149 | 608,935 |
Total assets | 770,241 | 761,834 | 771,742 |
Current liabilities: | |||
Accounts payable | 43,445 | 44,762 | 51,552 |
Accrued liabilities | 69,601 | 60,107 | 62,220 |
Revolving lines of credit | 2,729 | 5,982 | |
Current portion of long-term debt | 5,448 | 5,445 | 5,464 |
Income taxes payable | 1,297 | 2,738 | |
Total current liabilities | 122,520 | 113,052 | 125,218 |
Noncurrent liabilities: | |||
Long-term debt | 316,375 | 312,026 | 326,544 |
Noncurrent deferred tax liabilities, net | 77,712 | 80,679 | 79,922 |
Deferred rent and other long-term liabilities | 33,742 | 34,287 | 33,532 |
Total noncurrent liabilities | 427,829 | 426,992 | 439,998 |
Total liabilities | 550,349 | 540,044 | 565,216 |
Commitments and contingencies (Note 6) | |||
Shareholders' equity: | |||
Common stock, $0.01 par value, 250,000,000 shares authorized; 48,052,900 shares issued at July 1, 2017; 48,045,114 shares issued at April 1, 2017; 47,986,975 shares issued at July 2, 2016 | 481 | 480 | 480 |
Additional paid-in capital | 859,638 | 859,102 | 857,381 |
Accumulated other comprehensive loss | (17,401) | (22,643) | (19,175) |
Retained deficit | (622,826) | (615,149) | (632,160) |
Total shareholders' equity | 219,892 | 221,790 | 206,526 |
Total liabilities and shareholders' equity | $ 770,241 | $ 761,834 | $ 771,742 |
Consolidated balance sheets (Pa
Consolidated balance sheets (Parenthetical) - $ / shares | Jul. 01, 2017 | Apr. 01, 2017 | Jul. 02, 2016 |
Consolidated balance sheets | |||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 250,000,000 | 250,000,000 | 250,000,000 |
Common stock, shares issued | 48,052,900 | 48,045,114 | 47,986,975 |
Consolidated statements of oper
Consolidated statements of operations - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Consolidated statements of operations | ||
Net sales | $ 183,068 | $ 177,448 |
Cost of sales (excluding depreciation and amortization) | 79,458 | 72,753 |
Gross profit | 103,610 | 104,695 |
Selling, general, and administrative expenses (excluding depreciation and amortization) | 96,640 | 92,313 |
Stock-based compensation | 494 | 365 |
Pre-opening costs | 1,386 | 1,096 |
Depreciation and amortization | 9,542 | 9,347 |
Other expenses | 3,534 | 549 |
Loss (gain) on disposal of assets | 51 | (3) |
(Loss) income from operations | (8,037) | 1,028 |
Interest expense | 4,225 | 4,110 |
Loss before taxes | (12,262) | (3,082) |
Benefit for income taxes | (4,585) | (1,025) |
Net loss | $ (7,677) | $ (2,057) |
Net loss per common share - basic and diluted | $ (0.16) | $ (0.04) |
Weighted-average common shares - basic and diluted (in shares) | 48,047,937 | 47,986,975 |
Consolidated statements of comp
Consolidated statements of comprehensive loss - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Consolidated statements of comprehensive loss | ||
Net loss | $ (7,677) | $ (2,057) |
Unrealized gain on financial instruments, net of tax provision of $894 and $1 | 1,390 | 47 |
Pension liability adjustment | (110) | 65 |
Foreign currency translation adjustment | 3,962 | (3,451) |
Comprehensive loss | $ (2,435) | $ (5,396) |
Consolidated statements of com6
Consolidated statements of comprehensive loss (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Consolidated statements of comprehensive loss | ||
Unrealized gain (loss) on financial instruments, net of taxes | $ 894 | $ 1 |
Consolidated statements of cash
Consolidated statements of cash flows - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Operating activities | ||
Net Loss | $ (7,677) | $ (2,057) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 9,542 | 9,347 |
Stock-based compensation | 494 | 365 |
Loss (gain) on disposal of property and equipment | 51 | (3) |
Deferred tax benefit | (4,573) | (922) |
Noncash interest | 480 | 480 |
Other | 195 | (153) |
Changes in operating assets and liabilities: | ||
Accounts receivable | 744 | (2,836) |
Inventory | (350) | (19,283) |
Prepaid expenses and other assets | (6,565) | 244 |
Accounts payable and accrued liabilities | 5,937 | 18,497 |
Income taxes | (2,120) | 175 |
Other noncurrent liabilities | (939) | (4,523) |
Net cash used in operating activities | (4,781) | (669) |
Investing activities | ||
Additions to property and equipment | (5,181) | (8,013) |
Proceeds from sale of property and equipment | 2 | 7 |
Net cash used in investing activities | (5,179) | (8,006) |
Financing activities | ||
Borrowings on revolving lines of credit | 4,876 | 11,530 |
Payments on revolving lines of credit | (2,261) | (9,017) |
Borrowings on long-term debt | 5,000 | 12,000 |
Payments on long-term debt | (1,350) | (6,355) |
Payment of taxes with shares withheld upon restricted stock vesting | (39) | |
Net cash provided by financing activities | 6,226 | 8,158 |
Effect of exchange rate changes on cash | 214 | (103) |
Net decrease in cash | (3,520) | (620) |
Cash at beginning of period | 10,736 | 8,809 |
Cash at end of period | 7,216 | 8,189 |
Supplemental information for non-cash investing and financing activities: | ||
Purchases of property and equipment (included in accounts payable) | 1,148 | 751 |
Capital lease obligation incurred | $ 36 | $ 147 |
Description of business and bas
Description of business and basis of presentation | 3 Months Ended |
Jul. 01, 2017 | |
Description of business and basis of presentation | |
Description of business and basis of presentation | 1. Description of business and basis of presentation These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended April 1, 2017, filed with the Securities and Exchange Commission on June 1, 2017. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Description of business The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”), with the remainder held by certain employees of The Container Store, Inc. On November 6, 2013, the Company completed its initial public offering (the “IPO”). As the majority shareholder, LGP retains controlling interest in the Company. As of July 1, 2017, The Container Store, Inc. operates 87 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 31 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers, including business-to-business customers, through its website and call center. The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. elfa ® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe. Seasonality The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirteen weeks ended July 1, 2017 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter, attributable primarily to the timing and impact of Our Annual elfa ® Sale, which traditionally starts on or about December 24 and runs into February. Recent accounting pronouncements In February 2016, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) , to revise lease accounting guidance. The update requires most leases to be recorded on the balance sheet as a lease liability, with a corresponding right-of-use asset, whereas these leases currently have an off-balance sheet classification. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company currently intends to adopt this standard in the first quarter of fiscal 2019. The Company is still evaluating the impact of implementation of this standard on its financial statements, but expects that adoption will have a material impact to the Company’s total assets and liabilities given the Company has a significant number of operating leases not currently recognized on its balance sheet. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and GAAP. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the Company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. In July 2015, the FASB deferred the effective date of ASU 2014-09. Accordingly, this standard is effective for reporting periods beginning after December 15, 2017, including interim periods within that fiscal year, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Company currently intends to adopt this standard in the first quarter of fiscal 2018. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption, but the Company has not yet selected a transition method. The Company has identified certain impacts to our accounting for gift cards given away for promotional or marketing purposes. Under current GAAP, the value of promotional gift cards are recorded as selling, general, and administrative expense. The new standard requires these types of gift cards to be accounted for as a reduction of revenue (i.e. a discount). The Company does not expect the adoption of ASU 2014-09 to have a material impact on the financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which outlines new provisions intended to simplify various aspects related to accounting for share-based payments, including income tax consequences, forfeitures, and classification in the statement of cash flows. Under the new guidance, an entity will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. This standard was effective for and adopted by the Company in the first quarter of fiscal 2017. The Company will recognize all income tax effects of share-based payments in the income statement on a prospective basis. The Company elected to continue to estimate forfeitures expected to occur to determine the amount of share-based compensation cost to recognize in each period, as permitted by ASU 2016-09. The adoption of ASU 2016-09 did not result in a material impact to the Company’s financial statements. In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory , which requires entities to recognize the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. This is a change from current GAAP, which requires entities to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized (i.e. depreciated, amortized, impaired). The income tax effects of intercompany sales and transfers of inventory will continue to be deferred until the inventory is sold to an outside party. This ASU is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial statements. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , which provides guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test under ASC Topic 350. Under the new guidance, an entity should perform goodwill impairment testing by comparing the fair value of a reporting unit with its carrying amount. If the a reporting unit’s carrying amount exceeds its fair value, an entity should recognize an impairment charge based on that difference, limited to the total amount of goodwill allocated to that reporting unit. This ASU will be applied prospectively and is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company does not expect this standard to have a material impact on its financial statements. In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost , which provides guidance that requires an employer to present the service cost component separate from the other components of net periodic benefit cost. The update requires that employers present the service cost component of the net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered by participating employees during the period. The other components of the net periodic benefit cost are required to be presented separately from the line item that includes service cost and outside of the subtotal of income from operations. If a separate line item is not used, the line item used in the income statement must be disclosed. In addition, only the service cost component is eligible for capitalization in assets. This ASU will be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial statements. In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting , which clarifies when modification accounting should be applied for changes to terms or conditions of a share-based payment award. This ASU will be applied prospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those years, with early adoption permitted. The Company does not expect this standard to have a material impact on its financial statements. |
Detail of certain balance sheet
Detail of certain balance sheet accounts | 3 Months Ended |
Jul. 01, 2017 | |
Detail of certain balance sheet accounts | |
Detail of certain balance sheet accounts | 2. Detail of certain balance sheet accounts July 1, April 1, July 2, 2017 2017 2016 Inventory: Finished goods $ $ $ Raw materials Work in progress $ $ $ Accrued liabilities: Accrued payroll, benefits and bonuses $ $ $ Unearned revenue Accrued transaction and property tax Gift cards and store credits outstanding Accrued lease liabilities Accrued interest Other accrued liabilities $ $ $ |
Net loss per common share
Net loss per common share | 3 Months Ended |
Jul. 01, 2017 | |
Net loss per common share | |
Net loss per common share | 3. Net loss per common share Basic net loss per common share is computed as net loss divided by the weighted-average number of common shares for the period. Diluted net loss per share is computed as net loss divided by the weighted-average number of common shares for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. Potentially dilutive securities are excluded from the computation of diluted net loss per share if their effect is anti-dilutive. The following is a reconciliation of net loss and the number of shares used in the basic and diluted net loss per share calculations: Thirteen Weeks Ended July 1, July 2, 2017 2016 Numerator: Net loss $ ) $ ) Denominator: Weighted-average common shares — basic and diluted Net loss per common share — basic and diluted $ ) $ ) Antidilutive securities not included: Stock options outstanding Nonvested restricted stock awards - |
Pension plans
Pension plans | 3 Months Ended |
Jul. 01, 2017 | |
Pension plans | |
Pension plans | 4. Pension plans The Company provides pension benefits to the employees of Elfa under collectively bargained pension plans in Sweden, which are recorded in other long-term liabilities. The defined benefit plan provides benefits for participating employees based on years of service and final salary levels at retirement. The defined benefit plans are unfunded and approximately 3% of Elfa employees are participants in the defined benefit pension plan. Certain employees also participate in defined contribution plans for which Company contributions are determined as a percentage of participant compensation. The Company contributed $637 and $690 for defined contribution plans in the thirteen weeks ended July 1, 2017 and July 2, 2016, respectively. |
Income taxes
Income taxes | 3 Months Ended |
Jul. 01, 2017 | |
Income taxes | |
Income taxes | 5. Income taxes The Company’s effective income tax rate for the thirteen weeks ended July 1, 2017 was 37.4% compared to 33.3% for the thirteen weeks ended July 2, 2016. The increase in the effective tax rate is primarily due to a shift in the mix of projected domestic and foreign earnings. During the thirteen weeks ended July 1, 2017, the effective tax rate rose above the U.S. statutory rate primarily due to U.S. state income taxes, partially offset by lower income taxes on earnings sourced in foreign jurisdictions. During the thirteen weeks ended July 2, 2016, the effective tax rate fell below the statutory rate due to lower income taxes on earnings sourced in foreign jurisdictions. |
Commitments and contingencies
Commitments and contingencies | 3 Months Ended |
Jul. 01, 2017 | |
Commitments and contingencies | |
Commitments and contingencies | 6. Commitments and contingencies In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $4,161 as of July 1, 2017. The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows on an individual basis or in the aggregate. |
Accumulated other comprehensive
Accumulated other comprehensive loss | 3 Months Ended |
Jul. 01, 2017 | |
Accumulated other comprehensive loss | |
Accumulated other comprehensive loss | 7. Accumulated other comprehensive loss Accumulated other comprehensive loss (“AOCL”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCL, net of tax, are shown below for the thirteen weeks ended July 1, 2017: Foreign Pension Foreign Total Balance at April 1, 2017 $ ) $ ) $ ) $ ) Other comprehensive income (loss) before reclassifications, net of tax ) Amounts reclassified to earnings, net of tax - - Net current period other comprehensive income (loss) ) Balance at July 1, 2017 $ $ ) $ ) $ ) Amounts reclassified from AOCL to earnings for the foreign currency forward contracts category are generally included in cost of sales in the Company’s consolidated statements of operations. For a description of the Company’s use of foreign currency forward contracts, refer to Note 8. |
Foreign currency forward contra
Foreign currency forward contracts | 3 Months Ended |
Jul. 01, 2017 | |
Foreign currency forward contracts | |
Foreign currency forward contracts | 8. Foreign currency forward contracts The Company’s international operations and purchases of inventory products from foreign suppliers are subject to certain opportunities and risks, including foreign currency fluctuations. In the TCS segment, we utilize foreign currency forward contracts in Swedish krona to stabilize our retail gross margins and to protect our domestic operations from downward currency exposure by hedging purchases of inventory from our wholly owned subsidiary, Elfa. Forward contracts in the TCS segment are designated as cash flow hedges, as defined by ASC 815. In the Elfa segment, we utilize foreign currency forward contracts to hedge purchases, primarily of raw materials, that are transacted in currencies other than Swedish krona, which is the functional currency of Elfa. Forward contracts in the Elfa segment are economic hedges and are not designated as cash flow hedges as defined by ASC 815. During the thirteen weeks ended July 1, 2017 and July 2, 2016, the TCS segment used forward contracts for 100% and zero percent of inventory purchases in Swedish krona, respectively. During the thirteen weeks ended July 1, 2017 and July 2, 2016, the Elfa segment used forward contracts to purchase U.S. dollars in the amount of $1,200 and $1,465, which represented 72% and 94% of the Elfa segment’s U.S. dollar purchases, respectively. Generally, the Company’s foreign currency forward contracts have terms from 1 to 12 months and require the Company to exchange currencies at agreed-upon rates at settlement. The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company records its foreign currency forward contracts on a gross basis and generally does not require collateral from these counterparties because it does not expect any losses from credit exposure. The Company records all foreign currency forward contracts on its consolidated balance sheet at fair value. The Company accounts for its foreign currency hedging instruments in the TCS segment as cash flow hedges, as defined. Changes in the fair value of the foreign currency hedging instruments that are considered to be effective, as defined, are recorded in other comprehensive income (loss) until the hedged item (inventory) is sold to the customer, at which time the deferred gain or loss is recognized through cost of sales. Any portion of a change in the foreign currency hedge instrument’s fair value that is considered to be ineffective, as defined, or that the Company has elected to exclude from its measurement of effectiveness, is immediately recorded in earnings as cost of sales. The Company assessed the effectiveness of the foreign currency hedge instruments and determined the foreign currency hedge instruments were highly effective during the thirteen weeks ended July 1, 2017 and July 2, 2016. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as selling, general, and administrative expenses on the consolidated statements of operations. During the thirteen weeks ended July 1, 2017, the Company recognized a net loss of $150 associated with the change in fair value of forward contracts not designated as hedging instruments. The Company had a $1,235 gain in accumulated other comprehensive loss related to foreign currency hedge instruments at July 1, 2017. Of the $1,235, $231 represents an unrealized loss for settled foreign currency hedge instruments related to inventory on hand as of July 1, 2017. The Company expects the unrealized loss of $231, net of taxes, to be reclassified into earnings over the next 12 months as the underlying inventory is sold to the end customer. The change in fair value of the Company’s foreign currency hedge instruments that qualify as cash flow hedges and are included in accumulated other comprehensive loss, net of taxes, are presented in Note 7 of these financial statements. |
Fair value measurements
Fair value measurements | 3 Months Ended |
Jul. 01, 2017 | |
Fair value measurements | |
Fair value measurements | 9. Fair value measurements Under GAAP, the Company is required to a) measure certain assets and liabilities at fair value or b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include: · Level 1—Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets. · Level 2—Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. · Level 3—Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques. As of July 1, 2017, April 1, 2017 and July 2, 2016, the Company held certain items that are required to be measured at fair value on a recurring basis. These included the nonqualified retirement plan and foreign currency forward contracts. The nonqualified retirement plan consists of investments purchased by employee contributions to retirement savings accounts. The Company’s foreign currency hedging instruments consist of over-the-counter (OTC) contracts, which are not traded on a public exchange. See Note 8 for further information on the Company’s hedging activities. The fair values of the nonqualified retirement plan and foreign currency forward contracts are determined based on the market approach which utilizes inputs that are readily available in public markets or can be derived from information available in publicly quoted markets for comparable assets. Therefore, the Company has categorized these items as Level 2. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds. The following items are measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820, Fair Value Measurements : July 1, April 1, July 2, Description Balance Sheet Location 2017 2017 2016 Assets Nonqualified retirement plan (1) N/A Other current assets $ $ $ Foreign currency forward contracts Level 2 Other current assets Total assets $ $ $ (1) The fair value amount of the nonqualified retirement plan is measured at fair value using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. The fair value of long-term debt was estimated using quoted prices as well as recent transactions for similar types of borrowing arrangements (level 2 valuations). As of July 1, 2017, April 1, 2017 and July 2, 2016, the estimated fair value of the Company’s long-term debt, including current maturities, was $315,359, $295,005, and $297,113, respectively. |
Segment reporting
Segment reporting | 3 Months Ended |
Jul. 01, 2017 | |
Segment reporting | |
Segment reporting | 10. Segment reporting The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business. The Elfa segment includes the manufacturing business that produces the elfa ® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa ® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States. The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance. Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income before interest, taxes, depreciation and amortization, certain non cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period. Thirteen Weeks Ended July 1, 2017 TCS Elfa Eliminations Total Net sales to third parties $ $ $- $ Intersegment sales - - Adjusted EBITDA Interest expense, net - Assets (1) Thirteen Weeks Ended July 2, 2016 TCS Elfa Eliminations Total Net sales to third parties $ $ $- $ Intersegment sales - - Adjusted EBITDA (2) Interest expense, net - Assets (1) (1) Tangible assets in the Elfa column are located outside of the United States. (2) The TCS segment includes a net benefit of $3.9 million related to amended and restated employment agreements entered into with key executives during the first quarter of fiscal 2016, leading to the reversal of accrued deferred compensation associated with the original employment agreements. A reconciliation of Adjusted EBITDA by segment to loss before taxes is set forth below: Thirteen Weeks Ended July 1, July 2, 2017 2016 Adjusted EBITDA by segment: TCS $ $ Elfa Eliminations ) ) Total Adjusted EBITDA Depreciation and amortization ) ) Interest expense, net ) ) Pre-opening costs (a) ) ) Noncash rent (b) Stock-based compensation (c) ) ) Foreign exchange gains (losses) (d) ) Optimization Plan implementation charges (e) ) - Other adjustments (f) ) ) Loss before taxes $ ) $ ) (a) Non-capital expenditures associated with opening new stores and relocating stores, including rent, marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period. (b) Reflects the extent to which our annual GAAP rent expense has been above or below our cash rent payment due to lease accounting adjustments. The adjustment varies depending on the average age of our lease portfolio (weighted for size), as our GAAP rent expense on younger leases typically exceeds our cash cost, while our GAAP rent expense on older leases is typically less than our cash cost. (c) Non - cash charges related to stock - based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period. (d) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations. (e) Charges incurred to implement our Optimization Plan, consisting of $1,810 of cash severance payments associated with the elimination of certain full-time positions at the TCS segment and $1,724 of cash severance payments associated with organizational realignment at the Elfa segment, which we do not consider in our evaluation of ongoing performance. (f) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges. |
Optimization Plan
Optimization Plan | 3 Months Ended |
Jul. 01, 2017 | |
Optimization Plan | |
Optimization Plan | 11. Optimization Plan On May 23, 2017, the Company announced a four-part plan designed to optimize its consolidated business and drive improved sales and profitability (the “Optimization Plan”), which included sales initiatives, certain full-time position eliminations at TCS, organizational realignment at Elfa and ongoing savings and efficiency efforts. In the thirteen weeks ended July 1, 2017, the Company incurred the following charges related to the implementation of the Optimization Plan: Thirteen Weeks Ended Income Statement Location July 1, 2017 Severance - full-time position eliminations at TCS Other expenses $ Severance - organizational realignment at Elfa Other expenses Total Optimization Plan charges $ Certain aspects of the Optimization Plan meet the definition of exit or disposal costs as defined in the Accounting Standards Codification (“ASC”) Topic 420, Exit or Disposal Cost Obligations . The following table summarizes the exit or disposal activities during the thirteen weeks ended July 1, 2017: TCS Severance Balance as of April 1, 2017 - Costs Incurred Payments ) Balance as of July 1, 2017 $ The balance of $721 as of July 1, 2017 is recorded in the Accrued liabilities line item in the Consolidated Balance Sheets. The Company does not expect significant future severance costs to be incurred related to full-time position eliminations at TCS as the actions were completed during the first quarter of fiscal 2017. |
Detail of certain balance she19
Detail of certain balance sheet accounts (Tables) | 3 Months Ended |
Jul. 01, 2017 | |
Detail of certain balance sheet accounts | |
Schedule of detail of certain balance sheet accounts | July 1, April 1, July 2, 2017 2017 2016 Inventory: Finished goods $ $ $ Raw materials Work in progress $ $ $ Accrued liabilities: Accrued payroll, benefits and bonuses $ $ $ Unearned revenue Accrued transaction and property tax Gift cards and store credits outstanding Accrued lease liabilities Accrued interest Other accrued liabilities $ $ $ |
Net loss per common share (Tabl
Net loss per common share (Tables) | 3 Months Ended |
Jul. 01, 2017 | |
Net loss per common share | |
Schedule of reconciliation of net loss and the number of shares used in the basic and diluted net loss per share calculations | Thirteen Weeks Ended July 1, July 2, 2017 2016 Numerator: Net loss $ ) $ ) Denominator: Weighted-average common shares — basic and diluted Net loss per common share — basic and diluted $ ) $ ) Antidilutive securities not included: Stock options outstanding Nonvested restricted stock awards - |
Accumulated other comprehensi21
Accumulated other comprehensive loss (Tables) | 3 Months Ended |
Jul. 01, 2017 | |
Accumulated other comprehensive loss | |
Schedule of components of AOCL, net of tax | Foreign Pension Foreign Total Balance at April 1, 2017 $ ) $ ) $ ) $ ) Other comprehensive income (loss) before reclassifications, net of tax ) Amounts reclassified to earnings, net of tax - - Net current period other comprehensive income (loss) ) Balance at July 1, 2017 $ $ ) $ ) $ ) |
Fair value measurements (Tables
Fair value measurements (Tables) | 3 Months Ended |
Jul. 01, 2017 | |
Fair value measurements | |
Schedule of items measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820 | July 1, April 1, July 2, Description Balance Sheet Location 2017 2017 2016 Assets Nonqualified retirement plan (1) N/A Other current assets $ $ $ Foreign currency forward contracts Level 2 Other current assets Total assets $ $ $ (1) The fair value amount of the nonqualified retirement plan is measured at fair value using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. |
Segment reporting (Tables)
Segment reporting (Tables) | 3 Months Ended |
Jul. 01, 2017 | |
Segment reporting | |
Schedule of segment reporting | Thirteen Weeks Ended July 1, 2017 TCS Elfa Eliminations Total Net sales to third parties $ $ $- $ Intersegment sales - - Adjusted EBITDA Interest expense, net - Assets (1) Thirteen Weeks Ended July 2, 2016 TCS Elfa Eliminations Total Net sales to third parties $ $ $- $ Intersegment sales - - Adjusted EBITDA (2) Interest expense, net - Assets (1) (1) Tangible assets in the Elfa column are located outside of the United States. (2) The TCS segment includes a net benefit of $3.9 million related to amended and restated employment agreements entered into with key executives during the first quarter of fiscal 2016, leading to the reversal of accrued deferred compensation associated with the original employment agreements. |
Summary of reconciliation of adjusted EBITDA by segment to loss before taxes | Thirteen Weeks Ended July 1, July 2, 2017 2016 Adjusted EBITDA by segment: TCS $ $ Elfa Eliminations ) ) Total Adjusted EBITDA Depreciation and amortization ) ) Interest expense, net ) ) Pre-opening costs (a) ) ) Noncash rent (b) Stock-based compensation (c) ) ) Foreign exchange gains (losses) (d) ) Optimization Plan implementation charges (e) ) - Other adjustments (f) ) ) Loss before taxes $ ) $ ) (a) Non-capital expenditures associated with opening new stores and relocating stores, including rent, marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period. (b) Reflects the extent to which our annual GAAP rent expense has been above or below our cash rent payment due to lease accounting adjustments. The adjustment varies depending on the average age of our lease portfolio (weighted for size), as our GAAP rent expense on younger leases typically exceeds our cash cost, while our GAAP rent expense on older leases is typically less than our cash cost. (c) Non - cash charges related to stock - based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period. (d) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations. (e) Charges incurred to implement our Optimization Plan, consisting of $1,810 of cash severance payments associated with the elimination of certain full-time positions at the TCS segment and $1,724 of cash severance payments associated with organizational realignment at the Elfa segment, which we do not consider in our evaluation of ongoing performance. (f) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges. |
Optimization Plan (Tables)
Optimization Plan (Tables) | 3 Months Ended |
Jul. 01, 2017 | |
Optimization Plan | |
Schedule of charges related to the implementation of the Optimization Plan | Thirteen Weeks Ended Income Statement Location July 1, 2017 Severance - full-time position eliminations at TCS Other expenses $ Severance - organizational realignment at Elfa Other expenses Total Optimization Plan charges $ |
Summary of exit or disposal activities | TCS Severance Balance as of April 1, 2017 - Costs Incurred Payments ) Balance as of July 1, 2017 $ |
Description of business and b25
Description of business and basis of presentation (Details) | Jul. 01, 2017ft²storestatecountry |
Description of business and basis of presentation | |
Number of stores | store | 87 |
Average size of stores (in square feet) | 25,000 |
Average selling square feet in stores (in square feet) | 19,000 |
Number of states | state | 31 |
Elfa | |
Description of business and basis of presentation | |
Number of countries in which products are sold on wholesale basis | country | 30 |
Detail of certain balance she26
Detail of certain balance sheet accounts - (Details) - USD ($) $ in Thousands | Jul. 01, 2017 | Apr. 01, 2017 | Jul. 02, 2016 |
Inventory: | |||
Finished goods | $ 100,036 | $ 98,438 | $ 98,990 |
Raw materials | 4,440 | 4,183 | 4,783 |
Work in progress | 530 | 499 | 371 |
Inventory | 105,006 | 103,120 | 104,144 |
Accrued Liabilities: | |||
Accrued payroll, benefits and bonuses | 25,207 | 20,897 | 21,921 |
Unearned revenue | 12,284 | 7,708 | 10,641 |
Accrued transaction and property tax | 10,859 | 11,086 | 10,535 |
Gift cards and store credits outstanding | 9,394 | 9,229 | 8,911 |
Accrued lease liabilities | 5,311 | 4,767 | 4,450 |
Accrued interest | 182 | 143 | 101 |
Other accrued liabilities | 6,364 | 6,277 | 5,661 |
Accrued Liabilities | $ 69,601 | $ 60,107 | $ 62,220 |
Net loss per common share (Deta
Net loss per common share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Numerator: | ||
Net loss | $ (7,677) | $ (2,057) |
Denominator: | ||
Weighted-average common shares - basic and diluted (in shares) | 48,047,937 | 47,986,975 |
Net loss per common share - basic and diluted | $ (0.16) | $ (0.04) |
Stock options outstanding | ||
Antidilutive securities not included: | ||
Antidilutive securities | 2,932,907 | 2,867,719 |
Nonvested restricted stock awards | ||
Antidilutive securities not included: | ||
Antidilutive securities | 83,509 |
Pension plans (Details)
Pension plans (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Pension plans | ||
Amount contributed by the Company for defined contribution plans | $ 637 | $ 690 |
Elfa | ||
Pension plans | ||
Percentage of employees who are plan participants | 3.00% |
Income taxes (Details)
Income taxes (Details) | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Income taxes | ||
Effective income tax rate (as a percent) | 37.40% | 33.30% |
Commitments and contingencies (
Commitments and contingencies (Details) $ in Thousands | Jul. 01, 2017USD ($) |
Standby letters of credit | |
Commitments and contingencies | |
Amount outstanding | $ 4,161 |
Accumulated other comprehensi31
Accumulated other comprehensive loss (Details) $ in Thousands | 3 Months Ended |
Jul. 01, 2017USD ($) | |
Rollforward of the amounts included in AOCL, net of taxes | |
Balance at the beginning of period | $ 221,790 |
Balance at the end of period | 219,892 |
Pension liability adjustment | |
Rollforward of the amounts included in AOCL, net of taxes | |
Balance at the beginning of period | (1,444) |
Other comprehensive income (loss) before reclassifications, net of tax | (110) |
Net current period other comprehensive income (loss) | (110) |
Balance at the end of period | (1,554) |
Foreign currency translation | |
Rollforward of the amounts included in AOCL, net of taxes | |
Balance at the beginning of period | (21,044) |
Other comprehensive income (loss) before reclassifications, net of tax | 3,962 |
Net current period other comprehensive income (loss) | 3,962 |
Balance at the end of period | (17,082) |
Accumulated other comprehensive income (loss) | |
Rollforward of the amounts included in AOCL, net of taxes | |
Balance at the beginning of period | (22,643) |
Other comprehensive income (loss) before reclassifications, net of tax | 5,020 |
Amounts reclassified to earnings, net of tax | 222 |
Net current period other comprehensive income (loss) | 5,242 |
Balance at the end of period | (17,401) |
Foreign currency forward contracts | |
Rollforward of the amounts included in AOCL, net of taxes | |
Balance at the beginning of period | (155) |
Other comprehensive income (loss) before reclassifications, net of tax | 1,168 |
Amounts reclassified to earnings, net of tax | 222 |
Net current period other comprehensive income (loss) | 1,390 |
Balance at the end of period | $ 1,235 |
Foreign currency forward cont32
Foreign currency forward contracts (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Foreign Currency Forward Contracts | ||
Purchase of inventory from use of forward contracts in Swedish krona (as a percent) | 100.00% | 0.00% |
Purchase of U.S. dollars from use of forward contracts | $ 1,200 | $ 1,465 |
Purchase of U.S. dollars from use of forward contracts as a percent of Elfa's U.S. Dollar purchases | 72.00% | 94.00% |
Foreign currency forward contracts | Not Designated as Hedging Instrument | ||
Foreign Currency Forward Contracts | ||
Loss associated with the change in fair value of forward contracts not designated as hedging instruments | $ 150 | |
Foreign currency hedge instruments | Designated as Hedging Instrument | Cash Flow Hedging | ||
Foreign Currency Forward Contracts | ||
Accumulated other comprehensive gain related to foreign currency hedge instruments | 1,235 | |
Unrealized loss for settled foreign currency hedge instruments | 231 | |
Unrealized loss to be reclassified into earnings over the next 12 months | $ 231 | |
Minimum | Foreign currency forward contracts | ||
Foreign Currency Forward Contracts | ||
Term of contract | 1 month | |
Maximum | Foreign currency forward contracts | ||
Foreign Currency Forward Contracts | ||
Term of contract | 12 months |
Fair value measurements (Detail
Fair value measurements (Details) - USD ($) $ in Thousands | Jul. 01, 2017 | Apr. 01, 2017 | Jul. 02, 2016 |
Fair value | |||
Liabilities | |||
Estimated fair value of long-term debt, including current maturities | $ 315,359 | $ 295,005 | $ 297,113 |
Recurring | |||
Assets | |||
Total assets | 7,572 | 5,933 | 4,572 |
Recurring | Other current assets | |||
Assets | |||
Nonqualified retirement plan | 5,138 | 5,092 | 4,343 |
Not Designated as Hedging Instrument | Recurring | Foreign currency forward contracts | Level 2 | Other current assets | |||
Assets | |||
Foreign currency forward contracts | $ 2,434 | $ 841 | $ 229 |
Segment reporting (Details)
Segment reporting (Details) $ in Thousands | 3 Months Ended | ||
Jul. 01, 2017USD ($)segmentcountry | Jul. 02, 2016USD ($) | Apr. 01, 2017USD ($) | |
Segment reporting | |||
Number of reportable segments | segment | 2 | ||
Segment reporting | |||
Sales | $ 183,068 | $ 177,448 | |
Adjusted EBITDA | 6,430 | 12,032 | |
Interest expense, net | 4,225 | 4,110 | |
Assets | $ 770,241 | 771,742 | $ 761,834 |
TCS | |||
Segment reporting | |||
Net benefit on deferred compensation related to amendment and restatement of employment agreement | 3,900 | ||
Elfa | |||
Segment reporting | |||
Number of countries in which products are sold on wholesale basis | country | 30 | ||
Operating segments | TCS | |||
Segment reporting | |||
Sales | $ 167,059 | 161,249 | |
Adjusted EBITDA | 5,764 | 11,318 | |
Interest expense, net | 4,157 | 4,054 | |
Assets | 660,095 | 666,361 | |
Operating segments | Elfa | |||
Segment reporting | |||
Sales | 16,009 | 16,199 | |
Adjusted EBITDA | 1,143 | 980 | |
Interest expense, net | 68 | 56 | |
Assets | 113,495 | 108,680 | |
lntersegment | |||
Segment reporting | |||
Sales | (9,044) | (8,837) | |
Adjusted EBITDA | (477) | (266) | |
Assets | (3,349) | (3,299) | |
lntersegment | Elfa | |||
Segment reporting | |||
Sales | $ 9,044 | $ 8,837 |
Segment reporting - Reconciliat
Segment reporting - Reconciliation of Adjusted EBITDA by segment to income (loss) before taxes (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Jul. 01, 2017 | Jul. 02, 2016 | |
Segment reporting | ||
Total Adjusted EBITDA | $ 6,430 | $ 12,032 |
Depreciation and amortization | (9,542) | (9,347) |
Interest expense, net | (4,225) | (4,110) |
Pre-opening costs | (1,386) | (1,096) |
Noncash rent | 461 | 418 |
Stock-based compensation | (494) | (365) |
Foreign exchange gains (losses) | 76 | (42) |
Optimization Plan implementation charges | (3,534) | |
Other adjustments | (48) | (572) |
Loss before taxes | (12,262) | (3,082) |
TCS | ||
Segment reporting | ||
Optimization Plan implementation charges | (1,810) | |
Elfa | ||
Segment reporting | ||
Optimization Plan implementation charges | (1,724) | |
Operating segments | TCS | ||
Segment reporting | ||
Total Adjusted EBITDA | 5,764 | 11,318 |
Interest expense, net | (4,157) | (4,054) |
Operating segments | Elfa | ||
Segment reporting | ||
Total Adjusted EBITDA | 1,143 | 980 |
Interest expense, net | (68) | (56) |
lntersegment | ||
Segment reporting | ||
Total Adjusted EBITDA | $ (477) | $ (266) |
Optimization Plan (Details)
Optimization Plan (Details) $ in Thousands | 3 Months Ended |
Jul. 01, 2017USD ($) | |
Severance costs | |
Optimization Plan charges | $ 3,534 |
Severance | Accrued liabilities | |
Rollforward of exit or disposal activities | |
Ending Balance | 721 |
TCS | |
Severance costs | |
Optimization Plan charges | 1,810 |
TCS | Other expenses | |
Severance costs | |
Optimization Plan charges | 1,810 |
TCS | Severance | |
Rollforward of exit or disposal activities | |
Costs Incurred | 1,810 |
Payments | (1,089) |
Ending Balance | 721 |
Elfa | |
Severance costs | |
Optimization Plan charges | 1,724 |
Elfa | Other expenses | |
Severance costs | |
Optimization Plan charges | $ 1,724 |