| Description of business and basis of presentation | 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 March 30, 2024, filed with the Securities and Exchange Commission (“SEC”) on May 28, 2024 (the “2023 Annual Report on Form 10-K”). 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. All references herein to “fiscal 2024” refer to the 52-week fiscal year ending March 29, 2025, and “fiscal 2023” refer to the 52-week fiscal year ended March 30, 2024. Going concern assessment and management's plans The persistently challenging retail environment, including reduced consumer spending in the storage and organization category and increased price sensitivity, has significantly impacted the Company’s performance. Additionally, the Company has incurred and expects to continue to incur significant expenses in connection with the review of strategic alternatives and refinancing our existing Credit Facilities. These factors have placed pressure on the Company’s ability to meet the consolidated leverage ratio covenant in its credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and collateral agent, and the lenders party thereto (as amended, the “Senior Secured Term Loan Facility” and as amended to the date immediately prior to the Amendment (as defined below), the “Existing Term Loan Facility”). On October 8, 2024, the Company entered into Amendment No. 9 to its Existing Term Loan Facility (the “Amendment”), which amends the Company’s Existing Term Loan Facility to, among other things, waive the testing of the consolidated leverage ratio covenant for the second quarter of fiscal year 2024 and add a covenant for the Company to enter into a qualified financing transaction, subject to the approval of the Required Lenders (as defined in Note 10) by November 15, 2024 (as such date may be extended by the Required Lenders). See Note 10 for additional information regarding the Amendment. Additionally, the Company’s $100,000 asset-based revolving credit agreement (“Revolving Credit Facility” and, together with the Senior Secured Term Loan Facility, the “Credit Facilities”)) matures on the earlier of (a) November 25, 2025 and (b) October 31, 2025 if any portion of the Senior Secured Term Loan Facility remains outstanding on such date and the maturity date of the Senior Secured Term Loan Facility has not been extended. As of September 28, 2024, we had $160,321 of borrowings outstanding net of deferred financing costs on the Existing Term Loan Facility, $71,000 of borrowings outstanding on the Revolving Credit Facility, and cash of $66,123. Subsequent to September 28, 2024, the Company drew down an additional $9,000 under our Revolving Credit Facility. In connection with preparing the unaudited consolidated financial statements for the twenty-six weeks ended September 28, 2024, management evaluated its future liquidity and forecasted operating results for the next twelve months from the date of issuance of these financial statements and determined that, in light of the foregoing conditions, substantial doubt regarding the Company’s ability to continue as a going concern exists, absent consummating a transaction to provide additional liquidity or modifications to the Company’s existing Credit Facilities. When conditions and events, in the aggregate, raise substantial doubt about an entity’s ability to continue as a going concern, management evaluates the mitigating effect of its plans to determine if it is probable that the plans will be effectively implemented within the assessment period and, when implemented, will mitigate the relevant conditions and events to alleviate substantial doubt. In the first quarter of fiscal 2024, the Company initiated a formal review process to evaluate strategic alternatives to maximize the potential of the business and returns for stakeholders. On October 15, 2024, we announced a strategic partnership with Beyond, Inc. (“Beyond”) with the intention of positioning the Company to achieve incremental sales growth over time by utilizing and benefiting from Beyond’s intellectual property, customer data, network of brands, and affiliate relationships. As part of the terms of the collaboration, Beyond has agreed to invest $40,000 in the Company through a preferred equity transaction subject to certain terms and conditions, including an amendment or refinancing of the Company’s Credit Facilities in a manner commercially acceptable to Beyond (the “Equity Investment”). See Note 10 for additional information regarding the Equity Investment. To mitigate the substantial doubt, the Company is actively working with its lenders to amend or refinance the Credit Facilities and facilitate consummation of the Equity Investment. However, as the ability to amend or refinance the Credit Facilities and consummate the Equity Investment is outside of management’s control, the Company cannot conclude that management’s plans will be effectively implemented within twelve months from the date the consolidated financial statements are issued. Accordingly, the Company has concluded that these plans do not alleviate substantial doubt about its ability to continue as a going concern. The accompanying unaudited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments or charges that might be necessary should the Company be unable to continue as a going concern, such as charges related to impairment of the Company’s assets, the recoverability and classification of assets or the amounts and classification of liabilities or other similar adjustments. Reverse stock split On May 8, 2024, the Company was notified by the New York Stock Exchange (the "NYSE") that it was not in compliance with Section 802.01C of the NYSE Listed Company Manual because the average closing price of the Company’s common stock was less than $1.00 over a consecutive 30 trading-day period. On August 28, 2024, the Company held its annual meeting of stockholders (the “2024 Annual Meeting”) at which the Company stockholders approved a proposal to amend the Company Charter to effect a reverse stock split of the Common Stock at a ratio ranging from any whole number between 1-for-10 and 1-for-15 (the “Reverse Stock Split Approval”), as determined by the Company Board of Directors (“Board”). Following receipt of the Reverse Stock Split Approval at the 2024 Annual Meeting, on September 3, 2024, the Company Board approved a 1-for-15 reverse stock split (the “Reverse Stock Split”) and filed a certificate of amendment to the Company Charter with the Secretary of State of the State of Delaware to effect the Reverse Stock Split. On September 4, 2024, the Common Stock began trading on a split-adjusted basis under the existing symbol “TCS” and new CUSIP number 210751 202. All share and per share information reported in the accompanying consolidated financial statements and related notes have been retroactively adjusted to reflect this reverse stock split. On October 1, 2024, the Company was notified by the NYSE that the average closing price of our Common Stock exceeded $1.00 per share for at least 30 trading days. Accordingly, as of the end of September 30, 2024, the minimum price condition was deemed cured and the Company is in compliance with Section 802.01C of the NYSE Listed Company Manual. Description of business Our operations consist of two reportable segments: The Container Store, Inc. (“TCS”) : 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 to accomplish their projects 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 the initial public offering (the “IPO”), of its common stock at which time LGP held a controlling interest in the Company as the majority shareholder. During fiscal 2020, LGP sold some of the common stock of the Company, reducing their ownership to less than 50% of the Company’s outstanding common stock. Although LGP is no longer the majority shareholder, LGP continues to have significant influence over the Company. Today, TCS includes The Container Store Custom Spaces (“Custom Spaces”) consisting of our elfa® Classic, elfa® Décor, Avera® and Preston® systems, which are wholly-owned and manufactured by TCS. Custom Spaces includes metal-based and wood-based custom space products and in-home installation services. Our vision is to deepen our relationship with our customers, expand our reach and strengthen our capabilities, all while transforming lives through the power of organization. The Container Store, Inc. consists of our retail stores, website and call center (which includes business sales), as well as our in-home services business. As of September 28, 2024, we operated 103 stores with an average size of approximately 24,000 square feet (18,000 selling square feet) in 34 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers, through its website, responsive mobile site and app, call center, in-home design specialists and in-home design organizers. We operate the C Studio manufacturing facility in Elmhurst, Illinois, which designs and manufactures the Company’s premium wood-based custom space product offering, and is included in the TCS reportable segment. Elfa : 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 that are customizable for any area of the home. 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 Our unique offering of organizing solutions, custom spaces, and in-home services makes us less susceptible to holiday season shopping patterns than many retailers. Our quarterly results fluctuate, depending upon a variety of factors, including our product offerings, promotional events, store openings, the weather, remodeling or relocations, shifts in the timing of holidays, timing of delivery of orders, competitive factors and general economic conditions, including economic downturns as a result of unforeseen events such as pandemics, inflation, and supply chain disruptions, among other things. Accordingly, our results of operations may fluctuate on a seasonal and quarterly basis, relative to corresponding periods in prior years. In addition, we may take certain pricing or marketing actions that could have a disproportionate effect on our business, financial condition and results of operations in a particular quarter or selling season. Recent accounting pronouncements In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply the amendments in this update retrospectively to all prior periods presented in the financial statements. We do not anticipate that the adoption of this update will result in a material impact to our financial position, results of operations or cash flows. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information, as well certain other amendments to improve the effectiveness of income tax disclosures. This ASU is effective for fiscal years beginning after December 15, 2024, for all public business entities. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis, however, retrospective application is permitted. We do not anticipate that the adoption of this update will result in a material impact to our financial position, results of operations or cash flows. |
