| 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 in-home services. We operate the C Studio manufacturing facility in Elmhurst, Illinois, which designs and manufactures the Company’s premium wood-based custom space product offering. We determined that TCS and C Studio have similar economic characteristics and meet the aggregation criteria set forth in ASC 280, Segment Reporting. Therefore, we have combined these two operating segments into the TCS reportable segment. The Elfa segment includes the manufacturing business that produces 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 (loss) 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 September 30, 2023 TCS Elfa Eliminations Total Net sales to third parties $ 208,525 $ 11,206 $ — $ 219,731 Intersegment sales — 10,041 (10,041) — Adjusted EBITDA 14,278 1,335 1,413 17,026 Interest expense, net 5,141 97 — 5,238 Assets (1) 880,587 96,370 (7,448) 969,509 Thirteen Weeks Ended October 1, 2022 TCS Elfa Eliminations Total Net sales to third parties $ 259,872 $ 12,800 $ — $ 272,672 Intersegment sales — 19,989 (19,989) — Adjusted EBITDA 34,888 2,902 (1,879) 35,911 Interest expense, net 3,626 157 — 3,783 Assets (1) 1,127,469 91,396 (5,206) 1,213,659 Twenty-Six Weeks Ended September 30, 2023 TCS Elfa Eliminations Total Net sales to third parties $ 403,652 $ 23,191 $ — $ 426,843 Intersegment sales — 22,593 (22,593) — Adjusted EBITDA 15,052 3,288 1,605 19,945 Interest expense, net 10,027 178 — 10,205 Assets (1) 880,587 96,370 (7,448) 969,509 Twenty-Six Weeks Ended October 1, 2022 TCS Elfa Eliminations Total Net sales to third parties $ 506,643 $ 28,663 $ — $ 535,306 Intersegment sales — 31,709 (31,709) — Adjusted EBITDA 59,985 6,153 (2,039) 64,099 Interest expense, net 6,760 246 — 7,006 Assets (1) 1,127,469 91,396 (5,206) 1,213,659 (1) Tangible assets in the Elfa column are located outside of the United States. A reconciliation of (loss) income before taxes to Adjusted EBITDA is set forth below: Thirteen Weeks Ended Twenty-Six Weeks Ended September 30, October 1, September 30, October 1, 2023 2022 2023 2022 (Loss) income before taxes $ (23,062) $ 21,244 $ (38,485) $ 35,956 Add: Depreciation and amortization 10,383 9,549 20,895 18,555 Interest expense, net 5,238 3,783 10,205 7,006 Pre-opening costs (a) 549 583 734 619 Non-cash lease expense (b) (155) 137 (329) 171 Impairment charges (c) 23,447 — 23,447 — Stock-based compensation (d) 615 536 1,089 1,737 Foreign exchange losses (gains) (e) 2 16 (73) (8) Acquisition-related costs (f) — 63 — 63 Severance charges (g) 9 — 2,462 — Adjusted EBITDA $ 17,026 $ 35,911 $ 19,945 $ 64,099 (a) Non-capital expenditures associated with opening new stores and relocating stores, including 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 operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. (c) Non-cash goodwill impairment charge recognized in the second quarter of fiscal 2023, which we do not consider in our evaluation of ongoing performance. (d) 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. (e) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of ongoing performance. (f) Includes legal costs incurred in the second quarter of fiscal 2022 associated with the acquisition of Closet Works, all of which are recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance. (g) Severance charges associated with the elimination of certain positions recorded in other expenses in the first and second quarters of fiscal 2023, which we do not consider in our evaluation of ongoing performance. |
