Document and Entity Information - shares |
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Sep. 29, 2018 |
Oct. 26, 2018 |
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Document and Entity Information | ||
Entity Registrant Name | Container Store Group, Inc. | |
Entity Central Index Key | 0001411688 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 29, 2018 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --03-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Common Stock Outstanding | 48,913,277 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q2 |
Consolidated balance sheets (Parenthetical) - $ / shares |
Sep. 29, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
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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 | 48,138,907 | 48,072,187 | 48,063,222 |
Consolidated statements of operations - USD ($) $ in Thousands |
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Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
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Consolidated statements of operations | ||||
Net sales | $ 224,453 | $ 218,410 | $ 420,276 | $ 401,478 |
Cost of sales (excluding depreciation and amortization) | 93,878 | 92,036 | 174,930 | 171,494 |
Gross profit | 130,575 | 126,374 | 245,346 | 229,984 |
Selling, general, and administrative expenses (excluding depreciation and amortization) | 105,656 | 106,332 | 212,261 | 202,972 |
Stock-based compensation | 769 | 510 | 1,355 | 1,004 |
Pre-opening costs | 881 | 1,418 | 1,227 | 2,804 |
Depreciation and amortization | 9,128 | 9,505 | 18,465 | 19,047 |
Other expenses | 24 | 623 | 217 | 4,157 |
Loss on disposal of assets | 102 | 40 | 153 | |
Income (loss) from operations | 14,117 | 7,884 | 11,781 | (153) |
Interest expense, net | 7,377 | 5,873 | 15,285 | 10,098 |
Loss on extinguishment of debt | 2,082 | 2,369 | 2,082 | 2,369 |
Income (loss) before taxes | 4,658 | (358) | (5,586) | (12,620) |
Provision (benefit) for income taxes | 1,417 | 517 | (2,063) | (4,068) |
Net income (loss) | $ 3,241 | $ (875) | $ (3,523) | $ (8,552) |
Net income (loss) per common share—basic and diluted | $ 0.07 | $ (0.02) | $ (0.07) | $ (0.18) |
Weighted-average common shares - basic (in shares) | 48,138,907 | 48,058,231 | 48,138,907 | 48,053,084 |
Weighted-average common shares - diluted (in shares) | 48,519,166 | 48,058,231 | 48,138,907 | 48,053,084 |
Consolidated statements of comprehensive income (loss) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
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Consolidated statements of comprehensive income (loss) | ||||
Net income (loss) | $ 3,241 | $ (875) | $ (3,523) | $ (8,552) |
Unrealized gain (loss) on financial instruments, net of tax provision (benefit) of $154, $652, ($412) and $1,546 | 438 | 1,010 | (1,347) | 2,400 |
Pension liability adjustment | (18) | (70) | 135 | (180) |
Foreign currency translation adjustment | 652 | 2,366 | (4,639) | 6,328 |
Comprehensive income (loss) | $ 4,313 | $ 2,431 | $ (9,374) | $ (4) |
Consolidated statements of comprehensive income (loss) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
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Consolidated statements of comprehensive income (loss) | ||||
Unrealized gain (loss) on financial instruments, tax provision (benefit) | $ 154 | $ 652 | $ (412) | $ 1,546 |
Description of business and basis of presentation |
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Nature of business and summary of significant accounting policies | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Description of business and basis of presentation | The Container Store Group, Inc. Notes to consolidated financial statements (unaudited) (In thousands, except share amounts and unless otherwise stated) September 29, 2018
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 March 31, 2018, filed with the Securities and Exchange Commission on May 31, 2018. 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. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.
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 a controlling interest in the Company. As of September 29, 2018, The Container Store, Inc. (“TCS”) operates 92 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 33 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 twenty-six weeks ended September 29, 2018 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 in late December and runs into February.
Revenue recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, an updated standard on revenue recognition. The Company adopted this standard in the first quarter of fiscal 2018 and elected to use the modified-retrospective approach for implementation of the standard. 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 Company has identified certain impacts to our accounting for gift cards given away for promotional or marketing purposes. Under previous GAAP, the value of promotional gift cards was recorded as selling, general, and administrative (“SG&A”) expense. The new standard requires these types of gift cards to be accounted for as a reduction of revenue (i.e. a discount). Additionally, ASU 2014-09 disallows the capitalization of direct-response advertising costs which will impact the timing of recognition of certain advertising production and distribution costs.
Upon transition on April 1, 2018, the Company recorded a cumulative adjustment to increase retained earnings/(deficit) and to decrease accrued liabilities by approximately $400. The Company also reclassified the asset balance for the estimate of future returned merchandise, which was approximately $900 as of March 31, 2018, from the “Inventory” line to the “Other current assets” line on the balance sheet. Overall, the adoption of ASU 2014-09 did not result in a material impact to the Company’s financial statements. Note 10 provides the related disaggregated revenue disclosures. We recognize revenues and the related cost of goods sold for our TCS segment when merchandise is received by our customers. We recognize revenues and the related cost of goods sold for our Elfa segment upon shipment. We recognize shipping and handling fees as revenue when the merchandise is shipped to the customer. Costs of shipping and handling are included in cost of goods sold. We recognize fees for installation and other services as revenue upon completion of the service to the customer. Costs of installation and other services are included in cost of goods sold. Sales tax collected is not recognized as revenue as it is ultimately remitted to governmental authorities. We reserve for projected merchandise returns based on historical experience and various other assumptions that we believe to be reasonable. The reserve reduces sales and cost of sales, accordingly. Merchandise exchanges of similar product and price are not considered merchandise returns and, therefore, are excluded when calculating the sales returns reserve. Contract Balances Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, unearned revenue included in Accrued liabilities, and gift cards and store credits outstanding included in Accrued liabilities in the Company's Consolidated Balance Sheets. Note 2 provides the Company's trade receivables, unearned revenue, and gift cards and store credits outstanding with customers as of September 29, 2018, March 31, 2018, and September 30, 2017.
Below is a rollforward of contract liability balances from March 31, 2018 to September 29, 2018, which illustrates the amount of contract liability as of March 31, 2018 which was subsequently recognized into revenue in the twenty-six weeks ended September 29, 2018:
Recent accounting pronouncements
In February 2016, the FASB issued 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 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 and expects to elect certain practical expedients permitted under the transition guidance. Additionally, the Company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. 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 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 adopted ASU 2016-16 in the first quarter of fiscal 2018. The adoption of this standard did not result in a material impact to the Company’s 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. The Company adopted ASU 2017-07 in the first quarter of fiscal 2018 on a retrospective basis. The adoption of this standard did not result in a material impact to the Company’s 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. The Company adopted ASU 2017-09 in the first quarter of fiscal 2018 on a prospective basis. The adoption of this standard did not result in a material impact to the Company’s financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which is intended to improve and simplify hedge accounting and improve the disclosures of hedging arrangements. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting the new standard on its financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under this ASU, the guidance on share-based payments to nonemployees would be aligned with the requirements for share-based payments granted to employees, with certain exceptions. This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the impact of adopting the new standard on its financial statements, but does not expect it to have a material impact to the financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification (“ASC”) 350-40 to determine which implementation costs to capitalize as assets. A customer’s accounting for the costs of the hosting component of the arrangement are not affected by the new guidance. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting the new standard on its financial statements. |
Detail of certain balance sheet accounts |
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Detail of certain balance sheet accounts | 2. Detail of certain balance sheet accounts
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Long-term debt and revolving lines of credit |
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Long-term debt and revolving lines of credit | 3. Long-term debt and revolving lines of credit
On September 14, 2018 (the “Effective Date”), the Company entered into a fifth amendment (the “Fifth Amendment”) to the Credit Agreement dated as of April 6, 2012 (“Senior Secured Term Loan Facility”). The Fifth Amendment amended the Senior Secured Term Loan Facility to, among other things, (i) extend the maturity date of the loans under the Senior Secured Term Loan Facility to September 14, 2023, (ii) decrease the applicable interest rate margin to 5.00% for LIBOR loans and 4.00% for base rate loans and, beginning from the date that a compliance certificate is delivered to the administrative agent for the fiscal year ending March 30, 2019, allow the applicable interest rate margin to step down to 4.75% for LIBOR loans and 3.75% for base rate loans upon achievement of a consolidated leverage ratio equal to or less than 2.75:1.00, and (iii) impose a 1.00% premium if a voluntary prepayment is made from the proceeds of a repricing transaction within 12 months after the Effective Date.
In connection with the Fifth Amendment, the Company repaid $20,000 of the outstanding loans under the Senior Secured Term Loan Facility, which reduced the aggregate principal amount of the Senior Secured Term Loan Facility to $272,500. The Company drew down a net amount of approximately $10,000 on its $100,000 asset-based revolving credit agreement (the “Revolving Credit Facility”) in connection with the closing of the Fifth Amendment. In addition, the Company recorded a loss on extinguishment of debt of $2,082 in the thirteen weeks ended September 29, 2018 associated with the Fifth Amendment.
The Company capitalizes certain costs associated with issuance of various debt instruments. These deferred financing costs are amortized to interest expense on a straight-line method, which is materially consistent with the effective interest method, over the terms of the related debt agreements. In the thirteen weeks ended September 29, 2018, the Company capitalized $2,217 of fees associated with the Fifth Amendment which will be amortized through September 14, 2023.
Long-term debt and revolving lines of credit consist of the following:
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Net income (loss) per common share |
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Net income (loss) per common share | 4. Net income (loss) per common share
Basic net income (loss) per common share is computed as net income (loss) divided by the weighted-average number of common shares for the period. Diluted net income (loss) per share is computed as net income (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 income (loss) per share if their effect is anti-dilutive.
The following is a reconciliation of net income (loss) and the number of shares used in the basic and diluted net income (loss) per share calculations:
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Income taxes |
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Income taxes | |
Income taxes | 5. Income taxes
The provision for income taxes in the thirteen weeks ended September 29, 2018 was $1,417 as compared to $517 in the thirteen weeks ended September 30, 2017. The effective tax rate for the thirteen weeks ended September 29, 2018 was 30.4%, as compared to -144.4% in the thirteen weeks ended September 30, 2017. During the thirteen weeks ended September 29, 2018, the effective tax rate rose above the U.S statutory rate primarily due to the impact of the global intangible low-taxed income (“GILTI”) provision and the officer compensation limitation provision from the Tax Cuts and Jobs Act (the “Tax Act”) enacted in fiscal 2017, and U.S state income taxes. During the thirteen weeks ended September 30, 2017, the effective tax rate fell below the U.S. statutory rate due to earnings mix between domestic and foreign jurisdictions, the expiration of certain stock-based compensation awards, state tax rate changes and the effect of near breakeven pre-tax loss when in an income tax provision position.
The Company’s effective income tax rate for the twenty-six weeks ended September 29, 2018 was 36.9% compared to 32.2% for the twenty-six weeks ended September 30, 2017. During the first half of fiscal 2018, the effective tax rate rose above the statutory rate due to the recognition of a $604 tax benefit for the remeasurement of deferred tax balances as a result of a change in the Swedish tax rate combined with a year-to-date pre-tax loss, as well as the impact of the GILTI provision and the officer compensation limitation provision from the Tax Act enacted in fiscal 2017, and U.S. state income taxes. During the first half of fiscal 2017, the effective tax rate fell below the statutory rate due to earnings mix between domestic and foreign jurisdictions coupled with the worldwide net loss position at that time.
Tax Cuts and Jobs Act
The Company recorded a net provisional tax benefit in fiscal 2017 related to the Tax Act of $15,689, which includes a provisional benefit of $24,210 related to the remeasurement of the Company’s deferred tax balances, partially offset by a provisional expense of $8,521 related to the one-time transition tax on foreign earnings. Pursuant to Staff Accounting Bulletin (“SAB”) No. 118 (“SAB 118”), the Company’s measurement period for implementing the accounting changes required by the Tax Act will close before December 22, 2018 and the Company anticipates completing the accounting under ASC Topic 740, Income Taxes (“ASC 740”) in the third quarter of fiscal 2018.
The Company believes the remeasurement of its deferred tax balances is complete, except for changes in estimates that may result from finalizing the filing of its 2017 U.S. income tax return and changes that may be a direct impact of changes to other provisional amounts due to the enactment of the Tax Act. In addition, the estimate may be impacted as the Company further analyzes state tax conformity to the federal tax changes and guidance issued by regulatory bodies that provide interpretive guidance of the Tax Act. Any adjustments to the provisional amounts will be recognized as a component of the provision for income taxes in the period in which such adjustments are determined within the measurement period. Additionally, the Company is continuing to gather additional information to be able to more precisely compute the final amount of the one-time transition tax on foreign earnings.
The Tax Act creates a new requirement that certain GILTI earned by controlled foreign corporations (“CFC”) must be included currently in the taxable income of the CFC’s U.S. shareholder. The Company became subject to the GILTI provisions beginning in fiscal 2018. Because of the complexity of the new GILTI tax rules, the Company is continuing to evaluate this provision of the Tax Act and the application of ASC 740. The Company has not yet elected an accounting policy to determine whether it will recognize GILTI as a period cost when incurred or to recognize deferred taxes for basis differences expected to reverse. For purposes of calculating the estimated annual effective tax rate at quarter end, the Company has used the period cost method. The Company will continue to assess the appropriateness of this method during the measurement period allowed for under SAB 118.
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Commitments and contingencies |
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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 $3,852 as of September 29, 2018.
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 income |
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Accumulated other comprehensive income | 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 twenty-six weeks ended September 29, 2018:
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 contracts |
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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 twenty-six weeks ended September 29, 2018 and September 30, 2017, the TCS segment used forward contracts for 94% and 100% of inventory purchases in Swedish krona, respectively. During the twenty-six weeks ended September 29, 2018 and September 30, 2017, the Elfa segment used forward contracts to purchase U.S. dollars in the amount of $0 and $1,648, which represented 0% and 54% 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 twenty-six weeks ended September 29, 2018 and September 30, 2017. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as SG&A expenses on the consolidated statements of operations; however, during the twenty-six weeks ended September 29, 2018, the Company did not recognize any amount associated with the change in fair value of forward contracts not designated as hedging instruments, as the Company had none of these instruments outstanding.
The Company had a $1,449 loss in accumulated other comprehensive loss related to foreign currency hedge instruments at September 29, 2018, of which $930 represents an unrealized loss for settled foreign currency hedge instruments related to inventory on hand as of September 29, 2018. The Company expects the unrealized loss of $930, 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.
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Fair value measurements |
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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:
As of September 29, 2018, March 31, 2018 and September 30, 2017, 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:
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 September 29, 2018, March 31, 2018 and September 30, 2017, the estimated fair value of the Company’s long-term debt, including current maturities, was $299,137, $295,605, and $311,578, respectively. |
Segment reporting |
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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.
A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below:
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Description of business and basis of presentation |
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Rollforward of contract liabilities | Below is a rollforward of contract liability balances from March 31, 2018 to September 29, 2018, which illustrates the amount of contract liability as of March 31, 2018 which was subsequently recognized into revenue in the twenty-six weeks ended September 29, 2018:
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Detail of certain balance sheet accounts (Tables) |
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Detail of certain balance sheet accounts | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of detail of certain balance sheet accounts |
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Long-term debt and revolving lines of credit (Tables) |
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Schedule of long-term debt and revolving lines of credit | Long-term debt and revolving lines of credit consist of the following:
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Net income (loss) per common share (Tables) |
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Schedule of reconciliation of net income and the number of shares used in the basic and diluted net income per share calculations |
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Accumulated other comprehensive income (Tables) |
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Schedule of components of AOCI, net of tax |
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Fair value measurements (Tables) |
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Fair value measurements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of items measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820 |
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Segment reporting (Tables) |
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Segment reporting | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of segment reporting |
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Summary of reconciliation of Adjusted EBITDA by segment to income before taxes | A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below:
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Description of business and basis of presentation (Details) |
Sep. 29, 2018
ft²
store
state
country
|
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Description of business and basis of presentation | |
Number of stores | store | 92 |
Average size of stores (in square feet) | 25,000 |
Average selling square feet in stores (in square feet) | 19,000 |
Number of states | state | 33 |
Elfa | |
Description of business and basis of presentation | |
Number of countries in which products are sold on wholesale basis | country | 30 |
Description of business and basis of presentation - Recent accounting pronouncements (Details) - USD ($) $ in Thousands |
Sep. 29, 2018 |
Apr. 01, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
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Recent accounting pronouncements | ||||
Retained Earnings (Accumulated Deficit) | $ (598,837) | $ (595,721) | $ (623,701) | |
Accrued Liabilities, Current | 63,497 | 70,494 | 64,144 | |
Inventory, Net | 110,801 | 97,362 | 109,277 | |
Other Assets, Current | $ 10,562 | 11,609 | $ 13,021 | |
ASU 2014-09 | ||||
Recent accounting pronouncements | ||||
Retained Earnings (Accumulated Deficit) | $ 400 | |||
Accrued Liabilities, Current | $ (400) | |||
Inventory, Net | (900) | |||
Other Assets, Current | $ 900 |
Description of business and basis of presentation - Contract Balances (Details) $ in Thousands |
6 Months Ended |
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Sep. 29, 2018
USD ($)
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Rollforward of contract liability balances | |
Contract liability beginning balance | $ 11,080 |
Contract liability balance ending balance | 10,064 |
Unearned revenue | |
Rollforward of contract liability balances | |
Contract liability beginning balance | 11,080 |
Revenue recognized from beginning liability | (10,571) |
Contract liabilities added during period | 9,555 |
Contract liability balance ending balance | 10,064 |
Gift card and store credits outstanding | |
Rollforward of contract liability balances | |
Contract liability beginning balance | 8,470 |
Revenue recognized from beginning liability | (2,000) |
Contract liabilities added during period | 1,936 |
Contract liability balance ending balance | $ 8,406 |
Detail of certain balance sheet accounts (Details) - USD ($) $ in Thousands |
Sep. 29, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
---|---|---|---|
Accounts receivable, net: | |||
Trade receivables, net | $ 15,789 | $ 15,968 | $ 15,821 |
Credit card receivables | 7,472 | 6,939 | 7,649 |
Tenant allowances | 445 | 998 | 1,264 |
Other receivables | 1,694 | 1,623 | 1,349 |
Accounts receivable, net | 25,400 | 25,528 | 26,083 |
Inventory: | |||
Finished goods | 105,355 | 91,970 | 104,482 |
Raw materials | 4,904 | 4,840 | 4,372 |
Work in progress | 542 | 552 | 423 |
Inventory | 110,801 | 97,362 | 109,277 |
Accrued Liabilities: | |||
Accrued payroll, benefits and bonuses | 19,810 | 23,833 | 20,748 |
Unearned revenue | 10,064 | 11,080 | 8,819 |
Accrued transaction and property tax | 10,805 | 12,846 | 11,888 |
Gift cards and store credits outstanding | 8,406 | 8,891 | 8,561 |
Accrued lease liabilities | 4,573 | 5,105 | 6,072 |
Accrued interest | 966 | 292 | 246 |
Other accrued liabilities | 8,873 | 8,447 | 7,810 |
Accrued liabilities | $ 63,497 | $ 70,494 | $ 64,144 |
Long-term debt and revolving lines of credit - Schedule of long-term debt and revolving lines of credit (Details) - USD ($) $ in Thousands |
Sep. 29, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
---|---|---|---|
Long-term debt and revolving lines of credit | |||
Total debt | $ 299,137 | $ 295,053 | $ 322,012 |
Less current portion | (8,180) | (7,771) | (9,345) |
Less deferred financing costs | (8,668) | (9,888) | (11,371) |
Total long-term debt | 282,289 | 277,394 | 301,296 |
Senior secured term loan facility | |||
Long-term debt and revolving lines of credit | |||
Total debt | 272,500 | 294,375 | 298,125 |
Obligations under capital leases | |||
Long-term debt and revolving lines of credit | |||
Total debt | 509 | 662 | 869 |
Other loans | |||
Long-term debt and revolving lines of credit | |||
Total debt | $ 16 | 75 | |
2014 Elfa term loan facility | |||
Long-term debt and revolving lines of credit | |||
Total debt | 2,943 | ||
2014 Elfa revolving credit facility | |||
Long-term debt and revolving lines of credit | |||
Total debt | 1,128 | ||
Revolving credit facility | |||
Long-term debt and revolving lines of credit | |||
Total debt | $ 25,000 | $ 20,000 |
Net income (loss) per common share (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
Numerator: | ||||
Net income (loss) | $ 3,241,000 | $ (875,000) | $ (3,523,000) | $ (8,552,000) |
Denominator: | ||||
Weighted-average common shares - basic (in shares) | 48,138,907 | 48,058,231 | 48,138,907 | 48,053,084 |
Options and other dilutive securities | $ 380,259 | |||
Weighted-average common shares - diluted (in shares) | 48,519,166 | 48,058,231 | 48,138,907 | 48,053,084 |
Net income (loss) per common share—basic and diluted | $ 0.07 | $ (0.02) | $ (0.07) | $ (0.18) |
Stock options outstanding | ||||
Antidilutive securities not included: | ||||
Antidilutive securities | 2,350,339 | 2,958,961 | 2,637,068 | 2,945,881 |
Nonvested restricted stock awards | ||||
Antidilutive securities not included: | ||||
Antidilutive securities | 14,492 | 107,614 | 120,709 | 95,455 |
Income taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
Income taxes | ||||
Provision (benefit) for income taxes | $ 1,417 | $ 517 | $ (2,063) | $ (4,068) |
Remeasurement of deferred tax balances | $ 604 | |||
Effective income tax rate (as a percent) | 30.40% | (144.40%) | 36.90% | 32.20% |
Income taxes - Tax Cuts and Jobs Act (Details) $ in Thousands |
12 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Income taxes | |
Net provisional tax benefit | $ 15,689 |
Provisional benefit related to the remeasurement of deferred tax balances | 24,210 |
Provisional expense related to the one-time transition tax on foreign earnings | $ 8,521 |
Commitments and contingencies (Details) $ in Thousands |
Sep. 29, 2018
USD ($)
|
---|---|
Standby letters of credit | |
Commitments and contingencies | |
Amount outstanding | $ 3,852 |
Fair value measurements (Details) - USD ($) $ in Thousands |
Sep. 29, 2018 |
Mar. 31, 2018 |
Sep. 30, 2017 |
---|---|---|---|
Fair value | |||
Liabilities | |||
Estimated fair value of long-term debt, including current maturities | $ 299,137 | $ 295,605 | $ 311,578 |
Recurring | |||
Assets | |||
Total assets | 6,011 | 5,848 | 7,512 |
Recurring | Other current assets | |||
Assets | |||
Nonqualified retirement plan | $ 6,011 | $ 5,848 | 5,445 |
Not Designated as Hedging Instrument | Recurring | Foreign currency forward contracts | Level 2 | Other current assets | |||
Assets | |||
Foreign currency forward contracts | $ 2,067 |
Segment reporting (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Sep. 29, 2018
USD ($)
segment
country
|
Sep. 30, 2017
USD ($)
|
Sep. 29, 2018
USD ($)
country
|
Sep. 30, 2017
USD ($)
|
Mar. 31, 2018
USD ($)
|
|
Segment reporting | |||||
Number of reportable segments | segment | 2 | ||||
Segment reporting | |||||
Sales | $ 224,453 | $ 218,410 | $ 420,276 | $ 401,478 | |
Adjusted EBITDA | 24,347 | 26,516 | 36,738 | 32,946 | |
Interest expense, net | 7,377 | 5,873 | 15,285 | 10,098 | |
Assets | $ 751,454 | 771,953 | $ 751,454 | 771,953 | $ 749,369 |
Elfa | |||||
Segment reporting | |||||
Number of countries in which products are sold on wholesale basis | country | 30 | 30 | |||
Operating segments | TCS | |||||
Segment reporting | |||||
Sales | $ 208,915 | 202,321 | $ 388,997 | 369,380 | |
Adjusted EBITDA | 21,228 | 23,446 | 31,332 | 29,210 | |
Interest expense, net | 7,295 | 5,800 | 15,140 | 9,957 | |
Assets | 650,644 | 661,994 | 650,644 | 661,994 | |
Operating segments | Elfa | |||||
Segment reporting | |||||
Sales | 15,538 | 16,089 | 31,279 | 32,098 | |
Adjusted EBITDA | 3,839 | 3,448 | 5,438 | 4,591 | |
Interest expense, net | 82 | 73 | 145 | 141 | |
Assets | 104,585 | 113,554 | 104,585 | 113,554 | |
lntersegment | |||||
Segment reporting | |||||
Sales | (14,650) | (13,497) | (25,045) | (22,541) | |
Adjusted EBITDA | (720) | (378) | (32) | (855) | |
Assets | (3,775) | (3,595) | (3,775) | (3,595) | |
lntersegment | Elfa | |||||
Segment reporting | |||||
Sales | $ 14,650 | $ 13,497 | $ 25,045 | $ 22,541 |
Segment reporting - Reconciliation of Adjusted EBITDA by segment to income before taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Sep. 29, 2018 |
Sep. 30, 2017 |
Sep. 29, 2018 |
Sep. 30, 2017 |
|
Segment reporting | ||||
Loss before taxes | $ 4,658 | $ (358) | $ (5,586) | $ (12,620) |
Depreciation and amortization | 9,128 | 9,505 | 18,465 | 19,047 |
Interest expense, net | 7,377 | 5,873 | 15,285 | 10,098 |
Pre-opening costs | (881) | (1,418) | (1,227) | (2,804) |
Non-cash rent | (581) | (276) | (1,218) | (737) |
Stock-based compensation | (769) | (510) | (1,355) | (1,004) |
Loss on extinguishment of debt | (2,082) | (2,369) | (2,082) | (2,369) |
Foreign exchange losses | (9) | (130) | (47) | (54) |
Optimization Plan implementation charges | (6,786) | (4,864) | (10,320) | |
Elfa manufacturing facility closure | 517 | 517 | ||
Other adjustments | 24 | 42 | 217 | 90 |
Adjusted EBITDA | $ 24,347 | $ 26,516 | $ 36,738 | $ 32,946 |