Cautionary note regarding forward-looking statements





This report, including this Management's Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. In some
cases, you can identify forward-looking statements by terms such as "may,"
"will," "should," "expects," "plans," "anticipates," "could," "intends,"
"target," "projects," "contemplates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other similar
expressions. The forward-looking statements included in this Quarterly Report,
including without limitation statements regarding expectations for our business,
anticipated financial performance and liquidity, including, without limitation
impacts of, and our plans in response to, the COVID-19 pandemic, and anticipated
capital expenditures and other expenses, are only predictions and involve known
and unknown risks, uncertainties and other important factors that may cause our
actual results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking statements. These include, but are not limited to: the COVID-19
pandemic and the associated impact on our business, results of operations and
financial condition; our ability to continue to lease space on favorable terms;
costs and risks relating to new store openings; quarterly and seasonal
fluctuations in our operating results; cost increases that are beyond our
control; our inability to protect our brand; our failure or inability to protect
our intellectual property rights; overall decline in the health of the economy,
consumer spending, and the housing market; our inability to source and market
new products to meet consumer preferences; failure to successfully anticipate
consumer preferences and demand; competition from other stores and
internet-based competition; vendors may sell similar or identical products to
our competitors; our and our vendors' vulnerability to natural disasters and
other unexpected events; disruptions at our Elfa manufacturing facilities;
deterioration or change in vendor relationships or events that adversely affect
our vendors or their ability to obtain financing for their operations, including
COVID-19; our payment terms for goods and services, and our negotiation of
alternative terms for lease payments and other business contracts, each as a
result of COVID-19; product recalls and/or product liability, as well as changes
in product safety and other consumer protection laws; risks relating to
operating two distribution centers; our dependence on foreign imports for our
merchandise; our reliance upon independent third-party transportation providers;
our inability to effectively manage our online sales; effects of a security
breach or cyber-attack of our website or information technology systems,
including relating to our use of third-party web service providers; damage to,
or interruptions in, our information systems as a result of external factors,
working from home arrangements, staffing shortages and difficulties in updating
our existing software or developing or implementing new software; our
indebtedness may restrict our current and future operations, and we may not be
able to refinance our debt on favorable terms, or at all; fluctuations in
currency exchange rates; our inability to maintain sufficient levels of cash
flow to meet growth expectations; our fixed lease obligations; disruptions in
the global financial markets leading to difficulty in borrowing sufficient
amounts of capital to finance the carrying costs of inventory to pay for capital
expenditures and operating costs; changes to global markets and inability to
predict future interest expenses; our reliance on key executive management; our
inability to find, train and retain key personnel; labor relations difficulties;
increases in health care costs and labor costs; violations of the U.S. Foreign
Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws;
impairment charges and effects of changes in estimates or projections used to
assess the fair value of our assets; effects of tax reform and other tax
fluctuations; significant fluctuations in the price of our common stock;
substantial future sales of our common stock, or the perception that such sales
may occur, which could depress the price of our common stock; risks related to
being a public company; our performance meeting guidance provided to the public;
anti-takeover provisions in our governing documents, which could delay or
prevent a change in control; and our failure to establish and maintain effective
internal controls. Other important risk factors that could affect the outcome of
the events set forth in these statements and that could affect our operating
results and financial condition are described in the "Risk Factors" section of
our Annual Report on Form 10-K for the fiscal year ended April 3, 2021 (the
"2020 Annual Report on Form 10-K"), filed with the Securities and Exchange
Commission (the "SEC") on June 3, 2021.



We have based these forward-looking statements largely on our current
expectations and projections about future events and financial trends that we
believe may affect our business, financial condition and results of operations.
These forward-looking statements speak only as of the date of this report.
Because forward-looking statements are inherently

                                       20

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subject to risks and uncertainties, you should not rely on these forward-looking
statements as predictions of future events. Except as required by applicable
law, we do not plan to publicly update or revise any forward-looking statements
contained herein after the date of this report, whether as a result of any new
information, future events or otherwise.



Unless the context otherwise requires, references in this Quarterly Report on
Form 10-Q to the "Company," "we," "us," and "our" refer to The Container Store
Group, Inc. and, where appropriate, its subsidiaries.



We follow a 4-4-5 fiscal calendar, whereby each fiscal quarter consists of
thirteen weeks grouped into two four-week "months" and one five-week "month",
and our fiscal year is the 52- or 53-week period ending on the Saturday closest
to March 31. Fiscal 2021 ends on April 2, 2022 and will include 52 weeks and
fiscal 2020 ended on April 3, 2021 and included 53 weeks. The second quarter of
fiscal 2021 ended on October 2, 2021 and the second quarter of fiscal 2020 ended
on September 26, 2020, and both included thirteen weeks.



                                    Overview



The Container Store® is the original and leading specialty retailer of storage
and organization products and solutions in the United States and the only
national retailer solely devoted to the category. We provide a collection of
creative, multifunctional and customizable storage and organization solutions
that are sold in our stores and online through a high-service, differentiated
shopping experience. We feature The Container Store Custom Closets consisting of
our elfa® Classic, elfa® Décor, Avera® and Laren® closet lines. Our customers
are highly educated, very busy and primarily homeowners with a higher than
average household income. Our customers crave discovery, inspiration, and
solutions that simplify their lives and maximize their spaces within their
homes. 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.

Our operations consist of two operating segments:





?  The Container Store ("TCS") consists of our retail stores, website and call
center (which includes business sales), as well as our installation services
business. As of October 2, 2021, we operated 94 stores with an average size of
approximately 25,000 square feet (19,000 selling square feet) in 33 states and
the District of Columbia. We also offer all of our products directly to
customers through our website, mobile site, call center, and in-home design
consultants. Our stores receive substantially all of our products directly from
one of our two distribution centers. Our first distribution center in Coppell,
Texas, is co-located with our support center and call center, and our second
distribution center is located in Aberdeen, Maryland.



?  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. Elfa was founded in 1948 and
is headquartered in Malmö, Sweden. Elfa's shelving and drawer systems are
customizable for any area of the home, including closets, kitchens, offices and
garages. Elfa operates three manufacturing facilities with two located in Sweden
and one in Poland. The Container Store began selling elfa® products in 1978 and
acquired Elfa in 1999. Today our TCS segment is the exclusive distributor of
elfa® products in the U.S. Elfa also sells its products on a wholesale basis to
various retailers in approximately 30 countries around the world, with a
concentration in the Nordic region of Europe.



                     Business Update Related to Coronavirus



The novel coronavirus ("COVID-19") pandemic had a negative impact on the
Company's fiscal 2020 operations and financial results. We experienced
significant disruptions in store operations, including the temporary closure of
all stores to in-store customer traffic, which adversely affected our business,
results of operations and financial condition, and saw a significant increase in
our curbside pick-up and online selling. During the second quarter of fiscal
2021, all stores were open. We continued to see a shift back to brick and mortar
stores and a decrease in online channel sales year-over year. We will continue
to review local, state, and federal mandates as we may need to temporarily
adjust our operations to comply as COVID-19 and other uncertainties continue to
unfold. We continue to prioritize the health and safety of our customers and
employees by implementing strict health and safety protocols in our stores.

We
will continue to monitor

                                       21

  Table of Contents


guidance from the Centers for Disease Control and Prevention, local, state and
federal guidance, and the impact of COVID-19 on the Company's business, results
of operations, financial position and cash flows.



                             Note on Dollar Amounts



All dollar amounts in this Management's Discussion and Analysis of Financial
Condition and Results of Operations are in thousands, except per share amounts
and unless otherwise stated.



                             Results of Operations



The following data represents the amounts shown in our unaudited consolidated
statements of operations expressed in dollars and as a percentage of net sales
and operating data for the periods presented. For segment data, see Note 10 to
our unaudited consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q.




                                                Thirteen Weeks Ended              Twenty-Six Weeks Ended
                                            October 2,      September 26,      October 2,      September 26,
                                               2021             2020              2021             2020
Net sales                                  $    275,954    $       248,241    $    521,269    $       399,927
Cost of sales (excluding depreciation
and amortization)                               112,416            102,183         211,407            175,630
Gross profit                                    163,538            146,058         309,862            224,297
Selling, general, and administrative
expenses (excluding depreciation and
amortization)                                   114,062            101,193         224,210            187,458
Stock-based compensation                          1,086              1,977           1,955              2,809
Pre-opening costs                                    72                  7             666                 16

Depreciation and amortization                     8,544              8,823          16,745             17,772
Other expenses                                        -                294               -              1,102
Gain on disposal of assets                            -                  - 

           (5)                (6)
Income from operations                           39,774             33,764          66,291             15,146
Interest expense, net                             3,186              4,491           6,371              9,441
Income before taxes                              36,588             29,273          59,920              5,705

Provision for income taxes                        9,393              9,073          15,053              2,175
Net income                                 $     27,195    $        20,200

$ 44,867 $ 3,530

Net income per common share - basic $ 0.55 $ 0.42 

$       0.91    $          0.07
Net income per common share - diluted      $       0.54    $          0.41

$ 0.88 $ 0.07

Weighted-average common shares - basic 49,468,324 48,513,826 

     49,274,611         48,451,508
Weighted-average common shares -
diluted                                      50,217,614         48,782,505      51,112,668         48,630,246




                                       22

  Table of Contents


                                               Thirteen Weeks Ended                 Twenty-Six Weeks Ended
                                          October 2,       September 26,        October 2,       September 26,
                                             2021              2020                2021              2020
Percentage of net sales:
Net sales                                       100.0 %             100.0 %           100.0 %             100.0 %
Cost of sales (excluding depreciation
and amortization)                                40.7 %              41.2 %            40.6 %              43.9 %
Gross profit                                     59.3 %              58.8 %            59.4 %              56.1 %
Selling, general, and administrative
expenses (excluding depreciation and
amortization)                                    41.3 %              40.8 %            43.0 %              46.9 %
Stock­based compensation                          0.4 %               0.8 %             0.4 %               0.7 %
Pre­opening costs                                 0.0 %               0.0 %             0.1 %               0.0 %

Depreciation and amortization                     3.1 %               3.6 %

            3.2 %               4.4 %
Other expenses                                      - %               0.1 %               - %               0.3 %
Gain on disposal of assets                          - %                 - %           (0.0) %             (0.0) %
Income from operations                           14.4 %              13.6 %            12.7 %               3.8 %
Interest expense, net                             1.2 %               1.8 %             1.2 %               2.4 %
Income before taxes                              13.3 %              11.8 %            11.5 %               1.4 %
Provision for income taxes                        3.4 %               3.7 %             2.9 %               0.5 %
Net income                                        9.9 %               8.1 %             8.6 %               0.9 %
Operating data:

Number of stores at end of period (1)              94                  93  

             94                  93
Non­GAAP measures (2):
Adjusted EBITDA (3)                       $    47,748     $        44,083      $     81,250     $        48,546
Adjusted net income (4)                   $    27,197     $        20,930      $     45,348     $         5,407
Adjusted net income per common share -
diluted (4)                               $      0.54     $          0.43

$ 0.89 $ 0.11

In the first half of fiscal 2021, all 94 stores were open with strict health

and safety protocols and adherence to local regulations. In the first quarter

of fiscal 2020, the Company operated a total of 93 store locations, the (1) majority of which were temporarily closed for at least seven days, as a

result of COVID-19, and therefore were not considered comparable. During the

second quarter of fiscal 2020, all 93 stores were open and operating at close


    to normalized schedules, with limited capacity.

We have presented in the table above Adjusted EBITDA, adjusted net income,

and adjusted net income per common share - diluted as supplemental measures

of financial performance that are not required by, or presented in accordance

with, accounting principles generally accepted in the United States of

America ("GAAP"). These non-GAAP measures should not be considered as

alternatives to net income or net loss as a measure of financial performance


    or cash flows from operations as a measure of liquidity, or any other
    performance measure derived in accordance with GAAP and they should not be
    construed as an inference that our future results will be unaffected by

unusual or non-recurring items. These non-GAAP measures are key metrics used

by management, our board of directors, and Leonard Green and Partners, L.P.

("LGP") to assess our financial performance. We present these non-GAAP

measures because we believe they assist investors in comparing our

performance across reporting periods on a consistent basis by excluding items

that we do not believe are indicative of our core operating performance and (2) because we believe it is useful for investors to see the measures that

management uses to evaluate the Company. These non-GAAP measures are also

frequently used by analysts, investors and other interested parties to

evaluate companies in our industry. In evaluating these non-GAAP measures,

you should be aware that in the future we will incur expenses that are the

same as or similar to some of the adjustments in this presentation. Our

presentation of these non-GAAP measures should not be construed to imply that

our future results will be unaffected by any such adjustments. Management

compensates for these limitations by relying on our GAAP results in addition

to using non-GAAP measures supplementally. Our non-GAAP measures are not

necessarily comparable to other similarly titled captions of other companies

due to different methods of calculation. Please refer to footnotes (3) and

(4) of this table for further information regarding why we believe each

non-GAAP measure provides useful information to investors regarding our

financial condition and results of operations, as well as the additional


    purposes for which management uses each non-GAAP financial measure.





Additionally, this Management's Discussion and Analysis also refers to the
change in Elfa third-party net sales after the conversion of Elfa's net sales
from Swedish krona to U.S. dollars using the prior year's conversion rate, which
is a financial measure not calculated in accordance with GAAP. The Company
believes the disclosure of the change in

                                       23

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Elfa third-party net sales without the effects of currency exchange rate fluctuations helps investors understand the Company's underlying performance.

EBITDA and Adjusted EBITDA have been presented in this Quarterly Report on

Form 10-Q as supplemental measures of financial performance that are not

required by, or presented in accordance with, GAAP. We define EBITDA as net

income before interest, taxes, depreciation, and amortization. Adjusted

EBITDA is calculated in accordance with our Secured Term Loan Facility (as (3) defined below) and the Revolving Credit Facility (as defined below) and is

one of the components for performance evaluation under our executive

compensation programs. Adjusted EBITDA reflects further adjustments to EBITDA

to eliminate the impact of certain items, including certain non-cash and

other items that we do not consider in our evaluation of ongoing operating


    performance from period to period as discussed further below.




EBITDA and Adjusted EBITDA are included in this Quarterly Report on Form 10-Q
because they are key metrics used by management, our board of directors and LGP
to assess our financial performance. In addition, we use Adjusted EBITDA in
connection with covenant compliance and executive performance evaluations, and
we use Adjusted EBITDA to supplement GAAP measures of performance to evaluate
the effectiveness of our business strategies, to make budgeting decisions and to
compare our performance against that of other peer companies using similar
measures. We believe it is useful for investors to see the measures that
management uses to evaluate the Company, its executives and our covenant
compliance, as applicable. EBITDA and Adjusted EBITDA are also frequently used
by analysts, investors and other interested parties to evaluate companies in our
industry.



EBITDA and Adjusted EBITDA are not GAAP measures of our financial performance or
liquidity and should not be considered as alternatives to net income as a
measure of financial performance or cash flows from operations as a measure of
liquidity, or any other performance measure derived in accordance with GAAP and
they should not be construed as an inference that our future results will be
unaffected by unusual or non-recurring items. Additionally, EBITDA and Adjusted
EBITDA are not intended to be measures of free cash flow for management's
discretionary use, as they do not reflect certain cash requirements such as tax
payments, debt service requirements, capital expenditures, store openings and
certain other cash costs that may recur in the future. EBITDA and Adjusted
EBITDA contain certain other limitations, including the failure to reflect our
cash expenditures, cash requirements for working capital needs and cash costs to
replace assets being depreciated and amortized. In evaluating Adjusted EBITDA,
you should be aware that in the future we will incur expenses that are the same
as or similar to some of the adjustments in this presentation, such as
pre-opening costs and stock compensation expense. Our presentation of Adjusted
EBITDA should not be construed to imply that our future results will be
unaffected by any such adjustments. Management compensates for these limitations
by relying on our GAAP results in addition to using EBITDA and Adjusted EBITDA
supplementally. Our measures of EBITDA and Adjusted EBITDA are not necessarily
comparable to other similarly titled captions of other companies due to
different methods of calculation.





                                       24

  Table of Contents

A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth below:




                                                  Thirteen Weeks Ended               Twenty-Six Weeks Ended
                                              October 2,      September 26,      October 2,        September 26,
                                                 2021             2020              2021               2020



Net income                                   $     27,195    $        20,200    $      44,867     $         3,530
Depreciation and amortization                       8,544              8,823           16,745              17,772
Interest expense, net                               3,186              4,491            6,371               9,441
Income tax provision                                9,393              9,073           15,053               2,175
EBITDA                                             48,318             42,587           83,036              32,918
Pre-opening costs (a)                                  72                  7              666                  16
Non-cash lease expense (b)                        (1,722)            (1,065)          (5,077)              10,073
Stock-based compensation (c)                        1,086              1,977            1,955               2,809

Management transition costs (d)                         -                 

-              473                   -
Foreign exchange losses (e)                           (6)                  8                5                 129
COVID-19 costs (f)                                      -                273              192               1,496
COVID-19 severance (g)                                  -                296                -               1,105
Adjusted EBITDA                              $     47,748    $        44,083    $      81,250     $        48,546

Non-capital expenditures associated with opening new stores and relocating (a) 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.

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 (b) leases is typically less than our cash operating lease payments. Non-cash

lease expense increased in the first half of fiscal 2020 due to renegotiated

terms with landlords due to COVID-19 that resulted in deferral of $11,900 of

certain cash lease payments. Of the $11,900 of deferred cash lease payments,

approximately $3,600 was repaid during the first half of fiscal 2021, and the

remaining $1,100 is expected to be repaid in the second half of fiscal 2021.

Non-cash charges related to stock-based compensation programs, which vary (c) from period to period depending on volume and vesting timing of awards. We

adjust for these charges to facilitate comparisons from period to period.

Costs related to the transition of key executives including severance and (d) signing bonus recorded as selling, general and administrative expenses, which


    we do not consider in our evaluation of ongoing performance.

(e) Realized foreign exchange transactional gains/losses our management does not


    consider in our evaluation of our ongoing operations.




    Includes incremental costs attributable to the COVID-19 pandemic, which

consist of sanitization costs in the first quarter of fiscal 2021 and the (f) first half fiscal 2020, and hazard pay for distribution center employees in


    the first quarter of fiscal 2020, all of which are recorded as selling,
    general and administrative expenses, which we do not consider in our
    evaluation of ongoing performance.

Include costs incurred in the first half of fiscal 2020 associated with the (g) reduction in workforce as a result of the COVID-19 pandemic and the related

temporary store closures in fiscal 2020, which we do not consider in our


    evaluation of ongoing performance.

Adjusted net income and adjusted net income per common share - diluted have

been presented in this Quarterly Report on Form 10-Q as supplemental measures (4) of financial performance that are not required by, or presented in accordance

with, GAAP. We define adjusted net income as net income before restructuring


    charges, charges related


                                       25

  Table of Contents

to the impact of COVID-19 on business operations, credits pursuant to the CARES

Act, severance charges associated with COVID-19, loss on extinguishment of debt,

certain gains on disposal of assets, certain management transition costs

incurred and benefits realized, charges incurred as part of the implementation

of our optimization plan, charges associated with an Elfa manufacturing facility

closure, charges related to the closure of Elfa France operations, and the tax

impact of these adjustments and other unusual or infrequent tax items. We define

adjusted net income per common share - diluted as adjusted net income divided by

the diluted weighted average common shares outstanding. We use adjusted net

income and adjusted net income per common share - diluted to supplement GAAP

measures of performance to evaluate the effectiveness of our business

strategies, to make budgeting decisions and to compare our performance against

that of other peer companies using similar measures. We present adjusted net

income and adjusted net income per common share - diluted because we believe

they assist investors in comparing our performance across reporting periods on a

consistent basis by excluding items that we do not believe are indicative of our

core operating performance and because we believe it is useful for investors to

see the measures that management uses to evaluate the Company.






A reconciliation of the GAAP financial measures of net income and net income per
common share - diluted to the non-GAAP financial measures of adjusted net income
and adjusted net income per common share - diluted is set forth below:




                                              Thirteen Weeks Ended              Twenty-Six Weeks Ended
                                          October 2,      September 26,      October 2,      September 26,
                                             2021             2020              2021             2020

Numerator:
Net income                               $     27,195    $        20,200    $     44,867    $         3,530

Management transition costs (a)                     -                  -   

         473                  -
COVID-19 costs (b)                                  -                273             192              1,496
COVID-19 severance (c)                              -                294               -              1,103
Taxes (d)                                           2                163           (184)              (722)
Adjusted net income                      $     27,197    $        20,930    $     45,348    $         5,407
Denominator:
Weighted-average common shares
outstanding - diluted                      50,217,614         48,782,505

51,112,668 48,630,246


Net income per common share - diluted    $       0.54    $          0.41    $       0.88    $          0.07
Adjusted net income per common share
- diluted                                $       0.54    $          0.43    $       0.89    $          0.11

Costs related to the transition of key executives including severance and (a) signing bonus recorded as selling, general and administrative expenses, which


    we do not consider in our evaluation of ongoing performance.




    Includes incremental costs attributable to the COVID-19 pandemic, which

consist of sanitization costs in the first quarter of fiscal 2021 and the (b) first half of fiscal 2020, and hazard pay for distribution center employees

in the first quarter of fiscal 2020, all of which are recorded as selling,


    general and administrative expenses, which we do not consider in our
    evaluation of ongoing performance.

Includes costs incurred in the first half of fiscal 2020 associated with the (c) reduction in workforce as a result of the COVID-19 pandemic and the related

temporary store closures in fiscal 2020, which we do not consider in our


    evaluation of ongoing performance.

Tax impact of adjustments to net income which are considered to be unusual or (d) infrequent tax items, all of which we do not consider in our evaluation of


    ongoing performance.




                                       26

  Table of Contents

Thirteen Weeks Ended October 2, 2021 Compared to Thirteen Weeks Ended September 26, 2020





Net sales

The following table summarizes our net sales for each of the thirteen weeks ended October 2, 2021 and September 26, 2020:






                                      October 2, 2021     % total       September 26, 2020     % total
TCS net sales                        $         259,378       94.0 %    $            233,004       93.9 %
Elfa third-party net sales                      16,576        6.0 %                  15,237        6.1 %
Net sales                            $         275,954      100.0 %    $            248,241      100.0 %

Net sales in the thirteen weeks ended October 2, 2021 increased $27,713, or 11.2%, compared to the thirteen weeks ended September 26, 2020. This increase was comprised of the following components:






                                                                        Net sales

Net sales for the thirteen weeks ended September 26, 2020              $

248,241

Incremental net sales increase due to: TCS net sales (including a $10,505, or 23.9%, decrease in online sales)

26,374

Elfa third-party net sales (excluding impact of foreign currency translation)

867


Impact of foreign currency translation on Elfa third-party net
sales

472


Net sales for the thirteen weeks ended October 2, 2021                 $  

275,954




TCS net sales increased $26,374 or 11.3%, with Custom Closets up 22.1%,
contributing 960 basis points of the increase and other product categories up
3.1%, contributing 170 basis points of the increase. Elfa third-party net sales
increased $1,339 or 8.8% in the thirteen weeks ended October 2, 2021. After
converting Elfa's third-party net sales from Swedish krona to U.S. dollars using
the prior year's conversion rate for both the thirteen weeks ended October 2,
2021 and the thirteen weeks ended September 26, 2020, Elfa third-party net

sales
increased 5.7%.



As a result of the impact of the COVID-19 pandemic on our Company stores and the
Company's policy of excluding extended store closures from its comparable sales
calculation, we chose not to provide comparable store sales metrics in the
second quarter of fiscal 2021. We do not believe that comparable store sales
will be a meaningful metric in fiscal 2021.

Gross profit and gross margin


Gross profit in the thirteen weeks ended October 2, 2021 increased $17,480, or
12.0%, compared to the thirteen weeks ended September 26, 2020. The increase in
gross profit was primarily the result of increased consolidated net sales
combined with an increase in consolidated gross margin. The following table
summarizes the gross margin for the thirteen weeks ended October 2, 2021 and
September 26, 2020 by segment and total. The segment gross margins include the
impact of intersegment net sales from the Elfa segment to the TCS segment:





                      October 2, 2021    September 26, 2020
TCS gross margin                 58.1 %                57.5 %
Elfa gross margin                31.8 %                39.8 %
Total gross margin               59.3 %                58.8 %




TCS gross margin increased 60 basis points primarily due to decreased shipping
costs as a result of a lower mix of online sales, combined with less promotional
activity and a favorable mix of products and services, partially offset by
increased freight costs in the second quarter of fiscal 2021. Elfa gross margin
decreased 800 basis points primarily due to higher direct material costs and
unfavorable customer mix. In total, gross margin increased 50 basis points,
primarily due to the increase in TCS gross margin during the thirteen weeks
ended October 2, 2021, partially offset by the decrease in Elfa gross margin for
the same period.



                                       27

  Table of Contents

Selling, general and administrative expenses





Selling, general and administrative expenses in the thirteen weeks ended
October 2, 2021 increased $12,869, or 12.7%, compared to the thirteen weeks
ended September 26, 2020 as we restored certain expenses that were temporarily
suspended in fiscal 2020 as part of our COVID-19 pandemic management strategy.
The following table summarizes SG&A as a percentage of consolidated net sales
for the thirteen weeks ended October 2, 2021 and September 26, 2020:




                                             October 2, 2021    September 26, 2020
                                             % of Net sales       % of Net sales

TCS selling, general and administrative                 38.9 %                38.3 %
Elfa selling, general and administrative                 2.4 %                 2.5 %
Total selling, general and administrative               41.3 %             

  40.8 %

Total selling, general and administrative expenses as a percentage of consolidated net sales increased 50 basis points primarily due to increased compensation and benefits costs, partially offset by leverage of occupancy and other costs on higher sales during the thirteen weeks ended October 2, 2021.





Interest expense



Interest expense decreased by $1,305, or 29.1%, in the thirteen weeks ended
October 2, 2021 to $3,186, as compared to $4,491 in the thirteen weeks ended
September 26, 2020. The decrease is primarily due to a lower principal balance
on the Senior Secured Term Loan Facility (as defined below) combined with lower
interest rates.



Taxes




The provision for income taxes in the thirteen weeks ended October 2, 2021 was
$9,393 as compared to $9,073 in the thirteen weeks ended September 26, 2020. The
effective tax rate for the thirteen weeks ended October 2, 2021 was 25.7%, as
compared to 31.0% in the thirteen weeks ended September 26, 2020. The decrease
in the effective tax rate is primarily due to the impact of permanent and
discrete items on higher pre-tax income in the thirteen weeks ended October

2,
2021.

Twenty-Six Weeks Ended October 2, 2021 Compared to Twenty-Six Weeks Ended September 26, 2020





Net sales

The following table summarizes our net sales for each of the twenty-six weeks ended October 2, 2021 and September 26, 2020:






                                      October 2, 2021     % total       September 26, 2020     % total
TCS net sales                        $         488,108       93.6 %    $            372,390       93.1 %
Elfa third-party net sales                      33,161        6.4 %                  27,537        6.9 %
Net sales                            $         521,269      100.0 %    $            399,927      100.0 %


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Net sales in the twenty-six weeks ended October 2, 2021 increased $121,342, or
30.3%, compared to the twenty-six weeks ended September 26, 2020. This increase
was comprised of the following components:




                                                                        Net sales

Net sales for the twenty-six weeks ended September 26, 2020            $

399,927

Incremental net sales increase due to: TCS net sales (including a $43,961, or 40%, decrease in online sales)

115,718

Elfa third-party net sales (excluding impact of foreign currency translation)

2,978


Impact of foreign currency translation on Elfa third-party net
sales

2,646


Net sales for the twenty-six weeks ended October 2, 2021               $  

521,269




TCS net sales increased $115,718 or 31.1%, with Custom Closets up 36.9%,
contributing 1690 basis points of the increase, and other product categories up
26.1%, contributing 1420 basis points of the increase. Elfa third-party net
sales increased $5,624 or 20.4% in the twenty-six weeks ended October 2, 2021.
After converting Elfa's third-party net sales from Swedish krona to U.S. dollars
using the prior year's conversion rate for both the twenty-six weeks ended
October 2, 2021 and the twenty-six weeks ended September 26, 2020, Elfa
third-party net sales increased $2,978 or 10.8%.



As a result of the impact of the COVID-19 pandemic on our Company stores and the
Company's policy of excluding extended store closures from its comparable sales
calculation, we chose not to provide comparable store sales metrics in the
twenty-six weeks ended October 2, 2021. We do not believe that comparable store
sales will be a meaningful metric in fiscal 2021.

Gross profit and gross margin





Gross profit in the twenty-six weeks ended October 2, 2021 increased $85,565, or
38.1%, compared to the twenty-six weeks ended September 26, 2020. The increase
in gross profit was primarily the result of increased consolidated net sales
combined with an increase in consolidated gross margin. The following table
summarizes the gross margin for the twenty-six weeks ended October 2, 2021 and
September 26, 2020 by segment and total. The segment gross margins include the
impact of intersegment net sales from the Elfa segment to the TCS segment:





                      October 2, 2021    September 26, 2020
TCS gross margin                 58.2 %                54.6 %
Elfa gross margin                34.1 %                41.0 %
Total gross margin               59.4 %                56.1 %




TCS gross margin increased 360 basis points primarily due to less promotional
activity combined with decreased shipping costs as a result of a lower mix of
online sales, and partially offset by increased freight costs in the first half
of fiscal 2021. Elfa gross margin decreased 690 basis points primarily due to
higher direct material costs and unfavorable customer mix. In total, gross
margin increased 330 basis points primarily due to the increase in TCS gross
margin during the twenty-six weeks ended October 2, 2021, partially offset by
the decrease in Elfa gross margin for the same period. In the second half of
fiscal 2021, we expect year-over-year consolidated gross margin declines as the
mix between brick-and-mortar sales and online sales stabilizes as compared to
the prior year, combined with continued headwinds from freight costs.



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Selling, general and administrative expenses


Selling, general and administrative expenses in the twenty-six weeks ended
October 2, 2021 increased $36,752, or 19.6%, compared to the twenty-six weeks
ended September 26, 2020 as we restored certain expenses that were temporarily
suspended in fiscal 2020 as part of our COVID-19 pandemic management strategy.
As a percentage of consolidated net sales, SG&A decreased by 390 basis points.
The following table summarizes SG&A as a percentage of consolidated net sales
for the twenty-six weeks ended October 2, 2021 and September 26, 2020:





                                             October 2, 2021    September 26, 2020
                                             % of Net sales       % of Net sales

TCS selling, general and administrative                 40.2 %                43.8 %
Elfa selling, general and administrative                 2.8 %                 3.1 %
Total selling, general and administrative               43.0 %             

  46.9 %




Total selling, general and administrative expenses as a percentage of
consolidated net sales decreased 390 basis points primarily due to leverage of
occupancy, marketing and other costs on higher sales, partially offset by an
increase in compensation and benefit costs in the twenty-six weeks ended
October 2, 2021. In the second half of fiscal 2021, we expect increases in SG&A
as a percentage of consolidated net sales as compared to the prior year due to
expected deleverage of fixed costs on lower sales, combined with the restoration
of certain compensation and benefits costs that were temporarily suspended

during the pandemic.



Interest expense



Interest expense decreased by $3,070, or 32.5%, in the twenty-six weeks ended
October 2, 2021 to $6,371, as compared to $9,441 in the twenty-six weeks ended
September 26, 2020. The decrease is primarily due to a lower principal balance
on the Senior Secured Term Loan Facility (as defined below) combined with lower
interest rates and decreased borrowings on the Revolving Credit Facility (as
defined below).



Taxes



The provision for income taxes in the twenty-six weeks ended October 2, 2021 was
$15,053 as compared to $2,175 in the twenty-six weeks ended September 26, 2020.
The effective tax rate for the twenty-six weeks ended October 2, 2021 was 25.1%,
as compared to 38.1% in the twenty-six weeks ended September 26, 2020. The
decrease in the effective tax rate is primarily due to the impact of permanent
and discrete items on higher pre-tax income in the twenty-six weeks ended
October 2, 2021.



                        Liquidity and Capital Resources



We have relied on cash flows from operations, a $100,000 asset-based revolving
credit agreement (the "Revolving Credit Facility" as further discussed under
"Revolving Credit Facility" below), and the 2019 Elfa Senior Secured Credit
Facilities (as defined below) as our primary sources of liquidity.



Our primary cash needs are for merchandise inventories and direct materials,
payroll, store leases, capital expenditures associated with opening new stores
and updating existing stores, as well as information technology and
infrastructure, including our distribution centers, and Elfa manufacturing
facility enhancements. The most significant components of our operating assets
and liabilities are merchandise inventories, accounts receivable, prepaid
expenses, operating lease assets and other assets, accounts payable, operating
lease liabilities, other current and noncurrent liabilities, taxes receivable
and taxes payable. Our liquidity fluctuates as a result of our building
inventory for key selling periods, and as a result, our borrowings are generally
higher during these periods when compared to the rest of our fiscal year. In
fiscal 2021, we expect total capital expenditures to be approximately $47,000
for technology infrastructure and software projects, existing store
merchandising and refresh activities, our Elfa business, and new store
development inclusive of our new store in Annapolis, Maryland, which opened in
the first quarter of fiscal 2021, and another new store anticipated in fiscal
2022. We believe that cash expected to be generated from operations and the
remaining availability of borrowings under the Revolving Credit Facility and the
2019 Elfa Revolving Facilities will be sufficient to meet

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liquidity requirements, anticipated capital expenditures and payments due under
our existing credit facilities for at least the next 12 months. In the future,
we may seek to raise additional capital, which could be in the form of loans,
bonds, convertible debt or equity, to fund our operations and capital
expenditures. There can be no assurance that we will be able to raise additional
capital on favorable terms or at all.



At October 2, 2021, we had $23,137 of cash, of which $4,934 was held by our
foreign subsidiaries. In addition, we had $96,830 of additional availability
under the Revolving Credit Facility and approximately $12,498 of additional
availability under the 2019 Elfa Revolving Facilities (as defined below) as of
October 2, 2021. There were $4,255 in letters of credit outstanding under the
Revolving Credit Facility and other contracts at that date.





Cash flow analysis



A summary of our key components and measures of liquidity are shown in the
following table:



                                                 Twenty-Six Weeks Ended
                                              October 2,      September 26,
                                                 2021             2020

Net cash provided by operating activities $ 24,977 $ 91,183 Net cash used in investing activities

            (14,580)

(6,858)


Net cash used in financing activities             (4,988)

(90,495)


Effect of exchange rate changes on cash                41

262


Net increase (decrease) in cash              $      5,450    $       (5,908)
Free cash flow (Non-GAAP) (1)                $     10,392    $        84,319

(1) See below for a discussion of this non-GAAP financial measure and


     reconciliation to its most directly comparable GAAP financial measure.

Net cash provided by operating activities





Cash from operating activities consists primarily of net income adjusted for
non-cash items, including depreciation and amortization, stock-based
compensation, and deferred taxes as well as the effect of changes in operating
assets and liabilities.



Net cash provided by operating activities was $24,977 for the twenty-six weeks
ended October 2, 2021 and was comprised of net income of $44,867 and non-cash
items of $19,842, partially offset by a net change in operating assets and
liabilities of $39,732. The net change in operating assets and liabilities is
primarily due to an increase in merchandise inventory due to increased freight
and commodity costs, combined with increased unit levels to support increased
sales trends and to account for longer lead times resulting from supply chain
disruptions.



Net cash provided by operating activities was $91,183 for the twenty-six weeks
ended September 26, 2020 and was comprised of a net change in operating assets
and liabilities of $70,793, non-cash items of $16,860 and net income of $3,530.
The net change in operating assets and liabilities was primarily due to an
increase in accounts payable and accrued liabilities, combined with a decrease
in merchandise inventory and cash operating lease payments. The increase in
accounts payable and accrued liabilities was primarily due to a shift in timing
of merchandise inventory purchases combined with a temporary increase in vendor
payment terms.

Net cash used in investing activities





Investing activities consist primarily of capital expenditures for new store
openings, existing store remodels, infrastructure, information systems, and

our
distribution centers.

Our total capital expenditures for the twenty-six weeks ended October 2, 2021 were $14,585. We incurred capital expenditures of $6,761 for technology investments and maintenance capital. We incurred capital expenditures of $5,462



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for investments in our existing stores and new stores. We opened one new store during the twenty-six weeks ended October 2, 2021. The remaining capital expenditures of $2,362 related to investments in our distribution centers.


Our total capital expenditures for the twenty-six weeks ended September 26, 2020
were $6,864. We incurred capital expenditures of $4,211 for maintenance capital
and information technology investments. We incurred capital expenditures of
$1,351 related to the distribution centers. The remaining capital expenditures
of $1,302 were primarily related to investments in our existing stores. We did
not open any new stores during the twenty-six weeks ended September 26, 2020.

Net cash used in financing activities

Financing activities consist primarily of borrowings and payments under the Senior Secured Term Loan Facility, the Revolving Credit Facility, and the 2019 Elfa Senior Secured Credit Facilities.





Net cash used in financing activities was $4,988 for the twenty-six weeks ended
October 2, 2021. This included tax payments of $4,677 in connection with the
withholding of shares upon vesting of restricted stock awards, and repayments of
$597 on indebtedness outstanding under the Senior Secured Term Loan Facility and
the 2019 Elfa Senior Secured Term Loan Facility, partially offset by proceeds of
$226 from the exercise of stock options and net borrowings of $60 on the 2019
Elfa Revolving Facilities.




Net cash used in financing activities was $90,495 for the twenty-six weeks ended
September 26, 2020. This included net repayments of $78,000 on the Revolving
Credit Facility and net repayments of $8,607 for the 2019 Elfa Senior Secured
Credit Facilities. In addition, the Company made combined repayments of $3,482
on indebtedness outstanding under the Senior Secured Term Loan Facility and the
2019 Elfa Senior Secured Term Loan Facility, and $406 for taxes paid with the
withholding of shares upon vesting of restricted stock awards.

As of October 2, 2021, TCS had a total of $96,830 of unused borrowing availability and zero borrowings outstanding under the Revolving Credit Facility.

As of October 2, 2021, Elfa had a total of $12,498 of unused borrowing availability and $59 of borrowings outstanding under the 2019 Elfa Revolving Facilities.





Free cash flow (Non-GAAP)



We present free cash flow, which we define as net cash provided by operating
activities in a period minus payments for property and equipment made in that
period, because we believe it is a useful indicator of the Company's overall
liquidity, as the amount of free cash flow generated in any period is
representative of cash that is available for debt repayment, investment, and
other discretionary and non-discretionary cash uses. Accordingly, we believe
that free cash flow provides useful information to investors in understanding
and evaluating our liquidity in the same manner as management. Our definition of
free cash flow is limited in that it does not solely represent residual cash
flows available for discretionary expenditures due to the fact that the measure
does not deduct the payments required for debt service and other contractual
obligations. Therefore, we believe it is important to view free cash flow as a
measure that provides supplemental information to our Consolidated Statements of
Cash Flows. Although other companies report their free cash flow, numerous
methods may exist for calculating a company's free cash flow. As a result, the
method used by our management to calculate our free cash flow may differ from
the methods used by other companies to calculate their free cash flow.



Our free cash flow fluctuates as a result of seasonality of net sales, building
inventory for key selling periods, and timing of investments in new store
openings, existing store remodels, infrastructure, information systems, and our
distribution centers, among other things. Historically, our free cash flow has
been lower in the first half of the fiscal year, due to lower net sales,
operating income, and cash flows from operations, and as such, is not
necessarily indicative of the free cash flow for the full year. We generated
free cash flow of $10,392 for the twenty-six weeks ended October 2, 2021, which
decreased as compared to free cash flow of $84,319 for the twenty-six weeks
ended September 26, 2020. The decrease in free cash flow in the first half of
fiscal 2021 compared to the first half of fiscal 2020 reflects the many

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actions undertaken by the Company to preserve liquidity in the first half of
fiscal 2020 as a result of COVID-19, including temporary reductions in inventory
purchases, temporary extension of payment terms, and reduced capital
expenditures. Additionally, during the first and second quarters of fiscal 2020,
the Company renegotiated terms with landlords as a result of the COVID-19
pandemic, which resulted in the deferral of approximately $11,900 of certain
cash lease payments. Of the $11,900 of deferred cash lease payments,
approximately $3,600 was repaid during the first half of fiscal 2021, and the
remaining balance of $1,100 is expected to be repaid in the second half of
fiscal 2021.



The following table sets forth a reconciliation of free cash flow, a non-GAAP
financial measure, to net cash provided by operating activities, which we
believe to be the GAAP financial measure most directly comparable to free cash
flow:




                                                  Twenty-Six Weeks Ended
                                              October 2,       September 26,
                                                 2021              2020

Net cash provided by operating activities $ 24,977 $ 91,183 Less: Additions to property and equipment (14,585)


(6,864)
Free cash flow                               $      10,392    $        84,319

Senior Secured Term Loan Facility


On April 6, 2012, the Company, The Container Store, Inc. and certain of our
domestic subsidiaries entered into a credit agreement with JPMorgan Chase Bank,
N.A., as Administrative Agent and Collateral Agent, and the lenders party
thereto (the "Senior Secured Term Loan Facility"). On November 25, 2020, the
Company entered into Amendment No. 7 (the "Seventh Amendment") to the Senior
Secured Term Loan Facility. In connection with the Seventh Amendment, the
Company (a) paid down approximately $47,200 of the outstanding loans under the
Senior Secured Term Loan Facility, which reduced the aggregate principal amount
of the loans under the facility to $200,000 and (b) amended the Senior Secured
Term Loan Facility to, among other things, extend the maturity date to January
31, 2026 and impose a 1.00% premium if a voluntary prepayment is made from the
proceeds of a repricing transaction within the one year anniversary of the
Seventh Amendment. The Company is required to make quarterly amortization
payments of $500 on the term loan facility, with the balloon payment for the
remaining balance due on January 31, 2026. Prior to the date of delivery of a
compliance certificate for the fiscal quarter ended October 2, 2021, the
applicable interest rate margin for LIBOR loans was 4.75%, subject to a LIBOR
floor of 1.00%, and 3.75% for base rate loans and, thereafter, may step up to
5.00% for LIBOR Loans and 4.00% for base rate loans unless the consolidated
leverage ratio achieved is less than or equal to 2.75 to 1.00. As of October 2,
2021, the aggregate principal amount in outstanding borrowings under the Senior
Secured Term Loan Facility was $166,065, net of deferred financing costs, and
the consolidated leverage ratio was less than 1.00.

The Senior Secured Term Loan Facility is secured by (a) a first priority
security interest in substantially all of our assets (excluding stock in foreign
subsidiaries in excess of 65%, assets of non-guarantors and subject to certain
other exceptions) (other than the collateral that secures the Revolving Credit
Facility described below on a first-priority basis) and (b) a second priority
security interest in the assets securing the Revolving Credit Facility described
below on a first-priority basis. Obligations under the Senior Secured Term Loan
Facility are guaranteed by The Company and each of The Container Store, Inc.'s
U.S. subsidiaries. The Senior Secured Term Loan Facility contains a number of
covenants that, among other things, restrict our ability, subject to specified
exceptions, to incur additional debt; incur additional liens and contingent
liabilities; sell or dispose of assets; merge with or acquire other companies;
liquidate or dissolve ourselves, engage in businesses that are not in a related
line of business; make loans, advances or guarantees; engage in transactions
with affiliates; and make investments. In addition, the financing agreements
contain certain cross-default provisions and also require certain mandatory
prepayments of the Senior Secured Term Loan Facility, among these an Excess
Cash Flow (as such term is defined in the Senior Secured Term Loan Facility)
requirement. As of October 2, 2021, we were in compliance with all covenants
under the Senior Secured Term Loan Facility and no Event of Default (as such
term is defined in the Senior Secured Term Loan Facility) had occurred.





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Revolving Credit Facility




On April 6, 2012, the Company, The Container Store, Inc. and certain of our
domestic subsidiaries entered into an asset-based revolving credit agreement
with the lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative
Agent and Collateral Agent, and Wells Fargo Bank, National Association, as
Syndication Agent (as amended, the "Revolving Credit Facility"). On November 25,
2020, the Company entered into Amendment No. 5 (the "Fifth Amendment"). The
Fifth Amendment amends the Revolving Credit Facility to extend the maturity date
to 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 is not extended.



The aggregate principal amount of the facility is $100,000. Borrowings under the
Revolving Credit Facility accrue interest at LIBOR+1.25%. In addition, the
Revolving Credit Facility includes an uncommitted incremental revolving facility
in the amount of $50,000, which is subject to receipt of lender commitments and
satisfaction of specified conditions.



The Revolving Credit Facility provides that proceeds are to be used for working
capital and other general corporate purposes, and allows for swing line advances
of up to $15,000 and the issuance of letters of credit of up to $40,000.



The availability of credit at any given time under the Revolving Credit Facility
is limited by reference to a borrowing base formula based upon numerous factors,
including the value of eligible inventory, eligible accounts receivable, and
reserves established by the administrative agent. As a result of the borrowing
base formula, the actual borrowing availability under the Revolving Credit
Facility could be less than the stated amount of the Revolving Credit Facility
(as reduced by the actual borrowings and outstanding letters of credit under the
Revolving Credit Facility).



The Revolving Credit Facility is secured by (a) a first-priority security
interest in substantially all of our personal property, consisting of inventory,
accounts receivable, cash, deposit accounts, and other general intangibles, and
(b) a second-priority security interest in the collateral that secures the
Senior Secured Term Loan Facility on a first-priority basis, as described above
(excluding stock in foreign subsidiaries in excess of 65%, and assets of
non-guarantor subsidiaries and subject to certain other exceptions). Obligations
under the Revolving Credit Facility are guaranteed by the Company and each of
The Container Store, Inc.'s U.S. subsidiaries.



The Revolving Credit Facility contains a number of covenants that, among other
things, restrict our ability, subject to specified exceptions, to incur
additional debt; incur additional liens and contingent liabilities; sell or
dispose of assets; merge with or acquire other companies; liquidate or dissolve
ourselves, engage in businesses that are not in a related line of business; make
loans, advances or guarantees; engage in transactions with affiliates; and make
investments. In addition, the financing agreements contain certain cross-default
provisions. We are required to maintain a consolidated fixed-charge coverage
ratio of 1.0 to 1.0 if excess availability is less than $10,000 at any time. As
of October 2, 2021, we were in compliance with all covenants under the Revolving
Credit Facility and no Event of Default (as such term is defined in the
Revolving Credit Facility) had occurred.

2019 Elfa Senior Secured Credit Facilities


On March 18, 2019, Elfa refinanced its master credit agreement with Nordea Bank
AB entered into on April 1, 2014 and the senior secured credit facilities
thereunder, and entered into a new master credit agreement with Nordea Bank Abp,
filial i Sverige ("Nordea Bank"), which consists of (i) an SEK 110.0 million
(approximately $12,557 as of October 2, 2021) revolving credit facility (the
"2019 Original Revolving Facility"), (ii) upon Elfa's request, an additional SEK
115.0 million (approximately $13,128 as of October 2, 2021) revolving credit
facility (the "2019 Additional Revolving Facility" and together with the 2019
Original Revolving Facility, the "2019 Elfa Revolving Facilities"), and (iii) an
uncommitted term loan facility in the amount of SEK 25.0 million (approximately
$2,854 as of October 2, 2021), which is subject to receipt of Nordea Bank's
commitment and satisfaction of specified conditions (the "Incremental Term
Facility", together with the 2019 Elfa Revolving Facilities, the "2019 Elfa
Senior Secured Credit Facilities"). The term for the 2019 Elfa Senior Secured
Credit Facilities began on April 1, 2019 and matures on April 1, 2024. Loans
borrowed under the 2019 Elfa Revolving Facilities bear interest at Nordea Bank's
base rate +1.40%. Any loan borrowed under the Incremental Term Facility would
bear interest at Stibor +1.70%.

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Table of Contents


The 2019 Elfa Senior Secured Credit Facilities are secured by the majority of
assets of Elfa. The 2019 Elfa Senior Secured Credit Facilities contains a number
of covenants that, among other things, restrict Elfa's ability, subject to
specified exceptions, to incur additional liens, sell or dispose of assets,
merge with other companies, engage in businesses that are not in a related line
of business and make guarantees. In addition, Elfa is required to maintain (i) a
Group Equity Ratio (as defined in the 2019 Elfa Senior Secured Credit
Facilities) of not less than 32.5% and (ii) a consolidated ratio of net debt to
EBITDA (as defined in the 2019 Elfa Senior Secured Credit Facilities) of less
than 3.20. As of October 2, 2021, Elfa was in compliance with all covenants
under the 2019 Elfa Senior Secured Credit Facilities and no Event of Default (as
defined in the 2019 Elfa Senior Secured Credit Facilities) had occurred.



                   Critical accounting policies and estimates



The preparation of financial statements in accordance with GAAP requires
management to make estimates and assumptions about future events that affect
amounts reported in our consolidated financial statements and related notes, as
well as the related disclosure of contingent assets and liabilities at the date
of the financial statements. A summary of our significant accounting policies is
included in Note 1 to our annual consolidated financial statements in our 2020
Annual Report on Form 10-K.



Certain of our accounting policies and estimates are considered critical, as
these policies and estimates are the most important to the depiction of our
consolidated financial statements and require significant, difficult, or complex
judgments, often about the effect of matters that are inherently uncertain. Such
policies are summarized in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of our 2020 Annual Report
on Form 10-K. As of October 2, 2021, there were no significant changes to any of
our critical accounting policies and estimates.



                            Contractual obligations

There were no material changes to our contractual obligations from those disclosed in our 2020 Annual Report on Form 10-K.





                         Off-Balance Sheet Arrangements

There have been no material changes to our off-balance sheet arrangements as disclosed in our 2020 Annual Report on Form 10-K.





                        Recent Accounting Pronouncements

Please refer to Note 1 of our unaudited consolidated financial statements for a summary of recent accounting pronouncements.

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