THE CONTAINER STORE GROUP, INC. 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 outbreak of COVID-19, 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 outbreak of COVID-19 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; employee furloughs and uncertainty about their ability to return to work; our inability to find, train and retain key personnel; labor relations difficulties; increases in health care costs and labor costs; violations of theU.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 endedMarch 28, 2020 (the "2019 Annual Report on Form 10-K"), filed with theSecurities and Exchange Commission (the "SEC") onJune 17, 2020 . 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 subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future 23 Table of Contents 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 toThe 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 toMarch 31 . Fiscal 2020 ends onApril 3, 2021 and will include 53 weeks and fiscal 2019 ended onMarch 28, 2020 and included 52 weeks. The third quarter of fiscal 2020 ended onDecember 26, 2020 and the third quarter of fiscal 2019 ended onDecember 28, 2019 , and both included thirteen weeks. Overview The Container Store® is the original and leading specialty retailer of storage and organization products and solutions inthe 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 vision is to be a beloved brand and the first choice for customized organization solutions and services. Our customers are highly educated, very busy and primarily homeowners with a higher than average household income. We service them with storage and organization solutions that help them accomplish projects, maximize their space, and make the most of their home.
Our operations consist of two operating segments:
?The Container Store ("TCS"), which consists of our retail stores, website and call center (which includes business sales), as well as our installation and organizational services business. As ofDecember 26, 2020 , we operated 93 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 33 states and theDistrict of Columbia . We also offer all of our products directly to customers through our website, responsive mobile site, and call center. Our stores receive substantially all of our products directly from one of our two distribution centers. Our first distribution center inCoppell, Texas , is co-located with our corporate headquarters and call center, and our second distribution center located inAberdeen, Maryland , became fully operational in fiscal 2019. ? 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 inSweden and one located inPoland .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 theU.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 ofEurope . 24 Table of Contents Management Transition As previously disclosed, during the third quarter of fiscal 2020,Melissa Reiff notified the Company of her retirement as President and Chief Executive Officer, effectiveFebruary 1, 2021 (the "Effective Date"). In light of Melissa's retirement, the Company's board of directors appointedSatish Malhotra to succeedMs. Reiff as President and Chief Executive Officer, as of the Effective Date.Mr. Malhotra was also elected as a Class III director of the Company,
as of the Effective Date.
Business Update Related to Coronavirus
The novel coronavirus ("COVID-19") pandemic had a negative impact on the
Company's first quarter of 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. Since the second quarter of
fiscal 2020, all 93 stores were open with limited capacity. As a result, online
sales somewhat moderated during the second and third quarters of fiscal 2020 as
customers shifted to purchasing in-store, compared to the significant increase
in online sales experienced while our stores were temporarily closed to in-store
customer traffic in the first quarter of fiscal 2020. 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.
The Company has taken actions to tightly manage costs, working capital and
capital expenditures to preserve the Company's financial health. As previously
announced, the Company furloughed approximately 2,800 employees, primarily in
its stores, as well as a portion of corporate employees, and reduced the base
salaries of its executive officers and certain other employees, due to COVID-19.
As of the date of this filing, we have no furloughed employees and approximately
4,500 active employees and have returned temporarily reduced base salaries to
their pre-COVID-19 levels. We continue to prioritize the health and safety of
our customers and employees by implementing strict health and safety protocols
in our stores, including intensive and frequent cleaning procedures and
limitations on the number of customers shopping in each store at any given time.
Furthermore, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act")
was signed into law on March 27, 2020 and the Company is implementing applicable
benefits of the CARES Act. As such, we have deferred approximately $5,200 of
employer payroll taxes as of December 26, 2020 and recorded an employee
retention credit of approximately $1,000 . We will continue to monitor guidance
from the Centers for Disease Control and Prevention , state, local 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.
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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 11 to
our unaudited consolidated financial statements included elsewhere in this
Quarterly Report on Form 10-Q.
Thirteen Weeks Ended Thirty-Nine Weeks Ended
December 26, December 28, December 26, December 28,
2020 2019 2020 2019
Net sales $ 275,478 $ 228,657 $ 675,405 $ 674,609
Cost of sales (excluding depreciation and
amortization) 115,991 94,292 291,621 283,633
Gross profit 159,487 134,365 383,784 390,976
Selling, general, and administrative expenses
(excluding depreciation and amortization) 115,870 111,972 303,328 334,281
Stock-based compensation 2,177 799 4,986 2,575
Pre-opening costs 95 2,482 111 5,988
Depreciation and amortization 8,498 9,689 26,270 28,137
Other (income) expenses (13) (1) 1,089 375Loss (gain) on disposal of assets 18
(8) 12 (12) Income from operations 32,842 9,432 47,988 19,632 Interest expense, net 4,099 5,134 13,540 16,245
Loss on extinguishment of debt 893
- 893 - Income before taxes 27,850 4,298 33,555 3,387 Provision for income taxes 8,181 1,886 10,356 1,428 Net income$ 19,669 $ 2,412 $ 23,199 $ 1,959 Thirteen Weeks Ended Thirty-Nine Weeks Ended December 26, December 28, December 26, December 28, 2020 2019 2020 2019 Percentage of net sales: Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales (excluding depreciation and amortization) 42.1 % 41.2 % 43.2 % 42.0 % Gross profit 57.9 % 58.8 % 56.8 % 58.0 % Selling, general, and administrative expenses (excluding depreciation and amortization) 42.1 % 49.0 % 44.9 % 49.6 % Stockbased compensation 0.8 % 0.3 % 0.7 % 0.4 % Preopening costs 0.0 % 1.1 % 0.0 % 0.9 % Depreciation and amortization 3.1 % 4.2 % 3.9 % 4.2 % Other (income) expenses (0.0) % (0.0) % 0.2 % 0.1 %
Loss (gain) on disposal of assets 0.0 % (0.0)
% 0.0 % (0.0) % Income from operations 11.9 % 4.1 % 7.1 % 2.9 % Interest expense, net 1.5 % 2.2 % 2.0 % 2.4 %
Loss on extinguishment of debt 0.3 % -
% 0.1 % - % Income before taxes 10.1 % 1.9 % 5.0 % 0.5 % Provision for income taxes 3.0 % 0.8 % 1.5 % 0.2 % Net income 7.1 % 1.1 % 3.4 % 0.3 % Operating data:
Number of stores at end of period 93 93
93 93
NonGAAP measures (1):
Adjusted EBITDA (2) $ 42,445 $ 22,007 $ 90,991 $ 55,076
Adjusted net income (3) $ 20,705 $ 2,411 $ 26,112 $ 2,249
Adjusted net income per common share -
diluted (3) $ 0.42 $ 0.05 $ 0.53 $ 0.05
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We have presented EBITDA, 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
("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
("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 (1) 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 (2) and
(3) 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 Elfa third-party net sales after the conversion of Elfa's net sales from Swedish krona toU.S. dollars using the prior year's conversion rate. The Company believes the disclosure of 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 (2) 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
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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.
A reconciliation of net income to EBITDA and Adjusted EBITDA is set forth below:
Thirteen Weeks Ended Thirty-Nine Weeks Ended
December 26, December 28, December 26, December 28,
2020 2019 2020 2019
Net income $ 19,669 $ 2,412 $ 23,199 $ 1,959 Depreciation and amortization 8,498 9,689
26,270 28,137
Interest expense, net 4,099 5,134 13,540 16,245
Income tax provision 8,181 1,886 10,356 1,428
EBITDA 40,447 19,121 73,365 47,769
Pre-opening costs (a) 95 2,482 111 5,988
Non-cash lease expense (b) (1,762) (355) 8,311 (1,532)Stock-based compensation (c) 2,177 799 4,986 2,575 Management transition costs (d) 1,200 - 1,200 - Loss on extinguishment of debt (e) 893 - 893 - Foreign exchange losses (gains) (f) 73 (37) 202 (98) Elfa France closure (g) - (1) - 402 Employee retention credit (h) (1,028) - (1,028) - COVID-19 costs (i) 367 - 1,863 - Severance and other (credits) costs (j) (17) (2)
1,088 (28)
Adjusted EBITDA $ 42,445 $ 22,007 $ 90,991 $ 55,076 Non-capital expenditures associated with opening new stores and relocating
stores, and costs associated with opening the second distribution center, (a) 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
leases is typically less than our cash operating lease payments. Non-cash
(b) lease expense increased in the thirty-nine weeks ended
to renegotiated terms with landlords due to COVID-19 that resulted in
deferral of
$10,100 remains deferred as ofDecember 26, 2020 , and the modification of certain lease terms for a substantial portion of our leased properties. In
the thirteen and thirty-nine weeks ended
associated with the opening of the second distribution center were excluded
from Non-cash lease expense and included in Pre-opening costs.
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 signing bonus and (d) relocation expenses recorded as selling, general and administrative expenses,
which we do not consider in our evaluation of ongoing performance.
Loss recorded as a result of the amendments made to the Senior Secured Term (e) Loan Facility in the third quarter of fiscal 2020, which we do not consider
in our evaluation of our ongoing operations.
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(f) Realized foreign exchange transactional gains/losses our management does not
consider in our evaluation of our ongoing operations.
Charges related to the closure of
performance.
Employee retention credit related to the CARES Act recorded in the third (h) quarter of fiscal 2020 as selling, general and administrative expense which
we do not consider in our evaluation of ongoing performance.
Includes incremental costs attributable to the COVID-19 pandemic, whichconsist of hazard pay for distribution center employees in the first quarter (i) of fiscal 2020 and sanitization costs in the first, second and third quarters
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.
Severance and other credits/costs include amounts our management does not
consider in our evaluation of our ongoing operations. The fiscal 2020 amounts (j) include costs primarily incurred in the first and second quarters of fiscal
2020 associated with the reduction in workforce as a result of the COVID-19
pandemic and the related temporary store closures in fiscal 2020.
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
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 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
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 - dilutedbecause 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.
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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 Thirty-Nine Weeks Ended
December 26, December 28, December 26, December 28,
2020 2019 2020 2019
Numerator:
Net income $ 19,669 $ 2,412 $ 23,199 $ 1,959 Management transition costs (a) 1,200 - 1,200 - Loss on extinguishment of debt (b) 893 - 893 - Elfa France closure (c) - (1) - 402 Employee retention credit (d) (1,028) -
(1,028) -
COVID-19 costs (e) 367 - 1,863 -
Severance (f) (15) - 1,088 -
Taxes (g) (381) - (1,103) (112)
Adjusted net income $ 20,705 $ 2,411 $ 26,112 $ 2,249
Denominator:
Weighted-average common shares
outstanding - diluted 49,513,225 48,370,418 48,950,253 49,172,633
Net income per common share - diluted$ 0.40 $ 0.05 $ 0.47 $ 0.04 Adjusted net income per common share - diluted$ 0.42 $ 0.05 $ 0.53 $ 0.05
Costs related to the transition of key executives including signing bonus and (a) relocation expenses recorded as selling, general and administrative expenses,
which we do not consider in our evaluation of ongoing performance.
Loss recorded as a result of the amendments made to the Senior Secured Term
(b) Loan Facility in fiscal
evaluation of our ongoing operations.
Charges related to the closure of
performance.
Employee retention credit related to the CARES Act recorded in the third (d) quarter of fiscal 2020 as selling, general and administrative expense which
we do not consider in our evaluation of ongoing performance.
Includes incremental costs attributable to the COVID-19 pandemic, whichconsist of hazard pay for distribution center employees in the first quarter (e) of fiscal 2020 and sanitization costs in the first, second and third quarters
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 primarily incurred in the first and second quarters of fiscal (f) 2020 associated with the 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 (g) infrequent tax items, all of which we do not consider in our evaluation of
ongoing performance.
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Thirteen Weeks Ended
Net sales
The following table summarizes our net sales for each of the thirteen weeks
ended
December 26, 2020 % total December 28, 2019 % total
TCS net sales $ 256,544 93.1 % $ 211,971 92.7 %
Elfa third party net sales 18,934 6.9 % 16,686 7.3 %
Net sales $ 275,478 100.0 % $ 228,657 100.0 %
Net sales in the thirteen weeks ended December 26, 2020 increased by $46,821 , or
20.5%, compared to the thirteen weeks ended December 28, 2019 . This increase was
comprised of the following components:
Net salesNet sales for the thirteen weeks endedDecember 28, 2019 $
228,657
Incremental net sales increase due to:
TCS net sales (including a
44,573
Elfa third party net sales (excluding impact of foreign currency translation)
549
Impact of foreign currency translation on Elfa third party net sales
1,699
Net sales for the thirteen weeks endedDecember 26, 2020 $
275,478
The Company's consolidated net sales for the thirteen weeks endedDecember 26, 2020 increased$46,821 or 20.5%, compared to the thirteen weeks endedDecember 28, 2019 . TCS net sales increased$44,573 or 21.0%, with other product categories up 22.2%, contributing 1,260 basis points of the increase, and Custom Closets up 19.5%, contributing 840 basis points of the increase. Online sales increased 98.1% in the thirteen weeks endedDecember 26, 2020 as compared to the thirteen weeks endedDecember 28, 2019 . Elfa third party net sales increased$2,248 or 13.5% in the thirteen weeks endedDecember 26, 2020 . After converting Elfa's third party net sales from Swedish krona toU.S. dollars using the prior year's conversion rate for both the thirteen weeks endedDecember 26, 2020 and the thirteen weeks endedDecember 28, 2019 , Elfa third party net sales increased$549 or 3.3%. 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 first quarter of fiscal 2020. Additionally, in the second and third quarters of fiscal 2020 we only had one store that would not be considered for comparable store sales metrics, and therefore the overall increase in net sales and comparable store sales were materially consistent. We do not believe that comparable store sales will be a meaningful metric in fiscal 2020. Gross profit and gross margin Gross profit in the thirteen weeks endedDecember 26, 2020 increased by$25,122 , or 18.7%, compared to the thirteen weeks endedDecember 28, 2019 . The increase in gross profit was primarily the result of increased consolidated sales partially offset by decreased consolidated gross margin. The following table summarizes the gross margin for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 by segment and total. The segment gross margins include the impact of inter-segment net sales from the Elfa segment to the TCS segment:
December 26, 2020 December 28, 2019
TCS gross margin 57.2 % 57.6 %
Elfa gross margin 40.3 % 37.7 %
Total gross margin 57.9 % 58.8 %
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TCS gross margin decreased 40 basis points primarily due to increased shipping
costs as a result of a higher mix of online sales combined with incremental
shipping surcharges instituted by third party carriers, partially offset by less
promotional activity and a favorable mix of higher margin product sales in the
thirteen weeks ended December 26, 2020 . Elfa gross margin increased 260 basis
points primarily due to lower direct material costs. In total, gross margin
decreased 90 basis points, primarily due to the decrease in TCS gross margin
during the thirteen weeks ended December 26, 2020 .
Selling, general and administrative expenses
Selling, general and administrative expenses in the thirteen weeks endedDecember 26, 2020 increased by$3,898 , or 3.5%, compared to the thirteen weeks endedDecember 28, 2019 . However, as a percentage of consolidated net sales, SG&A decreased 690 basis points as compared to the thirteen weeks endedDecember 28, 2019 . The following table summarizes SG&A as a percentage of consolidated net sales for the thirteen weeks endedDecember 26, 2020 andDecember 28, 2019 :December 26, 2020 December 28, 2019 % of Net sales % of Net sales
TCS selling, general and administrative 39.2 % 45.4 % Elfa selling, general and administrative 2.9 % 3.6 % Total selling, general and administrative 42.1 %
49.0 %
Total selling, general and administrative expenses as a percentage of
consolidated net sales decreased 690 basis points primarily due to leverage of
occupancy costs and payroll costs on higher sales during the third quarter of
fiscal 2020, combined with reductions in marketing costs and other expenses.
Given the COVID-19 driven cost reductions in the third quarter of fiscal 2020,
we do not expect this level of leverage in the event of similar sales increases
in the fourth quarter of fiscal 2020 as we return expenses to the business in a
disciplined manner and commensurate with our sales recovery.
Pre-opening costs
Pre-opening costs declined to$95 in the thirteen weeks endedDecember 26, 2020 from$2,482 in the thirteen weeks endedDecember 28, 2019 , primarily due to$2,182 of net costs associated with the opening of the second distribution center in the thirteen weeks endedDecember 28, 2019 . The company did not open any new stores in the thirteen weeks endedDecember 26, 2020 and opened one relocation store in the thirteen weeks endedDecember 28, 2019 .
Interest expense and loss on extinguishment of debt
Interest expense decreased by$1,035 , or 20.2%, in the thirteen weeks endedDecember 26, 2020 to$4,099 , as compared to$5,134 in the thirteen weeks endedDecember 28, 2019 . The decrease is primarily due to lower interest rates, combined with a lower principal balance on the Senior Secured Term Loan Facility (as defined below). OnNovember 25, 2020 , the Company entered into the Seventh Amendment. The Seventh Amendment amended the Senior Secured Term Loan Facility to, among other things, allow the applicable interest rate margin to remain at 4.75% for LIBOR loans and 3.75% for base rate loans. The Company expects to incur less interest expense in fiscal 2021 than it will incur in fiscal 2020.
Additionally, we recorded a loss on extinguishment of debt of
Taxes The provision for income taxes in the thirteen weeks endedDecember 26, 2020 was$8,181 as compared to$1,886 in the thirteen weeks endedDecember 28, 2019 . The effective tax rate for the thirteen weeks endedDecember 26, 2020 was 29.4%, as compared to 43.9% in the thirteen weeks endedDecember 28, 2019 . The decrease in the effective tax rate is primarily due to the impact of discrete items on higher pre-tax income in the third quarter of fiscal 2020. 32 Table of Contents
Thirty-Nine Weeks Ended
Net sales
The following table summarizes our net sales for each of the thirty-nine weeks
ended
December 26, 2020 % total December 28, 2019 % total
TCS net sales $ 628,933 93.1 % $ 628,282 93.1 %
Elfa third party net sales 46,472 6.9 % 46,327 6.9 %
Net sales $ 675,405 100.0 % $ 674,609 100.0 %
Net sales in the thirty-nine weeks ended December 26, 2020 increased by $796 , or
0.1%, compared to the thirty-nine weeks ended December 28, 2019 . This increase
was comprised of the following components:
Net salesNet sales for the thirty-nine weeks endedDecember 28, 2019 $
674,609
Incremental net sales increase (decrease) due to:
TCS net sales (including a
651
Elfa third party net sales (excluding impact of foreign currency translation)
(2,262)
Impact of foreign currency translation on Elfa third party net sales
2,407
Net sales for the thirty-nine weeks endedDecember 26, 2020 $
675,405 The Company's consolidated net sales for the thirty-nine weeks endedDecember 26, 2020 increased$796 or 0.1%, compared to the thirty-nine weeks endedDecember 28, 2019 . TCS net sales increased$651 or 0.1%, with other product categories up 1.0%, contributing 60 basis points of the increase, and Custom Closets partially reducing the increase by 50 basis points. Our online sales increased 124.7% compared to the thirty-nine weeks endedDecember 28, 2019 . Elfa third party net sales increased$145 or 0.4% in the thirty-nine weeks endedDecember 26, 2020 . After converting Elfa's third party net sales from Swedish krona toU.S. dollars using the prior year's conversion rate for both the thirty-nine weeks endedDecember 26, 2020 and the thirty-nine weeks endedDecember 28, 2019 , Elfa third party net sales decreased$2,262 or 4.8%. TCS and Elfa net sales were negatively impacted by COVID-19 during the first quarter of fiscal 2020. 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 first quarter of fiscal 2020. Additionally, in the second and third quarters of fiscal 2020 we only had one store that would not be considered for comparable store sales metrics, and therefore the overall increase in net sales and comparable store sales were materially consistent. We do not believe that comparable store sales will be a meaningful metric in fiscal 2020. Gross profit and gross margin
Gross profit in the thirty-nine weeks endedDecember 26, 2020 decreased by$7,192 , or 1.8%, compared to the thirty-nine weeks endedDecember 28, 2019 . The decrease in gross profit was primarily the result of decreased consolidated gross margin. The following table summarizes the gross margin for the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 by segment and total. The segment gross margins include the impact of inter-segment net sales from the Elfa segment to the TCS segment: December 26, 2020 December 28, 2019 TCS gross margin 55.7 % 57.3 % Elfa gross margin 40.7 % 36.7 % Total gross margin 56.8 % 58.0 % 33 Table of Contents TCS gross margin decreased 160 basis points primarily due to increased shipping costs as a result of a higher mix of online sales and increased promotional activity, partially offset by a favorable mix of higher margin product sales. Elfa gross margin increased 400 basis points primarily due to a favorable customer and product sales mix and lower direct material costs. In total, gross margin decreased 120 basis points primarily due to the decrease in TCS gross margin during the thirty-nine weeks endedDecember 26, 2020 .
Selling, general and administrative expenses
Selling, general and administrative expenses in the thirty-nine weeks endedDecember 26, 2020 decreased by$30,953 , or 9.3%, compared to the thirty-nine weeks endedDecember 28, 2019 . As a percentage of consolidated net sales, SG&A decreased by 470 basis points. The following table summarizes SG&A as a percentage of consolidated net sales for the thirty-nine weeks endedDecember 26, 2020 andDecember 28, 2019 :December 26, 2020 December 28, 2019 % of Net sales % of Net sales
TCS selling, general and administrative 41.9 % 46.2 % Elfa selling, general and administrative 3.0 % 3.4 % Total selling, general and administrative 44.9 %
49.6 %
Total selling, general and administrative expenses as a percentage of
consolidated net sales decreased 470 basis points primarily due to reductions in
payroll, marketing costs, and other costs in the thirty-nine weeks ended
Pre-opening costs Pre-opening costs declined to$111 in the thirty-nine weeks endedDecember 26, 2020 from$5,988 in the thirty-nine weeks endedDecember 28, 2019 primarily due to$5,030 of net costs associated with the opening of the second distribution center in the thirty-nine weeks endedDecember 28, 2019 . The Company did not open any new stores in the thirty-nine weeks endedDecember 26, 2020 and opened two new stores, including one relocation, in the thirty-nine weeks endedDecember 28, 2019 . Other expenses
Other expenses increased to$1,089 in the thirty-nine weeks endedDecember 26, 2020 from$375 in the thirty-nine weeks endedDecember 28, 2019 , primarily due to severance costs associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in fiscal 2020.
Interest expense
Interest expense decreased by$2,705 , or 16.7%, in the thirty-nine weeks endedDecember 26, 2020 to$13,540 , as compared to$16,245 in the thirty-nine weeks endedDecember 28, 2019 . The decrease is primarily due to lower interest rates, combined with a lower principal balance on the Senior Secured Term Loan Facility (as defined below). OnNovember 25, 2020 , the Company entered into a seventh amendment (the "Seventh Amendment") to the Senior Secured Term Loan Facility. The Seventh Amendment amended the Senior Secured Term Loan Facility to, among other things, allow the applicable interest rate margin to remain at 4.75% for LIBOR loans and 3.75% for base rate loans. The Company expects to incur less interest expense in fiscal 2021 than it will incur in fiscal 2020.
Additionally, we recorded a loss on extinguishment of debt of
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Taxes
The provision for income taxes in the thirty-nine weeks ended December 26, 2020
was $10,356 as compared to a provision of $1,428 in the thirty-nine weeks ended
December 28, 2019 . The effective tax rate for the thirty-nine weeks ended
December 26, 2020 was 30.9%, as compared to 42.2% in the thirty-nine weeks ended
December 28, 2019 . The decrease in the effective tax rate is primarily due to
the impact of discrete items on higher pre-tax income in the thirty-nine weeks
ended December 26, 2020 .
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.
Due to the uncertainty related to COVID-19, in the first quarter of fiscal 2020,
the Company took various actions to preserve its liquidity and increase its
financial flexibility. We extended payment terms for most goods and services and
renegotiated alternative terms for lease payments as well as other business
contracts. In addition, we significantly reduced merchandise purchases and
reduced or stopped discretionary spending across all areas of the business. As
stores reopened and sales trends increased, we significantly increased
merchandise purchases to align with sales trends. We also returned to normal
payment terms for most vendors by the end of the third quarter of fiscal 2020.
The Company has planned to substantially reduce capital expenditures for fiscal
2020 as compared to fiscal 2019 with a primary focus on critical activities,
such as maintenance capital and necessary technology investments.
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. 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
Senior Secured Credit Facilities will be sufficient to meet 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 December 26, 2020 , we had $27,895 of cash, of which $14,101 was held by our
foreign subsidiaries. In addition, we had $96,830 of additional availability
under the Revolving Credit Facility and approximately $13,399 of additional
availability under the 2019 Elfa Revolving Credit Facility (as defined below) as
of December 26, 2020 . There were $3,961 in letters of credit outstanding under
the Revolving Credit Facility and other contracts at that date.
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Cash flow analysis
A summary of our key components and measures of liquidity are shown in the
following table:
Thirty-Nine Weeks Ended
December 26 , December 28,
2020 2019
Net cash provided by (used in) operating activities
(11,605) (29,284)
Net cash (used in) provided by financing activities (146,304)
36,751
Effect of exchange rate changes on cash 1,360 276 Net (decrease) increase in cash$ (39,860)
$ 6,607 Free cash flow (Non-GAAP) (1)$ 105,019 $ (30,432)
(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 (used in) 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$116,689 for the thirty-nine weeks endedDecember 26, 2020 and was comprised of a net change in operating assets and liabilities of$66,091 , net income of$23,199 and non-cash items of$27,399 . The net change in operating assets and liabilities is primarily due to an increase in accounts payable and accrued liabilities, an increase in taxes payable and a decrease in cash operating lease payments, partially offset by an increase in merchandise inventory purchases. The increase in accounts payable and accrued liabilities was primarily due to timing of inventory receipts and payments combined with a temporary increase in vendor payment terms. Net cash used in operating activities was$1,136 for the thirty-nine weeks endedDecember 28, 2019 . Non-cash items of$27,260 and net income of$1,959 were more than offset by a net change in operating assets and liabilities of$30,355 . The net change in operating assets and liabilities is primarily due to an increase in merchandise inventory, combined with an increase in accounts receivable, partially offset by an increase in accounts payable and accrued liabilities. The increase in merchandise inventory is primarily due to inventory build-up related to the second distribution center and new product introductions. The increase in accounts receivable is primarily due to the seasonality of sales. The increase in accounts payable and accrued liabilities is primarily driven by timing of inventory receipts and payments.
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 thirty-nine weeks endedDecember 26, 2020 were$11,670 . We incurred capital expenditures of$6,467 for maintenance capital and information technology investments. We incurred capital expenditures of$3,362 related to the distribution centers. The remaining capital expenditures of$1,841 were primarily related to investments in our existing stores. We did not open any new stores during the thirty-nine weeks endedDecember 26, 2020 . Our total capital expenditures for the thirty-nine weeks endedDecember 28, 2019 were$29,296 . We incurred capital expenditures of$13,434 related to the opening of the second distribution center inAberdeen, Maryland , which became fully operational in late fiscal 2019. We incurred$9,249 of capital expenditures for new store openings, relocations and existing store remodels. We opened two new stores, including one relocation, during the thirty-nine weeks ended 36
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Net cash (used in) provided by 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$146,304 for the thirty-nine weeks endedDecember 26, 2020 . This included net repayments of$78,000 on the Revolving Credit Facility and net repayments of$9,910 for the 2019 Elfa Senior Secured Credit Facilities. In addition, the Company made net repayments of$52,281 on indebtedness outstanding under the Senior Secured Term Loan Facility of which$47,172 was in conjunction with the Seventh Amendment, repayments of$122 on indebtedness outstanding under the 2019 Elfa Senior Secured Term Loan Facility, and paid$412 in taxes in connection with the withholding of shares upon vesting of restricted stock awards. Net cash provided by financing activities was$36,751 for the thirty-nine weeks endedDecember 28, 2019 . This included net proceeds of$46,000 from borrowings under the Revolving Credit Facility, partially offset by net repayments of$5,365 for the 2019 Elfa Senior Secured Credit Facilities. In addition, the Company made combined repayments of$3,512 on indebtedness outstanding under the Senior Secured Term Loan Facility and the 2019 Elfa Senior Secured Term Loan Facility, and paid$372 in taxes in connection with the withholding of shares upon vesting of restricted stock awards.
As of
As of
Free cash flow (Non-GAAP) We present free cash flow, which we define as net cash provided by (used in) 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. However, our positive free cash flow of$105,019 for the thirty-nine weeks endedDecember 26, 2020 increased as compared to negative free cash flow of$30,432 for the thirty-nine weeks endedDecember 28, 2019 . Free cash flow generation during the thirty-nine weeks endedDecember 26, 2020 , was strong, despite the significant impact of COVID-19 in the first quarter of fiscal 2020, as a result of the many actions undertaken by the Company to preserve liquidity, including temporary reductions in inventory purchases, temporary extension of payment terms, and reduced capital expenditures which focus on maintenance capital and necessary technology investments. The Company returned to normal payment terms for most vendors by the end of the third quarter of fiscal 2020. Additionally, 37
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during 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 which approximately$10,100 remains deferred as ofDecember 26, 2020 , and the modification of certain lease terms for a substantial portion of our leased properties. Less than half of these lease amounts are expected to be repaid in the second half of fiscal 2020 and the remaining amounts are expected to be repaid primarily in fiscal 2021. The following table sets forth a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by (used in) operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow: Thirty-Nine Weeks EndedDecember 26 ,December 28, 2020 2019
Net cash provided by (used in) operating activities
(11,670) (29,296)
Free cash flow $ 105,019 $ (30,432) Senior Secured Term Loan Facility
OnApril 6, 2012 ,The Container Store Group, Inc. ,The Container Store, Inc. and certain of our domestic subsidiaries entered into a credit agreement withJPMorgan Chase Bank, N.A ., as Administrative Agent and Collateral Agent, and the lenders party thereto (the "Senior Secured Term Loan Facility"). OnNovember 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, theCompany (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 toJanuary 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. Commencing onMarch 31, 2021 , the Company will be required to make quarterly amortization payments of$500 on the term loan facility, with the balloon payment for the remaining balance due onJanuary 31, 2026 . Prior to the date of delivery of a compliance certificate for the fiscal quarter endedDecember 26, 2020 , 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 ofDecember 26, 2020 , the aggregate principal amount in outstanding borrowings under the Senior Secured Term Loan Facility was$190,687 , net of deferred financing costs. 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 byThe Container Store Group, Inc. and each ofThe 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 ofDecember 26, 2020 , 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 Container Store Group, Inc. , 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 Facilityis 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 byThe Container Store Group, Inc. and each ofThe 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 ofDecember 26, 2020 , 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
OnMarch 18, 2019 , Elfa refinanced its master credit agreement withNordea Bank AB entered into onApril 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) anSEK 110.0 million (approximately$13,399 as ofDecember 26, 2020 ) revolving credit facility (the "2019 Original Revolving Facility"), (ii) upon Elfa's request, an additionalSEK 115.0 million (approximately$14,008 as ofDecember 26, 2020 ) 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 ofSEK 25.0 million (approximately$3,045 as ofDecember 26, 2020 ), which is subject to receipt ofNordea 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 onApril 1, 2019 and matures onApril 1, 2024 . Loans borrowed under the 2019 Elfa Revolving Facilities bear interest atNordea Bank's base rate +1.40%. Any loan borrowed under the Incremental Term Facility would bear interest at Stibor +1.70%. 39
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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 ofDecember 26, 2020 , 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 2019 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 2019 Annual Report on Form 10-K. As ofDecember 26, 2020 , 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 2019 Annual Report on Form 10-K, other than those shown in the table below, primarily related to paydowns of outstanding borrowings under the Senior Secured Term Loan Facility and Revolving Credit Facility and certain modifications to our operating leases as a result of renegotiated terms with landlords. Payments due by period Within 1 Year Total (Remaining) 1 3 Years 3 5 Years After 5 Years Recorded contractual obligations Term loans$ 200,000 $ 500$ 4,000 $ 4,000 $ 191,500 Revolving loans - - - - - Operating leases (1) 548,817 26,868 174,392 139,832 207,725 Total$ 748,817 $ 27,368 $ 178,392 $ 143,832 $ 399,225
We enter into operating leases during the normal course of business. Most
lease arrangements provide us with the option to renew the leases at defined
terms. The future operating lease obligations would change if we were to
exercise these options, or if we were to enter into additional operating (1) leases. During fiscal 2020, the Company renegotiated terms with landlords as
a result of the COVID-19 pandemic, which resulted in the deferral of
approximately
$10,100 remains deferred as ifDecember 26, 2020 , and the modification of certain lease terms for a substantial portion of our leased properties. Off-Balance Sheet Arrangements
There have been no material changes to our off-balance sheet arrangements as disclosed in our 2019 Annual Report on Form 10-K.
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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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