Full-year consolidated net sales of $847.8 million, down 19.0% compared to fiscal 2022; Comparable store sales^ down 19.7% compared to fiscal 2022

Full-year net loss per diluted share of $2.09, compared to full-year net loss per diluted share of $3.21 in fiscal 2022; Adjusted net loss per diluted share* of $0.32 compared to adjusted net income per diluted share* of $0.75 in fiscal 2022

Fourth quarter consolidated net sales down 20.7% compared to the fourth quarter of fiscal 2022; Comparable store sales^ down 21.8% compared to the fourth quarter of fiscal 2022

Fourth quarter net loss per diluted share of $1.24, compared to net loss per diluted share of $3.85 in the fourth quarter of fiscal 2022; Adjusted net loss per diluted share* of $0.04 compared to adjusted net income per diluted share* of $0.18 in fiscal 2022

Announces Review of Strategic Alternatives

COPPELL, Texas--(BUSINESS WIRE)--The Container Store Group, Inc. (NYSE: TCS) (the "Company"), today announced its financial results for the fourth quarter and fiscal year 2023 ended March 30, 2024.

For the fourth quarter of fiscal 2023:

• Consolidated net sales were $206.0 million, down 20.7%, compared to the fourth quarter of fiscal 2022. Net sales in The Container Store retail business ("TCS") were $195.3 million, down 20.4%. Elfa International AB ("Elfa") third-party net sales were $10.7 million, down 24.6% compared to the fourth quarter of fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 25.3%.
• Comparable store sales^ decreased 21.8%, with general merchandise categories down 26.7%, contributing a decrease of 1,620 basis points to comparable store sales^. Custom Spaces+ were down 14.2%, negatively impacting comparable store sales^ by 560 basis points.
• Consolidated net loss and net loss per share were $61.4 million and $1.24 per diluted share, compared to net loss of $189.3 million and $3.85 per diluted share, respectively, in the fourth quarter of fiscal 2022. Adjusted net loss per diluted share* was $0.04 compared to adjusted net income per diluted share* of $0.18 in fiscal 2022.

Satish Malhotra, Chief Executive Officer and President of The Container Store, commented, "We ended fiscal 2023 with continued pressure on our general merchandise assortment while experiencing relative strength in our premium Custom Space offering. I am grateful to our team members across the organization for their role in exercising strong cost discipline resulting in positive free cash flow for the fiscal year, and in delivering superior customer service reflected by our retail net promoter score of 80 for the fourth quarter."

Mr. Malhotra continued, "Looking ahead, while we anticipate continued challenges within our general merchandise offerings, we continue to lean into Custom Spaces through enhancing our assortment, strengthening our in-home design service and building awareness through impactful marketing campaigns that highlight our complete offerings . We plan to push forward on all of our market share driving initiatives to ensure we are poised to capitalize on the significant opportunities for the business and the brand when the backdrop normalizes."

Fourth Quarter Fiscal 2023 Results

For the fourth quarter (thirteen weeks) ended March 30, 2024:

• Consolidated net sales were $206.0 million, down 20.7%, compared to the fourth quarter of fiscal 2022.
  • Net sales in TCS were $195.3 million, down 20.4%.
  • Comparable store sales^ decreased 21.8%, with general merchandise categories down 26.7%, contributing a decrease of 1,620 basis points to comparable store sales^. Custom Spaces+ were down 14.2%, negatively impacting comparable store sales^ by 560 basis points.
  • Online sales decreased 30.8% compared to the fourth quarter of fiscal 2022.
  • Elfa third-party net sales were $10.7 million, down 24.6% compared to the fourth quarter of fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 25.3% primarily due to a decline in sales in Nordic markets.
• Consolidated gross margin was 59.4%, an increase of 50 basis points, compared to the fourth quarter of fiscal 2022. TCS gross margin increased 60 basis points to 58.1% primarily due to lower freight costs, partially offset by increased promotional activity and unfavorable product and services mix. Elfa gross margin decreased 980 basis points compared to the fourth quarter of fiscal 2022 primarily due to unfavorable mix, partially offset by price increases to customers.
• Consolidated selling, general and administrative expenses ("SG&A") decreased by 13.9%to $107.0 million in the fourth quarter of fiscal 2023 from $124.3 million in the fourth quarter of fiscal 2022 which reflects the impact of cost management actions taken in the first quarter, and again in the fourth quarter. SG&A as a percentage of net sales increased 400 basis points to 51.9%, with the increase primarily due to deleverage of fixed costs associated with lower sales in the fourth quarter of fiscal 2023.
• Consolidated depreciation and amortization increased 14.5% to $11.9 million in the fourth quarter of fiscal 2023 from $10.4 million in the fourth quarter of fiscal 2022. The increase was primarily due to capital investments in stores and technology in fiscal 2022.
• A non-cash trade names impairment charge of $73.8 million was recorded in the fourth quarter of fiscal 2023 compared to a non-cash goodwill impairment charge of $197.7 million in the fourth quarter of fiscal 2022. In the fourth quarter of fiscal 2023, we conducted an annual impairment test of our trade names balance on January 1, 2024 in accordance with ASC 350, and an interim assessment as of March 30, 2024 due to indicators identified during the fourth quarter of fiscal 2023, which resulted in a $63.8 million impairment of the TCS trade name and a $10.1 million impairment of the Elfa trade name. In the fourth quarter of fiscal 2022, we conducted an annual impairment test of our goodwill balances on January 1, 2023 in accordance with ASC 350, and an interim assessment as of April 1, 2023 due to indicators identified during the fourth quarter of fiscal 2022, which resulted in the $197.7 million goodwill impairment.
• Consolidated other expenses was $4.8 million in the fourth quarter of fiscal 2023, due to a legal settlement and associated legal fees incurred, as well as severance charges associated with the elimination of certain positions in the fourth quarter of fiscal 2023.
• Consolidated net interest expense increased 11.3% to $5.3 million in the fourth quarter of fiscal 2023 from $4.8 million in the fourth quarter of fiscal 2022. The increase was primarily due to a higher interest rate on the Senior Secured Term Loan Facility, as well as higher borrowings under the Revolving Credit Facility, during the fourth quarter of fiscal 2023 compared to the fourth quarter of fiscal 2022.
• The effective tax rate was 25.3% in the fourth quarter of fiscal 2023, as compared to negative 1.7%in the fourth quarter of fiscal 2022. The increase in the effective tax rate was primarily related to the impact of the non-cash goodwill impairment charge recorded during the fourth quarter of fiscal 2022.
• Net loss was $61.4 million, or $1.24 per diluted share, in the fourth quarter of fiscal 2023 compared to net loss of $189.3 million, or $3.85 per diluted share, in the fourth quarter of fiscal 2022. Adjusted net loss* was $2.0 million, or $0.04 per diluted share, in the fourth quarter of fiscal 2023 compared to adjusted net income* of $8.8 million, or $0.18per diluted share, in the fourth quarter of fiscal 2022.
• Adjusted EBITDA* was $15.4 million in the fourth quarter of fiscal 2023 compared to $29.2 million in the fourth quarter of fiscal 2022.

For the fiscal year-to-date (fifty-two weeks) ended March 30, 2024:

• Consolidated net sales were $847.8 million, down 19.0%, compared to fiscal 2022.
  • Net sales for the TCS segment were $801.4 million, down 19.2%.
  • Comparable store sales^ decreased 19.7%, with general merchandise categories down 21.9%, contributing a decrease of 1,420 basis points to comparable store sales^. Custom Spaces+ were down 15.4%, negatively impacting comparable store sales^ by 550 basis points.
  • Online sales decreased 23.7% compared to fiscal 2022.
  • Elfa third-party net sales were $46.3 million, down 17.1% compared to fiscal 2022. Excluding the impact of foreign currency translation, Elfa third-party net sales were down 15.4% compared to fiscal 2022 primarily due to a decline in sales in Nordic markets.
• Consolidated gross margin was 57.7%, an increase of 30 basis points compared to fiscal 2022, primarily due to a higher mix of Custom Spaces+ sales year over year. TCS gross margin decreased 30 basis points to 56.8%, primarily due to increased promotional activity and unfavorable product and services mix, partially offset by lower freight costs in fiscal 2023. Elfa gross margin decreased 270 basis points primarily due to unfavorable mix, partially offset by price increases to customers.
• Consolidated SG&A decreased by 9.7% to $439.5 million from $486.4 million in fiscal 2022 which reflects the impact of cost management actions taken in the first quarter, and again in the fourth quarter. SG&A as a percentage of net sales increased 540 basis points to 51.8%, with the increase primarily due to deleverage of fixed costs associated with lower sales in fiscal 2023, and due to the benefit of the legal settlement received in the second quarter of the prior fiscal year.
• Consolidated depreciation and amortization increased 14.0% to $44.3 million in fiscal 2023 from $38.9 million in fiscal 2022. The increase was primarily due to capital investments in stores and technology in fiscal 2022.
• Non-cash impairment charges of $97.3 million were recorded in fiscal 2023 compared to $197.7 million in fiscal 2022. We conducted an interim assessment of our remaining goodwill balance on September 30, 2023 in accordance with ASC 350 due to indicators identified during the second quarter of fiscal 2023. The interim assessment resulted in the Company recording a $23.4 million charge which represented an impairment of the remaining goodwill balance in the TCS reporting unit as of September 30, 2023. In the fourth quarter of fiscal 2023, we conducted an annual impairment test of our trade names balance on January 1, 2024 in accordance with ASC 350, and an interim assessment as of March 30, 2024 due to indicators identified during the fourth quarter of fiscal 2023, which resulted in a $63.8 million impairment of the TCS trade name and a $10.1 million impairment of the Elfa trade name.
• Consolidated other expenses was $7.4 million in fiscal 2023, due to severance charges associated with the elimination of certain positions in fiscal 2023, as well as a legal settlement and associated legal fees incurred in fiscal 2023.
• Consolidated net interest expense increased 27.8% to $20.7 million in fiscal 2023 from $16.2 million in fiscal 2022. The increase is primarily due to a higher interest rate on the Senior Secured Term Loan Facility.
• The effective tax rate was 17.6% for fiscal 2023 as compared to negative 10.5% in fiscal 2022. The increase in the effective tax rate is primarily due to the impact of the non-cash goodwill impairment charges recorded in fiscal 2023 and fiscal 2022, combined with the tax impact of discrete items related to share-based compensation on a pre-tax loss in fiscal 2023.
• Net loss was $103.3 million, or $2.09 per share, in fiscal 2023 compared to net loss of $158.9 million, or $3.21 per diluted share in fiscal 2022. Adjusted net loss* was $15.9 million, or $0.32 per share in fiscal 2023 compared to adjusted net income* of $37.2 million, or $0.75 per diluted share in fiscal 2022.
• Adjusted EBITDA* was $48.1 million in fiscal 2023 compared to $115.4 million in fiscal 2022.

New and Existing Stores

As of March 30, 2024, the Company store base was 102 as compared to 97 as of April 1, 2023. The Company opened two stores during the fourth quarter of fiscal 2023. We believe we still have attractive growth opportunities in key markets and plan to open four new stores in fiscal 2024, as well as relocate one store and close one store. All new and relocated stores in fiscal 2024 are build-to-suit.

Balance sheet and liquidity highlights:

Share repurchase

There were no repurchases during fiscal 2023. The Company has $25 million remaining of the original $30 million authorization for share repurchases.

Fiscal 2024 To Date Commentary

Jeff Miller, Chief Financial Officer, commented, "First quarter fiscal 2024 to date, we have seen an improvement in year over year sales trends when compared to the fourth quarter of fiscal 2023. Our performance continued to be driven by relative strength in our Custom Spaces business with year over year growth in our Elfa and Preston product lines. However, our general merchandise category remains challenged resulting in double-digit year-over-year total sales declines, though not of the magnitude reported for the fourth quarter of fiscal 2023."

Review of Strategic Alternatives

Today the Company is announcing that its Board of Directors has initiated a formal review process to evaluate strategic alternatives for the Company. The Company's Board of Directors along with the management team do not believe the Company's current market value is reflective of its intrinsic value and are committed to acting in the best interests of the Company and its stakeholders.

"The Container Store's Board and management team are committed to maximizing value for our stakeholders, and to that end, we have commenced a comprehensive process to review potential strategic alternatives for the business. We have established the Transaction Committee to help oversee the process to ensure that we are maximizing both the potential of the business and returns for stakeholders." said Lisa Klinger, Chairperson of The Container Store.

As the Company evaluates strategic alternatives, it is suspending financial guidance. The Container Store has not set a deadline or definitive timetable for the completion of the strategic alternatives review process, and there can be no assurance that this process will result in any particular outcome. The Container Store does not intend to comment further regarding the review of strategic alternatives until it determines disclosure is necessary or advisable.

The Container Store is being advised in this review by J.P. Morgan Securities LLC, as its financial advisor, and Latham & Watkins LLP, as its legal advisor.

References

* See Reconciliation of GAAP to Non-GAAP Financial Measures table.
+ Custom Spaces includes metal-based and wood-based custom space products and in-home installation services.
^ Comparable store sales includes all net sales from our TCS segment, except for sales from stores open less than sixteen months, stores that have been closed permanently, stores that have been closed temporarily for more than seven days and C Studio sales to third parties.

Conference Call Information

A conference call to discuss fourth quarter and full fiscal 2023 financial results is scheduled for today, May 14, 2024, at 8:00 AM Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-407-3982 (international callers please dial 201-493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.containerstore.com.

A taped replay of the conference call will be available within three hours of the conclusion of the call and can be accessed both online and by dialing 844-512-2921 (international callers please dial 412-317-6671). The pin number to access the telephone replay is 13744076. The replay will be available until June 14, 2024.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding our goals, strategies, priorities, challenges and initiatives including future focus on Custom Space; growth opportunities; expected store openings and closures, the Transaction committee review process, expected expense management; future opportunities; the impact of macroeconomic conditions and our anticipated financial performance including profitability expectations.

These forward-looking statements are based on management's current expectations. These statements are neither promises nor guarantees, but 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, including, but not limited to, the following: the timeline for the completion of the strategic alternatives review process is unknown and there can be no assurance that the process will result in any particular outcome; a decline in the health of the economy and the purchase of discretionary items; 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; our inability to source and market new products to meet consumer preferences; failure to successfully anticipate, or manage inventory commensurate with, consumer preferences and demand; competition from other stores and internet-based competition; our inability to obtain merchandise from our vendors on a timely basis and at competitive prices; 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 manufacturing facilities; product recalls and/or product liability, as well as changes in product safety and other consumer protection laws; risks relating to operating multiple 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; failure to comply with laws and regulations relating to privacy, data protection, and consumer protection; 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; any failure to meet the NYSE's continued listing standards could result in the delisting 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; acquisition-related risks and our failure to establish and maintain effective internal controls.

These and other important factors discussed under the caption "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, (the "SEC") on May 26, 2023 and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management's estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.

About The Container Store

The Container Store Group, Inc. (NYSE: TCS) is the nation's leading specialty retailer of organizing solutions, custom spaces, and in-home services – a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 10,000 products designed to transform lives through the power of organization.

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