10-Q

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 3, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-36161

THE CONTAINER STORE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	26-0565401
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

500 Freeport Parkway, Coppell, TX	75019
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (972) 538-6000

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TCS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ◻	Accelerated filer ☑	Non-accelerated filer ◻
Smaller reporting company ☑	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑

The registrant had 50,527,102 shares of its common stock outstanding as of July 30, 2021.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of July 3, 2021, April 3, 2021, and June 27, 2020	3
	Unaudited Consolidated Statements of Operations for the Thirteen Weeks ended July 3, 2021 and June 27, 2020	5
	Unaudited Consolidated Statements of Comprehensive Income for the Thirteen Weeks ended July 3, 2021 and June 27, 2020	6
	Unaudited Consolidated Statements of Cash Flows for the Thirteen Weeks ended July 3, 2021 and June 27, 2020	7
	Unaudited Consolidated Statements of Shareholders’ Equity for the Thirteen Weeks ended July 3, 2021 and June 27, 2020	8
	Notes to the Unaudited Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Default Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34

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PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements

The Container Store Group, Inc.

Consolidated balance sheets

	July 3,		April 3,		June 27,
(In thousands)	2021		2021		2020
Assets	(unaudited)				(unaudited)
Current assets:
Cash	$	10,512	$	17,687	$	63,508
Accounts receivable, net		29,292		28,949		25,369
Inventory		145,041		130,619		109,182
Prepaid expenses		12,767		11,429		8,632
Income taxes receivable		93		93		3,391
Other current assets		17,538		14,547		14,235
Total current assets		215,243		203,324		224,317
Noncurrent assets:
Property and equipment, net		130,600		131,884		141,504
Noncurrent operating lease right-of-use assets		303,232		307,147		311,911
Goodwill		202,815		202,815		202,815
Trade names		228,416		227,669		225,100
Deferred financing costs, net		243		255		153
Noncurrent deferred tax assets, net		1,026		2,305		2,411
Other assets		2,951		3,070		2,250
Total noncurrent assets		869,283		875,145		886,144
Total assets	$	1,084,526	$	1,078,469	$	1,110,461

See accompanying notes.

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The Container Store Group, Inc.

Consolidated balance sheets (continued)

	July 3,		April 3,		June 27,
(In thousands, except share and per share amounts)	2021		2021		2020
Liabilities and shareholders’ equity	(unaudited)				(unaudited)
Current liabilities:
Accounts payable	$	68,209	$	68,546	$	51,656
Accrued liabilities		80,205		86,551		75,962
Current borrowings on revolving lines of credit		423		—		5,533
Current portion of long-term debt		2,155		2,166		6,952
Current operating lease liabilities		48,976		50,847		53,165
Income taxes payable		9,938		6,803		198
Total current liabilities		209,906		214,913		193,466
Noncurrent liabilities:
Long-term debt		163,745		163,818		296,209
Noncurrent operating lease liabilities		280,053		285,022		301,399
Noncurrent deferred tax liabilities, net		48,972		48,923		45,053
Other long-term liabilities		12,302		12,124		11,304
Total noncurrent liabilities		505,072		509,887		653,965
Total liabilities		714,978		724,800		847,431
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 49,417,215 shares issued at July 3, 2021; 48,838,261 shares issued at April 3, 2021; 48,491,369 shares issued at June 27, 2020		494		488		485
Additional paid-in capital		870,460		873,048		867,332
Accumulated other comprehensive loss		(18,214)		(19,003)		(28,970)
Retained deficit		(483,192)		(500,864)		(575,817)
Total shareholders’ equity		369,548		353,669		263,030
Total liabilities and shareholders’ equity	$	1,084,526	$	1,078,469	$	1,110,461

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of operations

	Thirteen Weeks Ended
	July 3,		June 27,
(In thousands, except share and per share amounts)(unaudited)	2021		2020
Net sales	$	245,315	$	151,686
Cost of sales (excluding depreciation and amortization)		98,991		73,447
Gross profit		146,324		78,239
Selling, general, and administrative expenses (excluding depreciation and amortization)		110,148		86,265
Stock-based compensation		869		832
Pre-opening costs		594		9
Depreciation and amortization		8,201		8,949
Other expenses		—		809
Gain on disposal of assets		(5)		(7)
Income (loss) from operations		26,517		(18,618)
Interest expense, net		3,185		4,950
Income (loss) before taxes		23,332		(23,568)
Provision (benefit) for income taxes		5,660		(6,898)
Net income (loss)	$	17,672	$	(16,670)
Net income (loss) per common share — basic	$	0.36	$	(0.34)
Net income (loss) per common share — diluted	$	0.35	$	(0.34)
Weighted-average common shares — basic		49,080,897		48,389,205
Weighted-average common shares — diluted		50,448,216		48,389,205

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of comprehensive income (loss)

	Thirteen Weeks Ended
	July 3,		June 27,
(In thousands)(unaudited)	2021		2020
Net income (loss)	$	17,672	$	(16,670)
Unrealized gain on financial instruments, net of tax provision of $51 and $1,393		143		3,961
Pension liability adjustment		(57)		(219)
Foreign currency translation adjustment		703		3,583
Comprehensive income (loss)	$	18,461	$	(9,345)

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of cash flows

	Thirteen Weeks Ended
	July 3,		June 27,
(In thousands) (unaudited)	2021		2020
Operating activities
Net income (loss)	$	17,672	$	(16,670)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		8,201		8,949
Stock-based compensation		869		832
Gain on disposal of assets		(5)		(7)
Deferred tax expense (benefit)		5,097		(7,178)
Non-cash interest		470		465
Other		(109)		104
Changes in operating assets and liabilities:
Accounts receivable		110		204
Inventory		(14,494)		16,085
Prepaid expenses and other assets		(4,183)		(1,841)
Accounts payable and accrued liabilities		(5,738)		11,651
Net change in lease assets and liabilities		(2,926)		9,851
Income taxes		(1,265)		1,560
Other noncurrent liabilities		38		1,609
Net cash provided by operating activities		3,737		25,614
Investing activities
Additions to property and equipment		(7,566)		(3,913)
Proceeds from sale of property and equipment		5		6
Net cash used in investing activities		(7,561)		(3,907)
Financing activities
Borrowings on revolving lines of credit		430		11,340
Payments on revolving lines of credit		—		(15,288)
Borrowings on long-term debt		5,000		—
Payments on long-term debt		(5,550)		(21,739)
Payment of taxes with shares withheld upon restricted stock vesting		(3,677)		(406)
Proceeds from the exercise of stock options		226		—
Net cash used in financing activities		(3,571)		(26,093)
Effect of exchange rate changes on cash		220		139
Net decrease in cash		(7,175)		(4,247)
Cash at beginning of fiscal period		17,687		67,755
Cash at end of fiscal period	$	10,512	$	63,508
Supplemental information for non-cash investing:
Purchases of property and equipment (included in accounts payable)	$	947	$	407

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of shareholders’ equity

								Accumulated
						Additional		other				Total
(In thousands, except share amounts)	Par		Common stock			paid-in		comprehensive		Retained		shareholders’
(unaudited)	value		Shares	Amount		capital		loss		deficit		equity
Balance at April 3, 2021	$	0.01	48,838,261	$	488	$	873,048	$	(19,003)	$	(500,864)	$	353,669
Net income			—		—		—		—		17,672		17,672
Stock-based compensation			—		—		869		—		—		869
Stock options exercised			52,183		1		225		—				226
Vesting of restricted stock awards			526,771		5		(5)		—		—		0
Taxes related to net share settlement of restricted stock awards			—		—		(3,677)		—		—		(3,677)
Foreign currency translation adjustment			—		—		—		703		—		703
Unrealized gain on financial instruments, net of $51 tax provision			—		—		—		143		—		143
Pension liability adjustment			—		—		—		(57)		—		(57)
Balance at July 3, 2021	$	0.01	49,417,215		494		870,460		(18,214)		(483,192)		369,548

								Accumulated
						Additional		other				Total
(In thousands, except share amounts)	Par		Common stock			paid-in		comprehensive		Retained		shareholders’
(unaudited)	value		Shares	Amount		capital		loss		deficit		equity
Balance at March 28, 2020	$	0.01	48,316,559	$	483	$	866,667	$	(36,295)	$	(559,147)	$	271,708
Net loss			—		—		—		—		(16,670)		(16,670)
Stock-based compensation			—		—		832		—		—		832
Vesting of restricted stock awards			174,758		2		(2)		—		—		—
Taxes related to net share settlement of restricted stock awards			—		—		(165)		—		—		(165)
Foreign currency translation adjustment			—		—		—		3,583		—		3,583
Unrealized gain on financial instruments, net of $1,393 tax provision			—		—		—		3,961		—		3,961
Pension liability adjustment			—		—		—		(219)		—		(219)
Balance at June 27, 2020	$	0.01	48,491,317		485		867,332		(28,970)		(575,817)		263,030

See accompanying notes.

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The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

(In thousands, except share amounts and unless otherwise stated)

July 3, 2021

1. Description of business and basis of presentation

These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended April 3, 2021, filed with the Securities and Exchange Commission (“SEC”) on June 3, 2021 (the “2020 Annual Report on Form 10-K”). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.

All references herein to “fiscal 2021” refer to the 52-week fiscal year ending April 2, 2022, “fiscal 2020” refer to the 53-week fiscal year ended April 3, 2021, and “fiscal 2019” refer to the 52-week fiscal year ended March 28, 2020.

Description of business

The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”). On November 6, 2013, the Company completed its initial public offering (the “IPO”), at which time LGP held a controlling interest in the Company as the majority shareholder. During fiscal 2020, LGP sold common stock of the Company, reducing their ownership to less than 50% of the Company’s outstanding common stock. Although LGP is no longer the majority shareholder, LGP continues to have significant influence over the Company. As of July 3, 2021, The Container Store, Inc. (“TCS”) operates 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. The Container Store, Inc. also offers all of its products directly to its customers (including business customers), through its website, mobile site, call center, and in-home design consultants. The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. elfa^® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.

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. During the first quarter of fiscal 2021, all stores were open. 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 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.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirteen weeks ended July 3, 2021 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter,

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attributable primarily to the timing and impact of Our Annual elfa^® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

In July 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard in the first quarter of fiscal 2021 did not result in a material impact to the Company’s financial statements.

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2.  Detail of certain balance sheet accounts

	July 3,		April 3,		June 27,
	2021		2021		2020
Accounts receivable, net:
Trade receivables, net	$	16,801	$	18,784	$	14,678
Credit card receivables		10,362		8,445		9,297
Other receivables		2,129		1,720		1,394
	$	29,292	$	28,949	$	25,369
Inventory:
Finished goods	$	140,171	$	126,311	$	103,880
Raw materials		4,235		3,614		4,697
Work in progress		635		694		605
	$	145,041	$	130,619	$	109,182
Accrued liabilities:
Accrued payroll, benefits and bonuses	$	24,831	$	30,028	$	20,214
Unearned revenue		21,579		19,503		14,554
Accrued transaction and property tax		13,536		15,660		13,099
Gift cards and store credits outstanding		10,340		9,862		9,035
Accrued lease liabilities		34		34		1,311
Accrued interest		91		95		2,633
Accrued sales returns		3,428		3,381		8,165
Other accrued liabilities		6,366		7,988		6,951
	$	80,205	$	86,551	$	75,962

Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, Unearned revenue included in Accrued liabilities, and Gift cards and store credits outstanding included in Accrued liabilities in the Company's Consolidated Balance Sheets provided above. Unearned revenue was $19,503 as of April 3, 2021, and $17,292 was subsequently recognized into revenue for the thirteen weeks ended July 3, 2021. Gift cards and store credits outstanding was $9,862 as of April 3, 2021, and $1,276 was subsequently recognized into revenue for the thirteen weeks ended July 3, 2021. See Note 10 for disaggregated revenue disclosures.

3. Leases

We conduct all of our U.S. operations from leased facilities that include corporate headquarters, warehouse facilities, and 94 store locations. The corporate headquarters, warehouse facilities, and stores are under operating leases that generally expire over the next 1 to 20 years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company also has finance leases at our Elfa segment that are immaterial.

Lease expense on operating leases is recorded on a straight-line basis over the term of the lease, commencing on the date the Company takes possession of the leased property and is recorded in selling, general and administrative expenses (“SG&A”).

We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. Our variable lease payments include lease payments that are based on a percentage of sales.

Upon lease commencement, we recognize the lease liability measured at the present value of the fixed future minimum lease payments. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement.

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We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the lease liability include the discount rate applied to present value the future lease payments and the exercise of renewal options.

Many of our leases contain renewal options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement as exercise of the options is not reasonably certain. We remeasure the lease liability and right-of-use asset when we are reasonably certain to exercise a renewal option.

During the first quarter 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 which approximately $2,200 remains deferred as of July 3, 2021, and the modification of certain lease terms for a substantial portion of our leased properties.

Discount Rate

Our leases do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment.

The components of lease costs for the thirteen weeks ended July 3, 2021 and June 27, 2020 were as follows:

		Thirteen Weeks Ended
		July 3, 2021		June 27, 2020
Operating lease costs	$	21,840	$	22,500
Variable lease costs		300		32
Total lease costs	$	22,140	$	22,532

We do not have sublease income and do not recognize lease assets or liabilities for short-term leases, defined as operating leases with initial terms of less than 12 months. Our short-term lease costs were not material for the thirteen weeks ended July 3, 2021 and June 27, 2020.

Supplemental cash flow information related to our leases for the thirteen weeks ended July 3, 2021 and June 27, 2020 were as follows:

		Thirteen Weeks Ended
		July 3, 2021		June 27, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	25,179	$	11,434
Additions to right-of-use assets	$	6,678	$	28,943

Weighted average remaining operating lease term and incremental borrowing rate as of July 3, 2021 and June 27, 2020 were as follows:

	Thirteen Weeks Ended
	July 3, 2021		June 27, 2020
Weighted average remaining lease term (years)	6.7		7.1
Weighted average incremental borrowing rate	13.4	%	14.5	%

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As of July 3, 2021, future minimum lease payments under our operating lease liabilities were as follows:

	Operating leases (1)
Within 1 year (remaining)	$	68,535
2 years		83,978
3 years		76,920
4 years		69,148
5 years		59,682
Thereafter		153,166
Total lease payments	$	511,429
Less amount representing interest		(182,400)
Total lease liability	$	329,029
Less current lease liability		(48,976)
Total noncurrent lease liability	$	280,053

(1) Operating lease payments exclude approximately $4,194 of legally binding minimum lease payments for leases signed but not yet commenced.

4. Net income (loss) per common share

Basic net income (loss) per common share is computed as net income (loss) divided by the weighted-average number of common shares for the period. Net income (loss) per common share – diluted is computed as net income (loss) divided by the weighted-average number of common shares for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. Potentially dilutive securities are excluded from the computation of net income (loss) per common share – diluted if their effect is anti-dilutive.

The following is a reconciliation of net income (loss) and the number of shares used in the basic and diluted net income (loss) per common share calculations:

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Numerator:
Net income (loss)	$	17,672	$	(16,670)
Denominator:
Weighted-average common shares — basic		49,080,897		48,389,205
Nonvested restricted stock awards and other dilutive securities		1,367,319		—
Weighted-average common shares — diluted		50,448,216		48,389,205
Net income (loss) per common share — basic	$	0.36	$	(0.34)
Net income (loss) per common share — diluted		0.35		(0.34)
Antidilutive securities not included:
Stock options outstanding		1,658,924		2,545,383
Nonvested restricted stock awards		33,400		674,176

5.  Income taxes

The provision for income taxes in the thirteen weeks ended July 3, 2021 was $5,660 as compared to a benefit of $6,898 in the thirteen weeks ended June 27, 2020. The effective tax rate for the thirteen weeks ended July 3, 2021 was 24.3%, as compared to 29.3% in the thirteen weeks ended June 27, 2020. During the thirteen weeks ended July 3, 2021, the effective tax rate rose above the U.S. statutory rate of 21%, primarily due to U.S. state income taxes, and the impact of the global intangible low-taxed income ("GILTI") provision. During the thirteen weeks ended June 27, 2020, the

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effective tax rate rose above the U.S. statutory rate, primarily due to stock-based compensation, U.S. state income taxes, and the impact of the GILTI provision.

6.  Commitments and contingencies

In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $4,248 as of July 3, 2021.

The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows on an individual basis or in the aggregate.

7.  Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCL, net of tax, are shown below for the thirteen weeks ended July 3, 2021:

	Foreign
	currency		Pension		Foreign
	hedge		liability		currency
	instruments		adjustment		translation		Total
Balance at April 3, 2021	$	3,174	$	(2,415)	$	(19,762)	$	(19,003)
Other comprehensive income (loss) before reclassifications, net of tax		876		(57)		703		1,522
Amounts reclassified to earnings, net of tax		(733)		—		—		(733)
Net current period other comprehensive income (loss)		143		(57)		703		789
Balance at July 3, 2021	$	3,317	$	(2,472)	$	(19,059)	$	(18,214)

Amounts reclassified from AOCL to earnings for the foreign currency forward contracts category are generally included in cost of sales in the Company’s consolidated statements of operations. For a description of the Company’s use of foreign currency forward contracts, refer to Note 8.

8.  Foreign currency forward contracts

The Company’s international operations and purchases of inventory products from foreign suppliers are subject to certain opportunities and risks, including foreign currency fluctuations. In the TCS segment, we utilize foreign currency forward contracts in Swedish krona to stabilize our retail gross margins and to protect our domestic operations from downward currency exposure by hedging purchases of inventory from our wholly-owned subsidiary, Elfa. Forward contracts in the TCS segment are designated as cash flow hedges, as defined by ASC 815. In the Elfa segment, we utilize foreign currency forward contracts to hedge purchases, primarily of raw materials, that are transacted in currencies other than Swedish krona, which is the functional currency of Elfa. Forward contracts in the Elfa segment are economic hedges and are not designated as cash flow hedges as defined by ASC 815.

During the thirteen weeks ended July 3, 2021 and June 27, 2020, the TCS segment used forward contracts for 82% and 63% of inventory purchases in Swedish krona, respectively. Generally, the Company’s foreign currency forward contracts have terms from 1 to 12 months and require the Company to exchange currencies at agreed-upon rates at settlement.

The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company records its foreign currency forward contracts on a gross basis and generally does not require collateral from these counterparties because it does not expect any losses from credit exposure.

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The Company records all foreign currency forward contracts on its consolidated balance sheet at fair value. The Company accounts for its foreign currency hedging instruments in the TCS segment as cash flow hedges, as defined. Changes in the fair value of the foreign currency hedging instruments that are considered to be effective, as defined, are recorded in other comprehensive loss until the hedged item (inventory) is sold to the customer, at which time the deferred gain or loss is recognized through cost of sales. Any portion of a change in the foreign currency hedge instrument’s fair value that is considered to be ineffective, as defined, or that the Company has elected to exclude from its measurement of effectiveness, is immediately recorded in earnings as cost of sales. The Company assessed the effectiveness of the foreign currency hedge instruments and determined the foreign currency hedge instruments were highly effective during the thirteen weeks ended July 3, 2021 and June 27, 2020. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as SG&A on the consolidated statements of operations; however, during the thirteen weeks ended July 3, 2021, the Company did not recognize any amount associated with the change in fair value of forward contracts not designated as hedging instruments, as the Company had none of these instruments outstanding.

The Company had a $3,317 gain in accumulated other comprehensive loss related to foreign currency hedge instruments at July 3, 2021, of which $834 represents an unrealized gain for settled foreign currency hedge instruments related to inventory on hand as of July 3, 2021. The Company expects the unrealized gain of $834, net of taxes, to be reclassified into earnings over the next 12 months as the underlying inventory is sold to the end customer.

The change in fair value of the Company’s foreign currency hedge instruments that qualify as cash flow hedges and are included in accumulated other comprehensive loss, net of taxes, are presented in Note 7 of these financial statements.

9.  Fair value measurements

Under GAAP, the Company is required to a) measure certain assets and liabilities at fair value or b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include:

● Level 1—Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

● Level 2—Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3—Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

As of July 3, 2021, April 3, 2021 and June 27, 2020, the Company held certain items that are required to be measured at fair value on a recurring basis. These included foreign currency forward contracts which the Company uses to stabilize its retail gross margins and to protect its operations from downward currency exposure and the nonqualified retirement plan, which consists of investments purchased by employee contributions to retirement savings accounts. The fair value amount of the nonqualified retirement plan is measured at fair value using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds.

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The following items are measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820, Fair Value Measurements:

			July 3,		April 3,		June 27,
Description		Balance Sheet Location	2021		2021		2020
Assets
Nonqualified retirement plan	N/A	Other current assets	$	6,089	$	5,707	$	5,350
Foreign currency forward contracts	Level 2	Other current assets		3,360		2,906		—
Total assets			$	9,449	$	8,613	$	5,350

The fair value of long-term debt was estimated using quoted prices as well as recent transactions for similar types of borrowing arrangements (Level 2 valuations). As of July 3, 2021, April 3, 2021 and June 27, 2020, the estimated fair value of the Company’s long-term debt, including current maturities, was as follows:

	July 3,		April 3,		June 27,
	2021		2021		2020
Senior secured term loan facility	$	175,088	$	174,064	$	206,728
2019 Elfa revolving facilities		423		—		5,533
Obligations under finance leases		293		335		254
Revolving credit facility		—		—		58,000
Total fair value of debt		175,804		174,399		270,515

10.  Segment reporting

The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business.

The Elfa segment includes the manufacturing business that produces the elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance.

Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.

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Thirteen Weeks Ended July 3, 2021	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	228,729	$	16,586	$	—	$	245,315
Intersegment sales		—		15,693		(15,693)		—
Adjusted EBITDA		27,968		4,097		1,437		33,502
Interest expense, net		3,123		62		—		3,185
Assets (1)		985,454		105,386		(6,314)		1,084,526

Thirteen Weeks Ended June 27, 2020	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	139,386	$	12,300	$	—	$	151,686
Intersegment sales		—		8,691		(8,691)		—
Adjusted EBITDA		1,725		2,937		(199)		4,463
Interest expense, net		4,848		102		—		4,950
Assets (1)		1,016,425		100,834		(6,798)		1,110,461

(1) Tangible assets in the Elfa column are located outside of the United States.

A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below:

		Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Income (loss) before taxes	$	23,332	$	(23,568)
Add:
Depreciation and amortization		8,201		8,949
Interest expense, net		3,185		4,950
Pre-opening costs (a)		594		9
Non-cash lease expense (b)		(3,355)		11,138
Stock-based compensation (c)		869		832
Management transition costs (d)		473		—
Foreign exchange losses (e)		11		121
COVID-19 costs (f)		192		1,223
COVID-19 severance (g)		—		809
Adjusted EBITDA	$	33,502	$	4,463

(a) Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. Non-cash lease expense increased during the first quarter 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 which approximately $2,200 remains deferred as of July 3, 2021.

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

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(d) Costs related to the transition of key executives including severance and 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.

(f) Includes incremental costs attributable to the COVID-19 pandemic, which consist of sanitization costs in the first quarter of fiscal 2021 and 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.

(g) Includes costs incurred in the first quarter of fiscal 2020 associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in the first quarter of fiscal 2020, which we do not consider in our evaluation of ongoing performance.

11. Stock-based compensation 

On June 1, 2021, the Company granted time-based and performance-based restricted stock awards under the Company’s Amended and Restated 2013 Incentive Award Plan to certain officers and employees of the Company. The total number of restricted shares granted was 335,719 with a grant-date fair value of $13.22 per share. The time-based restricted stock awards will vest over 3 years. The performance-based restricted stock awards vest based on achievement of fiscal 2021 performance targets and are also subject to time-based vesting requirements over 3 years. 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

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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 first quarter of fiscal 2021 ended on July 3, 2021 and the first quarter of fiscal 2020 ended on June 27, 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 championing the enriching benefits of living an organized life.

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 July 3, 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 corporate headquarters and call center, and our second distribution center in Aberdeen, 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 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 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. During the first quarter of fiscal 2021, all stores were open. 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

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will continue to monitor 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
	July 3,		June 27,
	2021		2020
Net sales	$	245,315	$	151,686
Cost of sales (excluding depreciation and amortization)		98,991		73,447
Gross profit		146,324		78,239
Selling, general, and administrative expenses (excluding depreciation and amortization)		110,148		86,265
Stock-based compensation		869		832
Pre-opening costs		594		9
Depreciation and amortization		8,201		8,949
Other expenses		—		809
Gain on disposal of assets		(5)		(7)
Income (loss) from operations		26,517		(18,618)
Interest expense, net		3,185		4,950
Income (loss) before taxes		23,332		(23,568)
Provision (benefit) for income taxes		5,660		(6,898)
Net income (loss)	$	17,672	$	(16,670)
Net income (loss) per common share — basic	$	0.36	$	(0.34)
Net income (loss) per common share — diluted	$	0.35	$	(0.34)
Weighted-average common shares — basic		49,080,897		48,389,205
Weighted-average common shares — diluted		50,448,216		48,389,205

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	Thirteen Weeks Ended
	July 3,			June 27,
	2021			2020
Percentage of net sales:
Net sales		100.0	%		100.0	%
Cost of sales (excluding depreciation and amortization)		40.4	%		48.4	%
Gross profit		59.6	%		51.6	%
Selling, general, and administrative expenses (excluding depreciation and amortization)		44.9	%		56.9	%
Stock‑based compensation		0.4	%		0.5	%
Pre‑opening costs		0.2	%		0.0	%
Depreciation and amortization		3.3	%		5.9	%
Other expenses		—	%		0.5	%
Gain on disposal of assets		(0.0)	%		(0.0)	%
Income (loss) from operations		10.8	%		(12.3)	%
Interest expense, net		1.3	%		3.3	%
Income (loss) before taxes		9.5	%		(15.5)	%
Provision (benefit) for income taxes		2.3	%		(4.5)	%
Net income (loss)		7.2	%		(11.0)	%
Operating data:
Number of stores at end of period (1)		94			93
Non‑GAAP measures (2):
Adjusted EBITDA (3)	$	33,502		$	4,463
Adjusted net income (loss) (4)	$	18,151		$	(15,523)
Adjusted net income (loss) per common share — diluted (4)	$	0.36		$	(0.32)

(1) In the first quarter 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 majority of which were temporarily closed for at least seven days, as a result of COVID-19, and therefore were not considered comparable.

(2) We have presented in the table above Adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) 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 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

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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.

(3) 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 (loss) before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with our Secured Term Loan Facility (as 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 (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. 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.

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

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Net income (loss)	$	17,672	$	(16,670)
Depreciation and amortization		8,201		8,949
Interest expense, net		3,185		4,950
Income tax provision (benefit)		5,660		(6,898)
EBITDA		34,718		(9,669)
Pre-opening costs (a)		594		9
Non-cash lease expense (b)		(3,355)		11,138
Stock-based compensation (c)		869		832
Management transition costs (d)		473		—
Foreign exchange losses (e)		11		121
COVID-19 costs (f)		192		1,223
COVID-19 severance (g)		—		809
Adjusted EBITDA	$	33,502	$	4,463

(a) Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. Non-cash lease expense increased in the thirteen weeks ended June 27, 2020 due to renegotiated terms with landlords due to COVID-19 that resulted in deferral of $11,900 of certain cash lease payments, of which approximately $2,200 remains deferred as of July 3, 2021, and the modification of certain lease terms for a substantial portion of our leased properties.

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

(d) Costs related to the transition of key executives including severance and 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.

(f) Includes incremental costs attributable to the COVID-19 pandemic, which consist of sanitization costs in the first quarter of fiscal 2021 and 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.

(g) Include costs incurred in the first quarter of fiscal 2020 associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in the first quarter of fiscal 2020, which we do not consider in our evaluation of ongoing performance.

(4) Adjusted net income (loss) and adjusted net income (loss) 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 (loss) as net income (loss) before restructuring

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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 Elfa France operations, and the tax impact of these adjustments and other unusual or infrequent tax items. We define adjusted net income (loss) per common share – diluted as adjusted net income (loss) divided by the diluted weighted average common shares outstanding. We use adjusted net income (loss) and adjusted net income (loss) 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 (loss) and adjusted net income (loss) 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 (loss) and net income (loss) per common share – diluted to the non-GAAP financial measures of adjusted net income (loss) and adjusted net income (loss) per common share – diluted is set forth below:

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Numerator:
Net income (loss)	$	17,672	$	(16,670)
Management transition costs (a)		473		—
COVID-19 costs (b)		192		1,223
COVID-19 severance (c)		—		809
Taxes (d)		(186)		(885)
Adjusted net income (loss)	$	18,151	$	(15,523)
Denominator:
Weighted-average common shares outstanding — diluted		50,448,216		48,389,205
Net income (loss) per common share — diluted	$	0.35	$	(0.34)
Adjusted net income (loss) per common share — diluted	$	0.36	$	(0.32)

(a) Costs related to the transition of key executives including severance and signing bonus recorded as selling, general and administrative expenses, which we do not consider in our evaluation of ongoing performance.

(b) Includes incremental costs attributable to the COVID-19 pandemic, which consist of sanitization costs in the first quarter of fiscal 2021 and 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.

(c) Includes costs incurred in the first quarter of fiscal 2020 associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in the first quarter of fiscal 2020, which we do not consider in our evaluation of ongoing performance.

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

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Thirteen Weeks Ended July 3, 2021 Compared to Thirteen Weeks Ended June 27, 2020

Net sales

The following table summarizes our net sales for each of the thirteen weeks ended July 3, 2021 and June 27, 2020:

	July 3, 2021		% total		June 27, 2020		% total
TCS net sales	$	228,729	93.2	%	$	139,386	91.9	%
Elfa third party net sales		16,586	6.8	%		12,300	8.1	%
Net sales	$	245,315	100.0	%	$	151,686	100.0	%

Net sales in the thirteen weeks ended July 3, 2021 increased by $93,629, or 61.7%, compared to the thirteen weeks ended June 27, 2020. This increase was comprised of the following components:

	Net sales
Net sales for the thirteen weeks ended June 27, 2020	$	151,686
Incremental net sales increase due to:
TCS net sales (including an offset of $33,456, or 50.7%, in online sales)		89,343
Elfa third party net sales (excluding impact of foreign currency translation)		2,112
Impact of foreign currency translation on Elfa third party net sales		2,174
Net sales for the thirteen weeks ended July 3, 2021	$	245,315

The Company’s consolidated net sales for the thirteen weeks ended July 3, 2021 increased $93,629 or 61.7%, compared to the thirteen weeks ended June 27, 2020. TCS net sales increased $89,343 or 64.1%, with other product categories up 69.5%, contributing 3,500 basis points of the increase, and Custom Closets up 58.6%, contributing 2,910 basis points of the increase. Elfa third party net sales increased $4,286 or 34.8% in the thirteen weeks ended July 3, 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 July 3, 2021 and the thirteen weeks ended June 27, 2020, Elfa third party net sales increased $2,112 or 17.2%.

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 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 July 3, 2021 increased by $68,085, or 87.0%, compared to the thirteen weeks ended June 27, 2020. The increase in gross profit was primarily the result of increased consolidated sales combined with an increase in consolidated gross margin. The following table summarizes the gross margin for the thirteen weeks ended July 3, 2021 and June 27, 2020 by segment and total. The segment gross margins include the impact of intersegment net sales from the Elfa segment to the TCS segment:

	July 3, 2021		June 27, 2020
TCS gross margin	58.2	%	49.8	%
Elfa gross margin	36.6	%	42.7	%
Total gross margin	59.6	%	51.6	%

TCS gross margin increased 840 basis points primarily due to decreased shipping costs as a result of a lower mix of online sales combined with less promotional activity, partially offset by an unfavorable mix of lower margin product and service sales in the thirteen weeks ended July 3, 2021. Elfa gross margin decreased 610 basis points primarily due to higher direct material costs and unfavorable customer mix. In total, gross margin increased 800 basis points, primarily due to the increase in TCS gross margin during the thirteen weeks ended July 3, 2021, partially offset by the decrease in Elfa gross margin for the same period. We do not expect to see the same level of year over year gross margin

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improvement for the remainder of fiscal 2021, due to expected freight and shipping headwinds, along with expected higher commodity prices.

Selling, general and administrative expenses

Selling, general and administrative expenses in the thirteen weeks ended July 3, 2021 increased by $23,883, or 27.7%, compared to the thirteen weeks ended June 27, 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 July 3, 2021 and June 27, 2020:

	July 3, 2021		June 27, 2020
	% of Net sales		% of Net sales
TCS selling, general and administrative	41.8	%	52.8	%
Elfa selling, general and administrative	3.1	%	4.1	%
Total selling, general and administrative	44.9	%	56.9	%

Total selling, general and administrative expenses as a percentage of consolidated net sales decreased 1,200 basis points primarily due to leverage of occupancy, payroll, marketing and other costs on higher sales during the thirteen weeks ended July 3, 2021.

Interest expense

Interest expense decreased by $1,765, or 35.6%, in the thirteen weeks ended July 3, 2021 to $3,185, as compared to $4,950 in the thirteen weeks ended June 27, 2020. The decrease is primarily due to a lower principal balance on the Senior Secured Term Loan Facility (as defined below) and decreased borrowings on the Revolving Credit Facility (as defined below).

Taxes

The provision for income taxes in the thirteen weeks ended July 3, 2021 was $5,660 as compared to a benefit of $6,898 in the thirteen weeks ended June 27, 2020. The effective tax rate for the thirteen weeks ended July 3, 2021 was 24.3%, as compared to 29.3% in the thirteen weeks ended June 27, 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 July 3, 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 one new store opening in Annapolis, Maryland in the first quarter of fiscal 2021 and another 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 liquidity requirements, anticipated capital expenditures and payments due under our existing credit facilities for at least the next 12 months. In

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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 July 3, 2021, we had $10,512 of cash, of which $6,056 was held by our foreign subsidiaries. In addition, we had $96,830 of additional availability under the Revolving Credit Facility and approximately $12,426 of additional availability under the 2019 Elfa Revolving Facilities (as defined below) as of July 3, 2021. There were $4,248 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:

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Net cash provided by operating activities	$	3,737	$	25,614
Net cash used in investing activities		(7,561)		(3,907)
Net cash used in financing activities		(3,571)		(26,093)
Effect of exchange rate changes on cash		220		139
Net decrease in cash	$	(7,175)	$	(4,247)
Free cash flow (Non-GAAP) (1)	$	(3,829)	$	21,701

(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 (loss) 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 $3,737 for the thirteen weeks ended July 3, 2021 and was comprised of net income of $17,672 and non-cash items of $14,523, partially offset by a net change in operating assets and liabilities of $28,458. The net change in operating assets and liabilities is primarily due to an increase in merchandise inventory due to increased unit levels to support increased sales trends and to account for longer lead times resulting from supply chain disruptions, combined with a decrease in accounts payable and accrued liabilities.

Net cash provided by operating activities was $25,614 for the thirteen weeks ended June 27, 2020. The net change in operating assets and liabilities of $39,119 and non-cash items of $3,165, were partially offset by net loss of $16,670. The net change in operating assets and liabilities is primarily due to a decrease in merchandise inventory, combined with an increase in accounts payable and accrued liabilities as well as a decrease in cash operating lease payments. The decrease in merchandise inventory was due to a reduction in inventory purchases in light of the COVID-19 pandemic. The increase in accounts payable was primarily driven by 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 thirteen weeks ended July 3, 2021 were $7,566. We incurred capital expenditures of $3,765 for technology investments and maintenance capital. We incurred capital expenditures of $2,621 for

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investments in our existing stores and new stores. We opened one new store during the thirteen weeks ended July 3, 2021. The remaining capital expenditures of $1,180 related to investments in our distribution centers.

Our total capital expenditures for the thirteen weeks ended June 27, 2020 were $3,913. We incurred capital expenditures of $2,148 for maintenance capital and information technology investments. We incurred capital expenditures of $974 related to the distribution centers. The remaining capital expenditures of $791 were primarily related to investments in our existing stores. We did not open any new stores during the thirteen weeks ended June 27, 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 $3,571 for the thirteen weeks ended July 3, 2021. This included payments of $3,677 in taxes in connection with the withholding of shares upon vesting of restricted stock awards, and repayments of $550 on indebtedness outstanding under the Senior Secured Term Loan Facility and the 2019 Elfa Senior Secured Term Loan Facility, partially offset by borrowings of $430 on the 2019 Elfa Revolving Facilities and proceeds of $226 from the exercise of stock options.

Net cash used in financing activities was $26,093 for the thirteen weeks ended June 27, 2020. This included net repayments of $20,000 on the Revolving Credit Facility and net repayments of $3,948 for the 2019 Elfa Revolving Facilities. In addition, the Company made payments of $1,739 for repayment of long-term indebtedness, and $406 for taxes paid with the withholding of shares upon vesting of restricted stock awards.

As of July 3, 2021, TCS had a total of $96,830 of unused borrowing availability under the Revolving Credit Facility and zero borrowings outstanding.

As of July 3, 2021, Elfa had a total of $12,426 of unused borrowing availability under the 2019 Elfa Revolving Facilities and $423 borrowings outstanding.

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 negative free cash flow of $3,829 for the thirteen weeks ended July 3, 2021, which decreased as compared to positive free cash flow of $21,701 for the thirteen weeks ended June 27, 2020. The decrease in free cash flow in the first quarter of fiscal 2021 compared to the first quarter of fiscal 2020 reflects the many actions undertaken by the Company to preserve liquidity in the first quarter of fiscal 2020 as a result of COVID-19, including temporary reductions in inventory purchases, temporary extension of payment terms, and reduced capital

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expenditures. Additionally, during the first quarter 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 which approximately $2,200 remains deferred as of July 3, 2021, and the modification of certain lease terms for a substantial portion of our leased properties.

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:

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Net cash provided by operating activities	$	3,737	$	25,614
Less: Additions to property and equipment		(7,566)		(3,913)
Free cash flow	$	(3,829)	$	21,701

Senior Secured Term Loan Facility

On April 6, 2012, The Container Store Group, Inc., 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. As of March 31, 2021, 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 July 3, 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 July 3, 2021, the aggregate principal amount in outstanding borrowings under the Senior Secured Term Loan Facility was $165,607, 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 Container Store Group, Inc. 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 July 3, 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.

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

30

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 Container Store Group, Inc. 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 July 3, 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 $12,849 as of July 3, 2021) revolving credit facility (the “2019 Original Revolving Facility”), (ii) upon Elfa’s request, an additional SEK 115.0 million (approximately $13,433 as of July 3, 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 $2,920 as of July 3, 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%.

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

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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 July 3, 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 July 3, 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and

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procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of July 3, 2021.

Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended July 3, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims, including employment claims, wage and hour claims, intellectual property claims, contractual and commercial disputes and other matters that arise in the ordinary course of business. While the outcome of these and other claims cannot be predicted with certainty, management does not believe that the outcome of these matters will have a material adverse effect on our business, results of operations or financial condition on an individual basis or in the aggregate.

ITEM 1A. RISK FACTORS

There have been no material changes to our risk factors as previously disclosed in Item 1A of Part I of our 2020 Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File No.	Exhibit	Filing Date	Filed/ Furnished Herewith
3.1	Amended and Restated Certificate of Incorporation of The Container Store Group, Inc.	10-Q	001-36161	3.1	01/10/14
3.2	Amended and Restated Bylaws of The Container Store Group, Inc.	8-K	001-36161	3.1	11/12/20
10.1	Non-Employee Director Compensation Policy of The Container Store Group, Inc., third amended and restated as of April 6, 2021					*
10.2	Employment Agreement, dated April 22, 2021, between Dhritiman Saha and The Container Store Group, Inc.	10-K	001-36161	10.7	06/03/21
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a)					*
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a)					*
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350					**
32.2	Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350					**
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document					*
101.SCH	Inline XBRL Taxonomy Extension Schema Document					*
101.CAL	Inline XBRL Taxonomy Calculation Linkbase Document					*
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document					*

34

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	*
101.PRE	Inline XBRL Taxonomy Extension Presentation	*
104	Cover Page Interactive Data File – formatted as Inline XBRL and contained in Exhibit 101	*

*     Filed herewith.

**   Furnished herewith.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The Container Store Group, Inc.

(Registrant)

Date: August 4, 2021	\s\ Jeffrey A. Miller
	Jeffrey A. Miller
Chief Financial Officer (duly authorized officer and Principal Financial Officer)

Date: August 4, 2021	\s\ Kristin Schwertner
	Kristin Schwertner
Chief Accounting Officer (Principal Accounting Officer)

36

EX-10.1

Exhibit 10.1

THE CONTAINER STORE GROUP, Inc.

THIRD AMENDED AND RESTATED Non-Employee DIRECTOR COMPENSATION POLICY

Non-employee members of the board of directors (the “Board”) of The Container Store Group, Inc. (the “Company”) shall be eligible to receive cash and equity compensation as set forth in this Third Amended and Restated Non-Employee Director Compensation Policy (this “Policy”).  The cash and equity compensation described in this Policy shall be paid or be made, as applicable, automatically and without further action of the Board, to each member of the Board who is not an employee of the Company or any parent or subsidiary of the Company (each, a “Non-Employee Director”) who may be eligible to receive such cash or equity compensation, unless such Non-Employee Director declines the receipt of such cash or equity compensation by written notice to the Company.  This Policy shall remain in effect until it is revised or rescinded by further action of the Board.  This Policy may be amended, modified or terminated by the Board at any time in its sole discretion. The terms and conditions of this Policy shall supersede any prior cash and/or equity compensation arrangements for service as a member of the Board between the Company and any of its Non-Employee Directors.  No Non-Employee Director shall have any rights hereunder, except with respect to equity awards granted pursuant to the Policy.  This Policy shall become effective on April 6, 2021 (the “Effective Date”) and shall supersede any and all prior director compensation policies of the Company.

1.Cash Compensation.  

(a)Annual Retainers.  Each Non-Employee Director shall receive an annual retainer of $80,000 for service on the Board.  

(b)Additional Annual Retainers.  In addition, a Non-Employee Director shall receive the following annual retainers:

(i)  Chairperson.A Non-Employee Director serving as Chairperson of the Board shall receive an additional annual retainer of $75,000 for such service.

(ii) Lead Director.   A Non-Employee Director serving as Lead Director shall receive an additional annual retainer of $25,000 for such service.

(iii) Audit Committee.   A Non-Employee Director serving as Chairperson of the Audit Committee shall receive an additional annual retainer of $25,000 for such service.  

(iv)Culture and Compensation Committee.  A Non-Employee Director serving as Chairperson of the Compensation Committee shall receive an additional annual retainer of $20,000 for such service.  

(v) Nominating and Corporate Governance Committee.   A Non-Employee Director serving as Chairperson of the Nominating and Corporate Governance Committee shall receive an additional annual retainer of $15,000 for such service.

(vi)Committee Membership.  A Non-Employee Director serving as a member of any committee of the Board shall receive an additional annual retainer of $5,000 for each committee on which such member serves; provided, that, any Non-Employee Director serving as Chairperson of a committee shall not also receive this membership retainer.  

(vii)Payment of Retainers.  The annual retainers described in Sections 1(a) and 1(b) shall be earned on a quarterly basis based on a calendar quarter and shall be payable by the Company in advance each calendar quarter.  In the event that, following the Effective Date, a Non-Employee Director is initially elected or appointed to the Board (the date of such initial election or appointment, such Non-Employee Director’s “Start Date”) on any date other than the first day of a calendar quarter, such Non-Employee Director shall receive, on or as soon as practicable following such Non-Employee Director’s Start Date, a prorated portion of the retainer(s) otherwise payable to such Non-Employee Director for such quarter pursuant to Section 1(b), with such prorated portion determined by multiplying such otherwise payable retainer(s) by a fraction, the numerator of which is the number of days remaining from such Non-Employee Director’s Start Date until the end of the applicable calendar quarter and the denominator of which is the number of days in the applicable calendar quarter.

2.Equity Compensation.  Non-Employee Directors shall be granted the equity awards described below.  The awards described below shall be granted under and shall be subject to the terms and provisions of the Company’s Amended and Restated 2013 Incentive Award Plan or any other applicable Company equity incentive plan then-maintained by the Company (the “Equity Plan”) and shall be granted subject to the execution and delivery of award agreements, including attached exhibits, in substantially the forms previously approved by the Board.  All applicable terms of the Equity Plan apply to this Policy as if fully set forth herein, and all grants of equity awards hereby are subject in all respects to the terms of the Equity Plan.  

(a)Annual Awards.  A Non-Employee Director who (i) serves on the Board as of the date of any annual meeting of the Company’s stockholders (an “Annual Meeting”) after the Effective Date and (ii) will continue to serve as a Non-Employee Director immediately following such Annual Meeting shall be automatically granted an equity award with respect to shares of Company common stock in the form of stock options, restricted shares or restricted stock units, as determined by the Board, that has a value on the date of grant of $130,000 (with the number of shares subject to such award subject to adjustment as provided in the Equity Plan) on the date of such Annual Meeting.  The awards described in this Section 2(a) shall be referred to as “Annual Awards.”  For the avoidance of doubt, a Non-Employee Director elected for the first time to the Board at an Annual Meeting shall only receive an Annual Award in connection with such election, and shall not receive any Initial Award on the date of such Annual Meeting as well.  For purposes of this Section 2(a) and Section 2(b), the value of stock options shall be equal to the Black-Scholes value and the value of restricted shares and restricted stock units shall be equal to the aggregate Fair Market Value (as defined in the Equity Plan) of the shares subject to such awards on the date such awards are granted.

(b)  Initial Awards.  Except as otherwise determined by the Board, each Non-Employee Director who is initially elected or appointed to the Board after the Effective Date and on a date other than the date of an Annual Meeting shall be automatically granted, on such Non-Employee Director’s Start Date, an equity award with respect to shares of Company common stock in the form of stock options, restricted shares or restricted stock units, as determined by the Board, that has a value on such Non-Employee Director’s Start Date equal to the product of (i) $130,000 and (ii) a fraction, the numerator of which is (x) 365 minus (y) the number of days in the period beginning on the date of the Annual Meeting immediately preceding such Non-Employee Director’s Start Date and ending on such Non-Employee Director’s Start Date and the denominator of which is 365 (with the number of shares subject to such award subject to adjustment as provided in the Equity Plan). The awards described in this Section 2(b) shall be referred to as “Initial Awards.”  No Non-Employee Director shall be granted more than one Initial Award.

2

(c)Termination of Service of Employee Directors.  Each member of the Board who is an employee of the Company or any parent or subsidiary of the Company whose employment with the Company and any parent or subsidiary of the Company is terminated but who remains on the Board (and becomes a Non-Employee Director) following such termination of employment will receive an Initial Award pursuant to Section 2(b) above on the date of his or her termination of employment (which shall be considered such Non-Employee Director’s Start Date for purposes of such Initial Award) and, to the extent that he or she is otherwise eligible, will receive, after such termination of employment, Annual Awards as described in Section 2(a) above.

(d)Terms of Awards Granted to Non-Employee Directors

(i)  Purchase Price.  If the Initial Award or Annual Award is granted in the form of stock options, the per share exercise price of each such option granted to a Non-Employee Director shall equal the Fair Market Value of a share of Company common stock on the date the option is granted.

(ii)Vesting.  Each Annual Award and each Initial Award shall vest (and, in the case of options, become exercisable) on the earlier of (x) the day immediately preceding the date of the first Annual Meeting following the date of grant and (y) the first anniversary of the date of grant.

No portion of an Annual Award or Initial Award that is unvested or unexercisable at the time of a Non-Employee Director’s Termination of Service (as defined in the Equity Plan) shall become vested and exercisable, respectively, thereafter.  All of a Non-Employee Director’s Annual Awards and Initial Awards shall vest (and, in the case of options, become exercisable) in full immediately prior to the occurrence of a Change in Control (as defined in the Equity Plan), to the extent outstanding at such time.

(iii)Term.  The term of each stock option granted to a Non-Employee Director shall be ten (10) years from the date the option is granted.

* * * * *

3

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Satish Malhotra, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of The Container Store Group, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2021	/s/ Satish Malhotra
	Satish Malhotra
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Jeffrey A. Miller, certify that:

1.    I have reviewed this Quarterly Report on Form 10-Q of The Container Store Group, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)    Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2021	/s/ Jeffrey A. Miller
	Jeffrey A. Miller
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Satish Malhotra, Chief Executive Officer of The Container Store Group, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)  The Quarterly Report on Form 10-Q of the Company for the period ended July 3, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 4, 2021	/s/ Satish Malhotra
	Satish Malhotra
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey A. Miller, Chief Financial Officer of The Container Store Group, Inc. (the “Company”), hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)  The Quarterly Report on Form 10-Q of the Company for the period ended July 3, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 4, 2021	/s/ Jeffrey A. Miller
	Jeffrey A. Miller
	Chief Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Jul. 03, 2021	Jul. 30, 2021
Document and Entity Information
Document Quarterly Report	true
Document Transition Report	false
Entity File Number	001-36161
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	26-0565401
Entity Address, Address Line One	500 Freeport Parkway
Entity Address, City or Town	Coppell
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	75019
City Area Code	972
Local Phone Number	538-6000
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	TCS
Security Exchange Name	NYSE
Entity Registrant Name	Container Store Group, Inc.
Entity Central Index Key	0001411688
Current Fiscal Year End Date	--04-02
Document Fiscal Year Focus	2021
Document Type	10-Q
Document Period End Date	Jul. 03, 2021
Entity Interactive Data Current	Yes
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Common Stock Outstanding		50,527,102
Document Fiscal Period Focus	Q1
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false

XML

Consolidated balance sheets - USD ($) $ in Thousands	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020
Current assets:
Cash	$ 10,512	$ 17,687	$ 63,508
Accounts receivable, net	29,292	28,949	25,369
Inventory	145,041	130,619	109,182
Prepaid expenses	12,767	11,429	8,632
Income taxes receivable	93	93	3,391
Other current assets	17,538	14,547	14,235
Total current assets	215,243	203,324	224,317
Noncurrent assets:
Property and equipment, net	130,600	131,884	141,504
Noncurrent operating lease right-of-use assets	303,232	307,147	311,911
Goodwill	202,815	202,815	202,815
Trade names	228,416	227,669	225,100
Deferred financing costs, net	243	255	153
Noncurrent deferred tax assets, net	1,026	2,305	2,411
Other assets	2,951	3,070	2,250
Total noncurrent assets	869,283	875,145	886,144
Total assets	1,084,526	1,078,469	1,110,461
Current liabilities:
Accounts payable	68,209	68,546	51,656
Accrued liabilities	80,205	86,551	75,962
Current borrowings on revolving lines of credit	423		5,533
Current portion of long-term debt	2,155	2,166	6,952
Current operating lease liabilities	48,976	50,847	53,165
Income taxes payable	9,938	6,803	198
Total current liabilities	209,906	214,913	193,466
Noncurrent liabilities:
Long-term debt	163,745	163,818	296,209
Noncurrent operating lease liabilities	280,053	285,022	301,399
Noncurrent deferred tax liabilities, net	48,972	48,923	45,053
Other long-term liabilities	12,302	12,124	11,304
Total noncurrent liabilities	505,072	509,887	653,965
Total liabilities	714,978	724,800	847,431
Commitments and contingencies (Note 6)
Shareholders' equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 49,417,215 shares issued at July 3, 2021; 48,838,261 shares issued at April 3, 2021; 48,491,369 shares issued at June 27, 2020	494	488	485
Additional paid-in capital	870,460	873,048	867,332
Accumulated other comprehensive loss	(18,214)	(19,003)	(28,970)
Retained deficit	(483,192)	(500,864)	(575,817)
Total shareholders' equity	369,548	353,669	263,030
Total liabilities and shareholders' equity	$ 1,084,526	$ 1,078,469	$ 1,110,461

XML

Consolidated balance sheets (Parenthetical) - $ / shares	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020
Consolidated balance sheets
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01
Common stock, shares authorized	250,000,000	250,000,000	250,000,000
Common stock, shares issued	49,417,215	48,838,261	48,491,369

XML

Consolidated statements of operations - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Consolidated statements of operations
Net sales	$ 245,315	$ 151,686
Cost of sales (excluding depreciation and amortization)	98,991	73,447
Gross profit	146,324	78,239
Selling, general, and administrative expenses (excluding depreciation and amortization)	110,148	86,265
Stock-based compensation	869	832
Pre-opening costs	594	9
Depreciation and amortization	8,201	8,949
Other expenses		809
Gain on disposal of assets	(5)	(7)
Income (loss) from operations	26,517	(18,618)
Interest expense, net	3,185	4,950
Income (loss) before taxes	23,332	(23,568)
Provision (benefit) for income taxes	5,660	(6,898)
Net income (loss)	$ 17,672	$ (16,670)
Net income (loss) per common share - basic	$ 0.36	$ (0.34)
Net income (loss) per common share - diluted	$ 0.35	$ (0.34)
Weighted-average common shares - basic	49,080,897	48,389,205
Weighted-average common shares - diluted	50,448,216	48,389,205

XML

Consolidated statements of comprehensive income (loss) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Consolidated statements of comprehensive income (loss)
Net income (loss)	$ 17,672	$ (16,670)
Unrealized gain on financial instruments, net of tax provision of $51, and $1,393	143	3,961
Pension liability adjustment	(57)	(219)
Foreign currency translation adjustment	703	3,583
Comprehensive income (loss)	$ 18,461	$ (9,345)

XML

Consolidated statements of comprehensive income (loss) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Consolidated statements of comprehensive income (loss)
Unrealized gain on financial instruments, net of tax provision of $51, and $1,393	$ 51	$ 1,393

XML

Consolidated statements of cash flows - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Operating activities
Net income (loss)	$ 17,672	$ (16,670)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	8,201	8,949
Stock-based compensation	869	832
Gain on disposal of assets	(5)	(7)
Deferred tax expense (benefit)	5,097	(7,178)
Non-cash interest	470	465
Other	(109)	104
Changes in operating assets and liabilities:
Accounts receivable	110	204
Inventory	(14,494)	16,085
Prepaid expenses and other assets	(4,183)	(1,841)
Accounts payable and accrued liabilities	(5,738)	11,651
Net change in lease assets and liabilities	(2,926)	9,851
Income taxes	(1,265)	1,560
Other noncurrent liabilities	38	1,609
Net cash provided by operating activities	3,737	25,614
Investing activities
Additions to property and equipment	(7,566)	(3,913)
Proceeds from sale of property and equipment	5	6
Net cash used in investing activities	(7,561)	(3,907)
Financing activities
Borrowings on revolving lines of credit	430	11,340
Payments on revolving lines of credit		(15,288)
Borrowings on long-term debt	5,000
Payments on long-term debt	(5,550)	(21,739)
Payment of taxes with shares withheld upon restricted stock vesting	(3,677)	(406)
Proceeds from the exercise of stock options	226
Net cash used in financing activities	(3,571)	(26,093)
Effect of exchange rate changes on cash	220	139
Net decrease in cash	(7,175)	(4,247)
Cash at beginning of fiscal period	17,687	67,755
Cash at end of fiscal period	10,512	63,508
Supplemental information for non-cash investing:
Purchases of property and equipment (included in accounts payable)	$ 947	$ 407

XML

Consolidated statements of shareholders' equity - USD ($) $ in Thousands	Common stock	Additional paid-in capital	Accumulated other comprehensive (loss) income	Retained deficit	Total
Common stock, par value (in dollars per share)					$ 0.01
Balance at the beginning of period at Mar. 28, 2020	$ 483	$ 866,667	$ (36,295)	$ (559,147)	$ 271,708
Balance (in shares) at Mar. 28, 2020	48,316,559
Increase (Decrease) in Stockholders' Equity
Net income (loss)				(16,670)	(16,670)
Stock-based compensation		832			832
Vesting of restricted stock awards	$ 2	(2)
Vesting of restricted stock awards (in shares)	174,758
Taxes related to net share settlement of restricted stock awards		(165)			(165)
Foreign currency translation adjustment			3,583		3,583
Unrealized gain on financial instruments, net of tax provision			3,961		3,961
Pension liability adjustment, net of tax provision			219		219
Balance at the end of period at Jun. 27, 2020	$ 485	867,332	(28,970)	(575,817)	$ 263,030
Balance (in shares) at Jun. 27, 2020	48,491,317
Common stock, par value (in dollars per share)					$ 0.01
Common stock, par value (in dollars per share)					$ 0.01
Balance at the beginning of period at Apr. 03, 2021	$ 488	873,048	(19,003)	(500,864)	$ 353,669
Balance (in shares) at Apr. 03, 2021	48,838,261
Increase (Decrease) in Stockholders' Equity
Net income (loss)				17,672	17,672
Stock-based compensation		869			869
Vesting of restricted stock awards	$ 5	(5)			0
Vesting of restricted stock awards (in shares)	526,771
Taxes related to net share settlement of restricted stock awards		(3,677)			(3,677)
Foreign currency translation adjustment			703		703
Unrealized gain on financial instruments, net of tax provision			143		143
Pension liability adjustment, net of tax provision			57		57
Stock option exercises	$ 1	225			226
Stock option exercises (in shares)	52,183
Balance at the end of period at Jul. 03, 2021	$ 494	$ 870,460	$ (18,214)	$ (483,192)	$ 369,548
Balance (in shares) at Jul. 03, 2021	49,417,215
Common stock, par value (in dollars per share)					$ 0.01

XML

Consolidated statements of shareholders' equity (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020	Apr. 03, 2021	Mar. 28, 2020
Consolidated statements of shareholders' equity
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01	$ 0.01	$ 0.01
Unrealized gain (loss) on financial instruments, net of tax provision	$ 51	$ 1,393

XML

Description of business and basis of presentation

3 Months Ended

Jul. 03, 2021

Description of business and basis of presentation

Description of business and basis of presentation

The Container Store Group, Inc.

Notes to consolidated financial statements (unaudited)

(In thousands, except share amounts and unless otherwise stated)

July 3, 2021

1. Description of business and basis of presentation

These financial statements should be read in conjunction with the financial statement disclosures in our Annual Report on Form 10-K for the fiscal year ended April 3, 2021, filed with the Securities and Exchange Commission (“SEC”) on June 3, 2021 (the “2020 Annual Report on Form 10-K”). The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). We use the same accounting policies in preparing quarterly and annual financial statements. All adjustments necessary for a fair presentation of quarterly operating results are reflected herein and are of a normal, recurring nature. Certain items in these consolidated financial statements have been reclassified to conform to the current period presentation.

All references herein to “fiscal 2021” refer to the 52-week fiscal year ending April 2, 2022, “fiscal 2020” refer to the 53-week fiscal year ended April 3, 2021, and “fiscal 2019” refer to the 52-week fiscal year ended March 28, 2020.

Description of business

The Container Store, Inc. was founded in 1978 in Dallas, Texas, as a retailer with a mission to provide customers with storage and organization solutions through an assortment of innovative products and unparalleled customer service. In 2007, The Container Store, Inc. was sold to The Container Store Group, Inc. (the “Company”), a holding company, of which a majority stake was purchased by Leonard Green and Partners, L.P. (“LGP”). On November 6, 2013, the Company completed its initial public offering (the “IPO”), at which time LGP held a controlling interest in the Company as the majority shareholder. During fiscal 2020, LGP sold common stock of the Company, reducing their ownership to less than 50% of the Company’s outstanding common stock. Although LGP is no longer the majority shareholder, LGP continues to have significant influence over the Company. As of July 3, 2021, The Container Store, Inc. (“TCS”) operates 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. The Container Store, Inc. also offers all of its products directly to its customers (including business customers), through its website, mobile site, call center, and in-home design consultants. The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), designs and manufactures component-based shelving and drawer systems and made-to-measure sliding doors. elfa^® branded products are sold exclusively in the United States in The Container Store retail stores, website and call center, and Elfa sells to various retailers on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe.

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. During the first quarter of fiscal 2021, all stores were open. 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 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.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirteen weeks ended July 3, 2021 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter,

attributable primarily to the timing and impact of Our Annual elfa^® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

In July 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard in the first quarter of fiscal 2021 did not result in a material impact to the Company’s financial statements.

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Detail of certain balance sheet accounts

3 Months Ended

Jul. 03, 2021

Detail of certain balance sheet accounts

Detail of certain balance sheet accounts

2.  Detail of certain balance sheet accounts

	July 3,		April 3,		June 27,
	2021		2021		2020
Accounts receivable, net:
Trade receivables, net	$	16,801	$	18,784	$	14,678
Credit card receivables		10,362		8,445		9,297
Other receivables		2,129		1,720		1,394
	$	29,292	$	28,949	$	25,369
Inventory:
Finished goods	$	140,171	$	126,311	$	103,880
Raw materials		4,235		3,614		4,697
Work in progress		635		694		605
	$	145,041	$	130,619	$	109,182
Accrued liabilities:
Accrued payroll, benefits and bonuses	$	24,831	$	30,028	$	20,214
Unearned revenue		21,579		19,503		14,554
Accrued transaction and property tax		13,536		15,660		13,099
Gift cards and store credits outstanding		10,340		9,862		9,035
Accrued lease liabilities		34		34		1,311
Accrued interest		91		95		2,633
Accrued sales returns		3,428		3,381		8,165
Other accrued liabilities		6,366		7,988		6,951
	$	80,205	$	86,551	$	75,962

Contract balances as a result of transactions with customers primarily consist of trade receivables included in Accounts receivable, net, Unearned revenue included in Accrued liabilities, and Gift cards and store credits outstanding included in Accrued liabilities in the Company's Consolidated Balance Sheets provided above. Unearned revenue was $19,503 as of April 3, 2021, and $17,292 was subsequently recognized into revenue for the thirteen weeks ended July 3, 2021. Gift cards and store credits outstanding was $9,862 as of April 3, 2021, and $1,276 was subsequently recognized into revenue for the thirteen weeks ended July 3, 2021. See Note 10 for disaggregated revenue disclosures.

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Leases

3 Months Ended

Jul. 03, 2021

Leases

Leases

3. Leases

We conduct all of our U.S. operations from leased facilities that include corporate headquarters, warehouse facilities, and 94 store locations. The corporate headquarters, warehouse facilities, and stores are under operating leases that generally expire over the next 1 to 20 years. In most cases, management expects that in the normal course of business, leases will be renewed or replaced by other leases. The Company also has finance leases at our Elfa segment that are immaterial.

Lease expense on operating leases is recorded on a straight-line basis over the term of the lease, commencing on the date the Company takes possession of the leased property and is recorded in selling, general and administrative expenses (“SG&A”).

We consider lease payments that cannot be predicted with reasonable certainty upon lease commencement to be variable lease payments, which are recorded as incurred each period and are excluded from our calculation of lease liabilities. Our variable lease payments include lease payments that are based on a percentage of sales.

Upon lease commencement, we recognize the lease liability measured at the present value of the fixed future minimum lease payments. We have elected the practical expedient to not separate lease and non-lease components. Therefore, lease payments included in the measurement of the lease liability include all fixed payments in the lease arrangement.

We record a right-of-use asset for an amount equal to the lease liability, increased for any prepaid lease costs and initial direct costs and reduced by any lease incentives. We remeasure the lease liability and right-of-use asset when a change to our future minimum lease payments occurs. Key assumptions and judgments included in the determination of the lease liability include the discount rate applied to present value the future lease payments and the exercise of renewal options.

Many of our leases contain renewal options. The option periods are generally not included in the lease term used to measure our lease liabilities and right-of-use assets upon commencement as exercise of the options is not reasonably certain. We remeasure the lease liability and right-of-use asset when we are reasonably certain to exercise a renewal option.

During the first quarter 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 which approximately $2,200 remains deferred as of July 3, 2021, and the modification of certain lease terms for a substantial portion of our leased properties.

Discount Rate

Our leases do not provide information about the rate implicit in the lease. Therefore, we utilize an incremental borrowing rate to calculate the present value of our future lease obligations. The incremental borrowing rate represents the rate of interest we would have to pay on a collateralized borrowing, for an amount equal to the lease payments, over a similar term and in a similar economic environment.

The components of lease costs for the thirteen weeks ended July 3, 2021 and June 27, 2020 were as follows:

		Thirteen Weeks Ended
		July 3, 2021		June 27, 2020
Operating lease costs	$	21,840	$	22,500
Variable lease costs		300		32
Total lease costs	$	22,140	$	22,532

We do not have sublease income and do not recognize lease assets or liabilities for short-term leases, defined as operating leases with initial terms of less than 12 months. Our short-term lease costs were not material for the thirteen weeks ended July 3, 2021 and June 27, 2020.

Supplemental cash flow information related to our leases for the thirteen weeks ended July 3, 2021 and June 27, 2020 were as follows:

		Thirteen Weeks Ended
		July 3, 2021		June 27, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	25,179	$	11,434
Additions to right-of-use assets	$	6,678	$	28,943

Weighted average remaining operating lease term and incremental borrowing rate as of July 3, 2021 and June 27, 2020 were as follows:

	Thirteen Weeks Ended
	July 3, 2021		June 27, 2020
Weighted average remaining lease term (years)	6.7		7.1
Weighted average incremental borrowing rate	13.4	%	14.5	%

As of July 3, 2021, future minimum lease payments under our operating lease liabilities were as follows:

	Operating leases (1)
Within 1 year (remaining)	$	68,535
2 years		83,978
3 years		76,920
4 years		69,148
5 years		59,682
Thereafter		153,166
Total lease payments	$	511,429
Less amount representing interest		(182,400)
Total lease liability	$	329,029
Less current lease liability		(48,976)
Total noncurrent lease liability	$	280,053

(1) Operating lease payments exclude approximately $4,194 of legally binding minimum lease payments for leases signed but not yet commenced.

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Net income per common share

3 Months Ended

Jul. 03, 2021

Net income per common share

Net income per common share

4. Net income (loss) per common share

Basic net income (loss) per common share is computed as net income (loss) divided by the weighted-average number of common shares for the period. Net income (loss) per common share – diluted is computed as net income (loss) divided by the weighted-average number of common shares for the period plus common stock equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the average market price of the Company’s common stock for the period, to the extent their inclusion would be dilutive. Potentially dilutive securities are excluded from the computation of net income (loss) per common share – diluted if their effect is anti-dilutive.

The following is a reconciliation of net income (loss) and the number of shares used in the basic and diluted net income (loss) per common share calculations:

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Numerator:
Net income (loss)	$	17,672	$	(16,670)
Denominator:
Weighted-average common shares — basic		49,080,897		48,389,205
Nonvested restricted stock awards and other dilutive securities		1,367,319		—
Weighted-average common shares — diluted		50,448,216		48,389,205
Net income (loss) per common share — basic	$	0.36	$	(0.34)
Net income (loss) per common share — diluted		0.35		(0.34)
Antidilutive securities not included:
Stock options outstanding		1,658,924		2,545,383
Nonvested restricted stock awards		33,400		674,176

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Income taxes

3 Months Ended

Jul. 03, 2021

Income taxes

Income taxes

5.  Income taxes

The provision for income taxes in the thirteen weeks ended July 3, 2021 was $5,660 as compared to a benefit of $6,898 in the thirteen weeks ended June 27, 2020. The effective tax rate for the thirteen weeks ended July 3, 2021 was 24.3%, as compared to 29.3% in the thirteen weeks ended June 27, 2020. During the thirteen weeks ended July 3, 2021, the effective tax rate rose above the U.S. statutory rate of 21%, primarily due to U.S. state income taxes, and the impact of the global intangible low-taxed income ("GILTI") provision. During the thirteen weeks ended June 27, 2020, the

effective tax rate rose above the U.S. statutory rate, primarily due to stock-based compensation, U.S. state income taxes, and the impact of the GILTI provision.

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Commitments and contingencies

3 Months Ended

Jul. 03, 2021

Commitments and contingencies

Commitments and contingencies

6.  Commitments and contingencies

In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $4,248 as of July 3, 2021.

The Company is subject to ordinary litigation and routine reviews by regulatory bodies that are incidental to its business, none of which is expected to have a material adverse effect on the Company’s financial condition, results of operations, or cash flows on an individual basis or in the aggregate.

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Accumulated other comprehensive income

3 Months Ended

Jul. 03, 2021

Accumulated other comprehensive income

Accumulated other comprehensive income

7.  Accumulated other comprehensive loss

Accumulated other comprehensive loss (“AOCL”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCL, net of tax, are shown below for the thirteen weeks ended July 3, 2021:

	Foreign
	currency		Pension		Foreign
	hedge		liability		currency
	instruments		adjustment		translation		Total
Balance at April 3, 2021	$	3,174	$	(2,415)	$	(19,762)	$	(19,003)
Other comprehensive income (loss) before reclassifications, net of tax		876		(57)		703		1,522
Amounts reclassified to earnings, net of tax		(733)		—		—		(733)
Net current period other comprehensive income (loss)		143		(57)		703		789
Balance at July 3, 2021	$	3,317	$	(2,472)	$	(19,059)	$	(18,214)

Amounts reclassified from AOCL to earnings for the foreign currency forward contracts category are generally included in cost of sales in the Company’s consolidated statements of operations. For a description of the Company’s use of foreign currency forward contracts, refer to Note 8.

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Foreign currency forward contracts

3 Months Ended

Jul. 03, 2021

Foreign currency forward contracts.

Foreign currency forward contracts

8.  Foreign currency forward contracts

The Company’s international operations and purchases of inventory products from foreign suppliers are subject to certain opportunities and risks, including foreign currency fluctuations. In the TCS segment, we utilize foreign currency forward contracts in Swedish krona to stabilize our retail gross margins and to protect our domestic operations from downward currency exposure by hedging purchases of inventory from our wholly-owned subsidiary, Elfa. Forward contracts in the TCS segment are designated as cash flow hedges, as defined by ASC 815. In the Elfa segment, we utilize foreign currency forward contracts to hedge purchases, primarily of raw materials, that are transacted in currencies other than Swedish krona, which is the functional currency of Elfa. Forward contracts in the Elfa segment are economic hedges and are not designated as cash flow hedges as defined by ASC 815.

During the thirteen weeks ended July 3, 2021 and June 27, 2020, the TCS segment used forward contracts for 82% and 63% of inventory purchases in Swedish krona, respectively. Generally, the Company’s foreign currency forward contracts have terms from 1 to 12 months and require the Company to exchange currencies at agreed-upon rates at settlement.

The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company does not hold or enter into financial instruments for trading or speculative purposes. The Company records its foreign currency forward contracts on a gross basis and generally does not require collateral from these counterparties because it does not expect any losses from credit exposure.

The Company records all foreign currency forward contracts on its consolidated balance sheet at fair value. The Company accounts for its foreign currency hedging instruments in the TCS segment as cash flow hedges, as defined. Changes in the fair value of the foreign currency hedging instruments that are considered to be effective, as defined, are recorded in other comprehensive loss until the hedged item (inventory) is sold to the customer, at which time the deferred gain or loss is recognized through cost of sales. Any portion of a change in the foreign currency hedge instrument’s fair value that is considered to be ineffective, as defined, or that the Company has elected to exclude from its measurement of effectiveness, is immediately recorded in earnings as cost of sales. The Company assessed the effectiveness of the foreign currency hedge instruments and determined the foreign currency hedge instruments were highly effective during the thirteen weeks ended July 3, 2021 and June 27, 2020. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as SG&A on the consolidated statements of operations; however, during the thirteen weeks ended July 3, 2021, the Company did not recognize any amount associated with the change in fair value of forward contracts not designated as hedging instruments, as the Company had none of these instruments outstanding.

The Company had a $3,317 gain in accumulated other comprehensive loss related to foreign currency hedge instruments at July 3, 2021, of which $834 represents an unrealized gain for settled foreign currency hedge instruments related to inventory on hand as of July 3, 2021. The Company expects the unrealized gain of $834, net of taxes, to be reclassified into earnings over the next 12 months as the underlying inventory is sold to the end customer.

The change in fair value of the Company’s foreign currency hedge instruments that qualify as cash flow hedges and are included in accumulated other comprehensive loss, net of taxes, are presented in Note 7 of these financial statements.

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Fair value measurements

3 Months Ended

Jul. 03, 2021

Fair value measurements

Fair value measurements

9.  Fair value measurements

Under GAAP, the Company is required to a) measure certain assets and liabilities at fair value or b) disclose the fair values of certain assets and liabilities recorded at cost. Accounting standards define fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date. Fair value is calculated assuming the transaction occurs in the principal or most advantageous market for the asset or liability and includes consideration of non-performance risk and credit risk of both parties. Accounting standards pertaining to fair value establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value. These tiers include:

● Level 1—Valuation inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

● Level 2—Valuation inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3—Valuation inputs are unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques that include option pricing models, discounted cash flow models and similar techniques.

As of July 3, 2021, April 3, 2021 and June 27, 2020, the Company held certain items that are required to be measured at fair value on a recurring basis. These included foreign currency forward contracts which the Company uses to stabilize its retail gross margins and to protect its operations from downward currency exposure and the nonqualified retirement plan, which consists of investments purchased by employee contributions to retirement savings accounts. The fair value amount of the nonqualified retirement plan is measured at fair value using the net asset value per share practical expedient, and therefore, is not classified in the fair value hierarchy. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of contracts it holds.

The following items are measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820, Fair Value Measurements:

			July 3,		April 3,		June 27,
Description		Balance Sheet Location	2021		2021		2020
Assets
Nonqualified retirement plan	N/A	Other current assets	$	6,089	$	5,707	$	5,350
Foreign currency forward contracts	Level 2	Other current assets		3,360		2,906		—
Total assets			$	9,449	$	8,613	$	5,350

The fair value of long-term debt was estimated using quoted prices as well as recent transactions for similar types of borrowing arrangements (Level 2 valuations). As of July 3, 2021, April 3, 2021 and June 27, 2020, the estimated fair value of the Company’s long-term debt, including current maturities, was as follows:

	July 3,		April 3,		June 27,
	2021		2021		2020
Senior secured term loan facility	$	175,088	$	174,064	$	206,728
2019 Elfa revolving facilities		423		—		5,533
Obligations under finance leases		293		335		254
Revolving credit facility		—		—		58,000
Total fair value of debt		175,804		174,399		270,515

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Segment reporting

3 Months Ended

Jul. 03, 2021

Segment reporting

Segment reporting

10.  Segment reporting

The Company’s reportable segments were determined on the same basis as how management evaluates performance internally by the Chief Operating Decision Maker (“CODM”). The Company has determined that the Chief Executive Officer is the CODM and the Company’s two reportable segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation and organization services business.

The Elfa segment includes the manufacturing business that produces the elfa® brand products that are sold domestically exclusively through the TCS segment, as well as on a wholesale basis in approximately 30 countries around the world, with a concentration in the Nordic region of Europe. The intersegment sales in the Elfa column represent elfa® product sales to the TCS segment. These sales and the related gross margin on merchandise recorded in TCS inventory balances at the end of the period are eliminated for consolidation purposes in the Eliminations column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

The Company has determined that adjusted earnings before interest, tax, depreciation, and amortization (“Adjusted EBITDA”) is the profit or loss measure that the CODM uses to make resource allocation decisions and evaluate segment performance.

Adjusted EBITDA assists management in comparing our performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect our core operations and, therefore, are not included in measuring segment performance. Adjusted EBITDA is calculated in accordance with the Senior Secured Term Loan Facility and the Revolving Credit Facility and we define Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, certain non-cash items, and other adjustments that we do not consider in our evaluation of ongoing operating performance from period to period.

Thirteen Weeks Ended July 3, 2021	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	228,729	$	16,586	$	—	$	245,315
Intersegment sales		—		15,693		(15,693)		—
Adjusted EBITDA		27,968		4,097		1,437		33,502
Interest expense, net		3,123		62		—		3,185
Assets (1)		985,454		105,386		(6,314)		1,084,526

Thirteen Weeks Ended June 27, 2020	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	139,386	$	12,300	$	—	$	151,686
Intersegment sales		—		8,691		(8,691)		—
Adjusted EBITDA		1,725		2,937		(199)		4,463
Interest expense, net		4,848		102		—		4,950
Assets (1)		1,016,425		100,834		(6,798)		1,110,461

(1) Tangible assets in the Elfa column are located outside of the United States.

A reconciliation of income (loss) before taxes to Adjusted EBITDA is set forth below:

		Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Income (loss) before taxes	$	23,332	$	(23,568)
Add:
Depreciation and amortization		8,201		8,949
Interest expense, net		3,185		4,950
Pre-opening costs (a)		594		9
Non-cash lease expense (b)		(3,355)		11,138
Stock-based compensation (c)		869		832
Management transition costs (d)		473		—
Foreign exchange losses (e)		11		121
COVID-19 costs (f)		192		1,223
COVID-19 severance (g)		—		809
Adjusted EBITDA	$	33,502	$	4,463

(a) Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. Non-cash lease expense increased during the first quarter 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 which approximately $2,200 remains deferred as of July 3, 2021.

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

(d) Costs related to the transition of key executives including severance and 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.

(f) Includes incremental costs attributable to the COVID-19 pandemic, which consist of sanitization costs in the first quarter of fiscal 2021 and 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.

(g) Includes costs incurred in the first quarter of fiscal 2020 associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in the first quarter of fiscal 2020, which we do not consider in our evaluation of ongoing performance.

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Stock-based compensation

3 Months Ended

Jul. 03, 2021

Stock-based compensation

Stock-based compensation

11. Stock-based compensation 

On June 1, 2021, the Company granted time-based and performance-based restricted stock awards under the Company’s Amended and Restated 2013 Incentive Award Plan to certain officers and employees of the Company. The total number of restricted shares granted was 335,719 with a grant-date fair value of $13.22 per share. The time-based restricted stock awards will vest over 3 years. The performance-based restricted stock awards vest based on achievement of fiscal 2021 performance targets and are also subject to time-based vesting requirements over 3 years. 

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Nature of business and summary of significant accounting policies (Policies)

3 Months Ended

Jul. 03, 2021

Description of business and basis of presentation

Business Update Related to Coronavirus

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. During the first quarter of fiscal 2021, all stores were open. 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 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.

Seasonality

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirteen weeks ended July 3, 2021 are not necessarily indicative of the operating results for the full year. The Company has historically realized a higher portion of net sales, operating income, and cash flows from operations in the fourth fiscal quarter,

attributable primarily to the timing and impact of Our Annual elfa^® Sale, which traditionally starts in late December and runs into February.

Recent accounting pronouncements

Recent accounting pronouncements

In July 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 changes how to recognize expected credit losses on financial assets. The standard requires a more timely recognition of credit losses on loans and other financial assets and also provides additional transparency about credit risk. The current credit loss standard generally requires that a loss actually be incurred before it is recognized, while the new standard will require recognition of full lifetime expected losses upon initial recognition of the financial instrument. Originally, ASU 2016-13 was effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. An entity should apply the standard by recording a cumulative effect adjustment to retained earnings upon adoption. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is planning to adopt this standard in the first quarter of fiscal 2023. The adoption of this standard is not expected to result in a material impact to the Company’s financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, with early adoption permitted. The adoption of this standard in the first quarter of fiscal 2021 did not result in a material impact to the Company’s financial statements.

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Leases (Tables)

3 Months Ended

Jul. 03, 2021

Leases

Schedule of components of lease costs

The components of lease costs for the thirteen weeks ended July 3, 2021 and June 27, 2020 were as follows:

		Thirteen Weeks Ended
		July 3, 2021		June 27, 2020
Operating lease costs	$	21,840	$	22,500
Variable lease costs		300		32
Total lease costs	$	22,140	$	22,532

Schedule of supplemental cash flow information

Supplemental cash flow information related to our leases for the thirteen weeks ended July 3, 2021 and June 27, 2020 were as follows:

		Thirteen Weeks Ended
		July 3, 2021		June 27, 2020
Cash paid for amounts included in the measurement of operating lease liabilities	$	25,179	$	11,434
Additions to right-of-use assets	$	6,678	$	28,943

Schedule of weighted average remaining operating lease term and incremental borrowing rate

Weighted average remaining operating lease term and incremental borrowing rate as of July 3, 2021 and June 27, 2020 were as follows:

	Thirteen Weeks Ended
	July 3, 2021		June 27, 2020
Weighted average remaining lease term (years)	6.7		7.1
Weighted average incremental borrowing rate	13.4	%	14.5	%

Schedule of future minimum lease payments under our operating lease liabilities

	Operating leases (1)
Within 1 year (remaining)	$	68,535
2 years		83,978
3 years		76,920
4 years		69,148
5 years		59,682
Thereafter		153,166
Total lease payments	$	511,429
Less amount representing interest		(182,400)
Total lease liability	$	329,029
Less current lease liability		(48,976)
Total noncurrent lease liability	$	280,053

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Net income per common share (Tables)

3 Months Ended

Jul. 03, 2021

Net income per common share

Schedule of reconciliation of net income and the number of shares used in the basic and diluted net income per common share calculations:

	Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Numerator:
Net income (loss)	$	17,672	$	(16,670)
Denominator:
Weighted-average common shares — basic		49,080,897		48,389,205
Nonvested restricted stock awards and other dilutive securities		1,367,319		—
Weighted-average common shares — diluted		50,448,216		48,389,205
Net income (loss) per common share — basic	$	0.36	$	(0.34)
Net income (loss) per common share — diluted		0.35		(0.34)
Antidilutive securities not included:
Stock options outstanding		1,658,924		2,545,383
Nonvested restricted stock awards		33,400		674,176

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Accumulated other comprehensive income (Tables)

3 Months Ended

Jul. 03, 2021

Accumulated other comprehensive income

Schedule of components of AOCL, net of tax

	Foreign
	currency		Pension		Foreign
	hedge		liability		currency
	instruments		adjustment		translation		Total
Balance at April 3, 2021	$	3,174	$	(2,415)	$	(19,762)	$	(19,003)
Other comprehensive income (loss) before reclassifications, net of tax		876		(57)		703		1,522
Amounts reclassified to earnings, net of tax		(733)		—		—		(733)
Net current period other comprehensive income (loss)		143		(57)		703		789
Balance at July 3, 2021	$	3,317	$	(2,472)	$	(19,059)	$	(18,214)

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Fair value measurements (Tables)

3 Months Ended

Jul. 03, 2021

Fair value measurements

Schedule of items measured at fair value on a recurring basis, subject to the disclosure requirements of ASC 820

			July 3,		April 3,		June 27,
Description		Balance Sheet Location	2021		2021		2020
Assets
Nonqualified retirement plan	N/A	Other current assets	$	6,089	$	5,707	$	5,350
Foreign currency forward contracts	Level 2	Other current assets		3,360		2,906		—
Total assets			$	9,449	$	8,613	$	5,350

Schedule of estimated fair values of the Company's long-term debt, including current maturities

	July 3,		April 3,		June 27,
	2021		2021		2020
Senior secured term loan facility	$	175,088	$	174,064	$	206,728
2019 Elfa revolving facilities		423		—		5,533
Obligations under finance leases		293		335		254
Revolving credit facility		—		—		58,000
Total fair value of debt		175,804		174,399		270,515

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Segment reporting (Tables)

3 Months Ended

Jul. 03, 2021

Segment reporting

Schedule of segment reporting

Thirteen Weeks Ended July 3, 2021	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	228,729	$	16,586	$	—	$	245,315
Intersegment sales		—		15,693		(15,693)		—
Adjusted EBITDA		27,968		4,097		1,437		33,502
Interest expense, net		3,123		62		—		3,185
Assets (1)		985,454		105,386		(6,314)		1,084,526

Thirteen Weeks Ended June 27, 2020	TCS		Elfa		Eliminations		Total
Net sales to third parties	$	139,386	$	12,300	$	—	$	151,686
Intersegment sales		—		8,691		(8,691)		—
Adjusted EBITDA		1,725		2,937		(199)		4,463
Interest expense, net		4,848		102		—		4,950
Assets (1)		1,016,425		100,834		(6,798)		1,110,461

(1) Tangible assets in the Elfa column are located outside of the United States.

Summary of reconciliation of Adjusted EBITDA by segment to income before taxes

		Thirteen Weeks Ended
	July 3,		June 27,
	2021		2020
Income (loss) before taxes	$	23,332	$	(23,568)
Add:
Depreciation and amortization		8,201		8,949
Interest expense, net		3,185		4,950
Pre-opening costs (a)		594		9
Non-cash lease expense (b)		(3,355)		11,138
Stock-based compensation (c)		869		832
Management transition costs (d)		473		—
Foreign exchange losses (e)		11		121
COVID-19 costs (f)		192		1,223
COVID-19 severance (g)		—		809
Adjusted EBITDA	$	33,502	$	4,463

(a) Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period.

(b) Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. Non-cash lease expense increased during the first quarter 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 which approximately $2,200 remains deferred as of July 3, 2021.

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

(d) Costs related to the transition of key executives including severance and 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.

(f) Includes incremental costs attributable to the COVID-19 pandemic, which consist of sanitization costs in the first quarter of fiscal 2021 and 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.

(g) Includes costs incurred in the first quarter of fiscal 2020 associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures in the first quarter of fiscal 2020, which we do not consider in our evaluation of ongoing performance.

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Description of business and basis of presentation (Details)	Jul. 03, 2021 ft² store state country	Apr. 03, 2021
Description of business and basis of presentation
Number of stores | store	94
Average size of stores (in square feet)	25,000
Average selling square feet in stores (in square feet)	19,000
Number of states | state	33
LGP | Maximum
Description of business and basis of presentation
Ownership percentage		50.00%
Elfa
Description of business and basis of presentation
Number of countries in which products are sold on wholesale basis | country	30

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Detail of certain balance sheet accounts (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020
Detail of certain balance sheet accounts
Revenue recognized included in unearned income	$ 17,292
Revenue recognized included in Gift Cards and Store Credits	1,276
Accounts receivable, net:
Trade receivables, net	16,801	$ 18,784	$ 14,678
Credit card receivables	10,362	8,445	9,297
Other receivables	2,129	1,720	1,394
Accounts receivable, net	29,292	28,949	25,369
Inventory:
Finished goods	140,171	126,311	103,880
Raw materials	4,235	3,614	4,697
Work in progress	635	694	605
Inventory	145,041	130,619	109,182
Accrued Liabilities:
Accrued payroll, benefits and bonuses	24,831	30,028	20,214
Unearned revenue	21,579	19,503	14,554
Accrued transaction and property tax	13,536	15,660	13,099
Gift cards and store credits outstanding	10,340	9,862	9,035
Accrued lease liabilities	34	34	1,311
Accrued interest	91	95	2,633
Accrued sales returns	3,428	3,381	8,165
Other accrued liabilities	6,366	7,988	6,951
Accrued liabilities	$ 80,205	$ 86,551	$ 75,962

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Leases (Details) $ in Thousands	Jul. 03, 2021 USD ($) store	Jun. 27, 2020 USD ($)
Leases
Number of store locations | store	94
Deferred cash lease payments | $	$ 2,200	$ 11,900
Minimum
Leases
Expiration term	1 year
Maximum
Leases
Expiration term	20 years

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Leases - Components of lease costs (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Lease costs
Operating lease costs	$ 21,840	$ 22,500
Variable lease costs	300	32
Total lease costs	$ 22,140	$ 22,532

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Leases - Supplemental cash flow information (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Leases
Cash paid for amounts included in the measurement of operating lease liabilities	$ 25,179	$ 11,434
Additions to right-of-use assets	$ 6,678	$ 28,943

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Leases - Weighted average remaining operating lease term and incremental borrowing rate (Details)	Jul. 03, 2021	Jun. 27, 2020
Leases
Weighted average remaining lease term (years)	6 years 8 months 12 days	7 years 1 month 6 days
Weighted average incremental borrowing rate	13.40%	14.50%

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Leases - Future minimum lease payments (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020
Operating leases
Within 1 year	$ 68,535
2 years	83,978
3 years	76,920
4 years	69,148
5 years	59,682
Thereafter	153,166
Total lease payments	511,429
Less amount representing interest	(182,400)
Total lease liability	329,029
Less current lease liability	(48,976)	$ (50,847)	$ (53,165)
Total non-current lease liability	280,053	$ 285,022	$ 301,399
Amount of minimum lease payments for leases signed but not yet commenced	$ 4,194

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Net income per common share (Details) - USD ($)	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Numerator:
Net income (loss)	$ 17,672,000	$ (16,670,000)
Denominator:
Weighted-average common shares - basic (in shares)	49,080,897	48,389,205
Nonvested restricted stock awards and other dilutive securities	$ 1,367,319
Weighted-average common shares - diluted (in shares)	50,448,216	48,389,205
Net income (loss) per common share - basic	$ 0.36	$ (0.34)
Net income (loss) per common share - diluted	$ 0.35	$ (0.34)
Stock Options
Antidilutive securities not included:
Antidilutive securities	1,658,924	2,545,383
Nonvested restricted stock awards
Antidilutive securities not included:
Antidilutive securities	33,400	674,176

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Income taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Income taxes
Provision (benefit) for income taxes	$ 5,660	$ (6,898)
Effective income tax rate (as a percent)	24.30%	29.30%
U.S. federal corporate tax rate	21.00%

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Commitments and contingencies (Details) $ in Thousands	Jul. 03, 2021 USD ($)
Standby letters of credit
Commitments and contingencies
Amount outstanding	$ 4,248

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Accumulated other comprehensive income (Details) $ in Thousands	3 Months Ended
	Jul. 03, 2021 USD ($)
Rollforward of the amounts included in AOCI, net of taxes
Balance beginning of period	$ (19,003)
Other comprehensive income (loss) before reclassifications, net of tax	1,522
Amounts reclassified to earnings, net of tax	(733)
Net current period other comprehensive income (loss)	789
Balance end of period	(18,214)
Pension liability adjustment
Rollforward of the amounts included in AOCI, net of taxes
Balance beginning of period	(2,415)
Other comprehensive income (loss) before reclassifications, net of tax	(57)
Net current period other comprehensive income (loss)	(57)
Balance end of period	(2,472)
Foreign currency translation
Rollforward of the amounts included in AOCI, net of taxes
Balance beginning of period	(19,762)
Other comprehensive income (loss) before reclassifications, net of tax	703
Net current period other comprehensive income (loss)	703
Balance end of period	(19,059)
Foreign currency hedge instruments
Rollforward of the amounts included in AOCI, net of taxes
Balance beginning of period	3,174
Other comprehensive income (loss) before reclassifications, net of tax	876
Amounts reclassified to earnings, net of tax	(733)
Net current period other comprehensive income (loss)	143
Balance end of period	$ 3,317

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Foreign currency forward contracts (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Purchase of inventory from use of forward contracts in Swedish krona (as a percent)	82.00%	63.00%
Foreign currency forward contracts | Not Designated as Hedging Instrument
Amount associated with forward contracts not designated as hedge instruments	$ 0
Foreign currency hedge instruments | Designated as Hedging Instrument | Cash Flow Hedging
Unrealized gain for settled foreign currency hedge instruments	834
Unrealized gain to be reclassified into earnings over the next 12 months	834
Gain in accumulated other comprehensive loss related to foreign currency hedge instruments	$ 3,317
Minimum | Foreign currency forward contracts
Term of contract	1 month	1 month
Maximum | Foreign currency forward contracts
Term of contract	12 months	12 months

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Fair value measurements (Details) - Recurring - USD ($) $ in Thousands	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020
Assets
Total assets	$ 9,449	$ 8,613	$ 5,350
Other current assets
Assets
Nonqualified retirement plan	6,089	5,707	$ 5,350
Level 2 | Other current assets
Assets
Foreign currency forward contracts	$ 3,360	$ 2,906

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Fair value measurements - Estimated fair value of long-term debt, including current maturities (Details) - USD ($) $ in Thousands	Jul. 03, 2021	Apr. 03, 2021	Jun. 27, 2020
Fair value measurements
Total fair value of debt	$ 175,804
Fair value
Fair value measurements
Total fair value of debt		$ 174,399	$ 270,515
The 2019 Elfa Revolving Credit Facility
Fair value measurements
Total fair value of debt	423
The 2019 Elfa Revolving Credit Facility | Fair value
Fair value measurements
Total fair value of debt			5,533
Revolving Credit Facility | Fair value
Fair value measurements
Total fair value of debt			58,000
Senior Secured Term Loan Facility
Fair value measurements
Total fair value of debt	175,088
Senior Secured Term Loan Facility | Fair value
Fair value measurements
Total fair value of debt		174,064	206,728
Obligations under finance leases
Fair value measurements
Total fair value of debt	$ 293
Obligations under finance leases | Fair value
Fair value measurements
Total fair value of debt		$ 335	$ 254

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Segment reporting - (Details) $ in Thousands	3 Months Ended
	Jul. 03, 2021 USD ($) segment country	Jun. 27, 2020 USD ($)	Apr. 03, 2021 USD ($)
Segment reporting
Number of reportable segments | segment	2
Segment reporting
Sales	$ 245,315	$ 151,686
Adjusted EBITDA	33,502	4,463
Interest expense, net	3,185	4,950
Assets	$ 1,084,526	1,110,461	$ 1,078,469
Elfa
Segment reporting
Number of countries in which products are sold on wholesale basis | country	30
Operating segments | TCS
Segment reporting
Sales	$ 228,729	139,386
Adjusted EBITDA	27,968	1,725
Interest expense, net	3,123	4,848
Assets	985,454	1,016,425
Operating segments | Elfa
Segment reporting
Sales	16,586	12,300
Adjusted EBITDA	4,097	2,937
Interest expense, net	62	102
Assets	105,386	100,834
lntersegment
Segment reporting
Sales	(15,693)	(8,691)
Adjusted EBITDA	1,437	(199)
Assets	(6,314)	(6,798)
lntersegment | Elfa
Segment reporting
Sales	$ 15,693	$ 8,691

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Segment reporting - Reconciliation of EBITDA (Details) - USD ($) $ in Thousands	3 Months Ended
	Jul. 03, 2021	Jun. 27, 2020
Segment reporting
Income (loss) before taxes	$ 23,332	$ (23,568)
Depreciation and amortization	8,201	8,949
Interest expense, net	3,185	4,950
Pre-opening costs	594	9
Non-cash lease expense	(3,355)	11,138
Stock-based compensation	869	832
Management transition costs	473
Foreign exchange (gains) losses	11	121
COVID-19 costs	192	1,223
COVID-19 severance		809
Total Adjusted EBITDA	33,502	4,463
Deferred cash lease payments	$ 2,200	$ 11,900

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Stock-based compensation - Restricted Stock Awards (Details)	Jun. 01, 2021 $ / shares shares
Performance - based restricted shares
Stock-based compensation
Vesting period	3 years
Amended and Restated 2013 Incentive Award Plan | Restricted Stock Awards
Stock-based compensation
Total number of restricted shares granted (in shares) | shares	335,719
Grant-date fair value (in dollars per share) | $ / shares	$ 13.22
Amended and Restated 2013 Incentive Award Plan | Time - based restricted shares
Stock-based compensation
Vesting period	3 years