The Container Store Group, Inc. is a holding company, which engages in the retail of storage and organization products and solutions. It operates through The Container Store and Elfa segments. The Container Store segment consists of retail stores, website and call center, as well as installation and organizational services business. The Elfa segment involves in the design and manufacture of component-based shelving and drawer systems and made-to-measure sliding doors. The Container Store Group was founded in 1978 and is headquartered in Coppell, TX.
An overall decline in the health of the economy and consumer spending may affect consumer purchases of discretionary items, which could reduce demand for our products and materially harm our sales, profitability and financial condition.
Competition, including internet‑based competition, could negatively impact our business, adversely affecting our ability to generate higher net sales.
If our operating and financial performance in any given period does not meet the guidance that we provide to the public, our stock price may decline.
We are undertaking a number of significant business initiatives at the same time and if these initiatives are not successful, they may have a negative impact on our operating results.
If we are unable to source and market new products to meet our high standards and customer preferences or are unable to offer our customers an aesthetically pleasing and convenient shopping environment, our results of operations may be adversely affected.
We face risks related to our indebtedness.
If we are unable to effectively manage our online sales, our reputation and operating results may be harmed.
We currently depend on a single distribution center for all of our stores.
We face risks related to opening a second distribution center.
We are subject to risks associated with our dependence on foreign imports for our merchandise.
We rely upon independent third‑party transportation providers for substantially all of our product shipments and are subject to increased shipping costs as well as the potential inability of our third‑party transportation providers to deliver on a timely basis.
Material damage to, or interruptions in, our information systems as a result of external factors, staffing shortages and difficulties in updating our existing software or developing or implementing new software could have a material adverse effect on our business or results of operations.
Our business requires that we lease substantial amounts of space and there can be no assurance that we will be able to continue to lease space on terms as favorable as the leases negotiated in the past.
If we fail to successfully anticipate consumer preferences and demand, or to manage inventory commensurate with demand, our results of operations may be adversely affected.
Our facilities and systems, as well as those of our vendors, are vulnerable to natural disasters and other unexpected events, and as a result we may lose merchandise and be unable to effectively deliver it to our stores and online customers.
We rely upon third-party web service providers to operate certain aspects of our business operations and any disruption of or interference with such operations would materially and adversely impact our business.
Our costs and financial results may change as a result of currency exchange rate fluctuations.
Our costs may increase due to factors that may or may not be controllable by us, which may negatively affect our financial results.
Costs and risks relating to new store openings could severely limit our growth opportunities.
Our business depends in part on a strong brand image. If we are not able to protect our brand, we may be unable to attract a sufficient number of customers or sell sufficient quantities of our products.
Expansion increases the complexity of our business and we may not be able to effectively manage our growth, which may cause our brand image and financial performance to suffer.
We will require significant capital to fund our expanding business, which may not be available to us on satisfactory terms or at all. We plan to use cash from operations to fund our operations and execute our growth strategy. If we are unable to maintain sufficient levels of cash flow, we may not meet our growth expectations or we may require additional financing which could adversely affect our financial health and impose covenants that limit our business activities.
Disruptions in the global financial markets may make it difficult for us to borrow a sufficient amount of capital to finance the carrying costs of inventory and to pay for capital expenditures and operating costs, which could negatively affect our business.
Our ability to obtain merchandise on a timely basis at competitive prices could suffer as a result of any deterioration or change in our vendor relationships or events that adversely affect our vendors or their ability to obtain financing for their operations.
There is a risk that our vendors may sell similar or identical products to our competitors, which could harm our business.
We depend on key executive management.
If we are unable to find, train and retain key personnel, including new employees that reflect our brand image and embody our culture, we may not be able to grow or sustain our operations.
Labor activities could cause labor relations difficulties for us.
Because of our international operations, we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti‑bribery and anti‑kickback laws.
Our fixed lease obligations could adversely affect our financial performance.
There are claims made against us from time to time that may result in litigation that could distract management from our business activities and result in significant liability or damage to our brand.
Product recalls and/or product liability, as well as changes in product safety and other consumer protection laws, may adversely impact our operations, merchandise offerings, reputation, results of operations, cash flow and financial condition.
Changes in statutory, regulatory, accounting, and other legal requirements could potentially impact our operating and financial results.
Our total assets include intangible assets with an indefinite life, goodwill and trademarks, and substantial amounts of property and equipment. Changes in estimates or projections used to assess the fair value of these assets, or operating results that are lower than our current estimates at certain store locations, may cause us to incur impairment charges that could adversely affect our results of operation.
Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets, including net operating loss carryforwards, may result in volatility of our operating results.
Recently enacted changes to U.S. tax laws may have a material impact on our business in the future.
Our operating results are subject to quarterly and seasonal fluctuations, and results for any quarter may not necessarily be indicative of the results that may be achieved for the full fiscal year.
Material disruptions at one of our Elfa manufacturing facilities could negatively affect our business.
Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position.
If third parties claim that we infringe upon their intellectual property rights, our operating results could be adversely affected.
Our common stock price may be volatile or may decline.
We are controlled by investment funds managed by Leonard Green and Partners, L.P. (“LGP”), whose interests in our business may be different from yours.
We are a “controlled company” within the meaning of the New York Stock Exchange listing requirements and as a result, qualify for and intend to rely on exemptions from certain corporate governance requirements. You do not have the same protection afforded to shareholders of companies that are subject to such corporate governance requirements.
Substantial future sales of our common stock, or the perception in the public markets that these sales may occur, may depress our stock price.
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes‑Oxley Act could have a material adverse effect on our business and stock price.
We do not currently expect to pay any cash dividends.
We incur costs as a public company and our management is required to devote substantial time to compliance matters.
Our anti‑takeover provisions could prevent or delay a change in control of our Company, even if such change in control would be beneficial to our shareholders.
The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, anticipated capital expenditures and interest expense, and expectations regarding our second distribution center, 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: a decline in the health of the economy and the purchase of discretionary items; risks related to a security breach or cyber-attack of our website or information technology systems, and other damage to such systems; effects of competition on our business; the risk that our operating and financial performance in a given period will not meet the guidance we provided to the public; the risk that significant business initiatives may not be successful; our inability to source and market our products to meet customer preferences or inability to offer customers an aesthetically pleasing shopping environment; risks related to our indebtedness; our inability to effectively manage online sales; our dependence on a single distribution center for all of our stores; risks related to opening a second distribution center; risks related to our reliance on independent third-party transportation providers for substantially all of our product shipments; risks associated with our dependence on foreign imports; material damage to or interruptions in our information technology systems; our inability to lease space on favorable terms; the vulnerability of our facilities and systems to natural disasters and other unexpected events; our reliance on third-party web service providers; our failure to successfully anticipate consumer demand and manage inventory commensurate with demand; our ability to control increasing costs, including fluctuations in currency exchange rates and rising health care and labor costs; risks related to new store openings; our dependence on our brand image and any inability to protect our brand; our failure to effectively manage our growth; risks related to our inability to obtain capital on satisfactory terms or at all; 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; our inability to obtain merchandise from our vendors on a timely basis and at competitive prices; the risk that our vendors may sell their products to our competitors; our dependence on key executive management, and the transition in our executive leadership; our inability to find, train and retain key personnel; labor activities and unrest; rising health care and labor costs; risks related to violations of anti-bribery and anti-kickback laws; risks related to our fixed lease obligations; risks related to litigation; product recalls and/or product liability and changes in product safety and consumer protection laws; changes in statutory, regulatory, accounting and other legal requirements; risks related to changes in estimates or projections used to assess the fair value of our intangible assets; fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets; impacts to our business as a result of the Tax Cuts and Jobs Act; seasonal fluctuations in our operating results; material disruptions in one of our Elfa manufacturing facilities; our inability to protect our intellectual property rights and claims that we have infringed third parties’ intellectual property rights; risks related to our status as a controlled company; 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; 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 March 30, 2019, filed with the Securities and Exchange Commission (the “SEC”) on May 30, 2019.
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