Container Store Group, Inc. (Form: 10-Q, Received: 08/10/2016 07:04:01)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended July 2, 2016

¨ 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)		(IRS Employer Identification No.)
500 Freeport Parkway Coppell, TX		75019
(Addresses of principal executive offices)		(Zip Codes)

Registrant’s telephone number in the United States, including area code, is: (972) 538-6000

None

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

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No o

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

Large accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

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

The registrant had 48,359,817 shares of its common stock outstanding as of July 27, 2016.

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TABLE OF C ONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Unaudited Consolidated Balance Sheets as of July 2, 2016, February 27, 2016, and July 4, 2015	3
	Unaudited Consolidated Statements of Operations for the Thirteen Weeks Ended July 2, 2016 and July 4, 2015 and the Five Weeks Ended April 2, 2016	5
	Unaudited Consolidated Statements of Comprehensive Loss for the Thirteen Weeks ended July 2, 2016 and July 4, 2015 and the Five Weeks Ended April 2, 2016	6
	Unaudited Consolidated Statements of Cash Flows for the Thirteen Weeks ended July 2, 2016 and July 4, 2015 and the Five Weeks Ended April 2, 2016	7
	Notes to the Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Default Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32

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The Container Store Group, Inc.

Consolidated balance sheets


	July 2,	February 27,	July 4,
	2016	2016	2015
(In thousands)	(unaudited)		(unaudited)
Assets
Current assets:
Cash	$8,189	$13,609	$8,397
Accounts receivable, net	25,035	28,843	21,415
Inventory	104,144	86,435	109,246
Prepaid expenses	14,817	8,692	13,456
Income taxes receivable	770	157	1,186
Deferred tax assets, net	-	-	3,256
Other current assets	9,852	8,695	10,535
Total current assets	162,807	146,431	167,491
Noncurrent assets:
Property and equipment, net	173,937	176,117	173,255
Goodwill	202,815	202,815	202,815
Trade names	228,699	228,368	229,749
Deferred financing costs, net	389	419	222
Noncurrent deferred tax assets, net	1,269	2,090	2,213
Other assets	1,826	1,879	1,808
Total noncurrent assets	608,935	611,688	610,062
Total assets	$771,742	$758,119	$777,553

See accompanying notes.

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The Container Store Group, Inc.

Consolidated balance sheets (continued)


	July 2,	February 27,	July 4,
	2016	2016	2015
(In thousands, except share and per share amounts)	(unaudited)		(unaudited)
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$51,552	$40,274	$49,505
Accrued liabilities	62,220	69,635	55,262
Revolving lines of credit	5,982	721	10,379
Current portion of long-term debt	5,464	5,373	5,307
Income taxes payable	-	-	56
Total current liabilities	125,218	116,003	120,509
Noncurrent liabilities:
Long-term debt, net of deferred financing costs	326,544	316,135	340,917
Noncurrent deferred tax liabilities, net	79,922	80,720	80,293
Deferred rent and other long-term liabilities	33,532	38,193	37,781
Total noncurrent liabilities	439,998	435,048	458,991
Total liabilities	565,216	551,051	579,500

Commitments and contingencies (Note 6)

Shareholders’ equity:
Common stock, $0.01 par value, 250,000,000 shares authorized; 47,986,975 shares issued at July 2, 2016 and February 27, 2016; 47,983,804 shares issued at July 4, 2015	480	480	480
Additional paid-in capital	857,381	856,879	855,775
Accumulated other comprehensive loss	(19,175)	(19,835)	(17,452)
Retained deficit	(632,160)	(630,456)	(640,750)
Total shareholders’ equity	206,526	207,068	198,053
Total liabilities and shareholders’ equity	$771,742	$758,119	$777,553

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of operations


	Thirteen Weeks Ended		Five Weeks Ended
	July 2,	July 4,	April 2,
(In thousands, except share and per share amounts) (unaudited)	2016	2015	2016
Net sales	$177,448	$169,958	$69,218
Cost of sales (excluding depreciation and amortization)	72,753	70,447	29,023
Gross profit	104,695	99,511	40,195
Selling, general, and administrative expenses (excluding depreciation and amortization)	92,313	94,284	34,504
Stock-based compensation	365	327	147
Pre-opening costs	1,096	1,640	191
Depreciation and amortization	9,347	8,231	3,009
Other expenses	549	-	102
(Gain) loss on disposal of assets	(3)	10	-
Income (loss) from operations	1,028	(4,981)	2,242
Interest expense	4,110	4,173	1,550
(Loss) income before taxes	(3,082)	(9,154)	692
(Benefit) provision for income taxes	(1,025)	(3,366)	338
Net (loss) income	$(2,057)	$(5,788)	$354

Basic and diluted net (loss) income per common share	$(0.04)	$(0.12)	$0.01

Weighted-average common shares - basic and diluted	47,986,975	47,983,785	47,986,975

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of comprehensive (loss) income


	Thirteen Weeks Ended		Five Weeks Ended
	July 2,	July 4,	April 2,
(In thousands) (unaudited)	2016	2015	2016
Net (loss) income	$(2,057)	$(5,788)	$354
Unrealized gain (loss) on financial instruments, net of tax provision of $1, $242 and $53	47	342	(34)
Pension liability gain (loss)	65	(58)	(66)
Foreign currency translation (loss) gain	(3,451)	2,254	4,099
Comprehensive (loss) income	$(5,396)	$(3,250)	$4,353

See accompanying notes.

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The Container Store Group, Inc.

Consolidated statements of cash flows


	Thirteen Weeks Ended		Five Weeks Ended
	July 2,	July 4,	April 2,
(In thousands) (unaudited)	2016	2015	2016
Operating activities
Net (loss) income	$(2,057)	$(5,788)	$354
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	9,347	8,231	3,009
Stock-based compensation	365	327	147
(Gain) loss on disposal of property and equipment	(3)	10	-
Deferred tax (benefit) expense	(922)	(3,424)	958
Noncash interest	480	489	160
Other	(153)	219	45
Changes in operating assets and liabilities:
Accounts receivable	(2,836)	(760)	6,958
Inventory	(19,283)	(20,542)	1,516
Prepaid expenses and other assets	244	260	(7,371)
Accounts payable and accrued liabilities	18,497	6,197	(14,258)
Income taxes	175	(1,422)	(859)
Other noncurrent liabilities	(4,523)	(205)	(199)
Net cash used in operating activities	(669)	(16,408)	(9,540)

Investing activities
Additions to property and equipment	(8,013)	(12,199)	(2,435)
Proceeds from sale of property and equipment	7	191	1
Net cash used in investing activities	(8,006)	(12,008)	(2,434)

Financing activities
Borrowings on revolving lines of credit	11,530	15,016	4,958
Payments on revolving lines of credit	(9,017)	(11,890)	(2,072)
Borrowings on long-term debt	12,000	23,000	5,000
Payments on long-term debt	(6,355)	(1,327)	(944)
Proceeds from the exercise of stock options	-	1	-
Net cash provided by financing activities	8,158	24,800	6,942

Effect of exchange rate changes on cash	(103)	494	232
Net decrease in cash	(620)	(3,122)	(4,800)
Cash at beginning of period	8,809	11,519	13,609
Cash at end of period	$8,189	$8,397	$8,809

Supplemental information for non-cash investing and financing activities:
Purchases of property and equipment (included in accounts payable)	$751	$750	$1,114
Capital lease obligation incurred	$147	$237	$60

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 2, 2016

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 February 27, 2016, filed with the Securities and Exchange Commission on May 10, 2016. 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.

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”), with the remainder held by certain employees of The Container Store, Inc. On November 6, 2013, the Company completed its initial public offering (the “IPO”). As the majority shareholder, LGP retains controlling interest in the Company. As of July 2, 2016, The Container Store, Inc. operates 80 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 29 states and the District of Columbia. The Container Store, Inc. also offers all of its products directly to its customers through its website and call center. 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.

Change in Fiscal Year

On March 30, 2016 , the Company elected to change its fiscal year end from the Saturday closest to February 28 to the Saturday closest to March 31 of each year. The fiscal year change was effective beginning with the Company’s current 2016 fiscal year, which began on April 3, 2016 and will end on April 1, 2017 (the “New Fiscal Year”) . As a result of the change, the Company had a March 2016 fiscal month transition period from February 28, 2016 to April 2, 2016. Results of the transition period are presented herewith and will be reported in the Company’s Form 10-K for fiscal 2016. Recast historical unaudited quarterly financial information for the thirteen weeks ended July 4, 2015 is included in the consolidated financial statements and the accompanying notes.

Seasonality

The Company’s business is moderately seasonal in nature and, therefore, the results of operations for the thirteen weeks ended July 2, 2016 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 on December 24 and ends in February.

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Due to historically strong sales at the beginning of Our Annual elfa ® Sale, as well as the fact that the third quarter of the New Fiscal Year will include the month of December, which has historically been a strong sales month due to our holiday campaign, the seasonal impact of the fiscal fourth quarter is expected to be less significant.

Recent accounting pronouncements

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting , which outlines new provisions intended to simplify various aspects related to accounting for share-based payments, including the income tax consequences and classification on the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those years, with early adoption permitted. The Company is evaluating the impact of implementation of this standard on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , to revise lease accounting guidance. The update requires most leases to be recorded on the balance sheet as a lease liability, with a corresponding right-of-use asset, whereas these leases currently have an off-balance sheet classification. ASU 2016-02 must be applied on a modified retrospective basis and is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted . The Company is still evaluating the impact of implementation of this standard on its financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory , which changes the measurement principle for inventory from the lower of cost or market to the lower of cost and net realizable value. ASU 2015-11 defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. ASU 2015-11 was effective for and adopted by the Company in the first quarter of fiscal 2016 on a prospective basis. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent) , which is intended to eliminate the diversity in practice surrounding how investments measured at net asset value (“NAV”) with redemption dates in the future are categorized in the fair value hierarchy. Under the new guidance, investments measured at fair value using the NAV per share practical expedient should no longer be categorized in the fair value hierarchy. ASU 2015-07 was effective for and adopted by the Company in the first quarter of fiscal 2016 on a retrospective basis. As a result, the nonqualified retirement plan, which is measured at NAV per share using the practical expedient, is no longer categorized in the fair value hierarchy.

In April 2015, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40) : Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement . The amendments in ASU 2015-05 provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 was effective for and adopted by the Company in the first quarter of fiscal 2016 on a prospective basis. The adoption of this standard did not result in a material impact to the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-03 , Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs . The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability rather than being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The update requires retrospective application and represents a change in accounting principle. In addition, in August 2015,

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ASU 2015-15, Interest — Imputation of Interest , was released which added SEC paragraphs pursuant to the SEC Staff Announcement at the June 18, 2015 Emerging Issues Task Force (EITF) meeting about the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 states the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. The amendments in ASU 2015-03 and ASU 2015-15 were effective for and adopted by the Company in the first quarter of fiscal 2016 on a retrospective basis. The impact of ASU 2015-03 and ASU 2015-15 on our consolidated financial statements included a reclassification of net deferred financing costs related to our Senior Secured Term Loan Facility to be presented in the balance sheet as a reduction of long-term debt, net of deferred financing costs, while net deferred financing costs related to our Revolving Credit Facility remain an asset in the deferred financing costs line item. The Company had $5,039, $5,649, $6,868 of net deferred financing costs as of July 2, 2016, February 27, 2016, and July 4, 2015, respectively, related to our Senior Secured Term Loan Facility.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , an updated standard on revenue recognition. ASU 2014-09 provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and GAAP. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the Company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements. In July 2015, the FASB deferred the effective date of ASU 2014-09. Accordingly, this standard is effective for reporting periods beginning after December 15, 2017, including interim periods within that fiscal year, with early adoption permitted for interim and annual periods beginning after December 15, 2016. The Company is still evaluating the impact of implementation of this standard on its financial statements.

2. Detail of certain balance sheet accounts

	July 2,	February 27,	July 4,
	2016	2016	2015
Inventory:
Finished goods	$98,990	$81,496	$104,110
Raw materials	4,783	3,363	4,814
Work in progress	371	1,576	322
	$104,144	$86,435	$109,246

Accrued liabilities:
Accrued payroll, benefits and bonuses	$21,921	$22,483	$20,301
Unearned revenue	10,641	16,034	5,312
Accrued transaction and property tax	10,535	9,655	9,917
Gift cards and store credits outstanding	8,911	8,564	8,040
Accrued lease liabilities	4,450	4,384	3,913
Accrued interest	101	2,270	206
Other accrued liabilities	5,661	6,245	7,573
	$62,220	$69,635	$55,262

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3. Net (loss) income per common share

Basic net (loss) income per common share is computed as net (loss) income divided by the weighted-average number of common shares for the period. Diluted net (loss) income per share is computed as net (loss) income 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 diluted net (loss) income per share if their effect is anti-dilutive.

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

	Thirteen Weeks Ended		Five Weeks Ended
	July 2,	July 4,	April 2,
	2016	2015	2016
Numerator:
Net (loss) income	$(2,057)	$(5,788)	$354

Denominator:
Weighted-average common shares — basic and diluted	47,986,975	47,983,785	47,986,975

Basic and diluted net (loss) income per common share	$(0.04)	$(0.12)	$0.01

Antidilutive securities not included:
Share-based awards outstanding	2,867,719	1,233,375	2,886,138

4. Pension plans

The Company provides pension benefits to the employees of Elfa under collectively bargained pension plans in Sweden, which are recorded in other long-term liabilities. The defined benefit plan provides benefits for participating employees based on years of service and final salary levels at retirement. The defined benefit plans are unfunded and approximately 3% of Elfa employees are participants in the defined benefit pension plan. Certain employees also participate in defined contribution plans for which Company contributions are determined as a percentage of participant compensation. The Company contributed $690 and $570 for defined contribution plans in the thirteen weeks ended July 2, 2016 and July 4, 2015, respectively.

5. Income taxes

The Company’s effective income tax rate for the thirteen weeks ended July 2, 2016 was 33.3% compared to 36.8% for the thirteen weeks ended July 4, 2015. The decrease in the effective tax rate is primarily due to a shift in the mix of domestic and foreign earnings.

6. Commitments and contingencies

In connection with insurance policies and other contracts, the Company has outstanding standby letters of credit totaling $3,535 as of July 2, 2016.

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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7. Accumulated other comprehensive income

Accumulated other comprehensive income (“AOCI”) consists of changes in our foreign currency forward contracts, pension liability adjustment, and foreign currency translation. The components of AOCI, net of tax, are shown below for the thirteen weeks ended July 2, 2016:

	Foreign currency forward contracts	Pension liability adjustment	Foreign currency translation	Total
Balance at February 27, 2016	$(29)	$(992)	$(18,814)	$(19,835)

Other comprehensive (loss) income before reclassifications, net of tax	(46)	(66)	4,099	3,987
Amounts reclassified to earnings, net of tax	12	-	-	12
Net current period other comprehensive (loss) income	(34)	(66)	4,099	3,999

Balance at April 2, 2016	$(63)	$(1,058)	$(14,715)	$(15,836)

Other comprehensive income (loss) before reclassifications, net of tax	33	65	(3,451)	(3,353)
Amounts reclassified to earnings, net of tax	14	-	-	14
Net current period other comprehensive income (loss)	47	65	(3,451)	(3,339)

Balance at July 2, 2016	$(16)	$(993)	$(18,166)	$(19,175)

Amounts reclassified from AOCI 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 2, 2016 and July 4, 2015, the TCS segment used forward contracts for zero and 100% of inventory purchases in Swedish krona each year, respectively. During the thirteen weeks ended July 2, 2016 and July 4, 2015, the Elfa segment used forward contracts to purchase U.S. dollars in the amount of $1,465 and $805, which represented 94% and 43% percent of the Elfa segment’s U.S. dollar purchases each year, 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.

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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 income (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 2, 2016 and July 4, 2015. Forward contracts not designated as hedges in the Elfa segment are adjusted to fair value as selling, general, and administrative expenses on the consolidated statements of operations. During the thirteen weeks ended July 2, 2016, the Company recognized a net loss of $153 associated with the change in fair value of forward contracts not designated as hedging instruments.

The Company had $16 in accumulated other comprehensive loss related to foreign currency hedge instruments at July 2, 2016. Of the $16, $3 represents an unrealized loss for settled foreign currency hedge instruments related to inventory on hand as of July 2, 2016. The Company expects the unrealized loss of $3, 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 income (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 2, 2016, February 27, 2016 and July 4, 2015, the Company held certain items that are required to be measured at fair value on a recurring basis. These included the nonqualified retirement plan and foreign currency forward contracts. The nonqualified retirement plan consists of investments purchased by employee contributions to retirement savings accounts. The Company’s foreign currency hedging instruments consist of over-the-counter (OTC) contracts, which are not traded on a public exchange. See Note 8 for further information on the Company’s hedging activities.

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The fair values of the nonqualified retirement plan and foreign currency forward contracts are determined based on the market approach which utilizes inputs that are readily available in public markets or can be derived from information available in publicly quoted markets for comparable assets. Therefore, the Company has categorized these items as Level 2. 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 2,	February 27,	July 4,
Description		Balance Sheet Location	2016	2016	2015
Assets
Nonqualified retirement plan (1)	N/A	Other current assets	$4,343	$3,947	$4,050
Foreign currency forward contracts	Level 2	Other current assets	229	106	319
Total assets			$4,572	$4,053	$4,369
Liabilities
Nonqualified retirement plan	Level 2	Accrued liabilities	4,343	3,962	4,065
Foreign currency forward contracts	Level 2	Accrued liabilities	-	-	156
Total liabilities			$4,343	$3,962	$4,221

(1) 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 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 2, 2016, February 27, 2016 and July 4, 2015, the estimated fair value of the Company’s long-term debt, including current maturities, was $297,113, $221,534, and $348,648, respectively.

10. Segment reporting

The Company’s operating segments were determined on the same basis as how management evaluates performance internally. The Company’s two operating segments consist of TCS and Elfa. The TCS segment includes the Company’s retail stores, website and call center, as well as the installation 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 Corporate/Other column. The net sales to third parties in the Elfa column represent sales to customers outside of the United States.

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Amounts in the Corporate/Other column include unallocated corporate expenses and assets, intersegment eliminations and other adjustments to segment results necessary for the presentation of consolidated financial results in accordance with GAAP.

In general, the Company uses the same measurements to calculate earnings or loss before income taxes for operating segments as it does for the consolidated company. However, interest expense related to the Senior Secured Term Loan Facility and the Revolving Credit Facility is recorded in the Corporate/Other column.

			Corporate/
Thirteen Weeks Ended July 2, 2016	TCS	Elfa	Other	Total
Net sales to third parties	$161,249	$16,199	$-	$177,448
Intersegment sales	-	8,837	(8,837)	-
Interest expense, net	14	56	4,040	4,110
Income (loss) before taxes (1)	4,386	(732)	(6,736)	(3,082)
Assets (2)	629,407	107,411	34,924	771,742

			Corporate/
Thirteen Weeks Ended July 4, 2015	TCS	Elfa	Other	Total
Net sales to third parties	$153,457	$16,501	$-	$169,958
Intersegment sales	-	7,966	(7,966)	-
Interest expense, net	-	92	4,081	4,173
Loss before taxes	(1,115)	(1,907)	(6,132)	(9,154)
Assets (2)	629,539	113,807	34,207	777,553

			Corporate/
Five Weeks Ended April 2, 2016	TCS	Elfa	Other	Total
Net sales to third parties	$64,331	$4,887	$-	$69,218
Intersegment sales	-	1,990	(1,990)	-
Interest expense, net	-	18	1,532	1,550
Income (loss) before taxes	3,306	(1,005)	(1,609)	692
Assets (2)	610,103	113,011	33,962	757,076

(1) The TCS segment includes a net benefit of $3.9 million related to amended and restated employment agreements entered into with key executives during the first quarter, leading to the reversal of accrued deferred compensation associated with the original employment agreements.

(2) Tangible assets in the Elfa column are located outside of the United States. Assets in Corporate/Other include assets located in the corporate headquarters and distribution center. Assets in Corporate/Other also include deferred tax assets and the fair value of foreign currency hedge instruments.

11. Stock-based compensation

On July 1, 2016, the Company granted time-based and performance-based restricted shares under the Company’s 2013 Incentive Award Plan to certain key executives in accordance with employment agreements executed on May 6, 2016. The total number of restricted shares granted was 372,842 with a grant-date fair value of $5.42. The time-based restricted shares will vest over 2.75 years. The performance-based restricted shares vest based on achievement of fiscal 2016 performance targets and are also subject to time-based vesting requirements over 3.75 years.

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Unrecognized compensation expense related to outstanding restricted stock awards to employees as of July 2, 2016 was $2,021 and is expected to be recognized over a weighted average period of 3.55 years.

12. Transition Period Financial Information

On March 30, 2016, the Board of Directors approved a change in the Company’s fiscal year end from the Saturday closest to February 28 to the Saturday closest to March 31 of each year. Accordingly, the Company is presenting unaudited financial statements for the five week transition period from February 28, 2016 to April 2, 2016. The following table provides certain unaudited comparative financial information of the same period of the prior year. The periods below both represent 35 day periods.

	Five Weeks Ended
	April 2,	April 4,
	2016	2015
(In thousands, except share and per share amounts)	(unaudited)	(unaudited)
Consolidated statement of operations data:
Net sales	$69,218	$66,761
Gross profit	40,195	39,254
Selling, general, and administrative expenses	34,504	33,728
Income from operations	2,242	2,565
Income before taxes	692	978
Provision for income taxes	338	340
Net income	354	638
Net income per common share:
Basic and diluted	$0.01	$0.01
Weighted-average common shares - basic and diluted	47,986,975	47,983,681

13. Subsequent event

On August 2, 2016, the Company granted time-based and performance-based restricted shares under the Company’s 2013 Incentive Award Plan to certain officers of the Company. The total number of restricted shares granted was 248,937 with a grant-date fair value of $5.29. The time-based restricted shares will vest over 2.67 years. The performance-based restricted shares vest based on achievement of fiscal 2016 performance targets and are also subject to time-based vesting requirements over 3.67 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, 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 new store openings; our inability to source and market our products to meet customer preferences or inability to offer customers an aesthetically pleasing shopping environment; 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 dependence on a single distribution center for all of our stores; the vulnerability of our facilities and systems to natural disasters and other unexpected events; risks related to our reliance on independent third-party transportation providers for substantially all of our product shipments; our dependence on our brand image and any inability to protect our brand; our failure to successfully anticipate consumer demand and manage inventory commensurate with demand; our failure to effectively manage our growth; our inability to lease space on favorable terms; fluctuations in currency exchange rates; risks related to a security breach or cyber-attack of our website or information technology systems, and other damage to such systems; our inability to effectively manage online sales; effects of competition on our business; 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 associated with our dependence on foreign imports; risks related to violations of anti-bribery and anti-kickback laws; risks related to our indebtedness; risks related to our fixed lease obligations; material damage to or interruptions in our information technology systems; 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, effective tax rate and realization of deferred tax assets; 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; reduced disclosure requirements applicable to emerging growth companies, which could make our stock less attractive to investors; 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 February 27, 2016, filed with the Securities and Exchange Commission (the “SEC”) on May 10, 2016.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this report. Because forward-looking statements are inherently subject to risks and uncertainties, you should not rely on these forward-looking statements as predictions of future events.

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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 2016 ends on April 1, 2017, fiscal 2015 ended on February 27, 2016 and fiscal 2014 ended on February 28, 2015. Refer to Note 12 for details of the one-month transition period ended April 2, 2016. The first quarter of fiscal 2016 ended on July 2, 2016 and the recast first quarter of fiscal 2015 ended on July 4, 2015, and both included thirteen weeks.

Overview

We are the original and leading specialty retailer of storage and organization products in the United States and the only national retailer solely devoted to the category. We provide creative, multifunctional, customizable storage and organization solutions that help our customers save time, save space and improve the quality of their lives. Through a differentiated shopping experience delivered by expert salespeople, our goal is to deliver the promise of an organized life to our customers. These customers are predominantly female, highly educated and busy—from college students to empty nesters.

Our operations consist of two operating segments:

· The Container Store (“ TCS”), which consists of our retail stores, website and call center, as well as our installation and organizational services business. As of July 2, 2016, we operated 80 stores with an average size of approximately 25,000 square feet (19,000 selling square feet) in 29 states and the District of Columbia. We allow our customers to shop with us in a variety of ways-anywhere, anytime, any way she wants through a multi-channel shopping experience. Our stores receive substantially all of our products directly from our distribution center co-located with our corporate headquarters and call center in Coppell, Texas.

· Elfa, The Container Store, Inc.’s wholly-owned Swedish subsidiary, Elfa International AB (“Elfa”), which 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 four manufacturing facilities with two located in Sweden, one in Finland 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.

Recent Events

On July 1, 2016, Melissa Reiff, former President and Chief Operating Officer, became the Company’s Chief Executive Officer, succeeding William A. (“Kip”) Tindell, III. Kip Tindell, former Chairman and Chief Executive Officer, retained his role as Chairman of the Company’s Board of Directors. Additionally, Sharon Tindell, Chief Merchandising Officer, added President to her title and Jodi Taylor, Chief Financial Officer and Secretary, added Chief Administrative Officer to her title.

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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 (categories that are only applicable to our TCS segment are noted with (*)). For segment data, see Note 10 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

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	Thirteen Weeks Ended
	July 2,	July 4,
	2016	2015
Net sales	$177,448	$169,958
Cost of sales (excluding depreciation and amortization)	72,753	70,447
Gross profit	104,695	99,511
Selling, general, and administrative expenses (excluding depreciation and amortization)	92,313	94,284
Stock-based compensation*	365	327
Pre-opening costs*	1,096	1,640
Depreciation and amortization	9,347	8,231
Other expenses	549	-
(Gain) loss on disposal of assets	(3)	10
Income (loss) from operations	1,028	(4,981)
Interest expense	4,110	4,173
Loss before taxes	(3,082)	(9,154)
Benefit for income taxes	(1,025)	(3,366)
Net loss	$(2,057)	$(5,788)

	Thirteen Weeks Ended
	July 2,	July 4,
	2016	2015
Percentage of net sales:
Net sales	100.0%	100.0%
Cost of sales (excluding depreciation and amortization)	41.0%	41.4%
Gross profit	59.0%	58.6%
Selling, general and administrative expenses (excluding depreciation and amortization)	52.0%	55.5%
Stock-based compensation*	0.2%	0.2%
Pre-opening costs*	0.6%	1.0%
Depreciation and amortization	5.3%	4.8%
Other expenses	0.3%	0.0%
(Gain) loss on disposal of assets	(0.0%)	0.0%
Income (loss) from operations	0.6%	(2.9%)
Interest expense, net	2.3%	2.5%
Loss before taxes	(1.7%)	(5.4%)
Benefit for income taxes	(0.6%)	(2.0%)
Net loss	(1.2%)	(3.4%)
Operating data:
Comparable store sales for the period(1)*	(1.4%)	(1.9%)
Number of stores open at end of period*	80	72
Non-GAAP measures(2):
Adjusted EBITDA(3)	$12,032	$4,737

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(1) A store is included in the comparable store sales calculation on the first day of the sixteenth full fiscal month following the store’s opening. Comparable store sales are net of discounts and returns. When a store is relocated, we continue to consider net sales from that store to be comparable store sales. Net sales from our website and call center are also included in calculations of comparable store sales.

In the first quarter of fiscal 2016, we changed our comparable store sales operating measure to reflect the point at which merchandise and service orders are fulfilled and delivered to customers, excluding shipping and delivery. Prior to the first quarter of fiscal 2016, our comparable store sales operating measure in a given period was based on merchandise and service orders placed in that period, excluding shipping and delivery, which did not always reflect the point at which merchandise and services were received by the customer and, therefore, recognized in our financial statements as net sales. We believe that changing the comparable store sales operating metric to better align with net sales presented in our financial statements will assist investors in evaluating our financial performance. The comparable store sales percentages presented for the previous periods have been adjusted to reflect the updated definition.

(2) We have presented EBITDA and Adjusted EBITDA as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. These non-GAAP measures 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. These non-GAAP measures are key metrics used by management, our board of directors, and LGP to assess our financial performance. We present these non-GAAP measures because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and 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 footnote (3) of this table for further information regarding why we believe EBITDA and Adjusted EBITDA provide useful information to investors regarding our financial condition and results of operations, as well as the additional purposes for which management uses each non-GAAP financial measure.

Additionally, this Management’s Discussion and Analysis also refers to Elfa third-party net sales after the conversion of Elfa’s net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate. The Company believes the disclosure of Elfa third-party net sales without the effects of currency exchange rate fluctuations helps investors understand the Company’s underlying performance.

(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 before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with our Secured Term Loan Facility and the Revolving Credit Facility 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.

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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 margin are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.

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

	Thirteen Weeks Ended
	July 2,	July 4,
	2016	2015
Net loss	$(2,057)	$(5,788)
Depreciation and amortization	9,347	8,231
Interest expense, net	4,110	4,173
Income tax benefit	(1,025)	(3,366)
EBITDA	10,375	3,250
Pre-opening costs*(a)	1,096	1,640
Noncash rent*(b)	(418)	(670)
Stock-based compensation*(c)	365	327
Foreign exchange losses (gains)(d)	42	176
Other adjustments(e)	572	14
Adjusted EBITDA	$12,032	$4,737

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

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(b) Reflects the extent to which our annual GAAP rent expense has been above or below our cash rent payment due to lease accounting adjustments. The adjustment varies depending on the average age of our lease portfolio (weighted for size), as our GAAP rent expense on younger leases typically exceeds our cash cost, while our GAAP rent expense on older leases is typically less than our cash cost.

(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) Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations.

(e) Other adjustments include amounts our management does not consider in our evaluation of our ongoing operations, including certain severance and other charges.

Thirteen weeks ended July 2, 2016 and July 4, 2015

Net sales

The following table summarizes our net sales for the thirteen weeks ended July 2, 2016 and the thirteen weeks ended July 4, 2015:

	July 2, 2016	% total	July 4, 2015	% total
TCS net sales	$161,249	90.9%	$153,457	90.3%
Elfa third party net sales	16,199	9.1%	16,501	9.7%
Net sales	$177,448	100.0%	$169,958	100.0%

Net sales in the thirteen weeks ended July 2, 2016 increased by $7,490 , or 4.4% , compared to the thirteen weeks ended July 4, 2015. The increase is comprised of the following components:

		Net sales
Net sales for thirteen weeks ended July 4, 2015		$169,958
Incremental net sales increase (decrease) due to:
New stores		10,004
Comparable stores (including a $216, or 1.8%, decrease in online sales)		(2,181)
Elfa third party net sales (excluding impact of foreign currency translation)		(682)
Impact of foreign currency translation on Elfa third party net sales		380
Shipping and delivery		(31)
Net sales for the thirteen weeks ended July 2, 2016		$177,448

In the thirteen weeks ended July 2, 2016, eleven new stores generated $10,004 of incremental net sales, ten of which were opened prior to or during fiscal 2015 and one of which was opened in the first quarter of fiscal 2016. The increase in net sales generated by new stores was partially offset by a $2,181, or 1.4% decrease in net sales from comparable stores. Elfa third party net sales decreased $302 in the thirteen weeks ended July 2, 2016. After converting Elfa’s third-party net sales results from Swedish krona to U.S. dollars using the prior year’s conversion rate for both the thirteen weeks ended July 2, 2016 and the thirteen weeks ended July 4, 2015, Elfa third-party net sales declined $682, or 4.1%, primarily due to lower sales in Russia.

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Gross profit and gross margin

Gross profit in the thirteen weeks ended July 2, 2016 increased by $5,184 , or 5.2% , compared to the thirteen weeks ended July 4, 2015. The increase in gross profit was primarily the result of increased net sales, combined with improved consolidated gross margin. The following table summarizes the gross margin for the thirteen weeks ended July 2, 2016 and July 4, 2015 by segment and total. The segment margins include the impact of inter-segment sales from the Elfa segment to the TCS segment:

	July 2, 2016	July 4, 2015
TCS gross margin	58.6%	58.7%
Elfa gross margin	42.1%	38.8%
Total gross margin	59.0%	58.6%

TCS gross margin declined slightly to 58.6%, as a growing mix of lower-margin product and service sales was partially offset by the impact of the stronger U.S. dollar. Elfa gross margin improved primarily due to lower direct materials costs and production efficiencies. On a consolidated basis, gross margin increased 40 basis points, primarily due to the improvement in gross margin at the Elfa segment during the first quarter of fiscal 2016.

Selling, general and administrative expenses

Selling, general and administrative expenses in the thirteen weeks ended July 2, 2016 decreased by $1,971, or 2.1% , compared to the thirteen weeks ended July 4, 2015. The following table summarizes selling, general and administrative expenses as a percentage of consolidated net sales for the thirteen weeks ended July 2, 2016 and July 4, 2015:

	July 2, 2016	July 4, 2015
	% of net sales	% of net sales
TCS selling, general and administrative	46.6%	49.6%
Elfa selling, general and administrative	5.4%	5.9%
Total selling, general and administrative	52.0%	55.5%

TCS selling, general and administrative expenses decreased by 300 basis points as a percentage of total net sales. The decrease was primarily due to the impact of amended and restated employment agreements entered into with key executives during the quarter, leading to the reversal of accrued deferred compensation associated with the original employment agreements, net of costs incurred to execute the agreements, of $3,910, or 220 basis points. Additionally, the Company’s SG&A savings program contributed, in part, to decreased spending on certain major initiatives and decreased 401(k) costs. The Company also experienced lower healthcare costs during the first quarter of fiscal 2016. Elfa selling, general and administrative expenses decreased by 50 basis points as a percentage of total net sales, primarily due to a positive impact from foreign currency exchange rates.

Pre-opening costs

Pre-opening costs decreased by $544, or 33.2%, in the thirteen weeks ended July 2, 2016 to $1,096, as compared to $1,640 in the thirteen weeks ended July 4, 2015. We opened one store in the thirteen weeks ended July 2, 2016, as compared to two stores in the thirteen weeks ended July 4, 2015.

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Depreciation and amortization

Depreciation and amortization increased by $1,116, or 13.6%, in the thirteen weeks ended July 2, 2016 to $9,347, as compared to $8,231 in the thirteen weeks ended July 4, 2015. The increase in depreciation and amortization is primarily related to an increase in the number of stores, as well as investments in automation in the distribution center and corporate headquarters to support the increase in the number of stores.

Other expenses

Other expenses of $549 were recorded in the thirteen weeks ended July 2, 2016, which were primarily related to management transition costs.

Taxes

The benefit for income taxes in the thirteen weeks ended July 2, 2016 was $1,025, as compared to $3,366 in the thirteen weeks ended July 4, 2015. The effective tax rate for the thirteen weeks ended July 2, 2016 was 33.3%, as compared to 36.8% in the thirteen weeks ended July 4, 2015. The decrease in the effective tax rate is primarily due to a shift in the mix of domestic and foreign earnings.

Five-week transition period ended April 2, 2016

Net sales in the five-week transition period ended April 2, 2016 increased by $2,457 , or 3.7% , compared to the five-week period ended April 4, 2015. The increase was primarily due to incremental sales from ten new stores, partially offset by a decrease in Elfa third-party sales and a decrease in shipping and delivery sales due to the introduction of free shipping on orders over $75 in April 2015. Gross profit increased by $941, or 2.4%, compared to the prior year comparable period, primarily due to the increase in net sales and partially offset by a 70 basis points decline in gross margin. The decline in gross margin is primarily due to a shift in timing of Our Annual elfa® Sale extension, which resulted in decreased sales of elfa® product in the five-weeks ended April 2,2016 as compared to the prior year comparable period. Selling, general and administrative expenses increased by $776, or 2.3%, compared to the prior year comparable period, primarily due to the increase in sales. As a percent of sales, selling, general and administrative expenses declined 70 basis points, primarily due to improved leverage on store payroll during the month. Basic and diluted earnings per share remained consistent at $0.01 in the five-week transition period ended April 2, 2016 as compared to the five-week period ended April 4, 2015.

Liquidity and Capital Resources

We rely 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 SEK 140.0 million (approximately $16,465 as of July 2, 2016) 2014 Elfa revolving credit facility (the “2014 Elfa Revolving Credit Facility” as further discussed under “Elfa Senior Secured Credit Facilities and 2014 Elfa Senior Secured Credit Facilities” below) as our primary sources of liquidity. Our primary cash needs are for merchandise inventories, direct materials, payroll, store rent, capital expenditures associated with opening new stores and updating existing stores, as well as information technology and infrastructure, including distribution center and Elfa manufacturing facility enhancements. The most significant components of our operating assets and liabilities are merchandise inventories, accounts receivable, prepaid expenses and other assets, accounts payable, other current and non-current 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. Our borrowings generally increase in our second and third fiscal quarters as we prepare for our Annual Shelving Sale, the holiday season, and Our Annual elfa® Sale. We believe that cash expected to be generated from operations and the availability of borrowings under the Revolving Credit Facility and the 2014 Elfa Revolving Credit Facility will be sufficient to meet liquidity requirements, anticipated capital expenditures and payments due under our existing credit facilities for at least the next 24 months.

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At July 2, 2016, we had $8,189 of cash and $59,926 of additional availability under the Revolving Credit Facility and approximately $10,483 of additional availability under the 2014 Elfa Revolving Credit Facility. There were $3,535 in letters of credit outstanding under the Revolving Credit Facility and other contracts at that date.

Cash flow analysis

A summary of our operating, investing and financing activities are shown in the following table:

	Thirteen Weeks Ended
	July 2,	July 4,
	2016	2015
Net cash used in operating activities	$(669)	$(16,408)
Net cash used in investing activities	(8,006)	(12,008)
Net cash provided by financing activities	8,158	24,800
Effect of exchange rate changes on cash	(103)	494
Net decrease in cash	$(620)	$(3,122)

Net cash used in operating activities

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

Net cash used in operating activities was $669 for the thirteen weeks ended July 2, 2016. Non-cash items of $9,114 were more than offset by a net loss of $2,057 and a net change in operating assets and liabilities of $7,726. The net change in operating assets and liabilities is primarily due to an increase in merchandise inventory and accounts receivable and a decrease in noncurrent liabilities, partially offset by an increase in accounts payable and accrued liabilities during the thirteen weeks ended July 2, 2016.

Net cash used in operating activities was $16,408 for the thirteen weeks ended July 4, 2015. Non-cash items of $5,852 were more than offset by a net loss of $5,788 and a net change in operating assets and liabilities of $16,471, primarily due to an increase in merchandise inventory, partially offset by an increase in accounts payable and accrued liabilities during the thirteen weeks ended July 4, 2015.

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 center.

Our total capital expenditures for the thirteen weeks ended July 2, 2016 were $8,013 with new store openings and existing store remodels accounting for approximately half of spending at $4,051. We opened one new store during the thirteen weeks ended July 2, 2016. The remaining capital expenditures of $3,962 were primarily for investments in our distribution center and information technology.

Our total capital expenditures for the thirteen weeks ended July 4, 2015 were $12,199 with new store openings and existing store remodels accounting for $4,910 of the spending. We opened two new stores during the thirteen weeks ended July 4, 2015. The remaining capital expenditures of $7,289 were primarily for investments in strategic initiatives, our corporate offices and distribution center, information technology, and Elfa manufacturing facility enhancements.

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Net cash provided by financing activities

Financing activities consist primarily of borrowings and payments under the Senior Secured Term Loan Facility, the Revolving Credit Facility, the Elfa Senior Secured Credit Facilities, and the 2014 Elfa Senior Secured Credit Facilities ( as further discussed under “Elfa Senior Secured Credit Facilities and 2014 Elfa Senior Secured Credit Facilities” below).

Net cash provided by financing activities was $8,158 for the thirteen weeks ended July 2, 2016. This included net proceeds of $7,000 from borrowings under the Revolving Credit Facility combined with net proceeds of $2,513 from borrowings under the 2014 Elfa Revolving Credit Facility to support higher working capital needs. The net proceeds of the revolver borrowings were partially offset by payments of $1,355 for repayment of long-term indebtedness.

Net cash provided by financing activities was $24,800 for the thirteen weeks ended July 4, 2015. This included net proceeds of $23,000 from borrowings under the Revolving Credit Facility combined with net proceeds of $3,126 from borrowings under the 2014 Elfa Revolving Credit Facility to support higher working capital needs. The net proceeds of the revolver borrowings were partially offset by payments of $1,327 for repayment of long-term indebtedness.

As of July 2, 2016, we had a total of $59,926 of unused borrowing availability under the Revolving Credit Facility. There were $12,000 of borrowings outstanding under the Revolving Credit Facility as of July 2, 2016.

As of July 2, 2016, Elfa had a total of $10,483 of unused borrowing availability under the 2014 Elfa Revolving Credit Facility and $5,982 outstanding under the 2014 Elfa Revolving Credit Facility.

Senior Secured Term Loan Facility

On April 6, 2012, The Container Store Group, Inc., The Container Store, Inc. and certain of its 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”). Prior to the Increase and Repricing Transaction, as discussed below, borrowings under the Senior Secured Term Loan Facility accrued interest at LIBOR+5.00%, subject to a LIBOR floor of 1.25%.

On April 8, 2013, The Container Store Group, Inc., The Container Store, Inc. and certain of its domestic subsidiaries entered into Amendment No.1 to the Senior Secured Term Loan Facility, pursuant to which the borrowings under the Senior Secured Term Loan Facility were increased to $362,250 and the interest rate on such borrowings was decreased to a rate of LIBOR + 4.25%, subject to a LIBOR floor of 1.25% (the “Increase and Repricing Transaction”). The maturity date remained as April 6, 2019. Additionally, pursuant to the Increase and Repricing Transaction (i) the senior secured leverage ratio covenant referenced below was eliminated and (ii) we are required to make quarterly principal repayments of $906 through December 31, 2018, with a balloon payment for the remaining balance due on April 6, 2019. The additional $90,000 of borrowings was used to finance a distribution to holders of our senior preferred stock in the amount of $90,000, which was paid on April 9, 2013.

On November 8, 2013, net proceeds of $31,000 from the IPO were used to repay a portion of the outstanding borrowings under the Senior Secured Term Loan Facility.

On November 27, 2013, The Container Store Group, Inc., The Container Store, Inc. and certain of its domestic subsidiaries entered into Amendment No. 2 to the Senior Secured Term Loan Facility (the “Repricing Transaction”). Pursuant to the Repricing Transaction, borrowings accrue interest at a lower rate of LIBOR + 3.25%, subject to a LIBOR floor of 1.00%. The maturity date remained as April 6, 2019 and we continue to be required to make quarterly principal repayments of $906 through December 31, 2018, with a balloon payment for the remaining balance due on April 6, 2019.

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On May 20, 2016, The Container Store, Inc. entered into Amendment No. 3 to the Senior Secured Term Loan Facility to update the credit agreement for the Company’s change in fiscal year. No other material changes were made to the terms of the credit agreement.

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 requirement (as such term is defined in the Senior Secured Term Loan Facility). As of July 2, 2016, we were in compliance with all covenants 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 its domestic subsidiaries entered into a $75,000 asset-based revolving credit agreement with JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and Wells Fargo Bank, National Association, as Syndication Agent (the “Revolving Credit Facility”). Borrowings under the Revolving Credit Facility accrue interest at LIBOR+1.25% to 1.75%, subject to adjustment based on average daily excess availability over the preceding quarter, and the maturity date is April 6, 2017.

On October 8, 2015, The Container Store, Inc. executed an amendment to the Revolving Credit Facility (“Amendment No. 2”). Under the terms of Amendment No. 2, among other items, (i) the maturity date of the loan was extended from April 6, 2017 to the earlier of (x) October 8, 2020 and (y) January 6, 2019, if any of The Container Store, Inc.’s obligations under its term loan credit facility remain outstanding on such date and have not been refinanced with debt that has a final maturity date that is no earlier than April 6, 2019 or subordinated debt, (ii) the aggregate principal amount of the facility was increased from $75,000 to $100,000, (iii) the interest rate decreased from a range of LIBOR + 1.25% to 1.75% to LIBOR + 1.25% and (iv) the uncommitted incremental revolving facility was increased from $25,000 to $50,000, which is subject to receipt of lender commitments and satisfaction of specified conditions.

As provided in Amendment No. 2, the Revolving Credit Facility will continue to be used for working capital and other general corporate purposes. Amendment No. 2 allows for swing line advances of up to $15,000 and the issuance of letters of credit of up to $40,000, increased from the previous swing line limits of $7,500 and letter of credit limits of $20,000.

On May 20, 2016, The Container Store, Inc. entered into Amendment No. 3 to the Revolving Credit Facility to update the credit agreement for the Company’s change in fiscal year. No other material changes were made to the terms of the credit agreement.

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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 agreement contains 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 2, 2016, we were in compliance with all covenants and no Event of Default (as such term is defined in the Revolving Credit Facility) has occurred.

Elfa Senior Secured Credit Facilities and 2014 Elfa Senior Secured Credit Facilities

On April 27, 2009, Elfa entered into senior secured credit facilities with Tjustbygdens Sparbank AB, which we refer to as Sparbank, which consisted of a SEK 137.5 million term loan facility (the “Elfa Term Loan Facility”) and a revolving credit facility (the “Elfa Revolving Credit Facility” and, together with the Elfa Term Loan Facility, the “Elfa Senior Secured Credit Facilities”). On January 27, 2012, Sparbank transferred all of its commitments, rights and obligations under the Elfa Senior Secured Credit Facilities to Swedbank AB. Borrowings under the Elfa Senior Secured Credit Facilities accrued interest at a rate of STIBOR+1.775%. Elfa was required to make quarterly principal repayments under the Elfa Term Loan Facility of SEK 6.25 million through maturity. The Elfa Senior Secured Credit Facilities were secured by first priority security interests in substantially all of Elfa’s assets. The Elfa Term Loan Facility and the Elfa Revolving Credit Facility matured on August 30, 2014 and were replaced with the 2014 Elfa Senior Secured Credit Facilities as discussed below.

On April 1, 2014, Elfa entered into a master credit agreement with Nordea Bank AB (“Nordea”), which consists of a SEK 60.0 million (approximately $7,056 as of July 2, 2016) term loan facility (the “2014 Elfa Term Loan Facility”) and a SEK 140.0 million (approximately $16,465 as of July 2, 2016) revolving credit facility (the “2014 Elfa Revolving Credit Facility,” and together with the 2014 Elfa Term Loan Facility, the “2014 Elfa Senior Secured Credit Facilities”). The 2014 Elfa Senior Secured Credit Facilities term began on August 29, 2014 and matures on August 29, 2019, or such shorter period as provided by the agreement. Elfa is required to make quarterly principal payments under the 2014 Elfa Term Loan Facility in the amount of SEK 3.0 million (approximately $353 as of July 2, 2016) through maturity. The 2014 Elfa Term Loan Facility bears interest at STIBOR + 1.7% and the 2014 Elfa Revolving Credit Facility bears interest at Nordea’s base rate + 1.4%, and these rates are applicable until August 29, 2017, at which time the interest rates may be renegotiated at the request of either party to the agreement. Should the parties fail to agree on new interest rates, Elfa has the ability to terminate the agreement on August 29, 2017, at which time all borrowings under the agreement shall be paid in full to Nordea.

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The 2014 Elfa Senior Secured Credit Facilities contain 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 consolidated equity ratio (as defined in the 2014 Elfa Senior Secured Credit Facilities) of not less than 30% in year one and not less than 32.5% thereafter and (ii) a consolidated ratio of net debt to EBITDA (as defined in the 2014 Elfa Senior Secured Credit Facilities) of less than 3.2, the consolidated equity ratio tested at the end of each calendar quarter and the ratio of net debt to EBITDA tested as of the end of each fiscal quarter. As of July 2, 2016, Elfa was in compliance with all covenants and no Event of Default (as defined in the 2014 Elfa Senior Secured Credit Facilities) had occurred.

On May 13, 2014, Elfa entered into a credit facility with Nordea for SEK 15.0 million (the “Short Term Credit Facility”). The Short Term Credit Facility accrued interest at 2.53% and matured on August 28, 2014, at which time all borrowings under the agreement were paid in full to Nordea (approximately $2,152 as of August 28, 2014). The total amount of borrowings available under the Short Term Credit Facility was used to pay a mortgage owed on the Poland manufacturing facility in full in the first quarter of fiscal 2014.

Critical accounting policies and estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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 the Company’s significant accounting policies is included in Note 1 to the Company’s annual consolidated financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended February 27, 2016, filed with the SEC on May 10, 2016.

Certain of the Company’s accounting policies and estimates are considered critical, as these policies and estimates are the most important to the depiction of the company’s 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 Annual Report on Form 10-K for the fiscal year ended February 27, 2016 , filed with the SEC on May 10, 2016. As of July 2, 2016, there were no significant changes to any of our critical accounting policies and estimates.

Contractual obligations

There have been no significant changes to our contractual obligations as disclosed in our Annual Report on Form 10-K for the fiscal year ended February 27, 2016, filed with the SEC on May 10, 2016, other than those which occur in the normal course of business.

Off Balance Sheet Arrangements

We are not party to any off balance sheet arrangements.

Recent Accounting Pronouncements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risk profile as of July 2, 2016 has not significantly changed since February 27, 2016. Our market risk profile as of February 27, 2016 is disclosed in our Annual Report on Form 10-K filed with the SEC on May 10, 2016. See Note 8 of Notes to our unaudited consolidated financial statements included in Part I, Item 1, of this Form 10-Q, for disclosures on our foreign currency forward contracts.

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 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 2, 2016.

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 five weeks ended April 2, 2016 and the quarter ended July 2, 2016 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 Annual Report on Form 10-K for the fiscal year ended February 27, 2016, filed with the SEC on May 10, 2016.

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

None.

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ITEM 3. DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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	1/10/14

3.2	Amended and Restated By-laws of The Container Store Group, Inc.	10-Q	001-36161	3.2	1/10/14

4.1	Termination of Voting Agreement, dated as of May 6, 2016	10-K	001-36161	4.3	5/10/16

10.1	Third Amended and Restated Employment Agreement, dated May 6, 2016, between Kip Tindell and The Container Store Group, Inc.	8-K	001-36161	10.1	5/9/16

10.2	Third Amended and Restated Employment Agreement, dated May 6, 2016, between Melissa Reiff and The Container Store Group, Inc.	8-K	001-36161	10.2	5/9/16

10.3	Third Amended and Restated Employment Agreement, dated May 6, 2016, between Sharon Tindell and The Container Store Group, Inc.	8-K	001-36161	10.3	5/9/16

10.4	Employment Agreement, dated May 6, 2016, between Jodi Taylor and The Container Store Group, Inc.	8-K	001-36161	10.4	5/9/16

10.5	Amendment No. 3 to the Senior Secured Term Loan Facility					*

10.6	Amendment No. 3 to the Revolving Credit Facility					*

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10.7

Form of Restricted Stock Award Grant Notice (Time-Vesting) and Restricted Stock Award Agreement, pursuant to the Company’s 2013 Incentive Award Plan

10.8

Form of Restricted Stock Award Grant Notice (Performance-Vesting) and Restricted Stock Award Agreement, pursuant to the Company’s 2013 Incentive Award Plan

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

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 10, 2016

	/s/ Jodi L. Taylor
	Jodi L. Taylor
Chief Financial and Administrative Officer (duly authorized officer and Principal Financial Officer)

Date: August 10, 2016

	/s/ Jeffrey A. Miller
	Jeffrey A. Miller
Chief Accounting Officer (Principal Accounting Officer)

Exhibit 10.5

AMENDMENT No. 3 , dated as of May 20, 2016 (this “ Amendment ”), to the Credit Agreement dated as of April 6, 2012, among THE CONTAINER STORE, INC., a Texas corporation (the “ Borrower ”), the Guarantors party thereto, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement (the “ Lenders ”), JPMORGAN CHASE BANK, N.A., as Administrative Agent (the “ Administrative Agent ”), and the other parties thereto (as amended, restated, modified and supplemented from time to time, the “ Credit Agreement ”); capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.

WHEREAS, each of the Borrower and Holdings has notified the Administrative Agent that it is changing the end of its Fiscal Year from the Saturday closest to February 28 to the Saturday closest to March 31 of each year; and

WHEREAS, Section 7.11 of the Credit Agreement provides that Holdings, the Borrower and the Administrative Agent will, and are authorized by the Lenders to, amend the Credit Agreement to reflect any change in Fiscal Year;

NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

Section 1. Amendments . Effective as of the Amendment No. 3 Effective Date:

(a) Section 1.01 of the Credit Agreement is hereby amended by adding the following definition in its proper alphabetical order:

“ Transition Period ” means the period from and including February 28, 2016 to and including April 2, 2016.

(b) Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Fiscal Month” contained therein and replacing it with the following:

““ Fiscal Month ” means any fiscal month of any Fiscal Year; provided that for the avoidance of doubt, the Transition Period shall be considered a Fiscal Month.”

(c) Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Fiscal Year” contained therein and replacing it with the following:

““ Fiscal Year ” means (i) any period of twelve consecutive Fiscal Months ending on the Saturday closest to February 28 in each calendar year (except for 53-week years) and on or prior to February 27, 2016 and (ii) any period of twelve consecutive Fiscal Months ending on the Saturday closest to March 31 in each calendar year (except for 53-week years) after April 2, 2016; provided that, other than for purposes of Section 6.01 and Section 6.02, the Fiscal Year ended April 1, 2017 shall include the Transition Period.”

(d) Section 1.01 of the Credit Agreement is hereby amended by deleting the definition of “Measurement Period” contained therein and replacing it with the following:

““ Measurement Period ” means, at any date of determination, the most recently completed four consecutive Fiscal Quarters of Holdings and its Restricted Subsidiaries for which financial statements pursuant to Section 6.01(a) or (b) have been, or were required to have been, delivered for the applicable

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fiscal period (or, in the case of any calculation made prior to the first such delivery, the four Fiscal Quarter period ended November 16, 2011); provided that, with respect to the Fiscal Quarters ending July 2, 2016, October 1, 2016, December 31, 2016 and April 1, 2017, the Measurement Periods will be the twelve consecutive Fiscal Months (i) beginning on July 5, 2015 and ending on July 2, 2016, (ii) beginning on October 4, 2015 and ending on October 1, 2016, (iii) beginning on January 3, 2016 and ending on December 31, 2016 and (iv) beginning on April 3, 2016 and ending on April 1, 2017, respectively.”

(e) Section 6.01(b) of the Credit Agreement is hereby amended by adding the following to the end thereof:

“ provided that, simultaneously with the delivery of the financial statements for the Fiscal Quarter ending July 2, 2016, the Borrower shall deliver to the Administrative Agent Consolidated statements of income or operations and cash flows of Holdings and its Subsidiaries for the Transition Period, together with the related information for the Transition Period required pursuant to clause (d) below;”,

Section 2. Representations and Warranties, No Default . In order to induce the Administrative Agent to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, each of the Borrower and Holdings represents and warrants to the Administrative Agent that:

(a) After giving effect to this Amendment, each of the representations and warranties in the Credit Agreement and in the other Loan Documents are true and correct in all material respects on and as of the date hereof as though made on and as of the date hereof, except to the extent that any such representation or warranty expressly relates to an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date; and

(b) At the time of and immediately after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.

Section 3. Effectiveness . Section 1 of this Amendment shall become effective on the date (such date, if any, the “ Amendment No. 3 Effective Date ”) that this Amendment is executed by the Administrative Agent, Holdings and the Borrower.

Section 4. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Amendment.

Section 5. Applicable Law . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THAT WOULD RESULT IN THE APPLICATION OF ANY LAW OTHER THAN THE LAW OF THE STATE OF NEW YORK.

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Section 6. Headings . Section and Subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect.

Section 7. Effect of Amendment . Except as expressly set forth herein, (i) this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders, the Administrative Agent or any other Agent, in each case under the Credit Agreement or any other Loan Document, and (ii) shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of either such agreement or any other Loan Document. Each and every term, condition, obligation, covenant and agreement contained in the Credit Agreement or any other Loan Document is hereby ratified and re-affirmed in all respects and shall continue in full force and effect. Each of the Borrower and Holdings reaffirms its obligations under the Loan Documents to which it is party and the validity of the Liens granted by it pursuant to the Collateral Documents. This Amendment shall constitute a Loan Document for purposes of the Credit Agreement and from and after the Amendment No. 3 Effective Date, all references to the Credit Agreement in any Loan Document and all references in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, shall, unless expressly provided otherwise, refer to the Credit Agreement as amended by this Amendment.

Section 8. Submission To Jurisdiction; Waivers . Each of the parties hereto hereby irrevocably and unconditionally agrees that Section 11.14 of the Credit Agreement is incorporated herein mutatis mutandis .

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.

THE CONTAINER STORE, INC., as Borrower

By:		/s/ Jodi Taylor
	Name:	Jodi Taylor
	Title:	Chief Financial Officer

THE CONTAINER STORE GROUP, INC.,
as Holdings

By:		/s/ Jodi Taylor
	Name:	Jodi Taylor
	Title:	Chief Financial Officer

[Signature Page to Amendment]

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	JPMORGAN CHASE BANK, N.A.,
	as Administrative Agent

	By:	/s/ David L. Howard
		Name: David L. Howard
		Title: Authorized Officer

[Signature Page to Amendment]

Exhibit 10.6

AMENDMENT No. 3 , dated as of May 20, 2016 (this “ Amendment ”), to the Credit Agreement dated as of April 6, 2012, among THE CONTAINER STORE, INC., a Texas corporation (the “ Borrower ”), the Guarantors party thereto, the several banks and other financial institutions or entities from time to time parties to the Credit Agreement (the “ Lenders ”), JPMORGAN CHASE BANK, N.A., as Administrative Agent (the “ Administrative Agent ”) and Collateral Agent, and the other parties thereto (as amended, restated, modified and supplemented from time to time, the “ Credit Agreement ”); capitalized terms used and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement, as amended hereby.

Section 1. Amendments . The Credit Agreement is, effective as of the Amendment No. 3 Effective Date (as defined below), hereby amended as follows:

(a) Additional Definitions . Section 1.01 of the Credit Agreement is hereby amended to add thereto in alphabetical order the following definitions which shall read in full as follows:

“ Amendment No. 3 ” means Amendment No. 3 to this Agreement, dated as of May 20, 2016, by and among the Borrower, Holdings, and the Administrative Agent.

“ Amendment No. 3 Effective Date ” has the meaning specified in Amendment No. 3.

“ Transition Period ” means the period from and including February 28, 2016 to and including April 2, 2016.

(b) Amended Definitions . The following definitions contained in Section 1.01 of the Credit Agreement are hereby amended and restated in their entirety to read in full as follows:

“ Fiscal Month ” means any fiscal month of any Fiscal Year; provided that for the avoidance of doubt, the Transition Period shall be considered a Fiscal Month.

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“ Fiscal Year ” means (i) any period of twelve consecutive Fiscal Months ending on the Saturday closest to February 28 in each calendar year (except for 53-week years) and on or prior to February 27, 2016 and (ii) any period of twelve consecutive Fiscal Months ending on the Saturday closest to March 31 in each calendar year (except for 53-week years) after April 2, 2016; provided that, other than for purposes of Section 6.01 and Section 6.02, the Fiscal Year ended April 1, 2017 shall include the Transition Period.

“ Measurement Period ” means, at any date of determination, the most recently completed four consecutive Fiscal Quarters of Holdings and its Restricted Subsidiaries for which financial statements pursuant to Section 6.01(a) or (b) have been, or were required to have been, delivered for the applicable fiscal period (or, in the case of any calculation made prior to the first such delivery, the four Fiscal Quarter period ended November 16, 2011); provided that, with respect to the Fiscal Quarters ending July 2, 2016, October 1, 2016, December 31, 2016 and April 1, 2017, the Measurement Periods will be the twelve consecutive Fiscal Months (i) beginning on July 5, 2015 and ending on July 2, 2016, (ii) beginning on October 4, 2015 and ending on October 1, 2016, (iii) beginning on January 3, 2016 and ending on December 31, 2016 and (iv) beginning on April 3, 2016 and ending on April 1, 2017, respectively.

(c) Deleted Definitions . The definitions of “Adjustment Date” and “Average Daily Excess Availability” contained in Section 1.01 of the Credit Agreement are hereby deleted from the Credit Agreement in their entirety.

(d) Section 6.01(b) of the Credit Agreement is hereby amended by adding the following to the end thereof:

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(b) At the time of and immediately after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.

Section 4. Counterparts . This Amendment may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page to this Amendment by telecopier or other electronic transmission (e.g., “.pdf”) shall be effective as delivery of a manually executed counterpart of this Amendment.

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.

THE CONTAINER STORE, INC., as Borrower


By:	/s/ Jodi Taylor
Name:		Jodi Taylor
Title:		Chief Financial Officer


THE CONTAINER STORE GROUP, INC.,
as Holdings


By:	/s/ Jodi Taylor
Name:		Jodi Taylor
Title:		Chief Financial Officer

[SIGNATURE PAGE TO AMENDMENT NO. 3 - THE CONTAINER STORE, INC.]

JPMORGAN CHASE BANK, N.A.,
as Administrative Agent


By:	/s/ Jon Eckhouse
Name:		Jon Eckhouse
Title:		Authorized Officer

[SIGNATURE PAGE TO AMENDMENT NO. 3 - THE CONTAINER STORE, INC.]

Exhibit 10.7

THE CONTAINER STORE GROUP, INC.
2013 INCENTIVE AWARD PLAN

RESTRICTED STOCK AWARD GRANT NOTICE (TIME-VESTING)

The Container Store Group, Inc., a Delaware corporation (the “ Company” ), pursuant to its 2013 Incentive Award Plan, as amended from time to time (the “ Plan ”), hereby grants to the employee listed below (“ Participant ”) the number of shares of Common Stock (“ Stock ”) set forth below (the “ Restricted Stock Award ”). The Restricted Stock Award is subject to the terms and conditions set forth in this Restricted Stock Award Grant Notice (the “ Grant Notice ”), the Restricted Stock Award Agreement attached hereto as Exhibit A (the “ Agreement ”) and the Plan, which are incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in the Grant Notice and the Agreement.

Participant:

Grant Date:

Total Number of Shares of Restricted Stock:	shares

Purchase Price:

Vesting Schedule:	The shares covered by the Restricted Stock Award shall vest and the Restrictions (as defined in the Agreement) on such shares shall lapse on __________ , subject to Participant’s continued employment with or service to the Company or a Subsidiary through the applicable vesting date.

By his or her signature and the Company’s signature below, Participant agrees to be bound by the terms and conditions of the Plan, the Agreement and the Grant Notice. Participant has reviewed the Agreement, the Plan and the Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing the Grant Notice and fully understands all provisions of the Grant Notice, the Agreement and the Plan. Participant hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions arising under the Plan, the Grant Notice or the Agreement.

THE CONTAINER STORE GROUP, INC.:			PARTICIPANT:
By:			By:
Print Name:			Print Name:
Title:			Employee
			Number:
			Location:

EXHIBIT A

RESTRICTED STOCK AWARD AGREEMENT

Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of shares of Restricted Stock under the Plan set forth in the Grant Notice.

ARTICLE I.

GENERAL

1.1 Defined Terms . Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice.

1.2 Incorporation of Terms of Plan . The Award is subject to the terms and conditions set forth in this Agreement and in the Grant Notice and the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

ARTICLE II.

AWARD OF RESTRICTED STOCK

2.1 Award of Restricted Stock .

(a) Award . In consideration of Participant’s past and/or continued employment with or service to the Company or a Subsidiary, and for other good and valuable consideration that the Administrator has determined exceeds the aggregate par value of the Common Stock subject to the Award (as defined below), effective as of the grant date set forth in the Grant Notice (the “ Grant Date ”), the Company has issued to Participant the number of shares of Restricted Stock (the “ Restricted Shares ”) set forth in the Grant Notice upon the terms and conditions set forth in the Grant Notice, the Plan and this Agreement, subject to adjustment as provided in Section 14.2 of the Plan (the “ Award ”). In connection with the grant of the Award, Participant shall cause his or her spouse, civil union partner or registered domestic partner (each, a “ Partner ”), if any, to execute the consent attached hereto as Exhibit B as soon as practicable following the Grant Date.

(b) Purchase Price; Book Entry Form . The purchase price of the Restricted Shares is set forth on the Grant Notice. At the sole discretion of the Administrator, the Restricted Shares (and any securities that constitute Retained Distributions (as defined below)) will be issued in either (i) uncertificated form, with the Restricted Shares (and securities that constitute Retained Distributions) recorded in the name of Participant in the books and records of the Company’s transfer agent with appropriate notations regarding the Restrictions (as defined below) imposed pursuant to this Agreement, and upon vesting and the satisfaction of all conditions set forth in Section 3.2, the Company shall cause the book entries evidencing the Restricted Shares (and any securities that constitute Retained Distributions) to indicate that the Restrictions have lapsed; or (ii) certificate form pursuant to the terms of Sections 2.1(c) and (d).

(c) Legend . Certificates representing Restricted Shares issued pursuant to this Agreement shall, until all Restrictions imposed pursuant to this Agreement lapse or shall have been removed and the Restricted Shares shall thereby have become vested or the Restricted Shares represented thereby have been forfeited hereunder, bear the following legend (or such other legend as shall be determined by the Administrator):

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS OF A RESTRICTED STOCK AWARD AGREEMENT, BY AND BETWEEN THE CONTAINER STORE GROUP, INC. AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT TO THE PROVISIONS OF SUCH AGREEMENT.”

(d) Escrow . The Secretary of the Company or such other escrow Participant as the Administrator may appoint may retain physical custody of the certificates representing the Restricted Shares (and any securities that constitute Retained Distributions) until all of the Restrictions imposed pursuant to this Agreement lapse or shall have been removed; in such event Participant shall not retain physical custody of any certificates representing unvested Restricted Shares issued to him or her (or any certificates representing securities that constitute Retained Distributions). Participant, by acceptance of the Award, shall be deemed to appoint, and does so appoint the Company and each of its authorized representatives as Participant’s attorney(s)-in-fact to effect any transfer of unvested forfeited Restricted Shares or securities that constitute Retained Distributions (or Restricted Shares otherwise reacquired by the Company hereunder) to the Company as may be required pursuant to the Plan or this Agreement and to execute such documents as the Company or such representatives deem necessary or advisable in connection with any such transfer.

(e) Delivery of Certificates and Payment Upon Vesting .

(i) As soon as administratively practicable after the vesting of any Restricted Shares subject to the Award pursuant to Section 2.2(c), the Company shall, as applicable, either remove the notations on any Restricted Shares subject to the Award issued in book entry form that have vested or deliver to Participant a certificate or certificates evidencing the number of Restricted Shares subject to the Award that have vested.

(ii) As soon as administratively practicable after the vesting of any Restricted Shares subject to the Award pursuant to Section 2.2(c), the Company shall (A) as applicable, either remove the notations on any securities that constitute Retained Distributions issued in book entry form with respect to such Restricted Shares or deliver to Participant a certificate or certificates evidencing the number of securities that constitute Retained Distributions with respect to such Restricted Shares and (B) pay Participant in cash an amount equal to all cash dividends or other cash distributions that constitute Retained Distributions with respect to such Restricted Shares.

(iii) Participant (or the beneficiary or personal representative of Participant in the event of Participant’s death or incapacity, as the case may be) shall deliver to the Company any representations or other documents or assurances required by the Company in connection with this Section 2.1(e). The Restricted Shares and securities that constitute Retained Distributions delivered pursuant to this Section 2.1(e) shall no longer be subject to the Restrictions hereunder.

2.2 Restrictions .

(a) Forfeiture . Any Restricted Shares subject to the Award that are not vested as of the date of Participant’s Termination of Service shall thereupon be forfeited immediately and without any further action by the Company.

(b) Restricted Shares Not Transferable . No Restricted Shares or any interest or right therein or part thereof shall, prior to vesting, be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by Section 12.3(a)(i) of the Plan; provided, however, that this Section 2.2(b) notwithstanding, with the consent of the Administrator and subject to the terms of the Plan, the Restricted Shares may be transferred to a Permitted Transferee, pursuant to any such conditions and procedures the Administrator may require. For purposes of this Agreement, “ Restrictions ” shall mean the restrictions on sale or other transfer set forth in this Section 2.2(b) and the exposure to forfeiture set forth in Section 2.2(a).

(c) Vesting and Lapse of Restrictions . Subject to Section 2.2(a) hereof, the Award shall vest and the Restrictions shall lapse in accordance with the vesting schedule and terms set forth in the Grant Notice.

(d) Retained Distributions . Unless otherwise determined by the Administrator, the Company will retain custody of all cash dividends and other distributions (“ Retained Distributions ”) made or declared with respect to the Restricted Shares (and such Retained Distributions will be subject to the Restrictions and the other terms and conditions under this Agreement that are applicable to the Restricted Shares) until such time, if ever, as the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall vest in accordance with Section 2.2(c), and such Retained Distributions shall not bear interest or be segregated in separate accounts. Any Retained Distributions with respect to Restricted Shares that have not vested as of the date of Participant’s Termination of Service shall thereupon be forfeited immediately and without any further action by the Company.

2.3 Consideration to the Company . In consideration of the grant of the Award by the Company, Participant agrees to render faithful and efficient services to the Company and the Subsidiaries. Nothing in the Plan or this Agreement shall confer upon Participant any right to continue in the employ or service of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.

ARTICLE III.

OTHER PROVISIONS

3.1 Tax Withholding . Notwithstanding any other provision of this Agreement:

(a) The Company and its Subsidiaries have the authority to deduct or withhold, or require Participant to remit to the Company or the applicable Subsidiary, an amount sufficient to satisfy any applicable federal, state, local and foreign taxes (including the employee portion of any FICA obligation) required by law to be withheld with respect to any taxable event arising pursuant to this Agreement.

The Company and its Subsidiaries may withhold or Participant may make such payment in one or more of the forms specified below:

(i) by cash or check made payable to the Company or the Subsidiary with respect to which the withholding obligation arises;

(ii) by the deduction of such amount from other compensation payable to Participant;

(iii) with the consent of the Administrator, by requesting that the Company withhold a net number of shares of Stock subject to the Award having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Company and its Subsidiaries based on the maximum statutory withholding rates in Participant’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income;

(iv) with the consent of the Administrator, by tendering to the Company vested shares of Stock held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a then current Fair Market Value not exceeding the amount necessary to satisfy the withholding obligation of the Company and its Subsidiaries based on the maximum statutory withholding rates in Participant’s applicable jurisdictions for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such taxable income;

(v) through the delivery of a notice that Participant has placed a market sell order with a broker acceptable to the Company with respect to the shares of Stock for which the Restrictions are then subject to lapse, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company or the Subsidiary with respect to which the withholding obligation arises in satisfaction of such withholding taxes; provided that payment of such proceeds is then made to the Company or the applicable Subsidiary at such time as may be required by the Administrator, but in any event not later than the settlement of such sale; or

(vi) in any combination of the foregoing.

(b) With respect to any withholding taxes arising in connection with the Award, in the event Participant fails to provide timely payment of all sums required pursuant to Section 3.1(a), the Company shall have the right and option, but not the obligation, to treat such failure as an election by Participant to satisfy all or any portion of Participant’s required payment obligation pursuant to Section 3.1(a)(ii) or Section 3.1(a)(iii) above, or any combination of the foregoing as the Company may determine to be appropriate. The Company shall not be obligated to deliver any new certificate representing Restricted Shares to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the grant of the Award or the issuance or vesting of Restricted Shares hereunder or any other taxable event with respect to the Restricted Shares .

Participant’s acceptance of this Award constitutes Participant’s instruction and authorization to the Company and such brokerage firm to complete the transactions described in this Section 3.1(c), including the transactions described in the previous sentence, as applicable.

(d) In the event of any broker-assisted sale of shares of Stock in connection with the payment of withholding taxes as provided in Section 3.1(a)(v) or Section 3.1(c): (i) any shares of Stock to be sold through a broker-assisted sale will be sold on the day the tax withholding obligation arises, or as soon thereafter as practicable; (ii) such shares of Stock may be sold as part of a block trade with other participants in the Plan in which all participants receive an average price; (iii) Participant will be responsible for all broker’s fees and other costs of sale, and Participant agrees to indemnify and hold the Company harmless from any losses, costs, damages, or expenses relating to any such sale; (iv) to the extent the proceeds of such sale exceed the applicable tax withholding obligation, the Company agrees to pay such excess in cash to Participant as soon as reasonably practicable; (v) Participant acknowledges that the Company or its designee is under no obligation to arrange for such sale at any particular price, and that the proceeds of any such sale may not be sufficient to satisfy the applicable tax withholding obligation; and (vi) in the event the proceeds of such sale are insufficient to satisfy the applicable tax withholding obligation, Participant agrees to pay immediately upon demand to the Company or its Subsidiary with respect to which the withholding obligation arises, an amount sufficient to satisfy any remaining portion of the Company’s or the applicable Subsidiary’s withholding obligation.

(e) Participant is ultimately liable and responsible for all taxes owed in connection with the Award, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Award. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding or vesting of the Award or the subsequent sale of Stock. The Company and the Subsidiaries do not commit and are under no obligation to structure the Award to reduce or eliminate Participant’s tax liability.

3.2 Conditions to Delivery of Stock . Subject to Section 2.1, the Restricted Shares deliverable under this Award may be either previously authorized but unissued shares of Stock or issued shares of Stock which have then been reacquired by the Company. Such shares of Stock shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any shares of Stock under this Award prior to fulfillment of all of the following conditions:

(i) The admission of such shares of Stock to listing on all stock exchanges on which such Stock is then listed;

(ii) The completion of any registration or other qualification of such shares of Stock under any state or federal law or under rulings or regulations of the Securities and Exchange Commission or of any other governmental regulatory body that the Administrator shall, in its absolute discretion, deem necessary or advisable;

(iii) The obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;

(iv) The receipt by the Company of full payment for such shares of Stock;

(v) The receipt of any applicable withholding tax in accordance with Section 3.1 by the Company or its Subsidiary with respect to which the applicable withholding obligation arises; and

(vi) The lapse of such reasonable period of time following the grant of this Award as the Administrator may from time to time establish for reasons of administrative convenience.

3.3 Rights as Stockholder . Except as otherwise provided herein, upon the Grant Date, Participant shall have all the rights of a stockholder with respect to the Restricted Shares, subject to the Restrictions herein, including the right to vote the Restricted Shares and the right to receive any cash or stock dividends paid to or made with respect to the Restricted Shares; provided, however, that at the discretion of the Company, and prior to the delivery of Restricted Shares, Participant may be required to execute a stockholder agreement in such form as shall be determined by the Company.

3.4 Section 83(b) Election . Participant understands that Section 83(a) of the Internal Revenue Code taxes as ordinary income the difference between the amount, if any, paid for the Restricted Shares and the Fair Market Value of such Restricted Shares and any Retained Distributions at the time the Restrictions on such Restricted Shares and Retained Distributions lapse. Participant understands that, notwithstanding the preceding sentence, Participant may elect to be taxed at the time of the Grant Date, rather than at the time the Restrictions lapse, by filing an election under Section 83(b) of the Code (an “ 83(b) Election ”) with the Internal Revenue Service within 30 days of the Grant Date. In the event that Participant files an 83(b) Election, Participant shall provide the Company a copy thereof prior to the expiration of such 30 day period. Participant understands that in the event an 83(b) Election is filed with the Internal Revenue Service within such time period, Participant will recognize ordinary income in an amount equal to the difference between the amount, if any, paid for the Restricted Shares and the Fair Market Value of such Restricted Shares as of the Grant Date. Participant further understands that an additional copy of such 83(b) Election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Participant acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to the Award hereunder, and does not purport to be complete. PARTICIPANT FURTHER ACKNOWLEDGES THAT THE COMPANY IS NOT RESPONSIBLE FOR FILING PARTICIPANT’S 83(b) ELECTION, AND THE COMPANY HAS DIRECTED PARTICIPANT TO SEEK INDEPENDENT ADVICE REGARDING THE APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE, THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH PARTICIPANT MAY RESIDE, AND THE TAX CONSEQUENCES OF PARTICIPANT’S DEATH. PARTICIPANT HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING PARTICIPANT’S 83(b) ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR FROM FAILURE TO FILE THE ELECTION AND PAYING TAXES RESULTING FROM THE LAPSE OF THE RESTRICTIONS ON THE UNVESTED RESTRICTED SHARES AND RETAINED DISTRIBUTIONS. PARTICIPANT UNDERSTANDS THAT PARTICIPANT MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PARTICIPANT’S PURCHASE OR DISPOSITION OF THE RESTRICTED SHARES AND PARTICIPANT REPRESENTS THAT PARTICIPANT IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.

3.5 Administration . The Administrator shall have the power to interpret the Plan, the Grant Notice and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan, the Grant Notice and this Agreement as are consistent therewith and to interpret, amend or revoke any such rules. All actions taken and all interpretations and determinations made by the Administrator will be final and binding upon Participant, the Company and all other interested persons. To the extent allowable pursuant to Applicable Law, no member of the Committee or the Board will be personally liable for any action, determination or interpretation made with respect to the Plan, the Grant Notice or this Agreement.

3.6 Adjustments . The Administrator may accelerate the vesting of all or a portion of the Restricted Shares in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the Restricted Stock Award is subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan, including Section 14.2 of the Plan.

3.7 Notices . Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to Participant shall be addressed to Participant at Participant’s last address reflected on the Company’s records. By a notice given pursuant to this Section 3.7, either party may hereafter designate a different address for notices to be given to that party. Any notice shall be deemed duly given when sent via email or when sent by certified mail (return receipt requested) and deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

3.8 Titles . Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

3.9 Governing Law . The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

3.10 Conformity to Securities Laws . Participant acknowledges that the Plan, the Grant Notice and this Agreement are intended to conform to the extent necessary with all Applicable Laws, including, without limitation, the provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission and state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Award is granted, only in such a manner as to conform to Applicable Law. To the extent permitted by Applicable Law, the Plan, the Grant Notice and this Agreement shall be deemed amended to the extent necessary to conform to Applicable Law.

3.11 Amendment, Suspension and Termination . To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board, provided that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Award in any material way without the prior written consent of Participant.

3.12 Successors and Assigns . The Company may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company. Subject to the restrictions on transfer set forth in Section 2.2 and the Plan, this Agreement shall be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.

3.13 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan or this Agreement, if Participant is subject to Section 16 of the Exchange Act, the Plan, the Award, the Grant Notice and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by Applicable Law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.

3.15 Entire Agreement . The Plan, the Grant Notice and this Agreement (including any exhibit hereto) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Participant with respect to the subject matter hereof.

3.16 Section 409A . This Award is not intended to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (together with any Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued after the date hereof, “ Section 409A ”). However, notwithstanding any other provision of the Plan, the Grant Notice or this Agreement, if at any time the Administrator determines that this Award (or any portion thereof) may be subject to Section 409A, the Administrator shall have the right in its sole discretion (without any obligation to do so or to indemnify Participant or any other person for failure to do so) to adopt such amendments to the Plan, the Grant Notice or this Agreement, or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate for this Award either to be exempt from the application of Section 409A or to comply with the requirements of Section 409A.

3.17 Agreement Severable . In the event that any provision of the Grant Notice or this Agreement is held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of the Grant Notice or this Agreement.

3.18 Limitation on Participant’s Rights . Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. Participant shall have only the rights of a general unsecured creditor of the Company with respect to amounts credited and benefits payable, if any, with respect to the Restricted Shares issuable hereunder.

3.19 Counterparts . The Grant Notice may be executed in one or more counterparts, including by way of any electronic signature, subject to Applicable Law, each of which shall be deemed an original and all of which together shall constitute one instrument.

* * *

EXHIBIT B

PARTNER CONSENT

As the undersigned spouse, registered domestic partner or civil union partner (each, a “ Partner ”) of Participant, I hereby acknowledge that I have read that certain Restricted Stock Award Agreement by and between my Partner and the Company and dated as of July 1, 2016 (the “ Agreement ”), and that I understand its contents. I am aware that the Agreement imposes certain restrictions on the transfer of the Restricted Shares subject to my Partner’s Restricted Stock Award. I agree that my Partner’s interest in the Restricted Shares are subject to the Agreement and any interest I may have in such Restricted Shares shall be irrevocably bound by the Agreement and further that my community property interest, if any, shall be similarly bound by the Agreement.

I am aware that the legal, financial and other matters contained in the Agreement are complex and I am free to seek advice with respect thereto from independent counsel. I have either sought such advice or determined after carefully reviewing the Agreement and the Plan that I will waive such right.

Capitalized terms used in this consent and not defined herein shall have the meanings given to such terms in the Agreement.


	Partner Signature



	Partner Name

Exhibit 10.8

THE CONTAINER STORE GROUP, INC.
2013 INCENTIVE AWARD PLAN

RESTRICTED STOCK AWARD GRANT NOTICE (PERFORMANCE-VESTING)

Participant:

Grant Date:


Total Number of Shares of Restricted Stock:	shares, which number represents the maximum number of shares of Restricted Stock subject to the Restricted Stock Award that may become vested pursuant to this Award Agreement

Purchase Price:

Vesting Schedule:	The shares of Restricted Stock subject to the Restricted Stock Award shall be eligible to Performance-Vest (as defined in the Agreement) based on achievement by the Company of the performance goals set forth on Schedule I attached hereto. The shares that Performance-Vest shall be eligible to Time-Vest (as defined in the Agreement) and the Restrictions (as defined in the Agreement) on such shares shall lapse on __________, subject to Participant’s continued employment with or services to the Company or a Subsidiary through the applicable vesting date.

THE CONTAINER STORE GROUP, INC.:			PARTICIPANT:
By:			By:
Print Name:			Print Name:
Title:			Employee
			Number:
			Location:

Schedule I : Performance Goals

As soon as reasonably practicable following the completion of the Company’s _____ fiscal year, the Administrator shall determine and certify the extent to which the _____ and _____ goals have been achieved, and, based on such determination and certification, shall determine the number of _____ Restricted Shares and _____ Restricted Shares that Performance-Vest, which determination shall be final and binding on Participant.

EXHIBIT A

RESTRICTED STOCK AWARD AGREEMENT

Pursuant to the Grant Notice to which this Agreement is attached, the Company has granted to Participant the number of shares of Restricted Stock under the Plan set forth in the Grant Notice.

ARTICLE I.

GENERAL

1.1 Defined Terms . Capitalized terms not specifically defined herein shall have the meanings specified in the Plan or the Grant Notice. For purposes of this Agreement, with respect to a Restricted Share:

(a) “ Performance-Vest ” means that the applicable performance goal has been achieved.

(b) “ Time-Vest ” or “ Vest ” means that both (i) such Restricted Share has Performance-Vested and (ii) the applicable service condition has been satisfied.

ARTICLE II.

AWARD OF RESTRICTED STOCK

2.1 Award of Restricted Stock .

(b) Purchase Price; Book Entry Form . The purchase price of the Restricted Shares is set forth on the Grant Notice. At the sole discretion of the Administrator, the Restricted Shares (and any securities that constitute Retained Distributions (as defined below)) will be issued in either (i) uncertificated form, with the Restricted Shares (and securities that constitute Retained Distributions) recorded in the name of Participant in the books and records of the Company’s transfer agent with appropriate notations regarding the Restrictions (as defined below) imposed pursuant to this Agreement, and upon Vesting and the satisfaction of all conditions set forth in Section 3.2, the Company shall cause the book entries evidencing the Restricted Shares (and any securities that constitute Retained Distributions) to indicate that the Restrictions have lapsed; or (ii) certificate form pursuant to the terms of Sections 2.1(c) and (d).

(c) Legend . Certificates representing Restricted Shares issued pursuant to this Agreement shall, until all Restrictions imposed pursuant to this Agreement lapse or shall have been removed and the Restricted Shares shall thereby have become Vested or the Restricted Shares represented thereby have been forfeited hereunder, bear the following legend (or such other legend as shall be determined by the Administrator):

(e) Delivery of Certificates and Payment Upon Vesting .

(i) As soon as administratively practicable after the Vesting of any Restricted Shares subject to the Award pursuant to Section 2.2(c), the Company shall, as applicable, either remove the notations on any Restricted Shares subject to the Award issued in book entry form that have Vested or deliver to Participant a certificate or certificates evidencing the number of Restricted Shares subject to the Award that have Vested.

(ii) As soon as administratively practicable after the Vesting of any Restricted Shares subject to the Award pursuant to Section 2.2(c), the Company shall (A) as applicable, either remove the notations on any securities that constitute Retained Distributions issued in book entry form with respect to such Restricted Shares or deliver to Participant a certificate or certificates evidencing the number of securities that constitute Retained Distributions with respect to such Restricted Shares and (B) pay Participant in cash an amount equal to all cash dividends or other cash distributions that constitute Retained Distributions with respect to such Restricted Shares.

2.2 Restrictions .

(a) Forfeiture . Any Restricted Shares subject to the Award that do not become Performance-Vested shall be forfeited immediately and without further action by the Company as of the date it is determined that the applicable performance conditions are not met. Any Restricted Shares subject to the Award that are not both Performance-Vested and Time-Vested as of the date of Participant’s Termination of Service shall thereupon be forfeited immediately and without any further action by the Company; provided that upon termination of Participant’s employment due to Participant’s death, termination by the Company without Cause or due to Participant’s Disability or Participant’s resignation for Good Reason (as each such term is defined in Participant’s employment agreement with the Company), any Restricted Shares that shall have then Performance-Vested but shall have not yet Time-Vested shall become Time-Vested as of the date of Participant’s Termination of Service .

(b) Restricted Shares Not Transferable . No Restricted Shares or any interest or right therein or part thereof shall, prior to Vesting, be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted by Section 12.3(a)(i) of the Plan; provided, however, that this Section 2.2(b) notwithstanding, with the consent of the Administrator and subject to the terms of the Plan, the Restricted Shares may be transferred to a Permitted Transferee, pursuant to any such conditions and procedures the Administrator may require. For purposes of this Agreement, “ Restrictions ” shall mean the restrictions on sale or other transfer set forth in this Section 2.2(b) and the exposure to forfeiture set forth in Section 2.2(a).

(c) Vesting and Lapse of Restrictions . Subject to Section 2.2(a) hereof, the Award shall Vest and the Restrictions shall lapse in accordance with the Vesting schedule and terms set forth in the Grant Notice.

(d) Retained Distributions . Unless otherwise determined by the Administrator, the Company will retain custody of all cash dividends and other distributions (“ Retained Distributions ”) made or declared with respect to the Restricted Shares (and such Retained Distributions will be subject to the Restrictions and the other terms and conditions under this Agreement that are applicable to the Restricted Shares) until such time, if ever, as the Restricted Shares with respect to which such Retained Distributions shall have been made, paid or declared shall Vest in accordance with Section 2.2(c), and such Retained Distributions shall not bear interest or be segregated in separate accounts. Any Retained Distributions with respect to Restricted Shares that have not Vested as of the date of Participant’s Termination of Service shall thereupon be forfeited immediately and without any further action by the Company.

ARTICLE III.

OTHER PROVISIONS

3.1 Tax Withholding . Notwithstanding any other provision of this Agreement:

(i) by cash or check made payable to the Company or the Subsidiary with respect to which the withholding obligation arises;

(ii) by the deduction of such amount from other compensation payable to Participant;

(vi) in any combination of the foregoing.

The Company shall not be obligated to deliver any new certificate representing Restricted Shares to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid or otherwise satisfied in full the amount of all federal, state, local and foreign taxes applicable with respect to the taxable income of Participant resulting from the grant of the Award or the issuance or Vesting of Restricted Shares hereunder or any other taxable event with respect to the Restricted Shares .

(c) In the event any tax withholding obligation arising in connection with the Award will be satisfied under Section 3.1(a)(iii) above, then the Company may elect to instruct any brokerage firm determined acceptable to the Company for such purpose to sell on Participant’s behalf a whole number of shares from those shares of Stock that are subject to the Award as the Company determines to be appropriate to generate cash proceeds sufficient to satisfy the tax withholding obligation and to remit the proceeds of such sale to the Company or the Subsidiary with respect to which the withholding obligation arises. Participant’s acceptance of this Award constitutes Participant’s instruction and authorization to the Company and such brokerage firm to complete the transactions described in this Section 3.1(c), including the transactions described in the previous sentence, as applicable.

(e) Participant is ultimately liable and responsible for all taxes owed in connection with the Award, regardless of any action the Company or any Subsidiary takes with respect to any tax withholding obligations that arise in connection with the Award. Neither the Company nor any Subsidiary makes any representation or undertaking regarding the treatment of any tax withholding in connection with the awarding or Vesting of the Award or the subsequent sale of Stock. The Company and the Subsidiaries do not commit and are under no obligation to structure the Award to reduce or eliminate Participant’s tax liability.

(i) The admission of such shares of Stock to listing on all stock exchanges on which such Stock is then listed;

(iii) The obtaining of any approval or other clearance from any state or federal governmental agency that the Administrator shall, in its absolute discretion, determine to be necessary or advisable;

(iv) The receipt by the Company of full payment for such shares of Stock;

(v) The receipt of any applicable withholding tax in accordance with Section 3.1 by the Company or its Subsidiary with respect to which the applicable withholding obligation arises; and

(vi) The lapse of such reasonable period of time following the grant of this Award as the Administrator may from time to time establish for reasons of administrative convenience.

PARTICIPANT UNDERSTANDS THAT PARTICIPANT MAY SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF PARTICIPANT’S PURCHASE OR DISPOSITION OF THE RESTRICTED SHARES AND PARTICIPANT REPRESENTS THAT PARTICIPANT IS NOT RELYING ON THE COMPANY FOR ANY TAX ADVICE.

3.6 Adjustments . The Administrator may accelerate the Vesting of all or a portion of the Restricted Shares in such circumstances as it, in its sole discretion, may determine. Participant acknowledges that the Restricted Stock Award is subject to adjustment, modification and termination in certain events as provided in this Agreement and the Plan, including Section 14.2 of the Plan.

3.8 Titles . Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

3.14 Not a Contract of Employment . Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue to serve as an employee or other service provider of the Company or any Subsidiary or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries, which rights are hereby expressly reserved, to discharge or terminate the services of Participant at any time for any reason whatsoever, with or without cause, except to the extent expressly provided otherwise in a written agreement between the Company or a Subsidiary and Participant.

* * *

EXHIBIT B

PARTNER CONSENT

Capitalized terms used in this consent and not defined herein shall have the meanings given to such terms in the Agreement.


	Partner Signature



	Partner Name

Exhibit 31.1

CERTIFICATIONS

I, Melissa Reiff, 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)) 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) [omitted];

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 10, 2016	/s/ Melissa Reiff
	Melissa Reiff
	Chief Executive Officer

Exhibit 31.2

CERTIFICATIONS

I, Jodi Taylor, certify that:

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

b) [omitted];

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 10, 2016	/s/ Jodi L. Taylor
	Jodi L. Taylor
	Chief Financial and Administrative Officer

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, Melissa Reiff, 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 2, 2016 (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 10, 2016	/s/ Melissa Reiff
	Melissa Reiff
	Chief Executive Officer

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, Jodi Taylor, 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:

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

August 10, 2016	/s/ Jodi L. Taylor
	Jodi L. Taylor
	Chief Financial and Administrative Officer