UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): July 24, 2020
THE CONTAINER STORE GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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001-36161 |
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26-0565401 |
(State or other jurisdiction of
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(Commission
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(I.R.S. Employer
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500 Freeport Parkway
Coppell, TX 75019
(Address of principal executive offices) (Zip Code)
(972) 538-6000
(Registrant’s telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
◻Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
◻Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
◻Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
◻Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
TCS |
New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Item 2.02. Results of Operations and Financial Condition.
On July 28, 2020, The Container Store Group, Inc. announced its financial results for the quarter ended June 27, 2020. The full text of the press release issued in connection with the announcement is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Current Report on Form 8-K (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly provided by specific reference in such a filing.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On July 24, 2020, Jodi L. Taylor notified the Company of her resignation as Chief Financial Officer of the Company, effective as of August 31, 2020 (the “CFO Transition Date”). As previously disclosed and in accordance with her Second Amended and Restated Employment Agreement with the Company, Ms. Taylor will continue to serve as the Company’s Chief Administrative Officer and Secretary following the CFO Transition Date.
On July 27, 2020, the Company’s Board of Directors appointed Jeffrey A. Miller to serve as the Company’s Chief Financial Officer, effective as of the CFO Transition Date, at which point he will succeed Ms. Taylor as principal financial officer of the Company. Mr. Miller will continue to serve as the Company’s principal accounting officer following the CFO Transition Date.
Mr. Miller, 48, has served as the Company’s Vice President and Chief Accounting Officer since August 2013. Prior to joining the Company, Mr. Miller served in variety of roles with increasing responsibility at FedEx Office from 2003 to 2013, progressing to Vice President and Controller from 2008 until his departure. Mr. Miller began his career as a public accountant with Arthur Andersen and Ernst & Young.
In connection with Mr. Miller’s appointment as Chief Financial Officer, Mr. Miller has entered into an employment agreement (the “Agreement”) with the Company. The Agreement provides that Mr. Miller will serve as Chief Financial Officer for a term commencing on August 31, 2020 and ending on August 31, 2023, unless earlier terminated as provided in the Agreement. The Agreement provides for an annual base salary of $375,000, subject to review annually for possible increase. The Company and Mr. Miller agreed to a 33% reduction of his base salary to $251,250 until such time as determined by the Board. The Agreement also provides for an annual cash performance-based bonus with a target of 40% of annual base salary and a maximum of 75% of annual base salary.
The Agreement provides certain severance benefits upon termination by the Company without “Cause” or by Mr. Miller for “Good Reason,” as such terms are defined in the Agreement. The Company and Mr. Miller agreed that the salary reduction will not constitute “Good Reason” for purposes of the Agreement.
Except as described below, upon a termination of employment by the Company without Cause or by Mr. Miller for Good Reason (each, a “Qualifying Termination”), he would be eligible to receive (a) one and one-half times his annual base salary (calculated without applying the salary reduction currently in effect), (b) pro-rata vesting of any of his then-unvested equity awards that are, at the time of termination (i) subject solely to time-based vesting and (ii) scheduled to vest on the next scheduled time-vesting date, with such pro-ration being calculated based on the number of days worked since grant or the most recent time-vesting date, as applicable, and (c) continuation of medical and welfare benefits for him and his eligible dependents for eighteen months following the termination date, paid for by the Company, and a payment to make him whole on an after-tax basis for our payment of these costs. In addition, any of Mr. Miller’s equity awards that are unvested at the time of termination and subject to performance-based vesting would remain outstanding and eligible to vest and become exercisable based on the actual level of achievement of the applicable performance targets, but only with respect to the number of shares eligible to vest on the first time-vesting date that follows Mr. Miller’s termination, and pro-rated based on the number of days worked during the period from grant or the prior time-vesting date.
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If the Qualifying Termination occurs within one year following a change in control of the Company or prior to February 28, 2022, in lieu of the cash severance and medical benefits and related payments described in the preceding paragraph, (a) Mr. Miller would be eligible to receive two times his annual base salary (calculated without applying the salary reduction currently in effect), and (b) he and his eligible dependents would be entitled to continuation of medical and welfare benefits for two years following the termination date, paid for by the Company, and to a payment to make him whole on an after-tax basis for our payment of these costs. If such Qualifying Termination occurs within one year following a change in control, then, in lieu of the equity award treatment described in the preceding paragraph, (a) Mr. Miller’s unvested equity awards that are, at the time of termination, subject solely to time-based vesting would become fully vested and exercisable, and (b) his equity awards that are unvested at the time of termination and subject to performance-based vesting conditions will vest in the amount that would have vested had the applicable performance period been completed and maximum performance levels achieved.
All of the payments and benefits described above to which Mr. Miller would be entitled in connection with a Qualifying Termination are subject to his execution of a release of claims in favor of the Company.
Upon Mr. Miller’s death or termination due to disability, his designee or estate would be entitled to receive a prorated amount of the bonus he would have earned for the year of termination had he remained employed throughout the year, based on actual performance (calculated without applying the salary reduction currently in effect). His unvested equity awards will vest in the same proportion as described in the case of a Qualifying Termination occurring other than during the one-year period after a change in control or prior to February 28, 2022.
Also under the Agreement, Mr. Miller agreed that, during his employment with the Company and during the two-year period following the date of his termination from employment for any reason, he would not directly or indirectly work for or engage or invest in any of our competitors or solicit, directly or through any third party, any of our employees or consultants. The foregoing description of the Agreement is qualified in its entirety by reference to the Agreement, which is filed as Exhibit 10.1 to this Current Report and is incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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Exhibit
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Description |
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99.1* |
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10.1 |
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Employment Agreement with Jeffrey A. Miller, dated July 27, 2020 |
* Exhibit 99.1 shall be deemed to be furnished, and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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THE CONTAINER STORE GROUP, INC. |
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Date: July 28, 2020 |
By: |
/s/ Jodi L. Taylor |
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Jodi L. Taylor |
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Chief Financial Officer and Chief Administrative Officer |
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Exhibit 10.1
Employment Agreement
This Employment Agreement (the “Agreement”) is entered into on and effective as of August 31, 2020 (the “Effective Date”), by and between Jeffrey A. Miller (the “Executive”) and The Container Store Group, Inc., a Delaware corporation (“Parent”), and any of its subsidiaries and affiliates as may employ the Executive from time to time (collectively, and together with any successor thereto, the “Company”).
RECITALS
WHEREAS, the Company desires to assure itself of the continued services of the Executive by promoting and engaging the Executive to perform services on the terms and subject to the conditions set out in this Agreement; and
WHEREAS, the Executive desires to provide services to the Company on the terms and subject to the conditions set out in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the respective covenants and agreements set forth below, the parties hereto, intending to be legally bound hereby, agree as follows:
US-DOCS\116914551.9
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The Container Store Group, Inc.
500 Freeport Parkway
Coppell, TX 75019
ATTN: General Counsel
with a copy to:
Latham & Watkins LLP
885 Third Avenue
Suite 1000
New York, NY 10022
ATTN: Howard Sobel; Bradd Williamson
(b)If to the Executive, to the address set forth in the Company’s records or at any other address as any party shall have specified by notice in writing to the other party.
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[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
THE CONTAINER STORE GROUP, INC.
By: /s/ Melissa Reiff
Name: Melissa Reiff
Title: Chief Executive Officer
[Employment Agreement with Jeffrey A. Miller]
EXECUTIVE
By: /s/ Jeffrey A. Miller
Jeffrey A. Miller
[Employment Agreement with Jeffrey A. Miller]
EXHIBIT A
Form of Release Agreement
Jeffrey A. Miller (the “Executive”) agrees for the Executive, the Executive’s spouse and child or children (if any), the Executive’s heirs, beneficiaries, devisees, executors, administrators, attorneys, personal representatives, successors and assigns, hereby forever to release, discharge, and covenant not to sue The Container Store Group, Inc., a Delaware corporation (the “Company”), the Company’s past, present, or future parent, affiliated, related, and/or subsidiary entities, and all of their past and present directors, shareholders, officers, general or limited partners, employees, agents, and attorneys, and agents and representatives of such entities, and employee benefit plans in which the Executive is or has been a participant by virtue of his employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected, which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date this release (the “Release”) is executed, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever, (a) Executive’s employment with the Company or the termination thereof or (b) Executive’s status as a holder of any securities of the Company based on any events or circumstances arising or occurring on or prior to the date this Release is executed, and any and all claims based on, relating to, or arising under federal, state, or local laws, including without limitation claims of discrimination, harassment, retaliation, wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, liability in tort, or for violation of public policy, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, the Family and Medical Leave Act, the Securities Act of 1933, the Securities Exchange Act of 1934 (the “Exchange Act”), the Texas Commission on Human Rights Act, the Texas Anti-Retaliation Act, the Texas Labor Code, the Sarbanes-Oxley Act, and similar state or local statutes, ordinances, and regulations; provided, however, notwithstanding anything to the contrary set forth herein, that this general release shall not extend to (i) benefit claims under employee pension benefit plans in which the Executive is a participant by virtue of his employment with the Company or to benefit claims under employee welfare benefit plans (e.g., claims for medical care, death, or onset of disability), (ii) accrued and vested benefits under applicable employee benefit plans, or the Executive’s right to continue or convert coverage under certain employee benefit plans, in accordance with the terms of those plans and applicable law; (iii) any obligation under this Release, or under that Employment Agreement entered into on and effective as of August 31, 2020, by and between the Company and the Executive, assumed by any party thereto; and (iv) reporting possible violations of federal law or regulation to, otherwise communicating with or participating in any investigation or proceeding that may be conducted by, or providing documents and other information, without notice to the Company, to, any federal, state or local governmental authority, including in accordance with the provisions of and rules promulgated under Section 21F of the Exchange Act
or Section 806 of the Sarbanes-Oxley Act, as each may have been amended from time to time, or any other whistleblower protection provisions of state or federal law or regulation. Pursuant to 18 USC Section 1833(b), the Executive will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (x) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law; or (y) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.
The Executive understands that this Release includes a release of claims arising under the Age Discrimination in Employment Act (ADEA). The Executive understands and warrants that he has been given a period of twenty-one (21) days to review and consider this Release and such period shall not be affected or extended by any changes, whether material or immaterial, that might be made to this Release. The Executive is hereby advised to consult with an attorney prior to executing the Release. By his signature below, the Executive warrants that he has had the opportunity to do so and to be fully and fairly advised by that legal counsel as to the terms of this Release. The Executive further warrants that he understands that he may use as much or all of his twenty-one (21)-day period as he wishes before signing, and warrants that he has done so.
The Executive further warrants that he understands that he has seven (7) days after signing this Release to revoke the Release by notice in writing to _____________________________________________________________________________. This Release shall be binding, effective, and enforceable upon both parties upon the expiration of this seven (7)-day revocation period without _____________ having received such revocation, but not before such time.
* * * * *
The Executive acknowledges and agrees that this Release is a legally binding document and the Executive’s signature will commit the Executive to its terms. Executive acknowledges and agrees that the Executive has carefully read and fully understands all of the provisions of this Release and that the Executive voluntarily enters into this Release by signing below. Upon execution, the Executive agrees to deliver a signed copy of this Release to .
/s/ Jeffrey A. Miller
Jeffrey A. Miller
Date: 7/27/2020
Exhibit 99.1
The Container Store Group, Inc. Announces First Quarter Fiscal 2020 Financial Results
Announces CFO Transition Plan
Coppell, TX — July 28, 2020 — The Container Store Group, Inc. (NYSE: TCS) (the “Company”), today announced financial results for the first quarter of fiscal 2020 ended June 27, 2020.
● | Consolidated net sales were $151.7 million, down 27.6%. Net sales in The Container Store retail business (“TCS”) were $139.4 million, down 28.5% due to the impact of COVID-19 on store operations. Elfa International AB (“Elfa”) third-party net sales were $12.3 million, down 14.6% due to COVID-19. |
● | Online sales increased by 192.3% in the first quarter of fiscal 2020, which nearly tripled compared to the first quarter of fiscal 2019. |
● | Consolidated net loss and net loss per share (“EPS”) were $16.7 million and ($0.34) compared to a net loss of $4.1 million and ($0.08) in the first quarter of fiscal 2019. Adjusted net loss per share (“Adjusted EPS”) was ($0.32) compared to ($0.08) in the first quarter of fiscal 2019 (see Reconciliation of GAAP to Non-GAAP Financial Measures table). |
● | Net cash provided by operating activities was $25.6 million in the first quarter of fiscal 2020, compared to net cash used in operating activities of $8.3 million in the first quarter of fiscal 2019. Free cash flow generation during the first quarter of fiscal 2020 was strong, despite the significant impact of COVID-19, with free cash flow of $21.7 million generated in the first quarter of fiscal 2020, compared to $17.0 million utilized in the first quarter of fiscal 2019, as a result of the many actions undertaken by the Company to preserve liquidity (see Reconciliation of GAAP to Non-GAAP Financial Measures table). |
Melissa Reiff, Chairwoman and Chief Executive Officer commented, “Our first quarter results were significantly impacted by the COVID-19 pandemic. We moved swiftly to protect the health and safety of our employees and customers by temporarily closing stores and shifting select locations to operate with curbside pickup. I am very proud of the dedication and commitment our teams exhibited during this time, and particularly pleased with the resiliency of our operating model as we were able to maintain over 72% of our consolidated net sales from the prior year period with our strong online channel growth that nearly tripled over the prior year in the first quarter. Deleverage on the sales decline, combined with a higher mix of online sales with certain temporary incremental costs to fulfill these sales, were meaningful profitability headwinds. However, we moved quickly to reduce expenses and preserve capital to help mitigate the bottom line and free cash flow impact, enabling us to deliver positive adjusted EBITDA for the quarter.”
Ms. Reiff continued, “As of today all of our stores are now reopened and operating at close to normalized schedules, with limited capacity. Retail sales trends have improved and we preserved approximately 90% of prior year sales for the fiscal month of July when looking at our sales orders taken. While we expect sales and margin performance to improve as fiscal 2020 progresses, we remain disciplined and agile as we manage the business in this still uncertain environment.”
First Quarter Fiscal 2020 Results
For the first quarter (thirteen weeks) ended June 27, 2020:
● | Consolidated net sales were $151.7 million, down 27.6% compared to the first quarter of fiscal 2019, due primarily to the impact of COVID-19 on store operations. TCS net sales were $139.4 million, down |
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approximately 28.5% with Custom Closets declining 22.7% and other product categories declining 33.5%. Although the impact of COVID-19 and the related temporary closure of our stores negatively affected our net sales for the first quarter of fiscal 2020, our online sales increased 192.3%, compared to the first quarter of fiscal 2019. Elfa third-party net sales were $12.3 million, down approximately $2.1 million or 14.6%, compared to the first quarter of fiscal 2019, however, excluding the impact of foreign currency translation, Elfa third-party sales were down 12.5%. As a result of the extended closures of the Company’s stores due to the COVID-19 pandemic and the Company’s policy of excluding extended store closures from its comparable sales calculation, the Company does not believe that comparable store sales is a meaningful metric to present for the first quarter of fiscal 2020. |
● | Consolidated gross margin was 51.6%, a decrease of 560 basis points, compared to the first quarter of fiscal 2019. TCS gross margin decreased 760 basis points to 49.8%, primarily due to increased shipping costs as a result of a higher mix of online sales and increased promotional activity in the first quarter of fiscal 2020. Elfa gross margin increased 640 basis points primarily due to favorable customer and product sales mix and, to a lesser extent, lower direct material costs. |
● | Consolidated selling, general and administrative expenses (“SG&A”) decreased by 20.9% to $86.3 million in the first quarter of fiscal 2020 from $109.0 million in the first quarter of fiscal 2019. SG&A as a percentage of net sales increased 490 basis points primarily due to the deleverage of occupancy and other fixed costs associated with lower sales, partially offset by reductions in payroll, transportation and marketing costs during the quarter. |
● | Other expenses increased to $0.8 million in the first quarter of fiscal 2020 due to severance costs associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures. |
● | Consolidated net interest expense decreased 13.3% to $4.9 million in the first quarter of fiscal 2020 from $5.7 million in the first quarter of fiscal 2019. The decrease is primarily due to lower interest rates, combined with a lower principal balance on the Senior Secured Term Loan Facility, partially offset by increased borrowings on the asset-based revolving credit agreement. |
● | The effective tax rate was 29.3% in the first quarter of fiscal 2020, as compared to 30.5% in the first quarter of fiscal 2019. The decrease in the effective tax rate is primarily due to stock-based compensation and the jurisdictional mix of income. |
● | Net loss was $16.7 million, or ($0.34) per share, in the first quarter of fiscal 2020 compared to net loss of $4.1 million, or ($0.08) per share in the first quarter of fiscal 2019. Adjusted net loss was $15.5 million, or ($0.32) per share, in the first quarter of fiscal 2020 compared to adjusted net loss of $4.1 million, or ($0.08) per share in the first quarter of fiscal 2019 (see Reconciliation of GAAP to Non-GAAP Financial Measures table). |
● | Adjusted EBITDA (see Reconciliation of GAAP to Non-GAAP Financial Measures table) was $4.5 million in the first quarter of fiscal 2020 compared to $10.6 million in the first quarter of fiscal 2019. The decrease in Adjusted EBITDA was driven by the higher net loss in the first quarter of fiscal 2020, partially offset by a decrease in cash lease expense due to renegotiated terms with landlords during COVID-19 that resulted in deferral of $11.9 million of certain cash lease payments and the modification of certain lease terms for a substantial portion of our leased properties. |
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Balance sheet and liquidity highlights:
(1) | Cash plus availability on revolving credit facilities. |
(2) | See Reconciliation of GAAP to Non-GAAP Financial Measures table. |
CFO Transition Plan
The Company announced today that Jeff Miller, Vice President and Chief Accounting Officer, will succeed Jodi Taylor as Chief Financial Officer effective August 31, 2020. Ms. Taylor will continue to serve as Chief Administrative Officer and Secretary, which we expect will ensure a seamless transition for Mr. Miller.
Mr. Miller has been with The Container Store since August 2013 and has served as its Chief Accounting Officer since that time. Prior to joining The Container Store, Mr. Miller was previously at FedEx Office for over 10 years and served in a variety of roles with increasing responsibility, progressing to Vice President and Controller from 2008 until his departure. Mr. Miller began his career as a public accountant with Arthur Andersen and Ernst & Young. He brings over 25 years of accounting and financial reporting experience to the Chief Financial Officer role.
Ms. Reiff said, “I want to thank Jodi for her tenure as The Container Store’s Chief Financial Officer. During the past 13 years, Jodi has led the company’s financial teams through many milestones including our initial public offering as well as, most recently, our development and execution of our initiatives to revitalize sales and profitability. She has also developed a strong team and has positioned the company well for this upcoming transition. I am pleased to have her partnership as she continues to serve as our Chief Administrative Officer, and I have the utmost confidence in Jeff’s ability to continue to lead our financial functions. I have worked closely with Jeff over the years and I am excited to announce his appointment as Chief Financial Officer.”
Conference Call Information
A conference call to discuss first quarter fiscal 2020 financial results is scheduled for today, July 28, 2020, at 4:30 PM Eastern Time. Investors and analysts interested in participating in the call are invited to dial (877) 407-3982 (international callers please dial (201) 493-6780) approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at investor.containerstore.com.
A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing (844) 512-2921 (international callers please dial (412) 317-6671). The pin number to access the telephone replay is 13706739. The replay will be available until August 28, 2020.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding our future opportunities; our goals, strategies, priorities and initiatives; our anticipated financial performance; our plans in response to the outbreak of COVID-19 and our expected CFO transition.
These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the following: the
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outbreak of COVID-19 and the associated impact on our business, results of operations and financial condition; our ability to continue to lease space on favorable terms; costs and risks relating to new store openings; quarterly and seasonal fluctuations in our operating results; cost increases that are beyond our control; our inability to protect our brand; our failure or inability to protect our intellectual property rights; overall decline in the health of the economy, consumer spending, and the housing market; our inability to source and market new products to meet consumer preferences; failure to successfully anticipate consumer preferences and demand; competition from other stores and internet-based competition; vendors may sell similar or identical products to our competitors; our and our vendors’ vulnerability to natural disasters and other unexpected events; disruptions at our Elfa manufacturing facilities; deterioration or change in vendor relationships or events that adversely affect our vendors or their ability to obtain financing for their operations, including COVID-19; product recalls and/or product liability, as well as changes in product safety and other consumer protection laws; risks relating to operating two distribution centers; our dependence on foreign imports for our merchandise; our reliance upon independent third party transportation providers; our inability to effectively manage our online sales; effects of a security breach or cyber-attack of our website or information technology systems, including relating to our use of third-party web service providers; damage to, or interruptions in, our information systems as a result of external factors, working from home arrangements, staffing shortages and difficulties in updating our existing software or developing or implementing new software; our indebtedness may restrict our current and future operations, and we may not be able to refinance our debt on favorable terms, or at all; fluctuations in currency exchange rates; our inability to maintain sufficient levels of cash flow to meet growth expectations; our fixed lease obligations; disruptions in the global financial markets leading to difficulty in borrowing sufficient amounts of capital to finance the carrying costs of inventory to pay for capital expenditures and operating costs; changes to global markets and inability to predict future interest expenses; our reliance on key executive management; employee furloughs and uncertainty about their ability to return to work; our inability to find, train and retain key personnel; labor relations difficulties; increases in health care costs and labor costs; violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery and anti-kickback laws; impairment charges and effects of changes in estimates or projections used to assess the fair value of our assets; effects of tax reform and other tax fluctuations; and significant fluctuations in the price of our common stock; substantial future sales of our common stock, or the perception that such sales may occur, which could depress the price of our common stock; risks related to being a public company; our performance meeting guidance provided to the public; anti-takeover provisions in our governing documents, which could delay or prevent a change in control; and our failure to establish and maintain effective internal controls.
These and other important factors discussed under the caption “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, (the “SEC”) on June 17, 2020, and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management’s estimates as of the date of this press release. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to the date of this press release.
About The Container Store
The Container Store Group, Inc. (NYSE: TCS) is the nation’s leading retailer of storage and organization products and solutions – a concept they originated in 1978. Today, with locations nationwide, the retailer offers more than 11,000 products designed to help customers accomplish projects, maximize their space and make the most of their home. The Container Store also offers a full suite of custom closets designed to accommodate all sizes, styles and budgets.
Visit www.containerstore.com for more information about store locations, the product collection and services offered. Visit www.containerstore.com/blog for inspiration, tips and real solutions to everyday organization challenges, and www.whatwestandfor.com to learn more about the company’s unique culture.
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The Container Store Group, Inc.
Consolidated statements of operations
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Thirteen Weeks Ended |
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(In thousands, except share and per share amounts) |
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June 27, 2020 |
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June 29, 2019 |
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(unaudited) |
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(unaudited) |
Net sales |
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$ |
151,686 |
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$ |
209,520 |
Cost of sales (excluding depreciation and amortization) |
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73,447 |
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89,713 |
Gross profit |
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78,239 |
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119,807 |
Selling, general, and administrative expenses (excluding depreciation and amortization) |
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86,265 |
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109,029 |
Stock-based compensation |
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832 |
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811 |
Pre-opening costs |
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9 |
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477 |
Depreciation and amortization |
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8,949 |
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9,706 |
Other expenses (income) |
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809 |
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(27) |
Gain on disposal of assets |
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(7) |
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(4) |
Loss from operations |
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(18,618) |
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(185) |
Interest expense, net |
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4,950 |
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5,709 |
Loss before taxes |
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(23,568) |
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(5,894) |
Benefit for income taxes |
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(6,898) |
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(1,795) |
Net loss |
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$ |
(16,670) |
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$ |
(4,099) |
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Net loss per common share — basic and diluted |
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$ |
(0.34) |
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$ |
(0.08) |
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|
|
Weighted-average common shares — basic and diluted |
|
|
48,389,205 |
|
|
48,231,148 |
5
The Container Store Group, Inc.
Consolidated balance sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, |
|
March 28, |
|
June 29, |
|
|||
(In thousands) |
|
2020 |
|
2020 |
|
2019 |
|
|||
Assets |
|
(unaudited) |
|
|
|
|
(unaudited) |
|
||
Current assets: |
|
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
63,508 |
|
$ |
67,755 |
|
$ |
11,404 |
|
Accounts receivable, net |
|
|
25,369 |
|
|
24,721 |
|
|
27,821 |
|
Inventory |
|
|
109,182 |
|
|
124,207 |
|
|
120,512 |
|
Prepaid expenses |
|
|
8,632 |
|
|
8,852 |
|
|
11,129 |
|
Income taxes receivable |
|
|
3,391 |
|
|
4,724 |
|
|
1,124 |
|
Other current assets |
|
|
14,235 |
|
|
11,907 |
|
|
11,867 |
|
Total current assets |
|
|
224,317 |
|
|
242,166 |
|
|
183,857 |
|
Noncurrent assets: |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net |
|
|
141,504 |
|
|
147,540 |
|
|
152,448 |
|
Noncurrent operating lease assets |
|
|
311,911 |
|
|
347,170 |
|
|
353,490 |
|
Goodwill |
|
|
202,815 |
|
|
202,815 |
|
|
202,815 |
|
Trade names |
|
|
225,100 |
|
|
222,769 |
|
|
225,182 |
|
Deferred financing costs, net |
|
|
153 |
|
|
170 |
|
|
223 |
|
Noncurrent deferred tax assets, net |
|
|
2,411 |
|
|
2,311 |
|
|
1,898 |
|
Other assets |
|
|
2,250 |
|
|
1,873 |
|
|
1,607 |
|
Total noncurrent assets |
|
|
886,144 |
|
|
924,648 |
|
|
937,663 |
|
Total assets |
|
$ |
1,110,461 |
|
$ |
1,166,814 |
|
$ |
1,121,520 |
|
6
The Container Store Group, Inc.
Consolidated balance sheets (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 27, |
|
March 28, |
|
June 29, |
|
|||
(In thousands, except share and per share amounts) |
|
2020 |
|
2020 |
|
2019 |
|
|||
Liabilities and shareholders’ equity |
|
(unaudited) |
|
|
|
|
(unaudited) |
|
||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
51,656 |
|
$ |
53,647 |
|
$ |
55,387 |
|
Accrued liabilities |
|
|
75,962 |
|
|
66,046 |
|
|
68,507 |
|
Revolving lines of credit |
|
|
5,533 |
|
|
9,050 |
|
|
9,951 |
|
Current portion of long-term debt |
|
|
6,952 |
|
|
6,952 |
|
|
6,931 |
|
Current operating lease liabilities |
|
|
53,165 |
|
|
62,476 |
|
|
58,664 |
|
Income taxes payable |
|
|
198 |
|
|
— |
|
|
2,011 |
|
Total current liabilities |
|
|
193,466 |
|
|
198,171 |
|
|
201,451 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
296,209 |
|
|
317,485 |
|
|
272,556 |
|
Noncurrent operating lease liabilities |
|
|
301,399 |
|
|
317,284 |
|
|
327,221 |
|
Noncurrent deferred tax liabilities, net |
|
|
45,053 |
|
|
50,178 |
|
|
50,182 |
|
Other long-term liabilities |
|
|
11,304 |
|
|
11,988 |
|
|
8,903 |
|
Total noncurrent liabilities |
|
|
653,965 |
|
|
696,935 |
|
|
658,862 |
|
Total liabilities |
|
|
847,431 |
|
|
895,106 |
|
|
860,313 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value, 250,000,000 shares authorized; 48,491,369 shares issued at June 27, 2020; 48,316,559 shares issued at March 28, 2020; 48,283,197 shares issued at June 29, 2019 |
|
|
485 |
|
|
483 |
|
|
483 |
|
Additional paid-in capital |
|
|
867,332 |
|
|
866,667 |
|
|
864,386 |
|
Accumulated other comprehensive loss |
|
|
(28,970) |
|
|
(36,295) |
|
|
(25,929) |
|
Retained deficit |
|
|
(575,817) |
|
|
(559,147) |
|
|
(577,733) |
|
Total shareholders’ equity |
|
|
263,030 |
|
|
271,708 |
|
|
261,207 |
|
Total liabilities and shareholders’ equity |
|
$ |
1,110,461 |
|
$ |
1,166,814 |
|
$ |
1,121,520 |
|
7
The Container Store Group, Inc.
Consolidated statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thirteen Weeks Ended |
||||
|
|
June 27, |
|
June 29, |
||
(In thousands) (unaudited) |
|
2020 |
|
2019 |
||
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
Net loss |
|
$ |
(16,670) |
|
$ |
(4,099) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
8,949 |
|
|
9,706 |
Stock-based compensation |
|
|
832 |
|
|
811 |
Gain on disposal of assets |
|
|
(7) |
|
|
(4) |
Deferred tax benefit |
|
|
(7,178) |
|
|
(1,891) |
Non-cash interest |
|
|
465 |
|
|
465 |
Other |
|
|
104 |
|
|
— |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
204 |
|
|
(2,200) |
Inventory |
|
|
16,085 |
|
|
(11,923) |
Prepaid expenses and other assets |
|
|
(1,841) |
|
|
(670) |
Accounts payable and accrued liabilities |
|
|
11,651 |
|
|
2,275 |
Net change in lease assets and liabilities |
|
|
9,851 |
|
|
(152) |
Income taxes |
|
|
1,560 |
|
|
(1,009) |
Other noncurrent liabilities |
|
|
1,609 |
|
|
370 |
Net cash provided by (used in) operating activities |
|
|
25,614 |
|
|
(8,321) |
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
|
Additions to property and equipment |
|
|
(3,913) |
|
|
(8,703) |
Proceeds from sale of property and equipment |
|
|
6 |
|
|
4 |
Net cash used in investing activities |
|
|
(3,907) |
|
|
(8,699) |
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
|
Borrowings on revolving lines of credit |
|
|
11,340 |
|
|
17,961 |
Payments on revolving lines of credit |
|
|
(15,288) |
|
|
(13,599) |
Borrowings on long-term debt |
|
|
— |
|
|
19,000 |
Payments on long-term debt |
|
|
(21,739) |
|
|
(1,741) |
Payment of taxes with shares withheld upon restricted stock vesting |
|
|
(406) |
|
|
(347) |
Net cash (used in) provided by financing activities |
|
|
(26,093) |
|
|
21,274 |
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
139 |
|
|
(214) |
|
|
|
|
|
|
|
Net (decrease) increase in cash |
|
|
(4,247) |
|
|
4,040 |
Cash at beginning of fiscal period |
|
|
67,755 |
|
|
7,364 |
Cash at end of fiscal period |
|
$ |
63,508 |
|
$ |
11,404 |
8
Note Regarding Non-GAAP Information
This press release includes financial measures that are not calculated in accordance with GAAP, including adjusted net loss, adjusted net loss per common share - diluted, Adjusted EBITDA, and free cash flow. The Company has reconciled these non-GAAP financial measures with the most directly comparable GAAP financial measures in a table accompanying this release. These non-GAAP measures should not be considered as alternatives to net income or net loss as a measure of financial performance or cash flows from operations as a measure of liquidity, or any other performance measure derived in accordance with GAAP and they should not be construed as an inference that the Company’s future results will be unaffected by unusual or non-recurring items. These non-GAAP measures are key metrics used by management, the Company’s board of directors, and Leonard Green and Partners, L.P., its controlling stockholder, to assess its financial performance.
The Company presents adjusted net loss, adjusted net loss per common share - diluted, and Adjusted EBITDA because it believes they assist investors in comparing the Company’s performance across reporting periods on a consistent basis by excluding items that the Company does not believe are indicative of its core operating performance and because the Company believes 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 the Company’s industry. In evaluating these non-GAAP measures, you should be aware that in the future the Company will incur expenses that are the same as or similar to some of the adjustments in this presentation. The Company’s presentation of these non-GAAP measures should not be construed to imply that its 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. These non-GAAP measures are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation.
The Company defines adjusted net loss as net loss before restructuring charges, charges related to the impact of COVID-19 on business operations, severance charges associated with COVID-19, charges related to an Elfa manufacturing facility closure, charges related to the closure of Elfa France operations, impairment charges related to intangible assets, loss on extinguishment of debt, certain (gains) losses on disposal of assets, certain management transition costs incurred and benefits realized, charges incurred as part of the implementation of our optimization plan, and the tax impact of these adjustments and other unusual or infrequent tax items. We define adjusted net loss per common share - diluted as adjusted net loss divided by the diluted weighted average common shares outstanding. We use adjusted net loss and adjusted net loss per common share - diluted to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other peer companies using similar measures. We present adjusted net loss and adjusted net loss per common share - diluted because we believe they assist investors in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance and because we believe it is useful for investors to see the measures that management uses to evaluate the Company.
The Company defines EBITDA as net loss before interest, taxes, depreciation, and amortization. Adjusted EBITDA is calculated in accordance with its credit facilities and is one of the components for performance evaluation under its 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 the Company does not consider in its evaluation of ongoing operating performance from period to period as discussed further below. The Company uses Adjusted EBITDA in connection with covenant compliance and executive performance evaluations, and to supplement GAAP measures of performance to evaluate the effectiveness of its business strategies, to make budgeting decisions and to compare its performance against that of other peer companies using similar measures. The Company believes it is useful for investors to see the measures that management uses to evaluate the Company, its executives and its covenant compliance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in the Company’s industry.
The Company presents free cash flow, which the Company defines as net cash provided by (used in) operating activities in a period minus payments for property and equipment made in that period, because it believes it is a useful indicator of the Company’s overall liquidity, as the amount of free cash flow generated in any period is representative of cash that is available for debt repayment, investment, and other discretionary and non-discretionary cash uses. Accordingly, we
9
believe that free cash flow provides useful information to investors in understanding and evaluating our liquidity in the same manner as management. Our definition of free cash flow is limited in that it does not solely represent residual cash flows available for discretionary expenditures due to the fact that the measure does not deduct the payments required for debt service and other contractual obligations. Therefore, we believe it is important to view free cash flow as a measure that provides supplemental information to our Consolidated Statements of Cash Flows. Although other companies report their free cash flow, numerous methods may exist for calculating a company’s free cash flow. As a result, the method used by our management to calculate our free cash flow may differ from the methods used by other companies to calculate their free cash flow.
Additionally, this press release refers to the decline in Elfa third-party net sales after the conversion of Elfa’s net sales from Swedish krona to U.S. dollars using the prior year’s conversion rate, which is a financial measure not calculated in accordance with GAAP. The Company believes the disclosure of Elfa third-party net sales decline without the effects of currency exchange rate fluctuations helps investors understand the Company’s underlying performance.
The Container Store Group, Inc. Supplemental Information - Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except share and per share amounts)
(unaudited)
The table below reconciles the non-GAAP financial measures of adjusted net loss and adjusted net loss per common share - diluted with the most directly comparable GAAP financial measures of GAAP net loss and GAAP net loss per common share - diluted.
(a) | Includes incremental costs attributable to the COVID-19 pandemic, substantially all of which consist of hazard pay for distribution center employees and sanitization costs. |
(b) | Includes costs associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures. |
(c) | Tax impact of adjustments to net loss which are considered to be unusual or infrequent tax items, all of which we do not consider in our evaluation of ongoing performance. |
10
The table below reconciles the non-GAAP financial measure Adjusted EBITDA with the most directly comparable GAAP financial measure of GAAP net loss.
(a) | Non-capital expenditures associated with opening new stores and relocating stores, including marketing expenses, travel and relocation costs, and training costs. We adjust for these costs to facilitate comparisons of our performance from period to period. |
(b) | Reflects the extent to which our annual GAAP operating lease expense has been above or below our cash operating lease payments. The amount varies depending on the average age of our lease portfolio (weighted for size), as our GAAP operating lease expense on younger leases typically exceeds our cash operating lease payments, while our GAAP operating lease expense on older leases is typically less than our cash operating lease payments. Non-cash lease expense increased due to renegotiated terms with landlords during the first quarter of fiscal 2020 due to COVID-19 that resulted in deferral of $11.9 million of certain cash lease payments and the modification of certain lease terms for a substantial portion of our leased properties. |
(c) | Non-cash charges related to stock-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period. |
(d) | Realized foreign exchange transactional gains/losses our management does not consider in our evaluation of our ongoing operations. |
(e) | Includes incremental costs attributable to the COVID-19 pandemic, substantially all of which consist of hazard pay for distribution center employees and sanitization costs. |
(f) | Severance and other costs include amounts our management does not consider in our evaluation of our ongoing operations. For the first quarter of fiscal 2020, Severance and other costs consist of amounts associated with the reduction in workforce as a result of the COVID-19 pandemic and the related temporary store closures, and for the first quarter of fiscal 2019, consist of severance and other charges unrelated to COVID-19. |
11
The table below reconciles the non-GAAP financial measure of free cash flow with the most directly comparable GAAP financial measure of net cash provided by (used in) operating activities.
12