Container Store Group Inc (TCS) 2013 Q4 法說會逐字稿

Greetings and welcome to The Container Store fourth-quarter 2013 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would like to turn the conference call over to your host, Farah Soi. Thank you, you may begin.

Thank you, operator. Good afternoon, everyone, and thanks for joining us today for The Container Stores' fourth-quarter and FY13 earnings call. On today's call are Kip Tindell, Chairman and Chief Executive Officer; Melissa Reiff, President and Chief Operating Officer; and Jodi Taylor, Chief Financial Officer. After Management has made their formal remarks, we will open the call to questions.

I need to remind you that certain comments made during this call may constitute forward-looking statements and are made pursuant to and within the meaning of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to both known and unknown risks and uncertainties that could cause actual results to differ materially from such statements.

Those risks and uncertainties are referred to in The Container Stores' press release issued today. The forward-looking statements made today are as of the date of this call, and The Container Store does not undertake any obligation to update their forward-looking statement.

Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation schedule showing the GAAP versus non-GAAP financial measures is available in The Container Store's press release issued today. If you do not have a copy of today's press release, you may obtain one by visiting the investor relations page of the website at www.containerstore.com.

I will now turn the call over to Kip. Kip?

Hello, everyone. Thank you for joining us today on, well, our second conference call as a public Company. I'm looking forward to talking to you today not only about our fourth-quarter and FY13 results, but also spend a bit of time giving you some additional insight and updates as we look forward to FY14.

FY13 was a momentous year for The Container Store, as we celebrated our 35th anniversary, opened six brand-new stores, landed on Fortune Magazines list of 100 best companies to work for in America for the 15th year in a row, and executed a, well, a highly successful IPO that we were just thrilled about.

And while 2013 was for sure an exciting year for us due to -- while 2013 was so exciting, due to the historically unusual amount of winter storms, we did conclude the year with a difficult fourth quarter, which is always the most important quarter of our fiscal year. Think that's a little different than it is for many retailers in that our fourth quarter is actually our best.

It was the worst weather we've ever seen in our 35-year history, which impacted nearly all of our stores throughout the country. These weather conditions were exacerbated by a shortened holiday shopping season with two of the three most important weekends between Thanksgiving and Christmas, having hard hit weather and snowstorms and store closures as well.

So it is important to note that our stores in less weather impact regions achieved a strong comparable store sales increase. Those areas and those stores that were not weather impacted achieved a very strong comparable store sales increase, well over planned for our fourth quarter.

In fact the difference in performance between stores impacted by weather and those not as impacted was quite dramatic. That delta, that differential is approximately 7 points of comp store sales. Of course some of our highest volume stores were the most impacted by the historic weather as well.

It's also extremely important to understand that, unlike most of retail, where January and February are low volume clearance sales months, at The Container Store, these months are our most important to sales and also to profitability, as we conduct our annual elfa sale from December 24 through mid February. So we not only have the holiday season, we have the all important elfa sale as well. In fact at least 60% of our adjusted net income, and approximately 40% of our adjusted EBITDA, have typically been derived from the fourth quarter.

Okay so fourth quarter, which as we noted in our press release, was a 13-week quarter, as compared to the 14-week quarter in 2012. Net sales for the fourth quarter were $216.8 million, an increase of 5.6%, excluding the 14th week in the fourth quarter of FY12. Adjusted net income per share was $0.22, approximately flat with the prior year.

Excluding the impact of the 14th week in the fourth quarter of FY12, it was flat. On a full-year basis, again excluding the impact of the extra week in 2012, we delivered sales of $748.5 million and adjusted earnings per share of $0.33, which represents increases of 7.7% and 6.5% respectively.

We are in the process now of -- we're coming out of being a private equity-owned Company and into a public-owned Company. We also pay close attention to adjusted EBITDA given our capital structure and having just been private equity owned for 7, 7.5 years. Our debt on our balance sheet primarily originated from our 2007 private equity transaction with Leonard Green and Partners, which has been just a wonderfully happy marriage where all of our stakeholders have thrived. But prior to that, we had little or no debt in our history.

We're determined to reduce our debt modestly and steadily, while simultaneously achieving sector leading growth targets. As such, we consider adjusted EBITDA to be an important metric that we'll continue to use and reference in addition to net income and earnings per share. We're proud that our adjusted EBITDA range from an oppressive 11.5% to 12.4% of sales in each of the last three fiscal years.

About new store growth, I'm excited to tell you about the new store growth that we're looking for this fiscal year and into the medium-term future. We communicated our 2014 store openings plans in our press release and with respect to 2015 and beyond, also we're happy to announce that we're raising our previously stated 10% plus annual square footage growth guidance to 12% minimum annual square footage growth from 10% to 12% minimum. Internally, operationally, human resource wise, execution wise, 12% annual growth -- square footage growth is very achievable and well within our capacity for new store growth.

Operationally and employee talent wise, we're ready to run, like a horse that's been in the barn too long. People join our Company and we're proud to say that with our employee first culture, they rarely leave. So our part-time people, who we called prime time, are eagerly awaiting full-time positions. Our full-time people are in many cases anxiously waiting a new store to open so that a store manager or general manager position can open.

New store growth is and always has been one of our key core competencies. We're excited to announce 10% minimum going to 12% minimum. Our new store growth traditionally and recently has been among the very highest in the housewares industry. In addition to the seven new stores that are already signed and slated for this year, we even hope to find and build an incremental store for this FY14 year that we're in now.

It normally requires 8 to 10 months for us to open a store, once the lease is signed, but we're working hard and optimistically to even add that additional store in this current fiscal year. And of course, our new store pipeline for FY15 and beyond is quite robust, and we believe we can exceed and likely -- we believe we can meet and likely exceed our new 12% number.

Until fairly recently, we thought we had to primarily open stores in only the biggest metropolitan areas; areas like New York, Chicago, Los Angeles. But we've been thrilled to discover that when we open stores in more midsize markets with approximately 1.5 million GMA, greater metropolitan areas, places like Indianapolis, Raleigh, Charlotte, Nashville, these stores are remarkably successful.

What we've discovered is the very best real estate development in, say, Indianapolis, cost a great deal than it does in say Chicago and the sales are well they're not -- they're surprisingly not that much lower. So we've recently opened stores in those Raleigh, Charlotte, Las Vegas type markets and we've just been thrilled with the results.

The first year, four walls adjusted EBITDA margin on our new stores has averaged approximately 23%. 23% four walls adjusted EBITDA on those new stores. And the store earns it's invested capital back in about 2.5 years. Never before have our new stores contributed more to our profitability, and there are many Indianapolis like opportunities ahead of us. We will still open great locations like our wonderful Farmers Market next to the Grove opening this year in LA.

But our focus is on the midsize markets. Midsize or bigger than midsize, 1.5 greater metropolitan area markets. We have delayed plans to even open in Canada that we were getting ready to do because of the rare business opportunity we think this Indianapolising of The Container Store brings us. Yes, we'll do Canada someday, but right now we're going to focus on this Indianapolis thing because the risk is lower, the results are proven and we're very, very excited about that growth.

Additionally we're delighted to find ourselves in the enviable position of being top of mind, so often the first or one of the very first calls by the best real estate developers in the country for their site. The Container Store is not ubiquitous in everybody's center, so we're often the very first call the developer makes and we're getting what used to be known as department store anchor-type pricing on those great locations.

It takes a retail brand it's whole lifetime really to reach that status, and we believe that this, along with the improving economy and accelerated real estate development in the United States will bring us more and more Indianapolis-type markets and more real estate creates our most -- one of our most exciting business opportunities that we see in the medium-term ahead.

The greater the real estate development is, and I think this is so important, the more real estate development the country is going through, the more turnkey new store leases become. And the more turnkey our new store leases become, the more new stores we can open in any given year. We believe in the medium-term a continually improving macro economy will lead to more and more retail real estate development in the US, which will lead us to more turnkey developments and, obviously, we can open more stores on a finite amount of CapEx dollars when they're more turnkey as opposed to when they're less turnkey.

So again we're raising 12% minimum annual square footage growth and we just can't wait to experience that even this year and in the coming years ahead.

Moving on from new stores, I want to take some time to share a little additional perspective about The Container Store related to the unique moat that insulates us from competition. Back in the 1980s there were hundreds of direct competitors, Susie's Containers, store this, store that, back then everyone from mom-and-pop stores to many of the biggest retailers in the country, were trying to sell some form of storage and organization. Today other folks dabble in storage and organization, they dabble in it a little bit and some devote several aisles to it, but nobody singularly focuses on storage and organization the way we do.

We're not -- we're the only national retailer solely devoted to it in the country. We originated the concept and we still lead it. As the pace of modern life accelerates and people realize that being organized is not just a luxury anymore, but it's actually a necessity.

Think about that, it's not a luxury, it's a necessity in this lifestyle that we all live in today. It makes our customers more productive, more relaxed and happier and our goods and services become vitally important. And The Container Stores help make customer's lives better through the joyful, calming and timesaving gifts that come with -- gift that comes with being organized.

A lot of that magic, the heart and soul that you just can't copy, has to do with our vendor relationships. The relationships we have with the manufacturers of our products.

Our culture embodies a deep devotion to creatively crafting mutually beneficial relationships with our vendors. This results in a differentiated and innovative product development and unusually high gross margins. Our retail business gross margin has increased steadily over time and has primarily only seen a reduction year over year when the dollar fell as compared to the Swedish krona.

Purchases of elfa products, our biggest selling product, are done in local Swedish currency, manufactured in Sweden, and this creates a currency fluctuation from time to time. But overall, our gross margin has increased steadily year after year after year. In FY13, we experienced a weaker US dollar. However, economic predictions are pretty universally calling for a stronger US dollar to most European currencies medium term, and that would of course be beneficial to our gross margin at The Container Store.

But the reason that we're able to have a best-in-class retail gross margin to begin with, is because of our culture and our relationship with the vendors. It's our business philosophy. We have these incredibly long-term relationships with vendors that are the brightest and most innovative in the housewares industry. And these are relationships that have been built over decades and that we believe really results in an unassailable competitive advantage as we're able to create product that appears nowhere except The Container Store with those long-term relationships.

We're known in our industry for our proficiency in worldwide product sourcing as we create products with these wonderful vendors to our exact specifications, while using the vendors financial resources and their CapEx dollars and together producing it anywhere in the world where it's most efficiently and effectively produced. If it's wood, we'll make it in Estonia. If it's injection molded plastic, we'll make it as close to our Dallas distribution center as possible, because there's no labor in injection molded plastic and there's plenty of freight.

We have our finger on the pulse of the customer pick we believe, but more importantly our manufacturers believe that, so they look to us for the leadership in those products. And these vendor relationships allow not only us filling the holes of the market with this product, but for that product to be exclusive in nature, not available anywhere else and invariably those are the products that become our best selling and highest margin products. And that's a rare feat in business, something that we really focus on at The Container Store, making sure that our best selling products are also our highest margin products.

Wonderful new and differentiated products are our lifeblood. So these long-term business relationships are what have enabled us to grow our gross margin and more and more exclusives and product, insulating us from the competition. But vendor relationships like this only happen when you're the leader and innovator of your niche and the manufacturers believe in you as that and come to you and want to create that product with you. This vendor partnership and collaboration is one of the many reasons why we love our work as merchants, we find it so joyful and glorious.

We're able to develop unique proprietary products with best-in-class retail gross margins at approximately 59% of sales. SG&A, including -- selling, general, administrative expenses including new store pre opening cost is also high at approximately 48% of sales. And yes, while that's higher than many in the industry in order to provide unparalleled service to our fanatical customers and foster our employee first culture, we believe that, over time, even short to medium term, that 48% SG&A can go, we believe, to somewhere in the mid-40s.

And our gross margin can go from its 59% to even the low 60s. At not even quite $1 billion in sales, our fixed cost like occupancy have great leverage to grow and we feel that these relationships with our manufacturers and our position in the industry allows the gross margin to not only be maintained, but to even grow slightly as we go forward.

Our business model will never be a low SG&A comparable to other housewares chains perhaps, that would we feel like destroy our culture and our customer service, no one would thrive. We're calling for that 48% SG&A to perhaps make it to the mid-40s, but we're not trying to go into 30s.

There are a lot of reasons that we're so excited about our growth. And I tell you one is because of, with our foreseeable scale still being so medium-size that even a little bit less than $1 billion, it means tremendous opportunity for us to increase our profitability going forward. So wonderful vendor relations that result in exclusive proprietary products.

You'll remember that The Container Store merchandises more than 10,000 such products, each of us in a store and online and well over half of our sales come from those products that are exclusive proprietary products. In other words, half of the products that you see in the store, well over half, are proprietary or exclusive in nature and simply can't be bought elsewhere.

Additionally, we don't sell items, we sell solutions. That's what the employees and the customer service of The Container Store are all about. We're not solutions based -- or we are solutions based, we're not items based and when you're selling solutions made up of exclusive proprietary product, you can't find that anywhere else and it helps insulate you from the general competition but particularly helps insulate you from giant Internet retailing competition.

Consumers can't show room exclusive proprietary products and you can't show room solutions as opposed to items. It's very difficult to sell complete solutions over the web, yet that is our entire focus on our own website business. And we've been literally and successfully designing closets over the telephone and online for years. It's not an area that most online merchants are willing to get into, those selling solutions and designing closets over the Internet.

I love it, one of my mentors and great friends Gordon Segal at Crate & Barrel always said, stay humble and stay paranoid. And we certainly do that, but we are -- we do want to point out that the exclusive nature of the products and the solutions-based form of the way that we approach selling as opposed to items does provide unusually high help against giant Internet competition.

You'll remember that elfa is The Container Store's best selling and highest margin product, it's our -- there's that point again, best selling and highest margin product. It's our premier shelving and drawer system that can be customized for any space in any customer's home. The Container Store owns elfa. It's based in Sweden. We bought in 1999 where the product is manufactured. And in 2013 approximately 85% of elfa sales came from either The Container Store or Scandinavia.

The reason that The Container Store purchased and continues to own elfa is because the efficient vertical integration where we are the manufacturer, the importer, the distributor, the marketing agent and the retailer for the product. That provides a wonderful vertically integrated consolidated gross margin. That leads to a consolidated gross margin in fact that is not only enormously high, but also an usually efficient value laden, great price value to the consumer.

Elfa, like all other European-based retailers was hit hard by the difficult recessionary climate over the past several years. Europe, as you know, has been more in a sustained down environment than the US has been. And elfa largest customers in Scandinavia are DIY major retail chains, whose sales have plummeted during the past four or five years of the downtrend in Europe.

Economist are predicting however that GDP growth in Europe will improve in 2014. We certainly hope that's the case and we certainly believe that it looks as though it will be. And importantly, we're very pleased to see evidence of this improvement with strong third-party sales at elfa this quarter already into this new year. And we're optimistic and hopeful that that encouraging improvement from our cousins in elfa, as we like to call them, will continue throughout FY14.

So to reiterate, we believe we can grow square footage at a double-digit rate and reduce SG&A as a percentage of sales with scale, while maintaining and even increasing gross margin. And with only 65 stores, I certainly think we're one of only a handful of retailers that can confidently state that we can conservatively as least quadruple our store count here just in the United States. Lots of differentiation, lots of insulation from competition, lots of superabundance of opportunities for sure.

I also just love when someone said about our IPO that, at The Container Store our IPO is not an exit strategy for leadership or for the Company, but rather our IPO, it's an entrance strategy into serving everyone with greater enthusiasm and commitment than ever. It's about the work at The Container Store that we have had of it -- ahead of us over the next 5, 10, 15, 30 plus years that most inspiring to continue to build an organization where everybody can and will thrive in the medium to long term. Where everyone can thrive, our employers can thrive, our customers can thrive, our vendors can thrive, our communities, as well as the shareholders.

Thank you very much and now I'm going to turn it over to our fabulous President and Chief Operating Officer, Melissa Reiff. She's going to go into a little bit more detail on a bunch of the most exciting things that we're working on in the next coming months.

Great. Thanks, Kip, and hey, everyone.

I'd first like to review just a few of the exciting initiatives that we have planned for this year, and they're designed of course to drive incremental traffic, raise our already strong average ticket, as well as, of course, always [delighting], inspiring and motivating our customers so they get completely organized and dancing in their closets and, yes, everywhere in their homes.

As Kip said, we're opening seven new stores in FY14, including one relocation. We've opened two of those stores already, King of Prussia in the Philadelphia area, we opened that on March 8. And also one in the Seattle area in Tukwila, Washington, at Westfield Southcenter Mall just a couple of weeks ago on April 12. And then the additional stores that we will open in FY14 are one in Providence, Rhode Island, Garden City Center opening May 17, the relocation of our current Oakbrook store to the Oakbrook Mall opening June 28.

We're going to open in Los Angeles, California at Farmers Market, as Kip mentioned, which is right next to the Grove, if your familiar with that area, opening August 9. Salt Lake City, Utah, here we come, opening October 18 at Fashion Place Mall. And then lastly in Chicago in the South Loop area in what's called the Roosevelt Collection opening November 15. And of course, we're all working hard on that additional eighth stored that Kip talked earlier, so stay tuned for that location.

We've opened all of these stores and will continue to open our stores with our magical grand opening strategy, building buzz and excitement months leading up to the openings and partnering with wonderful nonprofits that our target customers support and is passionate about, as we donate 10% of our grand opening weekend sales to those nonprofits.

I also want to talk a little about some new programs and services that we are executing to engage customers even more and, yes, drive incremental visits and sales. But first I'd like to reiterate that, because of our unique employee first culture and our incredibly vast more training for our employees than other retailers, we do 263 hours of training in a full-time employee's first year, and 150 hours in the following years, again way more than industry average. We're in this wonderful position to continue to raise our average ticket through our high level of customer -- exceptional customer service and of course our solutions baked approached to selling.

As Kip said, we sell complete solutions, not just items, which, again, drives comp store increases. And actually, come to think of it, probably one of -- we are one of the few houseware stores where customers actually use shopping carts, which of course helps tremendously to increase average ticket. In our early days, our average ticket was about $20 and now it's approximately $60, yet we know we still have big opportunity to raise it.

In FY13, our comp store average ticket was up a stout 5.6% to the previous year. And this is a sustained trend. In fact our FY13 average ticket is up 15% over the past five years, going back to FY09. So in speaking of driving average ticket and frequency, we've made additional headway in positively impacting this with the following programs that we're super fired up about to say that we're going to -- and we're going to roll them out in FY14.

First is our POP! program, Performing Organized Perks, our customer engagement program, which we have been testing in our 10 California stores since last July, and which we will roll out to all stores by the end of this July. Our goal with POP! is to deepen customer engagement by creating and executing a program that delivers value and appreciation. And one that results in strengthening customer loyalty, driving incremental visits to our stores and increases revenue and department channel usage.

In creating this program, we really base it on four guiding principles. One, the program had to be simple and relevant. We wanted to treat our best customers even better. The program needed to be emotionally engaging, and of course we designed it to be profitable by, yes, driving incremental revenue. And in surveying our customers prior to testing POP! in the California stores, they told us that they love The Container Store. They have a passion for our brand and want to be even more a part of them -- a part of it.

And when we asked them what the number one thing they wanted in the customer engagement program, they simply said more communication. They want to hear more from us even be more part of our brand. They want more information, more tips on storage and organization. How we can help them make their lives better, easier just simply more communication. More kind of hugs as we call it.

So what we developed is not another typical points-based me too loyalty program that gives away gross margin and no return on investment. POP! is a program that rewards customers monthly with special communications, surprise and delight gifts and exclusive offers.

We are already seen great results in our California stores, in fact fabulous positive customer response. POP! is producing great adoption and conversion with 46% of all California sales now coming from our POP! stars. Yes, that's what we call them when they enroll in our program. And believe me they do smile when we tell them there are now a POP! star.

So we're seeing increased frequency from our POP! stars, more visits to our stores and our POP! stars also have a higher average ticket. Again our plan is to rollout POP! to all stores by the end of this July. And those customers who don't have a store near them will be able to enroll in the program online in August.

And then there's our exciting ATHOME personalized design and organization service, which we are currently testing in select Texas stores. It's been our most requested service in all of our 35 years.

Our customers don't want DIY. They just want someone they can trust to do it for them. Organize area of their home, soup to nuts, which makes their time starved busy lives more efficient and enjoyable. Our ATHOME organizers go directly into customers homes and design solutions for them, organizing every space in their home using, of course, The Container Store products.

This includes organizing plans for all types of spaces, whether it's closets, pantry, garage, kids room, linen closet, many times using elfa, of course, which is, as we believe, the foundation of every organized space. Our ATHOME organize can also help our customers unpack and organize their new home or stage a home for sale, prepare even a baby's nursery, really it is a soup to nuts offering. The point is, the customer wants us to do it for her A to Z and that's exactly what we will do.

We're finding already that an ATHOME customers average ticket is much higher, close to $2,000. So obviously there is enormous opportunity with this program. And our plan is to launch ATHOME in additional markets in Texas, followed by additional key markets such as Manhattan, Los Angeles, Chicago and the Washington, DC market by the end of this calendar year.

Since 1978, we've always worked diligently to maintain our position in the market with closet domination. And we are continuing to pursue this year additional product offerings that will give our customers any and everything she wants to make whatever her dream closet is even more beautiful. It's too soon to share specific details, but we are confident in this initiative and know it will enhance greatly our current offering and it will correlate beautifully to with our ATHOME service.

We're elevating also this year the [efforts] of our business to business sales channel at The Container Store. Practically working to drive sales of The Container Store products to businesses, such as residential and commercial real estate contractors, developers, hotels, hospitals, schools, educational facilities and architects.

These types of companies need and want elfa specifically to help enhance their commercial developments, or they may need other products that we offer in big quantities to help organize their business or their clients. Many times too they want The Container Store gift cards for their company to use for incentives or special gifts. We've assembled a team of sales specialists who are leading our business sales efforts and we really are excited at the opportunities in that part of our business.

I just real quickly want to share our major campaigns for FY14. We completed our have fun getting get it done office sale that started February 12 this year and ended March 23. We're currently in the middle of our project spring, spring organization sale that ends Sunday, May 5. And simultaneously, we're offering our elfa preferred program in May and June, where our best customers and brand-new customers receive a special invitation to save 25% off elfa and 25% off elfa installation for them, as well as a card for them to share with a friend to enjoy.

Then that will be followed by our love your luggage, go organize travel sale from May 5 through the 22 of June. Followed by our happy organize home sale beginning June 23 through Labor Day September 1. And included in that time period is also our focus on college and dorm, lunches and lockers, our back-to-school time.

Our annual shelving sale begins August 25 and runs through October 19. And then we're into Christmas with our just beautiful gift wrap wonderland that begins October 20 through December 24. Finally December 24 will be the first day of our annual 30% off elfa sale and it runs the February 10, 2015. A busy year.

And of course, we will continue, big time, to focus on both externally and internally about who we are, what we are, our culture, our foundation principles and our commitment to conscious capitalism and conscious leadership. In addition to continuing to enhance content and engagement on our blog, www.whatwestandfor.com, we will also continue to share our story with customers via a variety of marketing tools like direct mail, in store signage, online and with all of our social channels. The feedback, the response from our customers and employees, and our efforts in communicating this, has been overwhelmingly positive.

And I wanted to close today by sharing something that we launched this past February, actually we launched it on February 14, which is the day that we here at The Container Store celebrate national we love our employees day. And it's something we're very proud of. It's The Container Store employees first fund.

It's a separate nonprofit entity that provides financial assistance to our employees during emergencies, medical situations, a catastrophic event that they are not possible able to handle financially. And I can tell you firsthand, after visiting about one third of our stores these past two months, and speaking directly with many employees, they are, we all are so proud and so grateful and so excited about this program. The Container Store funded the program with the initial -- with an initial $100,000 and all employees, vendors really any of our stakeholders can contribute as they wish.

It's a way for us to honor the care, commitment and compassion we have for each other, and also a formalization of the spirit of generosity that our employees have always shown for each other during times of crisis and need. And you know what's really cool about this is, is we've already had vendors and other friends of The Container Store contribute. So that's just -- we just think that's incredible and we're very thankful.

So those are just a few exciting things we're working on this coming fiscal year, and now I'm going to turn it over to our wonderful CFO, Jodi Taylor, who's going to go over the financials in detail.

Thank you, Melissa, and good afternoon, everyone.

I'd like to begin my remarks with review of our fourth-quarter and our full-year results. And then discuss our outlook for FY14.

Before I discuss the results, I'd like to remind you that 2013 was a 52-week year, as compared to 2012, which was a 53-week year. The financial impact of 2012, due to the additional 53rd week, was approximately $11.7 million of revenues and $0.03 of diluted earnings per share, as well as $3.1 million of adjusted EBITDA.

I also want to point out that I will be referring to adjusted numbers since our nonrecurring IPO cost had a significant impact on our annual GAAP results. Please refer to our press release for our GAAP results and a reconciliation of GAAP to adjusted numbers.

Net sales in the fourth quarter were $216.8 million, or up 5.6% on a 13-week basis. Sales in The Container Store retail business were up 5.6% on a 13-week basis to $193.8 million. And our third-party sales at our Swedish subsidiary elfa were $23 million, up 5.3%, compared to $21.8 million in the fourth quarter of 2012.

We ended the quarter with 63 stores and approximately 1.6 million of gross square footage, as compared to 58 stores and approximately 1.4 million of gross square footage at the end of the fourth quarter of 2012.

Our comparable store sales for the quarter increased by 1.4% on top of 2.7% in the fourth quarter of 2012. The 1.4% comp was driven by 6.5% increase in average ticket. As we all know, there was historic record-breaking weather across much of the country. This adversely impacted our sales during the quarter. And because weather hindered our ability -- the ability of our customer to visit our stores, we extended the annual elfa sale in order to allow our customers to take advantage of the extraordinary value offered during the elfa sale period.

Looking at the aggregate performance of the 28 stores in the part -- in the areas of the country that were most impacted by weather, including the East Coast, the Midwest, mid-Atlantic and the Southeast, comps were down approximately 3%. Our remaining comp stores, most of which also had weather impacting them but just to a slightly lesser degree, saw performance of comps of plus 4.1%.

Of course some of our largest volume stores were most impacted by weather. This comp variance stands in stark contrast to what we typically see in our stores, which is no meaningful divergence in comp performance by geography.

Moving on to our Swedish subsidiary elfa. The 5.3% increase in elfa third-party sales was due to a notable improvement in scales from the Scandinavian countries. In FY13, approximately 39% of elfa sales were derived from The Container Store and approximately 46% were derived from Scandinavia, with the remaining balance of 15% coming from other parts of the world. We are optimistic as we continue to see improving sales trends in Europe as the direction of elfa sales is currently largely determined by how The Container Store and the Scandinavian countries perform.

Consolidated gross margin decreased by 90 basis points to 58.2% from 59.1% in the prior-year period. Gross margin in The Container Store retail business decreased 160 basis points to 56.7%, primarily due to the appreciation of the Swedish krona versus the US dollar year over year, as TCS thus purchased all of our elfa products in Swedish krona, as well as also to a lesser extent, slight increased discounting of seasonal holiday product due to the shorter weather impacted holiday selling season at The Container Store.

The Container Store gross margin decline was partially offset by the increase in elfa gross margin of 140 basis points to 40.6%. The elfa gross margin increase was driven by ongoing efficiency improvements in manufacturing operations and the mix of product sold.

As a percentage of sales, consolidated SG&A increased to 44.5% from 43.4% in the fourth quarter of FY12. This increase was driven primarily by cost associated with being a public Company that weren't incurred in the prior-year fourth quarter, as well as the impact from the loss of the 53rd week that benefited to the expense leverage in the fourth quarter of FY02. Additionally, elfa incurred higher sales and marketing spend in conjunction with the 65th anniversary campaign.

Our net interest expense in the fourth quarter of 2013 was $4.3 million, compared to $5.4 million in the fourth quarter of FY12. Interest was lower due to lower interest rates achieved through refinancing of our term loan facility at The Container Store during 2013. Our tax rate on adjusted net income for the quarter was 35%, compared to 39.9% in the fourth quarter of last year.

During the fourth quarter, we were able to release $6.4 million of valuation allowances on certain of our domestic deferred tax assets, which created an unusual tax benefit of 12.5% in the current fourth quarter, compared to tax expense of 11% in fourth quarter last year. I will speak to 2014 taxes in more detail in a moment when I discuss our outlook.

Before I discuss net income and earnings per share, I want to point out that for both the quarter and full year I will be referring to adjusted net income and earnings per share in both periods. A reconciliation of GAAP net income and net income per share to these adjusted numbers on an adjusted share basis can be found in the financial tables included in our earnings press release issued today.

As a result of the factors I just described, adjusted net income for the quarter was $10.7 million, or $0.22 per diluted share based on 48.9 million adjusted diluted shares outstanding, as compared to $12 million, or $0.25 per diluted share based on 47.9 million adjusted diluted shares outstanding in the fourth quarter of last year.

As noted, the results for the prior year include approximately $1.3 million, or $0.03 per diluted share earnings benefit due to the 53rd week. Additionally, the current year's fourth quarter includes $0.01 of incremental expense per diluted share related to being a public Company this year, which was not incurred in the prior year.

Our earnings press release includes details of our full-year financial performance, so I'm just going to touch on a few highlights. Sales increased 7.7% on a 52-week basis to $748.5 million. This was driven by a 9.8% increase in The Container Store retail segment on a 52-week basis and a 5.7% decrease in elfa third-party sales. Our comparable store sales for the year increased by 2.9% on top of 4.4% last year, driven by a 5.6% increase in average ticket.

Consolidated gross margins were flat year over year at 58.8% of sale. Consolidated SG&A as a percentage of sales increased from 46.9% in FY12 to 47.3% in 2013. This was driven primarily by a larger percentage of net sales coming from The Container Store, where our SG&A expenses are higher as a percentage of sales than at elfa.

The Container Store also incurred expenses in preparation for our November 1, 2013 IPO, and costs associated with operating as a public Company that were not incurred in FY12. Adjusted net income was $0.33 per diluted share based on 48.9 million adjusted diluted shares outstanding, or $0.34 per diluted share based on 47.9 million adjusted diluted shares outstanding last year. However, as noted, the results for the prior year include approximately $1.3 million, or $0.03 per diluted share earnings benefit due to the 53rd week.

We ended FY13 with $18 million in cash on our balance sheet, $351.3 million in outstanding borrowings and combined availability with cash on hand of $87.7 million. The Container Store had no balance outstanding on our $75 million US revolver facility and elfa's $27.3 million Swedish revolver facility had $16 million outstanding at fiscal year end.

We also ended the year with inventory of $85.6 million, as compared to $82.4 million at the end of last year. From an inventory standpoint, we entered first quarter very well positioned with just a 3.9% increase year over year, despite inventory owned related to five incremental new stores.

Now I'd like to turn to our outlook. For FY14, consolidated net sales are expected to be $827 million to $837 million based on our announced store openings, and an increase in comparable store sales up 3% to 4% for the year. Net income is expected to be $0.56 to $0.61 per diluted common share based on estimated adjusted diluted weighted average common shares outstanding of 49 million.

This is utilizing a tax rate of approximately 38.8%, which is higher than recently experienced, due to the expected split of earnings between The Container Store and elfa, as well as elimination of our valuation allowances on certain domestic deferred tax assets in fourth quarter 2013. With our prior approximate 35% tax rate, our net income per diluted common share would have been approximately $0.04 per share higher.

Our annual interest expense at today's LIBOR rate is expected to be approximately $17.5 million. Or normalized tax rate in the US is approximately 39.6% using statutory state and federal rates and our related elfa is approximately 30%. The split of earnings between The Container Store and elfa determines our consolidated tax rate, which is estimated to be approximately 38.8% in 2014 again.

A few things I would like to note with respect to the cadence of our results throughout the year. First, on the seasonality of our revenues. Over the past three years only 21% of our consolidated sales were derived in first quarter but over 30% came from fourth quarter.

Our fiscal fourth quarter includes the months of December through February, which encompasses the peak holiday sales, as well as our all-important annual elfa sale. We are more bullish on sales in the back half of the year as the initiatives we are rolling out begin to impact our sales performance, and importantly of course, as we cycle the weather impacted results in fourth quarter of 2013.

Second, because of the significance of the fourth quarter to our annual results, we typically target investments in planned initiatives for the first half of our fiscal year. This means that our expenses are generally higher as a percentage of sales in the first and second quarters. This will be the case in FY14 with our planned store wide rollout of the POP! program and the planned ATHOME rollout of that program it to several stores.

The impact of the cost associated with these programs will be most significant in the first two quarters of year. As result, we expect consolidated SG&A as a percentage of sales to delever in first quarter from the 52.2% levels in the first quarter of 2013. In second quarter of 2014, we expect SG&A as a percentage of sales to be roughly flat with the 46.6% level in second quarter of 2013.

Third, the seasonality of our profitability. Our profitability has historically been heavily weighted to the fourth quarter with in excess of 60% of our adjusted net income being generated in fiscal fourth quarter and approximately 40% of our adjusted EBITDA. We would expect similar seasonality in 2014.

First quarter on the other hand is historically by far our lowest quarter for both sales and profit contribution. In fact, first quarter has historically been a lost quarter for us and we expect no different in FY14, though we expect our loss per share to show slight improvement from the loss per share of $0.07 in first quarter last year.

In FY14, we will also have incremental costs, including additional payroll and professional fees associated with becoming a public Company, representing roughly $1.3 million beyond what was occurred in FY13 for a total of approximately $2 million. We expect to incur approximately $47 million in CapEx, net of tenant allowances, or $54 million in CapEx before tenant allowances in FY14. The vast majority of this will be spent on our new store construction and related costs. The rest will go towards our existing stores, our new and existing distribution and production facilities and corporate infrastructure.

We believe that we're in a solid position to accomplish our previously stated financial objectives that include annual square footage growth of a minimum of 12% with the strong desire to add a store into FY14 so that this level of growth could be achieved in 2014 as well. All leases for 2014 are fully executed and we have a robust real estate pipeline for 2015 and beyond.

And with that, I'd like to turn the call back over to the operator so that we can take your questions.

Thank you. We will now be conducting a question-and-answer session.

( Operator Instructions)

John Heinbockel, Guggenheim.

So two things. You talked about Indianapolis versus Chicago. Going forward will there be a conscious effort to do more those middle markets, [MBN] and less of Chicago or you think it's a 50/50 balance?

I think the results of the Indianapolis type locations are so wonderful that we by all rights will focus primarily on that type of location while mixing in locations exactly like this Grove Farmers Market LA location. Or the Stanford shopping center location that we just opened. We got a lot of Manhattan left to do. We're still going to do those things, but the preponderance of it is going to be in this Indianapolis thing because 23% first year four walls EBITDA I think there's opportunity for -- that's just such a great business opportunity. That will be the focus, but it will be a balance with most of it there. Does that make sense to you, John?

Yes, no absolutely. And then secondly I wanted you to drill a little bit on the B2B which I find very interesting. Is that a national effort or is it targeted and how big is that today? I imagine pretty small. And how big is the opportunity, because you would think it's a pretty sizable one.

Right, hi John, it's Melissa. It's small right now. This is an opportunity -- yes, we're just beginning really. It's small but we feel like that there is great opportunity and we will be pursuing this nationally.

In the past we've really just taken B2B that's come to us, John, and now we're going to be as I said much more proactive in going after it. So I don't really have a percentage of revenue that we're going at it right now to share but we think it's a huge opportunity and we're going to play in that space as well.

For 35 years people have begged us to do this as well. Most of these products are not available anywhere else, businesses need to save time and save space as well and we just really didn't want to devote the resources to something that wasn't the core business. But the demand for it has been so great for so long, we're going to focus on it and I think it's going to be a very high growth area for us for the future.

Okay, thank you.

Gary Balter, Credit Suisse.

Melissa, you through out a tantalizing comment when you're talking about the new initiatives. You talked about the ATHOME, and right after ATHOME you mentioned what sounded like a rollout of something to go with elfa.

You mean the closet domination, Gary?

Yes.

Yes. I know that was a little bit of a tease and I don't have anything really -- we don't have anything else to really share right now on this call. But as you can imagine, since 1978 our goal has always been this closet domination and owning it up, down, in, out, all around and we want to offer our customer any and all offerings we can to make her dream closet whatever it is she wants it to be. So I have to leave it at that right now, Gary, but elfa has got such tremendous possibilities, ATHOME has such tremendous possibilities that we want to give it her any way she wants it.

And product development with our wonderful vendors as we discussed is our favorite thing to do.

Exactly. We love product development.

No, it's great that you have all these new initiatives to add onto what's such a profitable store already, so I like to see that. A technical question, going from 10% growth to basically 12% growth, what's the implications as we look out to 2015, 2016 in terms of the earnings growth rate? Does that put some pressure on in year one of expanding out that growth?

Gary, I really don't think that it does for us. Because as you guys have heard us say before, our stores they get profitable very quickly. They achieve profitability quite quickly. I know Kip talked about the first year adjusted EBITDA of our recent openings being, over the last several years, being 23% so we don't believe that it should be a drag. Particularly if we're able to spread them out throughout the year which would be our objective so that we're able to reap the sales benefit to offset the opening cost.

I think the only time they really are is when you have a late third quarter or fourth quarter store opening then it can be a drag to EPS for that. But balanced out it's a plus. That's one of the reasons we're so excited about it.

That's right.

First year.

And then one last one then I'll turn it over to somebody else. When you look, you mentioned that the stores are about 7 points higher in the better markets and you mentioned the 41. Past the sales line I assume also they're much more profitable just because you don't have the mark down pressures, is that the way we should be thinking about it as well?

I think it's important that we address that because we didn't really -- mark down pressures for us is not like your thinking of for the typical retailer because we have such a little seasonal product in our stores. We still cleared our holiday goods very, very profitably. We simply didn't realize quite as high of maintained gross margin on those this year that we did last year because we ended up with, as we all knew going into it a shorter holiday season, but than it was exacerbated by the increment weather that occurred on two of those weekends. But ours is not a situation at all where it's anything like the typical retailer for clearance. So I don't want in any way that to be misconstrued what I said.

And you characterize a 7% as being the spread between the better stores and the worst stores, but that was really the differential between the weather impacted stores and the relatively non-weather impacted stores.

Yes, I meant to say that, sorry. Okay, thank you.

Dan Binder, Jefferies.

My question was around the breakdown and the comp store sales assumption for the coming year. Do you see that being evenly split between ticket and traffic? I know more recently traffic, or ticket has been a bigger driver. Could you shed some color on that?

Well I think that retail of course -- very few retailers are seeing equal splits between increased average ticket and traffic. We have maybe a leg up in an increased average ticket because of the emphasis we place on our sales people, the pay, the training, all of that. So we've been long able to achieve really sector-leading, really industry-leading average ticket growth. And we're implementing programs now to make sure that our traffic is an increase rather than a slight decrease, as so much of industry is seeing recently.

The difference between 1 point decrease in traffic and a 1 point increase when you add that to an average ticket increase of the 4 or so points that we've been having is of course the difference between 5 and 3. And so it's -- no, I think we'll still do a little bit better. We have historically always done that and I think we're -- but we're trying to close that gap. And a lot of the things Melissa talked about should help us close that gap to where that adds to the average ticket increase, which we're so proud of, rather than flat or even slightly negative to it.

Okay. And then to follow up on that, as you think about the ticket increase for the coming year, do you see that coming more from average unit retail improving or more from units per transaction. The reason I ask that is because I know you trade out certain number of SKUs every year and sometimes you can trade up a little bit on a price point if the market's right. If you could shed some color on that?

Yes, it's what we call man in the desert selling better and better. Solution selling buyer, our wonderful sales staff, who get better and better each year. The quality of the average person we hire each year gets better, our training programs get better, the products get better. And so the number of items in the basket increases each year.

We see no inflation at all in our buying or in our business. That's the only good thing about a still questionable macroeconomic environment, is you don't have any of that. So it's better excellence in our store level sales performance that has caused that thing to historically go up, up, up and we expect more of that in the short and medium term.

Thank you.

Chris Horvers, JPMorgan.

On the guide, so you mentioned in the release that the only difference between your outlook for the year versus a few months ago is basically the timing and cadence of the year end expenses. Can you confirm that you're thinking about the first quarter from a sales perspective as you were back in October and could you also quantify perhaps how much the POP! rollout and the ATHOME rollout impact the P&L?

As far as the expense side, let me attack that for you, Chris. On the expense side, our initiatives we do think will add some expenses as I noted into the first half of the year. We tend to, for all the reasons I discussed, like to have our initiative rollouts concur -- or completed by the end of the first half of the year before we get into the more important quarters. So yes, we do expect to have some incremental spending related to those --

You don't have as many pesky customers getting in your way while you're trying to do them.

Yes. As then we said Chris, our annual sales guidance and our outlook is unchanged. So it's consistent on an annual basis.

But not -- so the -- so you're not necessarily saying that the first quarter outlook is similar to what you were thinking? Because it seems to read that way in the release, it's almost as if -- the only thing that's shifting around here is the timing of expenses in terms of the first quarter and first half.

Yes, well we're not really commenting on the year by quarters. So we're adding a little color to the new initiative expense rollout. We're busy as heck in the third and fourth quarter and so we do that work in the early quarters when the stores aren't as flooded with customers. But beyond that, we're still trying to avoid -- we're talking about the year, we're not going to get into more color on the first quarter at this time.

Perfect. So in terms as it help us with our modeling in terms of how you see the opening, unless I missed it in the release, the opening of the stores on a quarterly basis that'll help with the pre open? Thanks.

Sure, I think Melissa went over that in her remarks, let me grab those exact dates. But we've got for this year we've already opened -- I think in the release --

The dates are in the release.

Yes, they are. (multiple speakers) If not, I'm happy to do that for you offline.

Yes, it'll be in the script which I went through them.

Okay. Thanks very much.

And that last we will be late -- but that last TBA one will be late.

TBD.

Matt Nemer, Wells Fargo.

First question, given the focus on the mid-sized markets, the Indy type markets, I'm wondering if you can provide any more color on the economics of those markets? It sounds like the sales per foot is close to the larger markets. Obviously we're taking New York out of this, but wondering if you can comment on sales per foot, maybe four wall profits and then also occupancy in those -- in that target mid-sized market that you talk to?

Generally that Indianapolis type location can have an occupancy expense that is generally high single-digit occupancy expense and our overall occupancy expense is still in the high 12s. So the more of those types of things that we can accomplish, the more we're bringing down that high 12s. There's a lot of opportunity for scale with our occupancy expense and it happens a little faster in those markets than it does in the bigger markets. New York is a totally different analysis completely, but --

It goes back to how we model and think about a new store. We have a proven track record of going in and predicting that store's volume and then building the staffing and the entire model around that so that those stores are pro forma to be able to achieve at least at the Company average we spoke of for adjusted EBITDA. And what we have seen in these markets is pretty consistently these stores are exceeding what we expected their pro forma results to be so that they are performing even better.

So it may not -- there's a range of course in volumes, Matt. It's not necessarily just one single point of volume in our openings, it varies depending of course on the marketplace. But we're adjusting that entire P&L for that individual store so that we can attain consistent bottom line profitability, or relatively consistent bottom line profitability by location.

So we're getting first year four walls EBITDA approaching the mid-20s a first year in that and it might take a little bit longer in the Chicago's and the Los Angeles' to reach that level.

Okay, that's very helpful. And then secondly, for the 30 stores that were in better weather markets that comped for over 4%, I assume that there were a number of stores in that set that were in California and maybe Texas and I'm wondering if you think the growth initiatives like POP! and elfa in home are helping to drive that number to 4% or if that's more of a baseline number?

It's a great question and yes, you're right, those are the regions of the country that were less impacted by weather, and frankly because of that it makes analyzing the POP! data in the fourth quarter really challenging because you cannot attribute the lift you see solely over the rest of the chain due to POP!. You certainly have to take into consideration the weather.

Evaluated independently.

Yes you do. So that's a great question and I think at this point we would say that as far as our performance we saw in those stores in those areas, it wasn't necessarily anything initiative specifically driven. I think it's just everything we're doing day to day in the business because if you think about it, the ATHOME program is currently only testing in the Dallas Metroplex.

And Florida we didn't -- we don't have the ATHOME app, so yes.

Right, so yes I would say it's everything mixed together, it is not any one specific thing to attribute it to.

Okay, that's fair. And then lastly and I'll let somebody else hop on. For ATHOME even though that's a test in one market, I'd love to know, it sounds like the average tickets are very high. But I assume it's also an extremely labor-intensive sale. What you think the overall profitability of that business looks like long term? Can it be -- obviously the dollar profits are very big, but would the percentage profits be above or below average longer term?

That's been one of our reasons for testing this so carefully before we rolled it out, Matt. Frankly, trying to figure out the right business model that made sense because one of the things that we learned and we determined worked best is to locate the best professional organizers in each of these market places and to use them on a different basis.

Not as an employee but rather these are folks that are independently running their own businesses, and of course contractually protecting us all the way we need to. But then paying a commission so that it gives us a lot of variability to the business model. And of course the whole purpose of the program is not only to have obviously happy, happy customers but is to sell more Container Store product. We want to sell more of our product.

And to be profitable.

And to be profitable. So we worked this hard before we're rolling it out to feel confident that is a profitable business model.

It goes against our personality a little bit to -- but there are professional organizers in every city in America, many, many of them and they're wonderful and The Container Store is already their primary resource, so they're already very tied into doing business with us. And so not to use that labor pool, that expertise is just silly. And we feel, even though it's unlike us to do it that way, we feel that really boosts profitability of this thing to even much higher levels because you don't have that infrastructure cost, you're just paying a commission to somebody who's already an expert on it.

Yes, like installation. And our ATHOME organizers that we've already identified in the Dallas, Fort Worth area and we've already identified the Houston and Austin markets and we're working on Manhattan right now, these are entrepreneurs and they are delighted to be partnering with us. And they will go through the typical training that we do for our employees and it's a great program. So I -- we have tons of confidence that it's going to be very, very, very successful.

I'm very sad that San Francisco is not on the initial list. (laughter) So I'll be disorganized until you roll it out here. So please add that.

San Diego and South Coast are in the fall, if that helps.

Closer, thanks so much.

Alan Rifkin, Barclays.

Kip, does the acceleration in square footage growth from 10% to 12% imply a greater terminal number of stores that you believe you can have in the US or are we simply getting to the same number but a little bit quicker?

It's already what quadruple or quintuple? So at some point you just say well that 300 number is enough. That indicates a lot of runway there and so we'll see what the ultimate amount is and it's going from 10% minimum to 12% minimum. We have operationally, human resource wise, we're hoping for continued better macroeconomic environment and continued more and more retail real estate development which results in more and more turnkey opportunity for us.

And with the same finite amount of CapEx, most of our CapEx goes to new store development. We can obviously open more stores with the same CapEx dollars in a more robust real estate development, more turnkey real estate development. So we're operationally well within our wheelhouse we feel like here and we're waiting on those factors to help us grow even faster. Does that make sense?

Yes, it certainly does. And along the lines of your guidance on the SG&A line going from 48% presently to the 40 -- to the mid-40%s long term, should we think of that more as a result structurally of you folks getting larger and larger or is that improvement in SG&A more so predicated on putting up a higher comp?

That is actually more thinking of us in terms of scale. That's really a scale discussion and that's the main driver, Alan.

Yes, we're not even quite to $1 billion. We've seen the difference throughout our history to scale and we're -- that's why we're excited about going from 10% minimum to 12% minimum, it plays right in hand with that.

Okay. And one last question, if I may, I think it is for Jodi probably. With the step to the valuation allowance, can you quantify how much is still remaining and would it be correct on our part to assume that that valuation allowance will not be exercised in Q1 since it's a loss, since you're projecting a loss in the quarter?

Alan, we have taken all the valuation allowances that we anticipate. There's not anything additional coming in 2015 -- or 2014 at this point. So we've cleared those to the degree we plan to.

Got you. Thank you very much.

Denise Chai, Bank of America.

Looking longer term, Kip, you talked about upside your gross margin SG&A, as Alan just referenced, SG&A declining as a percentage of sales as you gain scale and now you've reached your square footage target to at least 12%. So how should we think about the previous long-term targets that you gave at your IPO of a 2% to 4% comp, adjusted EBITDA margin of over 13% and 20% to 25% net income growth? So I'm wondering, does your accelerated square footage growth change your algorithm, if you will?

Well I think Denise, right now we're not planning to change that at this juncture. So no it's not changing anything beyond what we've already stated.

Okay.

But we're not saying it is.

Okay, for the quarter could you break out the currency impact compared to the promotional impact on TCS retail gross margin and will any of that currency impact linger into the first quarter?

I'll let Jodi answer that, but be careful because the industry experienced such gigantic discounting this holiday season and this was relatively minor. You had not just the calendar but you had the weather and the calendar which ruined two of the three most important weekends. So we got into, very unusually, a little bit of a gift wrap and stocking stuffer promotion late in the season, but nothing like what the industry as a whole did. It still primarily -- well go ahead, Jodi, why don't you break it apart?

Yes, Denise, the majority of the explanation is FX. We had the benefit last year of some really nice contracts that we had done on a forward basis for purchases of our inventory. And so the rate that we realized for SEK in our cost of goods last year was quite a bit higher than what we were able to achieve for this year when we did not have the benefit of those contracts and as you're well aware the -- or if you track it, the Swedish krona versus the dollar had in fact weakened. So it's very much an FX story with much smaller degree the mark down discussion.

Okay, got it. Thank you. And how should we think about first quarter, did you still have those contracts locked in the first quarter of last year?

We are thinking -- no, we -- that's a great question and I need to double check that for you before I speak. But I can tell you that as it relates to FY14 we do believe that the comparisons will be more challenging perhaps in the beginning part of the year. But we are absolutely expecting, based on everything we know, to see some strengthening of the dollar versus the Swedish krona as the year proceeds. So that is somewhat built into our guidance.

Most outside forecasts are for the dollar. But we don't control the dollar against the krona anymore than we control the weather. But we are happy to see the forecasts that are out there and that would tend to say that most people would think that that would improve this coming year.

Okay, thanks so much.

Thank you. That is all the time we have allotted for questions. I would like to turn the floor back over to Management for closing comments.

Well thank you all. We're really genuinely very thrilled and inspired about the balance opportunities and work ahead of us. Never more so as a matter fact. We have incredibly and extremely long runway to go. We have the best employees around, the best Management team around and we certainly believe the best culture to deliver all that we're setting out to accomplish. And we've never been more committed to successfully executing these remarkable opportunities. The best is yet to come and we want to thank everyone for joining us today and for your support of The Container Store. Thank you.

Thanks, everyone.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.