The Container Store, a home-organization goods retailer with 104 stores across the U.S., filed for Chapter 11 bankruptcy protection to reorganize its finances and address reduced demand for its products.
The 46-year-old retailer filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas on Sunday with plans to keep all of its stores open for the time being and emerge as a private company within two months.
The Container Store has been hit financially by more competition, as well as a sluggish housing market, increased interest expenses and looming debt maturities, Chad Coben, the company's chief restructuring officer, said in his declaration to the bankruptcy court.
All those factors have significantly impacted the company's bottom line since its peak in 2021, resulting in a 10.5% year-over-year decline in revenue and a 77.1% year-over-year decline in adjusted earnings for the quarter that ended Sept. 28, Coben said in the declaration.
The Container Store sought bankruptcy protection after a series of events left it with few options. The retailer's stock was delisted from the New York Stock Exchange earlier this month, weeks after a proposed deal with the parent company of Bed, Bath & Beyond to invest $40 million into the business fell apart.
The Container Store said last month it was curtailing expansion plans. In its bankruptcy filing, The Container Store said it would alert the bankruptcy court to any potential closings by Jan. 14.
Representatives for The Container Store didn't immediately respond to inquiries for comment from CoStar News.
Organized reset
The pre-packaged bankruptcy filing should have little impact on The Container Store's business, unlike other recent retail bankruptcies, attorneys told the bankruptcy court during its first-day hearing Monday. Customers, vendors and employees are still expected to see business as usual in the coming months.
The Container Store said its stores are in 34 states and Washington, D.C., averaging about 24,000 square feet. The company employs 3,800 workers, including 2,900 employees who work at a store, according to court documents. About a third of its sales are from e-commerce.
The Container Store's monthly lease obligations and occupancy-related expenses total about $11.7 million for its stores, corporate offices and distribution centers. As of the petition date, the retailer has about $243.1 million of debt on its balance sheet and $11.8 million in cash, according to the filing.
The debtor-in-possession lender is Eclipse Business Capital, which plans to lend The Container Store a total of $115 million, including $40 million of new funding and $75 million of rollup debtor-in-possession financing from pre-petition financing. The Container Store told the bankruptcy judge it plans to immediately use a portion of the first draw of its $140 million in-credit facility to pay vendors and support the continued shipments of products.
The Container Store began its retail journey in 1978 when the first 1,600-square-foot store opened in North Dallas. The company expanded outside of Texas for the first time in 1991 with a store opening in Atlanta. In 1999, The Container Store acquired Elfa International, its longtime Swedish vendor, and became the owner, distributor, retailer and manufacturer of its best-selling product, Elfa Drawers, according to the filing.
The bankruptcy does not include its Elfa business in Sweden, which is expected to continue operating as usual.
Prior to the retailer squashing its growth plans, The Container Store was finding success with its so-called small-format stores totaling about 12,500 square feet, about half the size of an average store in the chain.
Financial challenges
Faced with a plethora of financial challenges, the company's board conducted a formal review earlier this year to evaluate strategic alternatives, including the potential sale of The Container Store, new equity investment or refinancing the pre-petition debt owed by the company, Coben said.
The Container Store, with the help of JPMorgan Chase, went through a marketing process, but it did not result in any offers to purchase the entire company.
Beyond Inc. had hoped to invest in The Container Store, but the company's worsening financials forced the parent company of Bed, Bath & Beyond to exit its plans to invest in the organizational retailer. The Container Store's interest rate on its existing debt rose, causing a $6 million net interest expense in the second quarter of 2024, the company said.
At least 90% of lenders for The Container Store have agreed to support its in-court recapitalization plan adding $40 million of capacity to the business. If the bankruptcy moves forward as scheduled, the retailer could receive a confirmation to its plan by Jan. 24, according to the bankruptcy filing.
"The Container Store is here to stay," said CEO and President Satish Malhotra in a statement. "We believe the steps we are taking today will allow us to continue to advance our business, deepen customer relationships, expand our reach and strengthen our capabilities."
For the record
Latham & Watkins is the legal counsel for The Container Store. Houlihan Lokey is the investment banker. FTI Consulting is the financial and communications adviser. A&G Realty is the company's real estate adviser. The term loan lenders are being advised by Paul Hastings law firm, Greenhill & Co. as their investment banker and AlixPartners as their financial adviser.