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2013 Annual Report 41214.indd 2 6/6/14 12:52 PM 41214.indd 3 6/6/14 12:52 PM To Our Wonderful Shareholders We’re excited to bring to you our inaugural annual report! that sells “empty boxes” to originating and now leading And while we haven’t yet been public for a full fiscal the storage and organization category of retailing to year, there are countless celebrations to share along with being at or near the top of FORTUNE Magazine’s list of more insight into our company as you continue to learn “100 Best Companies To Work For” the last 15 years in what sets us apart, what motivates us and what The a row (we were #1 twice!). We’ve been one of Oprah’s Container Store stands for. “Favorite Things” during her farewell season and achieved positive quarterly comps for 15 consecutive We’ve built our business around seven values-based quarters through the end of fiscal 2013. But our heart business philosophies that we call our Foundation and soul — our devotion to operating a conscious Principles. These communicate that no matter how business — has never wavered. It’s what makes The big the company becomes, our guiding principles and Container Store matchless — and something I’m excited values will stay the same and allow us to respond in to say continues to strengthen with every step we take in unison to similar circumstances — all working toward our extraordinary journey. You can read even more about the same goal. After all, retail is far, far too situational our approach to business, our Foundation Principles and to attempt to achieve a concerted effort through what we stand for on our blog at whatwestandfor.com. inflexible rules and policies. Our Foundation Principles keep us on track, focused and fulfilled as employees Fiscal 2013 was a momentous year for The Container so that we’re able to continue our work in creating an Store as we celebrated our 35th anniversary, opened organization where everyone associated with it — our six new stores and executed a highly successful IPO. employees, customers, vendors, the community and our Getting more stock into the hands of our beloved shareholders — can and will thrive. employees was one of the key reasons we chose the IPO path. We achieved that in a big way through our We’ve been operating The Container Store this way stock option program and also our direct share program since our inception in 1978 when we opened our first that we offered to all employees. Our bankers say that store in Dallas, in a 1,600-square-foot space. From the our direct share program — at 14 percent of the total first day we opened our doors, people realized that shares issued — was more robust than any other they TIME was what we are selling. The more organized you can remember. So now, many of our employees and are in your home and your life, the more time you gain other stakeholders are even more vested in the to spend doing the things you really want and need to success of The Container Store. “We’re all in this do. Being organized is not a luxury. It’s a necessity. This together” has never been truer than it is today. has become clearer over the past 36 years as the pace of modern life accelerates. People realize that being New Store Growth organized makes you more productive, more relaxed We were happy to announce in April that we raised and happier. Our goods and services have become our previously stated 10% plus annual square footage vitally important to our customers’ lives. growth guidance to 12% minimum annual square footage growth*. Operationally and employee talent We’ve come a long way since 1978 —from my dad’s wise, 12% minimum growth is very achievable and friends scratching their heads about us opening a store well within our capacity. Our management team has 41214cx.indd 1 6/10/14 4:15 PM an 18-year average tenure with our company, and our from mom-and-pop stores to many of the biggest stores, home office and distribution center are filled with retailers tried to sell some form of storage and incredibly talented 1=3 GREAT employees. We’re all organization. Today, other folks dabble in storage ready to run like a horse that’s been in the barn too and organization, and some devote several aisles long. New store growth is, and always has been, one to it, but nobody singularly focuses on storage and of our key core competencies. And until fairly recently, organization the way we do. We’re the only national we thought we had to open stores primarily in areas like retailer solely devoted to it. New York, Chicago and Los Angeles to be successful. But we’ve been thrilled to discover that when we open A lot of our magic — our heart and soul that you just stores in mid-sized markets with greater metropolitan can’t copy — has to do with our vendor relationships. area populations of approximately 1.5 million — like Our culture embodies a deep devotion to creatively Indianapolis, Raleigh, Charlotte and Nashville — well, crafting mutually beneficial relationships with our these stores are extremely successful as well. vendors, resulting in differentiated and innovative product development and high gross margins at about The first-year, four-wall Adjusted EBITDA margin on 59 percent of sales for fiscal 2013. our new stores averaged approximately 23 percent and the stores earn their invested capital back in about We’re able to achieve this retail gross margin that 2½ years or less. Never before have our new stores has historically and steadily increased over the contributed more to our profitability. And we believe years with few exceptions because of our culture there are many, many Indianapolis-like opportunities and our relationship with our vendors. Our business ahead of us. The majority of our capital dollars go to new philosophy drives the creation and sustainability of store development. THIS — new stores — is how we these LONG-term relationships that are the brightest do and should invest the majority of our free cash flow. and most innovative in the housewares industry. These And while we’ll still open stores in larger cities — like relationships have been built over time, and in turn, our fabulous Farmers Market location next to The Grove have become an unassailable competitive advantage. this year in Los Angeles — our focus is on mid-sized markets. We’ve delayed plans to open stores in Canada We’re known in our industry for our proficiency in because of the rare business opportunities we have with worldwide product sourcing. We create products to the Indianapolis-type markets. Yes, we expect to open our exact specifications using our vendors’ financial in Canada someday, but for now we’re going to focus on resources, and then we produce it anywhere in the world this Indianapolis-ing of The Container Store, as I like to where it’s most efficiently and excellently produced. call it. We have our finger on the pulse of the customer and therefore can quickly anticipate her needs and produce One of the key factors in determining how many stores the perfect products for her. Our vendor relationships we open in a given year is how “turnkey” the stores are. allow us to fill the holes in the market with exclusive Quite simply, the more retail real estate development products that often become our best-selling and there is, the more deals we expect to enter into using highest-margin products, which is a rare feat landlords’ capital versus ours, which leads to more in business. square footage growth. Most of the growth in our history has been turnkey. That’s what we want. We believe the Our Selling, General & Administrative (SG&A) coming year, and the medium term ahead, will bring a expenses, including new store pre-opening costs, continuingly improving macro economy and therefore were approximately 48 percent of sales in fiscal 2013. more and more retail real estate development in the Yes, that’s higher than many in the industry, but it’s United States. what enables us to provide unparalleled service to our fanatical customers and foster our employee-first Our Unique Brand And Business Opportunity culture. Our business model, however, will never be a We feel The Container Store is surrounded by a unique low SG&A one—that would destroy our culture and our moat that insulates us from competition. Back in the customer service—and no one would thrive. Although ’80s there were hundreds of “direct” competitors: we believe that over the medium term and with the Susie’s Containers, Store This…Store That. Everyone aforementioned growth in scale, our SG&A could 41214cx.indd 2 6/10/14 4:15 PM decrease to the mid-40-percent range and our gross POP! margin could rise to the low-60-percent range. Another recent success is the launch of POP! (Perfectly Organized Perks), our Customer Engagement Program. In addition, because of our unique employee-first culture In surveying our customers, one of the top things they and our incredibly VAST number of training hours for wanted from us was “MORE COMMUNICATION!” They our employees (263 hours in a full-time employee’s first want to be an even bigger part of our brand. They want year and 150 hours in the following years, compared more information and tips on storage and organization, to far lower industry averages), we believe we’re in this and ideas for how we can help them make their life wonderful position to continue to raise our average better — easier.

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