FOUNDATION PRINCIPLES 2016 Annual Report ©2017 The Container Store, Inc. All rights reserved. 36378 711618.indd 1-2 7/20/17 11:56 AM Shareholder Information Board of Directors Executive Offices A copy of The Container Store’s Annual Report on Form 10-K for the fiscal year ended April 1, 2017, William A. “Kip” Tindell 500 Freeport Parkway including financial statements and schedules but Co-Founder and Chairman Coppell, Texas 75019 not including exhibits, as filed with the SEC, will be The Container Store Group, Inc. 972-538-6000 sent to any shareholder of record on July 21, 2017, without charge upon written request addressed to: Melissa Reiff containerstore.com Chief Executive Officer The Container Store Group, Inc. The Container Store Group, Inc. Common Stock Attn: Investor Relations 500 Freeport Parkway Sharon Tindell President and Chief Merchandising Officer Approximately 66 shareholders of record Coppell, Texas 75019 The Container Store Group, Inc. Traded on the New York Stock Exchange Timothy J. Flynn (the “NYSE”) Cautionary Note Regarding Partner Symbol: TCS Forward-Looking Statements Leonard Green & Partners, L.P. This Annual Report contains “forward-looking J. Kristofer Galashan Independent Registered statements” within the meaning of the U.S. Private Partner Public Accounting Firm Securities Litigation Reform Act of 1995, including: Leonard Green & Partners, L.P. Ernst & Young LLP expectations regarding our ability to drive Robert E. Jordan Dallas, Texas improvement; our belief that our focus on Custom Executive Vice President of Closets provides a unique opportunity to drive Corporate Services comparable store sales and differentiate the Southwest Airlines Co. Transfer Agent Company; statements regarding our elfa products Daniel Meyer and their importance to the Company’s growth; Chief Executive Officer American Stock Transfer and Trust Company statements regarding our four-part plan to optimize Union Square Hospitality Group 6201 15th Avenue our business and our strategic plan; and plans Brooklyn, New York 11219 to redesign our flagship store and related goals. Walter Robb 1-800-937-5449 Chairman of the Board Forward-looking statements are based on our amstock.com Whole Kids Foundation and current expectations and assumptions regarding our Whole Cities Foundation business, the economy and other future conditions. Annual Meeting Although we believe that the expectations reflected Rajendra Sisodia in the forward-looking statements contained in F. W. Olin Distinguished Professor The Annual Meeting of Shareholders will be held on this Annual Report are reasonable, we cannot of Global Business September 12, 2017, at 11:30 a.m. (Central Time) guarantee future results. These statements involve Babson College at The Container Store Group, Inc.’s headquarters known and unknown risks, uncertainties and other Jonathan D. Sokoloff located at 500 Freeport Parkway, Coppell, Texas, important factors that may cause our actual results, Managing Partner 75019. The Board of Directors has set July 21, performance or achievements to be materially Leonard Green & Partners, L.P. 2017, as the record date for determination of different from those expressed or implied by the Caryl Stern shareholders entitled to vote at the annual meeting. forward-looking statements. For further information President and CEO about the important factors that could cause actual U.S. Fund for UNICEF Form 10-K Reports and results to differ materially from those in the forward- looking statements please see the section entitled Investor Relations Executive Officers “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K, which is included in this The Company has included as an exhibit to Annual Report. You should evaluate all forward- Melissa Reiff its annual report on Form 10-K, filed with the looking statements made in this Annual Report in Chief Executive Officer Securities and Exchange Commission (“SEC”), the context of these risks and uncertainties. Sharon Tindell certificates of the Company’s Chief Executive President and Chief Merchandising Officer Officer and Chief Financial Officer certifying the quality of the Company’s public disclosure. Jodi L. Taylor Chief Financial Officer, Chief Administrative Officer The certification of our Chief Executive Officer and Secretary regarding compliance with the New York Stock William A. “Kip” Tindell Exchange (“NYSE”) corporate governance listing Chairman of the Board and standards required by NYSE Rule 303A.12 will be Former Chief Executive Officer filed with the NYSE in September 2017, following the 2017 Annual Meeting of Shareholders. 711618.indd 3-4 7/21/17 4:23 PM To Our Valued Shareholders It’s been a year since I assumed the CEO position, and I’m encouraged by the strategic and operational progress we have made in key areas in fiscal 2016. We have not been standing still and have quickly executed many necessary changes. However, there is still work to be done to drive the continued improvement we believe our business can deliver. As fiscal 2016 progressed, we saw improved sales trends from our Custom Closets business, as well as considerable improvement from other product categories. Our efforts around revitalizing lapsed customers, paid media mix marketing changes, visual in-store updates and fresh, new marketing campaigns were all contributing factors to this improvement. We faced challenging top-line sales, but overall, delivered sales growth of 2.9% in fiscal 2016. We substantially leveraged SG&A as we both cycled the peak investments made in fiscal 2015 and realized the benefits of our savings and efficiency program. This resulted in a three-fold increase in earnings per share to $0.31 in fiscal 2016 versus $0.10 in fiscal 2015. We continue to believe that our focus on Custom Closets, inclusive of elfa® product solutions, TCS Closets®, elfa Sliding Doors, installation services and our completion products, provides a unique opportunity to drive comparable sales through higher average ticket while leveraging one of the many differentiators that the Company enjoys compared to online, items-based retailers. Our advantages include a highly trained and experienced salesforce that has been selling proprietary, custom-designed elfa and other closet solutions for 39 years. Plus, we offer a truly complete custom closet solution – not just the framework of the closet, but the full array of closet organization products that accompany the closet. Finally, our national footprint means millions of customers are coming through our stores and visiting our online site each year. On a consolidated basis, our Custom Closets business generated 48% of our consolidated fiscal 2016 sales, up from 46% in fiscal 2015. We leveraged our unique market position, product offerings (much of which is exclusive or proprietary), service levels and overall category expertise to capitalize on our key differentiators and drive our Custom Closets business. Our elfa products specifically are also an ever-important, highly profitable and differentiating offering in the growth of our company and our commitment to dominating the custom closet market. The elfa category accounted for about 25% of our TCS retail sales. And to incentivize Custom Closet purchases, this past year we launched our Customer Financing Program with Synchrony Financial. We currently have more than 6,000 cardholders, and the program’s early results show that for elfa purchases over $500, financed elfa purchases have a significantly higher average ticket than non-financed elfa purchases. We’re proud to give our customers this added flexibility when designing and purchasing new closets and our many other products. 711618.indd 5 7/20/17 11:57 AM “Test-and-learn” has been one of our prevailing mantras resulting in increased marketing activities. We have reached an important two-year milestone with our POP! customer engagement program and now have a better view into year-over-year purchase behavior of our best customers, which supports these test-and-learn activities. We continue to grow our POP! Star base and ended fiscal 2016 with about 4.8 million POP! Stars. We had seven successful store openings in fiscal 2016, primarily concentrated in new markets. We ended the year with 86 stores and saw improved performance from the fiscal 2016 class of new stores relative to the new store class of fiscal 2015. Additionally, in fiscal 2016 we opened two stores with a modified layout, and have seen better-than-expected sales results in each of these stores since opening. In March, we were honored to be named to FORTUNE magazine’s “100 Best Companies to Work For” for the 18th year in a row. Being included on this prestigious list is a tribute to our incredible employees. Taking excellent care of our customers – and all of our stakeholders – begins with taking care of our employees and providing an environment of inspiration, innovation, opportunity and accountability. Our Foundation Principles – more than ever – continue to ground us as we work to differentiate and innovate in all that we offer and do for our stakeholders. Finally, as we continue through fiscal 2017, we have established a comprehensive four-part optimization plan for our consolidated business to drive improved sales and profitability. This plan includes sales initiatives, certain position eliminations at The Container Store, an organizational realignment at Elfa, and ongoing savings and efficiency efforts, as well as maintaining a continued focus on the key elements of our mid- and longer term strategic plan. These key elements include a focus on our stores, customer experience, products, customer acquisition and retention; pursuing growth opportunities; increasing our operational productivity; and investing in our people. Specifically related to our focus on creating compelling and convenient places and ways for our customers to shop, we are completely redesigning our Dallas flagship store. Our goal for this redesign is to gain insight into what the future of new store formats should be, as well as how we might evolve the future of our existing stores’ layout and customer experience.