Tuesday Morning Corporation (NASDAQ:TUES), a leading off-price retailer with nearly 750 stores across the United States specializing in selling deeply-discounted, upscale decorative home accessories, housewares, seasonal goods and famous-maker gifts, today announced financial results for the first quarter ended September 30, 2016.

For the first quarter, net sales were $211.9 million, an increase of $9.6 million from the prior year period.  Comparable store sales increased 5.1%.  Operating loss for the first quarter was $9.2 million.  Net loss for the first quarter was $8.9 million.  Diluted loss per share was $0.20.  Adjusted EBITDA, a non-GAAP financial measure which is described on page 6 of this press release, was a negative $2.4 million for the first quarter.

Steve Becker, Chief Executive Officer commented, “We continue to make progress across all of our core initiatives at Tuesday Morning.   In particular, we made meaningful headway with our real estate initiatives during the quarter.  We completed a total of 40 store projects including relocations, openings, expansions and closures.  We are enthusiastic about the customer response to our newly opened and relocated stores.  We continue to provide our customers the iconic Tuesday Morning treasure hunt experience they are looking for, but it is now delivered in a refreshed environment that is inviting to both existing and new customers.”

Mr. Becker continued, “During the quarter, we experienced issues related to the ramp of our newly opened Phoenix distribution facility.  These issues resulted in lower than plan store level inventories during the quarter which affected sales in our entire store base.  Despite these constraints, we delivered a 5.1% comp sales increase for the quarter.   We believe that we have addressed the majority of the issues associated with the Phoenix distribution center ramp and have reached a healthy in stock inventory position as we move into the holidays.”

First Quarter Fiscal 2017 Financial Highlights:

• Net sales were $211.9 million, compared to $202.3 million for the first quarter of fiscal 2016.  Comparable store sales increased 5.1% compared to the same period a year ago, and were comprised of a 6.2% increase in customer transactions, partially offset by a 1.0% decrease in average ticket.  During the first quarter, 19 stores were relocated, eight stores were expanded, two stores were opened and 11 stores were closed, for an ending store count of 742.  Sales at the 51 stores relocated during the past 12 months increased approximately 58% on average for the first quarter of fiscal 2017 as compared to the prior year quarter and contributed approximately 350 basis points to the comparable store sales increase of 5.1%.
• The Company’s operating loss for the first quarter of fiscal 2017 was $9.2 million, compared to an operating loss of $6.0 million in the first quarter of fiscal 2016.
• The Company reported a net loss of $8.9 million, or $0.20 per share, in the first quarter of fiscal 2017 compared to a net loss of $6.1 million, or $0.14 per share, in the first quarter of fiscal 2016.
• The Company reported Adjusted EBITDA, a non-GAAP measure, of negative $2.4 million for the first quarter of fiscal 2017, compared to Adjusted EBITDA of negative $1.2 million for the prior year period.  (see GAAP/Non-GAAP reconciliation table)

First Quarter Fiscal 2017 Results of Operations

For the first quarter of fiscal 2017, Tuesday Morning reported gross profit of $77.3 million and gross margin of 36.5%, compared to $72.7 million of gross profit and gross margin of 35.9% in the first quarter of fiscal 2016.  The increase in gross margin was primarily due to improved initial merchandise mark-up and decreased buying, distribution and freight costs recognized in the current period, partially offset by higher markdowns primarily related to seasonal merchandise.  Selling, general and administrative expenses (SG&A) increased 10.2% to $86.6 million, compared to $78.6 million in the same period last year.  This increase was driven primarily by higher store rent and depreciation, due in part to the Company’s strategy to improve store real estate, as well as increased store labor and advertising costs, along with increased corporate labor costs and share-based compensation expense in the current period as compared to the prior year period due to executive vacancies in the prior year period, along with increased legal expenses and costs related to systems as the Company continues to invest in technology and infrastructure.  As a percent of net sales, SG&A was 40.9% for the first quarter of fiscal 2017 compared to 38.9% in the same period last year.  The Company reported a net loss of $8.9 million, or $0.20 per share, in the first quarter of fiscal 2017 compared to a net loss of $6.1 million, or $0.14 per share, in the first quarter of fiscal 2016.

The Company ended the first quarter of fiscal 2017 with $6.2 million in cash and cash equivalents, and ended the quarter with a balance of $32.5 million borrowed under its line of credit.  Inventories at the end of the first quarter of fiscal 2017 were $323.6 million compared to $269.6 million at the end of the first quarter of fiscal 2016, up $54 million or 20%.  The growth in inventory was driven by an increase in our in-transit inventory related to our import strategy and additional investment to support the business.  The Company’s inventory turnover for the trailing five quarters as of September 30, 2016 was 2.3 turns, a slight decrease from the trailing five quarter turnover as of September 30, 2015 of 2.5 turns.

Outlook  

The Company continues to expect to invest capital of approximately $40 million to $45 million in fiscal 2017, with a continuing focus on its real estate strategy for new stores, relocations and expansions of existing stores, and IT infrastructure and enhancements.

About Tuesday Morning

Tuesday Morning Corporation (NASDAQ:TUES) is a leading off-price retailer specializing in selling deeply-discounted, upscale decorative home accessories, housewares, seasonal goods and famous-maker gifts.  The Company is nationally known for providing a fresh selection of brand- name, high-quality merchandise – never seconds or irregulars – at prices generally below those of department and specialty stores, catalogs and online retailers.  Based in Dallas, Texas, the Company opened its first store in 1974 and currently operates nearly 750 stores in 40 states.  More information and a list of store locations may be found on the Company’s website at www.tuesdaymorning.com.

Conference Call Information

Tuesday Morning Corporation’s management will hold a conference call to review first quarter fiscal 2017 financial results today, October 27, 2016, at 8:00 a.m. Central Time.  The call may also include discussion of Company developments, forward-looking information and other material information about business and financial matters.  A live webcast of the conference call will be available in the Investor Relations section of the Company’s website at www.tuesdaymorning.com, or you may dial into the conference call at (877) 312-5376 (no access code required) approximately ten minutes prior to the start of the call.  A replay of the webcast will be accessible through the Company’s website for 90 days.  A replay of the conference call will be available from 11:00 a.m., Central Time, October 27, 2016 through 10:59 p.m., Central Time, Saturday, October 29, 2016 by dialing (855) 859-2056 or (404) 537-3406 and entering conference ID number 96066889.