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Tuesday Morning Corporation Announces Third Quarter Fiscal 2016 Results

Tuesday Morning Corporation TUES, -1.91% 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 third quarter and nine months ended March 31, 2016.

Net sales were $211.4 million for the third quarter, an increase of $21.7 million from the prior year period. Comparable store sales increased 13.4%. Operating loss for the third quarter was $5.9 million. Diluted loss per share was $0.12.

Steve Becker, Chief Executive Officer, stated, "We are very pleased with our third quarter sales performance highlighted by the 13.4% comparable store sales increase. Our third quarter performance was driven by the improvements we have made to our real estate portfolio, product assortment and store experience, which together with an increasingly sharp value proposition, is resonating with our customers and is resulting in increased transactions."

Mr. Becker added, "During the quarter, we made progress on our core initiatives. As we have previously stated, this work has significant costs which will burden our income statement in the near term, but ultimately will result in a more profitable business model. Along with refining and improving our product assortment, we have been focused on restructuring our supply chain, accelerating our real estate repositioning efforts and completing the build-out of our senior leadership team. We continue to expect our Phoenix distribution center to be fully operational in the first half of fiscal 2017. We now have leadership in place across key functional areas to support our growth and drive our initiatives as we continue to position Tuesday Morning for many years of sustainable, profitable growth."

Third Quarter Fiscal 2016 Financial Highlights include the following:

  • Net sales were $211.4 million, compared to $189.7 million for the third quarter of fiscal 2015. Comparable store sales increased 13.4% compared to the same period a year ago, and were comprised of a 12.4% increase in customer transactions and a 0.9% increase in average ticket. During the third quarter, 11 stores were relocated, two stores were opened and 18 stores were closed, for an ending store count of 748. Sales at the 39 stores relocated during the past 12 months increased approximately 66% on average for the third quarter of fiscal 2016 as compared to the prior year quarter and contributed 299 basis points to the comparable store sales increase of 13.4%.
  • The Company's operating loss for the third quarter of fiscal 2016 was $5.9 million, compared to an operating loss of $2.1 million in the third quarter of fiscal 2015.
  • The Company recorded approximately $4.0 million of incremental expenses during the third quarter of fiscal 2016 to support its strategic initiatives which negatively impacted its quarterly results.

Third Quarter Fiscal 2016 Results of Operations
For the third quarter of fiscal 2016, Tuesday Morning reported gross profit of $77.5 million and gross margin of 36.7% compared to $72.4 million of gross profit and gross margin of 38.2% in the third quarter of fiscal 2015. The decrease in gross margin was primarily due to an increase in supply chain and distribution costs in our Dallas distribution center as a result of the unit volume processed to support higher sales volume and increased markdowns in certain categories, partially offset by slightly higher initial merchandise mark-up. Selling, general and administrative expenses (SG&A) increased 11.9% to $83.4 million, compared to $74.5 million in the same period last year. This increase was driven primarily by higher store rent and depreciation, due in part to our strategy to improve store real estate, and $2.4 million of incremental rent expense in the quarter, including a $2.2 million non-cash charge for future lease payments, related to stores we have exited prior to lease expiration, as well as increased advertising. Additionally, in the quarter, we continued to incur costs for our new Phoenix distribution center. Other SG&A increases in the quarter included higher corporate employee and recruiting costs, partially offset by favorable share based compensation expense in the quarter as compared to the same period in the prior year due to executive vacancies during the current year period. As a percent of net sales, SG&A was 39.5% for the third quarter of fiscal 2016 compared to 39.3% in the same period last year. We reported a net loss of $5.2 million, or $0.12 per share, in the third quarter of fiscal 2016 compared to a net loss of $2.8 million, or $0.06 per share, in the third quarter of fiscal 2015.

The Company recorded approximately $4.0 million of incremental expenses during the third quarter of fiscal 2016 to support its strategic initiatives. These costs included $2.4 million of incremental rent expense related to closing stores prior to lease termination as explained above, as well as up-front costs for the Phoenix distribution center, and other investments in the business such as recruiting costs for key executive positions, an inventory management project, expenses related to advertising research and investments in store prototype development.

The Company ended the third quarter of fiscal 2016 with $15.1 million in cash and cash equivalents, with no borrowings under its line of credit. Subsequent to the end of the third quarter of fiscal 2016, the Company sold a portion of the facilities utilized in its Dallas distribution center operations. Proceeds were $8.7 million for the sale, net of transaction costs. Contemporaneous with the sale, the Company entered a lease of these facilities for approximately two years. Inventories at the end of the third quarter of fiscal 2016 were $255.0 million...


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