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Tuesday Morning CFO Blames $31M Spike in Supply Chain Costs for Poor Q4

Just two days after it closed an agreement to secure $32 million in convertible debt financing from Retail Ecommerce Ventures (REV), Tuesday Morning told investors the company saw an 8 percent decline in comp store sales for the fourth quarter of fiscal 2022.

Net sales dropped by just over 8 percent, from $177 million in the fourth quarter of fiscal 2021 to $162 million this year. Gross margin was $30 million compared to $47 million for the same quarter last year, with a gross margin rate decline of 18.7 percent compared to 26.3 percent in Q4 2021. Operating loss was $27 million compared $16 million during the same period a year ago, and net loss was $28 million, compared to $19 million last year.

Looking at the total fiscal year, net sales actually increased 8.5 percent to $750 million compared to $691 million in 2021. Tuesday Morning chief financial officer Mark Katz said that increase was due to the negative impact the pandemic had on sales during the first six months of 2021.

Tuesday Morning’s gross profit was $192 million compared to $206 million in fiscal 2021, and gross margin declined to 25.6 percent compared to 29.8 percent last year. Katz pointed to higher supply chain and transportation costs for the drop.

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“Recognized supply chain and transportation costs were $31 million dollars higher than the prior year,” he said.

SG&A declined to 32.1 percent compared to 35.3 percent during fiscal 2021, thanks to lower store expenses, a smaller store base and a reduction in store rents. Tuesday Morning closed one store during fiscal 2022.

That said, the retailer’s operating loss for fiscal 2022 was $52 million, compared to $49 million the year before. And Tuesday Morning’s net loss was $59 million in fiscal 2022 compared to a net income of $3 million in fiscal 2021.

Katz said the company made major progress on reducing inventory, which has become a focus of many home goods retailers overwhelmed by a glut of inventory.

“Store inventory levels decreased 8 percent versus last year,” he said. “We’re pleased to have ended the year with a relatively clean inventory position, especially in light of the uncertainty of the macro economic environment that continues into Q1 2023.”

Looking ahead to the first quarter of fiscal 2023, Katz said the company anticipates a comp store sales decline of 10 to 12 percent with an expected adjusted EBIDTA loss between $20 and $24 million.

For the full fiscal year of 2023, Tuesday Morning expects comp store sales to range from flat to a 3 percent decrease, and an adjusted EBIDTA of negative $18 to $23 million.

That said, Katz said the company anticipates incremental improvement, particularly once Tuesday Morning will be able to take advantage of some of the added brand availability that REV brings to the table. The agreement with REV allows the company—which owns brands such as Pier 1, Linens ’n Things, Stein Mart, Modell’s Sporting Goods, and Ayon Capital, LLC—to take control of the Tuesday Morning brand. Additionally, members of Tuesday Morning’s management team, including CEO Fred Hand, will provide $3 million in convertible debt financing.

CEO’s Take: Hand said he believes REV has the resources to help Tuesday Morning make a turnaround longterm, and this investment is a good first step toward that goal.

“With this financial and strategic support, we’re able to focus on maintaining strong relationships with our valued partners and elevating offerings for our customers,” he said.

But even with that boost of cash, Hand admitted the company had a tough fourth quarter, and that turnaround won’t happen overnight.

“In terms of our sales performance and our results for the fourth quarter, there has been significant commentary by other retailers regarding the impact of decades-high inflationary pressures on the customer and an increasingly promotional retail environment during the quarter,” he said. “We certainly felt this as well, and we expected Q4 to be soft.”