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Bankruptcy Chatter Heats Up Around Tuesday Morning

Tuesday Morning disclosed chief financial officer Jennifer Robinson’s departure on July 29, just nine days after a Bloomberg report said the off-price home goods retailer could file for its second bankruptcy in roughly two years.

The timing of the news around Robinson’s exit, slated for Aug. 12 per a regulatory filing, raises questions about the Dallas company’s financial health. CFO departures often precede broader corporate turmoil, with Slync losing its financial chief just months before the supply chain software startup suspended its CEO for using the firm as his “personal piggy bank.”

Chief operating officer Marc Katz will serve as Tuesday Morning’s interim CFO. The retailer also elevated Odette Benico to vice president, principal accounting officer after the former BDO audit director joined the chain in February as financial reporting manager before rising to vice president and controller in July.

According to Bloomberg’s report, the 490-store chain called in Piper Sandler to review restructuring options, while reported that lenders forced Tuesday Morning to hire the financial specialist. Neither company responded to a request for comment.

Tuesday Morning was part of a month of mayhem in May 2020 that saw companies from J.C. Penney to John Varvatos to Aldo seek bankruptcy court protection. It ended up closing 230 stores during its Chapter 11 case. Though it exited bankruptcy in January last year and got $10 million this summer to stabilize its finances, the company might not be able to fend off the fallout from inflation.

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The company managed to narrow its third-quarter net loss to $18.2 million from a net loss of $37.1 million a year ago, and saw a 4.1 percent revenue gain to $159.6 million. It expects markdowns in the fourth quarter to result in an EBITDA loss of $26 million to $29 million.

Even more troubling is a July 29 update saying Tuesday Morning expects an 8 percent year-on-year decline in fourth-quarter comparable sales. That’s a steeper setback than the 3 percent to 5 percent comp decline it projected.

The home goods discounter sells home merchandise including textiles and furnishings, bath and body items, housewares, gourmet food, toys, crafts and seasonal decor.

Supply chain dislocation seems to be hitting the home goods sector hardest. Last month, Altmeyer Home Stores filed for bankruptcy and is liquidating after 81 years in business. A court document indicated that the company doesn’t expect to have any funds leftover to pay back unsecured creditors after administrative costs are paid.

Home retailers not only have to break down large shipments into smaller allotments for multiple stores, but they also have to absorb the higher freight costs that come from shipping bulky furniture. That’s on top of shipping delays and lengthy in-transit times.

Compounding those problems is a slowdown in foot traffic as consumers deal with inflation by shopping less for non-essential purchases. Data from Cowen & Co. indicates that foot traffic began falling off in May. High temperatures last month also did little to encourage consumers to leave home and head to stores.

The slowdown has some retail analysts questioning off-price chains’ financial outlooks.

Wells Fargo analyst Ike Boruchow on Wednesday lowered his second quarter off-price comp estimates for Burlington, Ross Stores and TJX, which includes a down 8 percent estimate for its HomeGoods division versus its prior down 3 percent projection. Boruchow also noted slumping foot traffic trends that emerged in May.

And UBS retail and softlines analyst Jay Sole on Wednesday said sales at the Big Three started slowing in the second quarter, with elevated inventories contributing to unexpected pressure to their gross margins. Sole said their inventory levels “will remain elevated into September,” in part because they don’t have the pricing power they thought they did and are mostly selling casual items instead of the dressier styles customers now want.

“Off-Price retailers are likely still carrying too much inventory exiting July. July is a month where off-price retailers typically clear excess goods. However, we don’t think off-price retailers were able to clear through all of their excess goods by the end of the month,” Sole said. “This means higher-than-normal clearance inventory levels likely continue into Q3 and we think this will put greater-than-expected pressure on off-price retailers’ Q3 gross margin.”

Additional reporting by Jessica Binns.