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Tuesday Morning CEO: Inventory Becoming ‘Abundant’ in the Past Month

Tuesday Morning may have taken a hit in March, but its CEO is upbeat on the off-price retailer’s future, even in the face of current macro headwinds.

The Dallas-based off-price retailer, which emerged from Chapter 11 bankruptcy last year, struck a credit agreement earlier this month with Wells Fargo on a $110 million revolver and paid down $5 million on an existing term loan. The transaction gives the company liquidity over the next 12 months as it focuses on strategies around distribution, its store footprint and IT systems.

The company said the chain, which currently sits at 490 stores, could eventually accommodate some 700 doors.

“It has really been an interesting year, let me put it that way, but we’ve definitely made headway in progress on the initiatives that we put forth, internally within the four walls of the company,” CEO Fred Hand said during a quarterly earnings call in discussing the strides made since being tapped for the top spot at Tuesday Morning about a year ago.

The company’s efforts as it pushes forward will be balanced with a focus on near-term challenges across industries, including the war in Ukraine, lockdowns in China and inflation.

“In the short term, while we don’t know exactly how this will impact the consumer, we do know the importance of delivering value, and that any type of dislocation or economic downturn can be very beneficial for the off-price model,” Hand said. “This is a time when inventory availability becomes abundant, which we have started to see over the last 30 days.”

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In a Nutshell: The company’s three-pronged strategy for the longer term includes revisions to its distribution network, store leases and internal systems.

Tuesday Morning currently uses a distribution center in Dallas and that’s expected to continue to be a hub for the business at least through June 2024. However, an analysis showed having distribution centers bookend the country would be more effective for transportation costs and speed.

“The initial [study] findings indicate that a two-DC network with a West Coast and East Coast presence would eliminate a significant amount of redundant miles created with a one-DC network,” Hand said. “This transportation savings, coupled with efficiency savings, based on DCs built for the off-price model, are suggesting an attractive internal rate of return on the investment.”

The company, in the case of store leases, has hired brokerages for the east, west and central parts of the country to handle negotiations on the 174 leases set to expire in the next fiscal year.

Meanwhile, the company finished what Hand described as a “system enhancement” in the recently ended quarter that “aligned our merchandising and financial calendars.”

Net Sales: Tuesday Morning reported $159.6 million in net sales for the fiscal third quarter ended April 2. That’s up from $153.3 million in the year-ago period.

Same-store sales in the quarter rose 0.6 percent in the quarter. The comparable went up against last year’s stimulus checks and also was impacted by the war in Ukraine and inflation.

That was felt in the second week of March in particular for Tuesday Morning as a result of the macro environment, with executives pointing out that business has trended upward since then.

The company’s projecting same-store sales in the current quarter to be down in the range of 3 percent and 5 percent.

Net Earnings: The retailer narrowed its losses in the April quarter, with a net loss of $18.2 million. That compares with a $37.1 million loss in the year-ago period.

The impact of supply chain constraints and higher freight costs were a 390-basis point drag on the company’s gross margin in the quarter, which totaled $38.9 million. That compares with $48.2 million a year ago.

Tuesday Morning said it expects adjusted earnings before interest, taxes, depreciation and amortization for the current fiscal year to be a loss of $26 million to $29 million, driven by more markdowns and expected declines in the fourth quarter.

CEO’s Take: “In light of the many macro headwinds, we are very fortunate to have an experienced leadership team who remain vigilant on expense controls while continuing to make progress on our priorities… times like these historically has been a positive for off-price and we have an experienced off-price buying team to take advantage of the opportunity,” Hand said.

The retailer is looking to capitalize on more inventory filling the market to stock its stores.

Said Hand: “Long story short, the current environment is conducive to off-price buying.”