OREANDA-NEWS. Tuesday Morning Corporation, a leading off-price retailer with over 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 fourth quarter and fiscal year ended June 30, 2016. 

For the fourth quarter, net sales were $222.8 million, an increase of $9.8 million from the prior year period.  Comparable store sales increased 6.0%.  Operating loss for the fourth quarter was $6.3 million.  Net loss for the fourth quarter was $3.9 million.  Diluted loss per share was $0.09.  Adjusted EBITDA, a non-GAAP financial measure which is described on page 10 of this press release, was $1.9 million for the fourth quarter.

For fiscal 2016, net sales were $956.4 million, an increase of $50.0 million from the prior year.  Comparable store sales increased 7.8%.  Operating income for the fiscal year was $2.4 million.  Net income for the fiscal year was $3.7 million.  Diluted earnings per share was $0.08.  Adjusted EBITDA was $30.5 million for the fiscal year.

Steve Becker, Chief Executive Officer, commented, “In fiscal 2016 we made tangible progress on each of our strategic priorities, including real estate, merchandising, marketing, infrastructure and talent. Our real estate initiative has demonstrated consistent success.  Our most recent store openings feature the latest evolution of our shopping experience.  While these changes are modest, they are exciting our customers and are driving strong performance. We continue to believe the transformation of our real estate portfolio presents a compelling multi-year opportunity, with an especially attractive return on investment.  As seen by both our fourth quarter and our record-high full-year sales results, our top-line performance continues to benefit from these efforts along with the progress we have made improving our assortment and overall customer experience. On the infrastructure front, we successfully opened our new Phoenix distribution center during the fiscal fourth quarter and are currently ramping this facility towards its full capacity.  The Phoenix distribution center will be instrumental in helping us reduce inefficiencies that have limited our top and bottom line performance.”

Mr. Becker continued, “As we look to fiscal 2017, we remain focused on these same initiatives.  It is important to remember that we are in a rebuilding phase and results will not be linear.  We are laying the foundation for consistent, profitable growth at Tuesday Morning that we believe will create significant value for our shareholders over time.”

Fourth Quarter Fiscal 2016 Financial Highlights:

  • Net sales were $222.8 million, compared to $213.0 million for the fourth quarter of fiscal 2015.  Comparable store sales increased 6.0% compared to the same period a year ago, and were comprised of a 5.1% increase in customer transactions and a 0.9% increase in average ticket.  During the fourth quarter, 14 stores were relocated, four stores were expanded, four stores were opened and one store was closed, for an ending store count of 751.  Sales at the 46 stores relocated during the past 12 months increased approximately 50% on average for the fourth quarter of fiscal 2016 as compared to the prior year quarter and contributed approximately 240 basis points to the comparable store sales increase of 6.0%.
     
  • The Company’s operating loss for the fourth quarter of fiscal 2016 was $6.3 million, compared to an operating loss of $4.0 million in the fourth quarter of fiscal 2015.
     
  • The Company reported a net loss of $3.9 million, or $0.09 per share, in the fourth quarter of fiscal 2016 compared to a net loss of $4.2 million, or $0.10 per share, in the fourth quarter of fiscal 2015.
     
  • The Company recorded a gain on sale related to a sale-leaseback transaction that occurred in the fourth quarter of fiscal 2016, $2.5 million of which was recognized in the current quarter in other income.
     
  • The Company recorded approximately $2.3 million of incremental expenses during the fourth quarter of fiscal 2016 to support its strategic initiatives, which negatively impacted its quarterly operating results.
     
  • The Company reported Adjusted EBITDA, a non-GAAP measure, of $1.9 million for the fourth quarter of fiscal 2016, compared to Adjusted EBITDA of $1.0 million for the prior year period.  (see GAAP/Non-GAAP reconciliation table)

Fourth Quarter Fiscal 2016 Results of Operations

For the fourth quarter of fiscal 2016, Tuesday Morning reported gross profit of $79.0 million and gross margin of 35.4%, compared to $73.2 million of gross profit and gross margin of 34.4% in the fourth quarter of fiscal 2015.  The increase in gross margin was primarily due to improved initial merchandise mark-up and lower markdowns as compared to the prior year period because the Company did not repeat a double discount event that was held in the fourth quarter of fiscal 2015.  Selling, general and administrative expenses (SG&A) increased 10.5% to $85.3 million, compared to $77.2 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.  Additionally, in the quarter, the Company continued to incur costs related to its new Phoenix distribution center associated with the opening and ramping up of that facility.  As a percent of net sales, SG&A was 38.3% for the fourth quarter of fiscal 2016 compared to 36.3% in the same period last year.  In the fourth quarter of fiscal 2016, the Company closed on the sale of two buildings within its Dallas distribution center facility, which it does not consider part of its long-term distribution network.  This sale generated $8.8 million in net proceeds and resulted in a gain on sale, $2.5 million of which was recognized in the current quarter in other income.   The Company entered into a short-term agreement to lease back the property to provide flexibility as it will continue to use these buildings in the very near-term.  The Company reported a net loss of $3.9 million, or $0.09 per share, in the fourth quarter of fiscal 2016 compared to a net loss of $4.2 million, or $0.10 per share, in the fourth quarter of fiscal 2015.

The Company recorded approximately $2.3 million of incremental expenses during the fourth quarter of fiscal 2016 to support its strategic initiatives.  These costs included up-front costs for the Phoenix distribution center and duplication of certain costs at its Dallas facility, which has not yet ramped down to normalized levels, and other investments in the business such as an inventory management project and expenses related to store prototype development.

The Company ended the fourth quarter of fiscal 2016 with $14.1 million in cash and cash equivalents, with no borrowings under its line of credit.  Inventories at the end of the fourth quarter of fiscal 2016 were $242.3 million compared to $210.0 million at the end of the fourth quarter of fiscal 2015, up $32.3 million or 15.4%.  The growth in inventory was primarily due to a higher level of pack-and-hold inventory from opportunistic buys, inventory in preparation for the July advertisement, higher levels of store inventory, a greater portion of which is in regular priced versus clearance inventory this year, additional investment in seasonal inventory, and incremental inventory related to the Company’s import strategy.   The Company’s inventory turnover for the trailing five quarters as of June 30, 2016 was 2.5 turns, a slight decrease from the trailing five quarter turnover as of June 30, 2015 of 2.6 turns.

Fiscal 2016 Financial Highlights:

  • Net sales were $956.4 million, compared to $906.4 million for fiscal 2015.  Comparable store sales increased 7.8% compared to the prior year, and were comprised of a 7.9% increase in customer transactions, offset slightly by a 0.1% decrease in average ticket.  During the fiscal year, 46 stores were relocated, 7 stores were expanded, 16 stores were opened and 34 stores were closed, for an ending store count of 751.  Sales at the 46 stores relocated during the past 12 months increased approximately 53% on average for fiscal 2016 as compared to the prior year and contributed approximately 230 basis points to the comparable store sales increase of 7.8%.
     
  • The Company’s operating income for fiscal 2016 was $2.4 million, compared to operating income of $12.4 million in fiscal 2015. 
     
  • The Company’s net income was $3.7 million, or $0.08 diluted earnings per share, in fiscal 2016 compared to net income of $10.4 million, or $0.24 diluted earnings per share, in fiscal 2015.
     
  • The Company recorded a gain on sale related to a sale-leaseback transaction that occurred in the fourth quarter of fiscal 2016, $2.5 million of which was recognized in the current year in other income.
     
  • The Company recorded approximately $8.9 million of incremental expenses during fiscal 2016 to support its strategic initiatives, which negatively impacted its operating results.
     
  • The Company reported Adjusted EBITDA of $30.5 million for fiscal 2016, compared to Adjusted EBITDA of $30.0 million for the prior year.

Twelve Months ended June 30, 2016 Results of Operations 

Net sales were $956.4 million, compared to $906.4 million for the twelve months ended June 30, 2016.  Comparable store sales increased 7.8% compared to the prior year, and were comprised of a 7.9% increase in customer transactions, offset slightly by a 0.1% decrease in average ticket.  Sales at the 46 stores relocated during the past 12 months increased approximately 53% on average for fiscal 2016 as compared to the prior year and contributed approximately 230 basis points to the comparable store sales increase of 7.8%.

For fiscal 2016, Tuesday Morning reported gross profit of $341.8 million and gross margin of 35.7%, compared to $326.6 million of gross profit and gross margin of 36.0% in fiscal 2015.  The decrease in gross margin was primarily due to an increase in supply chain and distribution costs to support higher sales volume, higher buying costs as the Company made greater investments in its merchant organization and an increase in markdowns, partially offset by improvements in initial merchandise mark-up. SG&A increased 8.0% to $339.4 million, compared to $314.3 million in the prior 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, and $3.2 million of incremental rent expense in the current year, including a $2.0 million reserve for future lease payments, related to stores exited prior to lease expiration, along with increased advertising.  Additionally, during the current year, the Company incurred costs for its new Phoenix distribution center, a portion of which related to the delays in the completion of that facility.  Other SG&A increases included higher employee and recruiting costs, partially offset by favorable share-based compensation expense in the current fiscal year compared to the prior year due to executive vacancies during the current year.  As a percent of net sales, SG&A was 35.5% for fiscal 2016 compared to 34.7% in the prior year.  Net income was $3.7 million, or $0.08 per share, in fiscal 2016 compared to net income of $10.4 million, or $0.24 per share, in fiscal 2015.

The Company recorded approximately $8.9 million of incremental expenses in fiscal 2016 to support its strategic initiatives.  These costs included $3.2 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 duplication of certain costs at its Dallas facility 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.