October 26, 2006

Tuesday Morning Corporation Announces Third Quarter 2006 Results

DALLAS, Oct 26, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Tuesday Morning Corporation (Nasdaq: TUES) today reported that as previously announced, net sales for the third quarter of 2006 increased 1.1% to $194.4 million compared to $192.3 million for the same prior-year quarter. For the nine-month period ended September 30, 2006, net sales decreased 1.1% to $589.8 million compared to $596.6 million at September 30, 2005. Comparable store sales decreased 4.6% and 6.9% for the third quarter and nine-month period ended September 30, 2006, respectively.

"We are pleased with the traction the Company achieved during the third quarter in terms of improving the age and content of inventory as well as traffic," said Kathleen Mason, President and Chief Executive Officer. "The home furnishings sector continues to be challenging and we are remaining flexible in our decisions and intently focused on the things we can control."

Net income for the third quarter ended September 30, 2006 was $3.2 million or $0.08 per diluted share, compared to $8.2 million or $0.20 per diluted share for the third quarter of 2005, a decrease of $5.0 million or $0.12 per diluted share. For the nine-months ended September 30, 2006, net income was $12.6 million or $0.30 per diluted share, compared to $25.4 million or $0.61 per share in the same prior-year period, a decrease of $12.8 million or $0.31 per diluted share.

Year-to-date, for the period ended September 30, 2005, net income and diluted earnings per share for the prior-year nine-month period, excluding the after-tax lease adjustment recorded in the first quarter of 2005 were $27.8 million and $0.67 per diluted share. On a non-GAAP basis, adjusting for recognition of stock compensation expense, diluted earnings per share for the third quarter and nine-month period ended September 30, 2006 were $0.10 and $0.35, respectively. Please see the attached table for reconciliation.

Our full year 2006 guidance remains unchanged with estimated annual sales of approximately $945 million, mid-single digit negative comparable stores sales and diluted earnings per share of approximately $1.05 inclusive of an estimated $0.04 - $0.05 per diluted share of stock compensation expense.

Tuesday Morning management will review third quarter financial results in a teleconference call on October 26, 2006 at 10:00 a.m. Eastern Time.

About Tuesday Morning

Tuesday Morning is the leading closeout retailer of upscale, decorative home accessories and famous-maker gifts in the United States. The Company opened its first store in 1974 and currently operates 772 stores in 47 states during periodic "sale events." Tuesday Morning is nationally known for bringing its more than 8.0 million loyal customers a treasure hunt of high- end, first quality, brand name merchandise at prices 50% to 80% below department and specialty stores and catalogues.

This press release contains forward-looking statements, within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995, which are based on management's current expectations, estimates and projections. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those projected or implied in the forward- looking statements. Such risks and uncertainties include: the success of new store openings, competitive factors, access to merchandise and unanticipated changes in consumer demand and economic trends, as well as other risks detailed in the company's filings with the Securities and Exchange Commission, including Forms 8-K, 10-Q and 10-K. The Company undertakes no obligation to revise the forward-looking statements contained therein to reflect events or circumstances after the date hereof as a result of new information, future events or otherwise.

     Tuesday Morning Corporation
     Consolidated Statement of Income
     (In thousands, except per share data)

                                       Three Months Ended   Nine-Months Ended
                                           Sept. 30,           Sept. 30,
                                         2006      2005      2006      2005
                                           unaudited           unaudited

    Net Sales                          $194,412  $192,276  $589,841  $596,626
    Cost of sales                       121,348   117,577   368,912   367,951
          Gross profit                   73,064    74,699   220,929   228,675

    Selling, general and
     administrative expenses             67,341    61,387   199,732   188,181

          Operating income                5,723    13,312    21,197    40,494

    Other income (expense):
      Interest expense                     (792)     (552)   (1,545)     (922)
      Interest income                         5       ---       106        98
      Other income (expense), net           174       201       560       633
          Other income (expense)           (613)     (351)     (879)     (191)

    Income before income taxes            5,110    12,961    20,318    40,303

    Income tax expense                    1,947     4,748     7,716    14,894

    Net income                           $3,163    $8,213   $12,602   $25,409

    Earnings Per Share:
    Net income per common share:
        Basic                             $0.08     $0.20     $0.30     $0.62
        Diluted                           $0.08     $0.20     $0.30     $0.61

    Weighted average number of common
        Basic                            41,391    41,352    41,384    41,229
        Diluted                          41,574    41,913    41,642    41,768

    Reconciliation of Reported Amounts
     to Non-GAAP Items (See Note)
    Net income, as reported              $3,163    $8,213   $12,602   $25,409

      Add: GAAP rent, net of tax            ---       ---       ---     2,438

    Adjusted net income, ex GAAP rent     3,163     8,213    12,602    27,847

      Plus: Stock compensation
       expense, net of tax                  973       ---     2,111       ---

    Adjusted non-GAAP net income         $4,136    $8,213   $14,713   $27,847

    Net income per share, diluted, as
     reported                             $0.08     $0.20     $0.30     $0.61

      Add: GAAP rent, net of tax            ---       ---       ---      0.06

    Adjusted net income per share,
     diluted                               0.08      0.20      0.30      0.67

      Add: Stock option expense, net
       of tax                              0.02       ---      0.05       ---

    Adjusted non-GAAP net income
      per share, diluted                  $0.10     $0.20     $0.35     $0.67

    The above schedule reconciles non-GAAP financial measures included in this
     press release to the most comparable GAAP financial measures.  Non-GAAP
     net income per share should not be considered as an alternative to net
     income per share or other GAAP financial measurements as an indicator of
     our operating performance.

    The GAAP rent adjustment represents a one-time, non-cash cumulative
     adjustment to record GAAP rent in the first quarter of 2005 to properly
     reflect pre-opening or build-out periods of our stores prior to
     January 1, 2005.  This correction of accounting practices was made in
     light of the views of the Office of the Chief Accountant of the
     Securities and Exchange Commission expressed in a letter of
     February 7, 2005 to the American Institute of Certified Public
     Accountants regarding the application of generally accepted accounting
     principles to operating lease accounting matters.

    The Company adopted FAS 123(R), Shared Based Payment, in the first quarter
     of fiscal 2006.  This accounting standard requires all share-based
     payments to employees, including grants of employee stock options, to be
     recognized in the financial statements based on their fair value over the
     requisite service period.  The Company has applied the provisions of the
     modified prospective transition method in the first quarter of 2006.  The
     Company did not record any stock-based compensation expense in 2005.

    Management believes that comparative analysis of operating trends is
     enhanced by adjusting for these items in order to provide investors with
     a view of the Company's operating performance in a manner similar to the
     method used by management to track performance from period-to-period and
     improve the investor's ability to understand underlying trends in the
     Company's operations.  Because the GAAP rent adjustment is a one-time
     adjustment, it is not indicative of operating performance for the
     applicable period, nor should it be used in developing trend analysis for
     future periods.  Because stock compensation expense was not recorded in
     2005, excluding the impact of stock compensation expense in the current
     year provides enhanced comparability to the prior year.

     Tuesday Morning Corporation (continued)

     Consolidated Balance Sheets
     (in thousands)                              Sept. 30,            Dec 31,
                                              2006        2005         2005
    Assets                                       unaudited
    Current assets:
      Cash and cash equivalents                $8,906      $6,146     $43,547
      Inventories                             302,533     293,358     230,639
      Prepaid expenses and other assets         8,887       8,176       7,258
      Deferred income taxes                     5,071       5,991       5,071
          Total current assets                325,397     313,671     286,515

    Property and Equipment, net                86,888      88,610      87,786

    Other long-term assets:
      Deferred financing costs                    556         728         685
      Other assets                              4,781       4,744       4,941

          Total Assets                       $417,622    $407,753    $379,927

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                       $103,778    $102,939     $74,975
      Accrued liabilities                      31,119      35,036      42,372
      Income taxes payable                      6,199       8,286      16,520
          Total current liabilities           141,096     146,261     133,867

    Revolving credit facility, excl.
     current portion                           47,000      49,500         ---
    Deferred rent                               4,571       4,481       4,431
    Deferred income taxes                       6,267       9,051       6,267
          Total Liabilities                   198,934     209,293     144,565

    Stockholders' equity                      218,688     198,460     235,362
          Total Liabilities and
           Stockholders' Equity              $417,622    $407,753    $379,927

    Consolidated Statement of Cash Flows
    (in thousands)                                 Nine-Months Ended Sept. 30,
                                                     2006              2005
    Net cash flows from operating activities:
      Net income                                   $12,602           $25,409
      Adjustments to reconcile net income
       to net cash (used in) operating activities:
      Depreciation and amortization                 12,255            10,713
      Amortization of financing fees                   129               128
      Stock compensation expense                     2,445               ---
      Cumulative effect of lease accounting adj.       ---             3,898
      Other non-cash charges                            49                (4)
      Net change in operating assets and
       liabilities                                 (64,853)          (91,479)

    Net cash used in operating activities          (37,373)          (51,335)

    Net cash flows from investing activities:
      Capital expenditures                         (11,357)          (12,991)

    Net cash used in investing activities          (11,357)          (12,991)

    Net cash flows from financing activities:
      Net borrowings-revolving credit facility      47,000            49,500
      Payment of cash dividend                     (33,102)          (26,854)
      Other                                            191             2,759

    Net cash provided by (used in)
     financing act.                                 14,089            25,405

    Net decrease in cash and cash equivalents      (34,641)          (38,921)

    Cash and cash equivalents, beginning
     of period                                      43,547            45,067

    Cash and cash equivalents, end of period        $8,906            $6,146

SOURCE Tuesday Morning Corporation

Elizabeth Schroeder, Chief Financial Officer of Tuesday Morning Corporation, +1-972-934-7299; or Laurey Peat of LAUREY PEAT + ASSOCIATES, +1-214-871-8787, for Tuesday Morning Corporation


"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding Tuesday Morning Corporation's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

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