July 25, 2006

Tuesday Morning Corporation Announces Second Quarter 2006 Results

DALLAS, July 25, 2006 /PRNewswire-FirstCall via COMTEX News Network/ -- Tuesday Morning Corporation (Nasdaq: TUES) today reported net income for the second quarter ended June 30, 2006 of $2.9 million or $0.07 per diluted share, compared to $10.5 million or $0.25 per diluted share for the second quarter of 2005, a decrease of $7.6 million or $0.18 per diluted share. For the six-months ended June 30, 2006, net income was $9.4 million or $0.23 per diluted share, compared to $17.2 million or $0.41 per share in the same prior-year period, a decrease of $7.8 million or $0.18 per diluted share. Year-to-date, for the period ended June 30, 2005, net income and diluted earnings per share for the prior-year six- month period, excluding the after-tax lease adjustment recorded in the first quarter of 2005 were $19.6 million and $0.47 per diluted share. On a pro- forma basis, adjusting for recognition of stock compensation expense, diluted earnings per share for the second quarter and six-month period ended June 30, 2006 were $0.08 and $0.25, respectively. Please see the attached table for reconciliation.

As previously reported, net sales for the second quarter of 2006 were $207.7 million, a decrease of 5.1% from $218.8 million for the second quarter last year. Comparable store sales for the second quarter of 2006 decreased 10.8%. For the six-month period ended June 30, 2006, sales were $395.4 million, down 2.2%, with a comparable store sales decrease of 7.9%, compared to $404.4 million for the same prior-year period.

"Our average ticket increased year-over-year, however, lower traffic in our stores as a result of well documented economic conditions impacted our comparables. Challenges remain in the near term, but we believe our product offerings are well positioned for the last six-months of the year," said Kathleen Mason, President and Chief Executive Officer.

Our full year 2006 guidance estimates 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 second quarter financial results in a teleconference call on July 25, 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 762 stores in 46 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         Six-Months Ended
                                   June 30,                  June 30,

                              2006         2005         2006         2005
                                  unaudited                 unaudited

    Net Sales                $ 207,669    $ 218,756    $ 395,428    $ 404,350
    Cost of sales              133,396      137,338      247,564      250,374
      Gross profit              74,273       81,418      147,864      153,976

    Selling, general
     and administrative
     expenses                   69,227       64,672      132,390      126,794

        Operating income         5,046       16,746       15,474       27,182

    Other income (expense):
      Interest expense            (567)        (164)        (753)        (370)
      Interest income                2           64          101           98
      Other income
       (expense), net              253          239          386          432
        Other income
         (expense)                (312)         139         (266)         160

    Income before income
     taxes                       4,734       16,885       15,208       27,342

    Income tax expense           1,835        6,355        5,769       10,146


    Net income               $   2,899    $  10,530    $   9,439    $  17,196

    Earnings Per Share:
    Net income per common
     share:
      Basic                  $    0.07    $    0.26    $    0.23    $    0.42
      Diluted                $    0.07    $    0.25    $    0.23    $    0.41

    Weighted average number
     of common shares:
      Basic                     41,384       41,204       41,380       41,167
      Diluted                   41,626       41,743       41,647       41,714


    Reconciliation of
     Reported Amounts to
     Non-GAAP Items
     (See Note)
    Net income, as
     reported                $   2,899    $  10,530    $   9,439    $  17,196

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

    Adjusted net income,
     ex GAAP rent                2,899       10,530        9,439       19,634

      Plus: Stock option
       expense, net of tax         558          ---        1,138          ---

    Adjusted pro-forma net
     income                  $   3,457    $  10,530    $  10,577    $  19,634

    Net income per share,
     diluted, as reported    $    0.07    $    0.25    $    0.23    $    0.41

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

    Adjusted net income per
     share, diluted               0.07         0.25         0.23         0.47

      Add: Stock option
       expense, net of tax        0.01          ---         0.02          ---

    Adjusted pro-forma net
     income per share,
     diluted                 $    0.08    $    0.25    $    0.25    $    0.47


    Note:
    The above schedule reconciles non-GAAP financial measures included in this
      press release to the most comparable GAAP financial measures.  Pro-forma
      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
      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.





    Consolidated Balance Sheets
    (in thousands)                                   June 30,          Dec 31,
                                                2006        2005        2005
    Assets                                         unaudited
    Current assets:
      Cash and cash equivalents             $   5,766   $   5,486   $  43,547
      Inventories                             241,660     207,742     230,639
      Prepaid expenses and other
       assets                                   7,413       5,932       7,258
      Deferred income taxes                     5,071       5,991       5,071
          Total current assets                259,910     225,151     286,515

    Property and Equipment, net                86,868      87,940      87,786

    Other long-term assets:
      Deferred financing costs                    599         770         685
      Other assets                              4,930       3,948       4,941

          Total Assets                      $ 352,307   $ 317,809   $ 379,927

    Liabilities and Stockholders'
     Equity
    Current liabilities:
      Accounts payable                      $  72,302   $  69,419   $  74,975
      Accrued liabilities                      29,444      33,361      42,372
      Income taxes payable                      4,736       8,583      16,520
          Total current liabilities           106,482     111,363     133,867

    Revolving credit facility, excl.
     current portion                           21,000       3,500         ---
    Deferred rent                               4,553       4,304       4,431
    Deferred income taxes                       6,267       9,051       6,267
          Total Liabilities                   138,302     128,218     144,565

    Stockholders' equity                      214,005     189,591     235,362
          Total Liabilities and
           Stockholders' Equity             $ 352,307   $ 317,809   $ 379,927



    Consolidated Statement of Cash Flows
    (in thousands)                           Six-Months Ended June 30,
                                                 2006        2005
                                                    unaudited
    Net cash flows from operating
     activities:
      Net income                            $   9,439   $  17,196
      Adjustments to reconcile net
       income to net cash (used in)
       operating activities:
      Depreciation and amortization             8,102       6,978
      Amortization of financing fees               86          86
      Stock compensation expense                1,618         ---
      Cumulative effect of lease
       accounting adj.                            ---       3,898
      Other non-cash charges                       53         (62)
      Net change in operating assets and
       liabilities                            (37,778)    (37,898)

    Net cash used in operating activities     (18,480)     (9,802)

    Net cash flows from investing
     activities:
      Capital expenditures                     (7,184)     (8,586)
      Other                                       ---         ---

    Net cash used in investing activities      (7,184)     (8,586)

    Net cash flows from financing
     activities:
      Net borrowings-revolving credit
       facility                                21,000       3,500
      Payment of cash dividend                (33,102)    (26,854)
      Other                                       (15)      2,161

    Net cash provided by (used in)
     financing act.                           (12,117)    (21,193)

    Net decrease in cash and cash
     equivalents                              (37,781)    (39,581)

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

    Cash and cash equivalents, end of
     period                                 $   5,766   $   5,486

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
http://www.prnewswire.com

"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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