10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED April 2, 2022

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 001-40432

 

TUESDAY MORNING CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

75-2398532

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

6250 LBJ Freeway

Dallas, Texas 75240

(Address of principal executive offices) (Zip code)

(972) 387-3562

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol

 

Name of each exchange on which registered

Common Stock, $0.01 par value per share

 

TUEM

 

The Nasdaq Capital Market

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 ☐

 

Accelerated filer

 ☒

 

 

 

 

 

Non-accelerated filer

 ☐

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ☐

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at May 9, 2022

Common Stock, par value $0.01 per share

 

85,767,021

 

 

 


Table of Contents

 

 

PART I.

FINANCIAL INFORMATION

4

 

 

 

ITEM 1.

Condensed Financial Statements (Unaudited)

4

 

 

 

 

Condensed Consolidated Balance Sheets as of April 2, 2022 and June 30, 2021

4

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended April 2, 2022 and March 31, 2021

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended April 2, 2022 and March 31, 2021

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended April 2, 2022 and March 31, 2021

7

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

 

 

 

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

24

 

 

 

ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

32

 

 

 

ITEM 4.

Controls and Procedures

32

 

 

 

PART II.

OTHER INFORMATION

33

 

 

 

ITEM 1.

Legal Proceedings

33

 

 

 

ITEM 1A.

Risk Factors

33

 

 

 

ITEM 6.

Exhibits

34

 

 

 

SIGNATURES

 

35

 

 

 

 

2


Forward-Looking Statements

 

This Form 10-Q 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. These statements may be found throughout this Form 10-Q, particularly under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others. Forward looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward looking statements are expressed differently. You should consider statements that contain these words or words that state other “forward looking” information carefully because they describe our current expectations, plans, strategies and goals and our beliefs concerning future business conditions, future results of operations, future financial positions, and our current business outlook. Forward looking statements also include statements regarding the Company’s strategy, future operations, performance and prospects, sales and growth expectations, our liquidity, capital expenditure plans, future store openings and closings, our inventory management plans and merchandising and marketing strategies.

The terms “Tuesday Morning,” “the Company,” “we,” “us,” and “our” as used in this Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.

Reference is hereby made to the Company’s filings with the Securities and Exchange Commission, including, but not limited to, "Item 1A. Risk Factors" of the Company's most Annual Report on Form 10-K for the fiscal year ended June 30, 2021, for examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These risks, uncertainties and events also include, but are not limited to, the following: the effects and length of the COVID-19 pandemic; changes in economic and political conditions which may adversely affect consumer spending; our ability to identify and respond to changes in consumer trends and preferences; our ability to mitigate reductions of customer traffic in shopping centers where our stores are located; increases in the cost or a disruption in the flow of our products, including the extent and duration of the ongoing impacts to domestic and international supply chains from the COVID-19 pandemic; impacts to general economic conditions and supply chains from the disruption in Europe; impacts of inflation and increasing interest rates; our ability to continuously attract buying opportunities for off-price merchandise and anticipate consumer demand; our ability to obtain merchandise on varying payment terms; our ability to successfully manage our inventory balances profitably; our ability to effectively manage our supply chain operations; loss of, disruption in operations of, or increased costs in the operation of our distribution center facility; our ability to generate sufficient cash flows, maintain compliance with our debt agreements and continue to access the capital markets; unplanned loss or departure of one or more members of our senior management or other key management; increased or new competition; our ability to maintain and protect our information technology systems and technologies and related improvements to support our growth; increases in fuel prices and changes in transportation industry regulations or conditions; changes in federal tax policy including tariffs; the success of our marketing, advertising and promotional efforts; our ability to attract, train and retain quality employees in appropriate numbers, including key employees and management; increased variability due to seasonal and quarterly fluctuations; our ability to protect the security of information about our business and our customers, suppliers, business partners and employees; our ability to comply with existing, changing and new government regulations; our ability to manage risk to our corporate reputation from our customers, employees and other third parties; our ability to manage litigation risks from our customers, employees and other third parties; our ability to manage risks associated with product liability claims and product recalls; the impact of adverse local conditions, natural disasters and other events; our ability to manage the negative effects of inventory shrinkage; our ability to manage exposure to unexpected costs related to our insurance programs; increased costs or exposure to fraud or theft resulting from payment card industry related risk and regulations; our ability to meet all applicable requirements for continued listing of our common stock on The Nasdaq Stock Market, including the minimum bid requirement of $1.00 per share, and our ability to maintain an effective system of internal controls over financial reporting. The Company’s filings with the SEC are available at the SEC’s web site at www.sec.gov.

The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements were made. Except as may be required by law, the Company disclaims obligations to update any forward-looking statements to reflect events and circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events. Investors are cautioned not to place undue reliance on any forward-looking statements.

3


PART I — FINANCIAL INFORMATION

 

 

Item 1. Condensed Financial Statements

Tuesday Morning Corporation

Condensed Consolidated Balance Sheets (unaudited)

(In thousands, except share and per share data)

 

 

 

April 2,

 

 

June 30,

 

 

 

2022

 

 

2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

8,457

 

 

$

6,534

 

Restricted cash

 

 

 

 

 

22,321

 

Inventories

 

 

176,650

 

 

 

145,075

 

Prepaid expenses

 

 

5,073

 

 

 

5,486

 

Other current assets

 

 

1,862

 

 

 

3,385

 

Total Current Assets

 

 

192,042

 

 

 

182,801

 

Property and equipment, net

 

 

30,365

 

 

 

37,784

 

Operating lease right-of-use assets

 

 

162,320

 

 

 

193,244

 

Deferred financing costs

 

 

1,816

 

 

 

2,459

 

Other assets

 

 

1,641

 

 

 

1,596

 

Total Assets

 

$

388,184

 

 

$

417,884

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

42,950

 

 

$

45,930

 

Accrued liabilities

 

 

39,082

 

 

 

46,454

 

Operating lease liabilities

 

 

54,165

 

 

 

54,632

 

Total Current Liabilities

 

 

136,197

 

 

 

147,016

 

 

 

 

 

 

 

 

Operating lease liabilities — non-current

 

 

120,711

 

 

 

156,240

 

Borrowings under revolving credit facility

 

 

54,077

 

 

 

12,000

 

Long term debt (see Note 3 for amounts due to related parties)

 

 

29,531

 

 

 

26,374

 

Asset retirement obligation — non-current

 

 

1,056

 

 

 

1,021

 

Other liabilities — non-current

 

 

607

 

 

 

3,432

 

Total Liabilities

 

 

342,179

 

 

 

346,083

 

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, par value $0.01 per share, authorized 10,000,000 shares;
   
none issued or outstanding

 

 

 

 

 

 

Common stock, par value $0.01 per share, authorized 200,000,000 shares;
  
87,536,863 shares issued and 85,732,726 shares outstanding at
  April 2, 2022 and
87,988,233 shares issued and 86,204,572 shares
   outstanding at June 30, 2021

 

 

858

 

 

 

862

 

Additional paid-in capital

 

 

310,566

 

 

 

305,498

 

Retained deficit

 

 

(258,607

)

 

 

(227,747

)

Less: 1,783,661 common shares in treasury, at cost, at April 2, 2022
   and at June 30, 2021, respectively

 

 

(6,812

)

 

 

(6,812

)

Total Stockholders’ Equity

 

 

46,005

 

 

 

71,801

 

Total Liabilities and Stockholders’ Equity

 

$

388,184

 

 

$

417,884

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


Tuesday Morning Corporation

Condensed Consolidated Statements of Operations (unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

April 2,

 

 

March 31,

 

 

April 2,

 

 

March 31,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

$

159,621

 

 

$

153,345

 

 

$

587,875

 

 

$

513,516

 

Cost of sales

 

 

120,700

 

 

 

105,145

 

 

 

426,396

 

 

 

354,192

 

Gross margin

 

 

38,921

 

 

 

48,200

 

 

 

161,479

 

 

 

159,324

 

Selling, general and administrative expenses

 

 

55,568

 

 

 

59,183

 

 

 

183,507

 

 

 

184,600

 

Restructuring, impairment and abandonment charges

 

 

(278

)

 

 

1,047

 

 

 

2,588

 

 

 

7,554

 

Operating loss before interest, reorganization and other income/(expense)

 

 

(16,369

)

 

 

(12,030

)

 

 

(24,616

)

 

 

(32,830

)

Other income/(expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(1,919

)

 

 

(1,409

)

 

 

(5,520

)

 

 

(6,676

)

Reorganization items, net

 

 

128

 

 

 

(23,597

)

 

 

(923

)

 

 

62,169

 

Other income/(expense), net

 

 

78

 

 

 

89

 

 

 

210

 

 

 

(104

)

Other income/(expense) total

 

 

(1,713

)

 

 

(24,917

)

 

 

(6,233

)

 

 

55,389

 

Earnings/(loss) before income taxes

 

 

(18,082

)

 

 

(36,947

)

 

 

(30,849

)

 

 

22,559

 

Income tax expense

 

 

69

 

 

 

172

 

 

 

11

 

 

 

715

 

Net earnings/(loss)

 

$

(18,151

)

 

$

(37,119

)

 

$

(30,860

)

 

$

21,844

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings/(loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.21

)

 

$

(0.55

)

 

$

(0.36

)

 

$

0.41

 

Diluted

 

$

(0.21

)

 

$

(0.55

)

 

$

(0.36

)

 

$

0.41

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

85,097

 

 

 

67,584

 

 

 

84,695

 

 

 

52,741

 

Diluted

 

 

85,097

 

 

 

67,584

 

 

 

84,695

 

 

 

52,741

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


Tuesday Morning Corporation
Condensed Consolidated Statements
of Stockholders' Equity (unaudited)
(In thousands)


 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Treasury

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 30, 2021

 

86,205

 

 

$

862

 

 

$

305,498

 

 

$

(227,747

)

 

$

(6,812

)

 

$

71,801

 

Net loss

 

 

 

 

 

 

 

 

 

 

(14,603

)

 

 

 

 

 

(14,603

)

Share-based compensation

 

 

 

 

 

 

 

1,155

 

 

 

 

 

 

 

 

 

1,155

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(434

)

 

 

(4

)

 

 

455

 

 

 

 

 

 

 

 

 

451

 

Balance at September 30, 2021

 

85,771

 

 

$

858

 

 

$

307,108

 

 

$

(242,350

)

 

$

(6,812

)

 

$

58,804

 

Net earnings

 

 

 

 

 

 

 

 

 

 

1,894

 

 

 

 

 

 

1,894

 

Share-based compensation

 

 

 

 

 

 

 

1,833

 

 

 

 

 

 

 

 

 

1,833

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

85,765

 

 

$

858

 

 

$

308,941

 

 

$

(240,456

)

 

$

(6,812

)

 

$

62,531

 

Net loss

 

 

 

 

 

 

 

 

 

 

(18,151

)

 

 

 

 

 

(18,151

)

Share-based compensation

 

 

 

 

 

 

 

1,678

 

 

 

 

 

 

 

 

 

1,678

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

2

 

 

 

 

 

 

(53

)

 

 

 

 

 

 

 

 

(53

)

Balance at April 2, 2022

 

85,767

 

 

$

858

 

 

$

310,566

 

 

$

(258,607

)

 

$

(6,812

)

 

$

46,005

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Retained

 

 

Treasury

 

 

Total
Stockholders'

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Equity

 

Balance at June 30, 2020

 

47,341

 

 

$

455

 

 

$

244,021

 

 

$

(230,729

)

 

$

(6,812

)

 

$

6,935

 

Net earnings

 

 

 

 

 

 

 

 

 

 

18,624

 

 

 

 

 

 

18,624

 

Share-based compensation

 

 

 

 

 

 

 

428

 

 

 

 

 

 

 

 

 

428

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(490

)

 

 

(5

)

 

 

5

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2020

 

46,851

 

 

$

450

 

 

$

244,454

 

 

$

(212,105

)

 

$

(6,812

)

 

$

25,987

 

Net earnings

 

 

 

 

 

 

 

 

 

 

40,339

 

 

 

 

 

 

40,339

 

Share-based compensation

 

 

 

 

 

 

 

315

 

 

 

 

 

 

 

 

 

315

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

46,846

 

 

$

450

 

 

$

244,769

 

 

$

(171,766

)

 

$

(6,812

)

 

$

66,641

 

Net loss

 

 

 

 

 

 

 

 

 

 

(37,119

)

 

 

 

 

 

(37,119

)

Share-based compensation

 

 

 

 

 

 

 

409

 

 

 

 

 

 

 

 

 

409

 

Shares issued in connection with rights offering

 

38,182

 

 

 

382

 

 

 

58,607

 

 

 

 

 

 

 

 

 

58,989

 

Shares issued or canceled in connection with
   employee stock incentive plans and related tax effect

 

1,167

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Balance at March 31, 2021

 

86,195

 

 

$

832

 

 

$

303,798

 

 

$

(208,885

)

 

$

(6,812

)

 

$

88,933

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


Tuesday Morning Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

April 2,

 

 

March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings/(loss)

 

$

(30,860

)

 

$

21,844

 

Adjustments to reconcile net earnings/(loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

10,175

 

 

 

11,933

 

Loss on impairment and abandonment of assets

 

 

2,126

 

 

 

5,638

 

Amortization of financing costs and interest expense

 

 

3,900

 

 

 

5,949

 

(Gain)/loss on disposal of assets

 

 

71

 

 

 

(1,403

)

Gain on sale-leaseback

 

 

 

 

 

(49,639

)

Share-based compensation

 

 

4,666

 

 

 

1,347

 

Rights Offering and Backstop Agreement

 

 

 

 

 

18,990

 

Gain on lease terminations

 

 

 

 

 

(93,281

)

Deferred income taxes

 

 

(118

)

 

 

 

Construction allowances from landlords

 

 

472

 

 

 

401

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Inventories

 

 

(31,575

)

 

 

(22,650

)

Prepaid and other current assets

 

 

1,891

 

 

 

(2,952

)

Accounts payable

 

 

(2,689

)

 

 

(42,899

)

Accrued liabilities

 

 

(7,710

)

 

 

37,295

 

Operating lease assets and liabilities

 

 

(5,421

)

 

 

(6,538

)

Other liabilities — non-current

 

 

(2,779

)

 

 

1,481

 

Income taxes payable

 

 

265

 

 

 

 

Net cash used in operating activities

 

 

(57,586

)

 

 

(114,484

)