FORM 10Q

                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D. C. 20549

         Quarterly Report Under Section 13 or 15(d) of the Securities
                             Exchange Act of 1934

For Quarter Ended March 31, 1997                  Commission File Number 0-19658


                          TUESDAY MORNING CORPORATION
            (Exact name of registrant as specified in its charter)

 
              DELAWARE                                 75-2398532
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)


     14621 INWOOD RD., DALLAS, TEXAS                     75244
(Address of principal executive offices)               (Zip Code)

      (Registrant's telephone number, including area code) (972) 387-3562

                                     NONE
             (Former name, former address and former fiscal year, 
                         if changed since last report)


     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  X   No    
                                    ---     ---


Common stock outstanding as of April 30, 1997:   7,936,336 shares

 
                          TUESDAY MORNING CORPORATION



                        PART 1 - FINANCIAL INFORMATION

                                                          Page No.
Item 1 - Financial Statements                             --------
 
          Consolidated Balance Sheets, March 31, 1997,
           March 31, 1996  and December 31, 1996              1
 
          Consolidated Statements of Operations for the
            Three Months Ended March 31, 1997 and 1996        2
 
          Consolidated Statements of Cash Flows for the
            Three Months Ended March 31, 1997 and 1996        3
 
          Notes to Consolidated Financial Statements          4
 
Item 2 - Management's Discussion and Analysis of Financial
          Condition and Results of Operations                 5

                  Tuesday Morning Corporation and Subsidiaries
                           Consolidated Balance Sheets
                                    Unaudited
Mar. 31, Mar. 31, Dec. 31, 1997 1996 1996 --------- --------- -------- (in thousands) ASSETS Current Assets: Cash and cash equivalents ............................................... $ 3,151 $ 1,565 $ 10,754 Income tax receivable ................................................... -- 776 -- Inventories ............................................................. 111,069 81,091 75,493 Prepaid expenses ........................................................ 1,200 960 1,048 Other current assets .................................................... 245 415 726 --------- --------- --------- Total current assets ............................................... 115,665 84,807 88,021 --------- --------- --------- Property, plant and equipment, at cost: Land .................................................................... 8,356 8,356 8,356 Buildings ............................................................... 13,728 13,180 13,926 Furniture and fixtures .................................................. 18,152 15,991 17,658 Equipment ............................................................... 15,583 13,704 14,469 Leasehold improvements .................................................. 2,136 1,987 2,082 --------- --------- --------- 57,955 53,218 56,491 Less accumulated depreciation and amortization .......................... (27,317) (22,404) (26,104) --------- --------- --------- Net property, plant and equipment .................................. 30,638 30,814 30,387 --------- --------- --------- Due from Officer ........................................................ 2,737 2,338 2,679 Other assets ............................................................ 578 822 670 --------- --------- --------- Total Assets ............................................................... $ 149,618 $ 118,781 $ 121,757 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of mortgages ....................................... $ 1,021 $ 1,021 $ 1,021 Current installments of capital lease obligation ........................ 474 779 625 Accounts payable ........................................................ 33,721 25,998 22,543 Accrued expenses: Sales tax ............................................................ 804 583 2,105 Other ............................................................... 4,566 2,956 5,637 Deferred income taxes ................................................... 57 231 57 Income taxes payable .................................................... 615 -- 6,465 --------- --------- --------- Total current liabilities .......................................... 41,258 31,568 38,453 --------- --------- --------- Mortgages on land, buildings and equipment, excl. current installments ..... 4,339 5,360 4,594 Notes payable .............................................................. 24,369 15,061 -- Capital lease obligation, excl. current installments ....................... 330 804 382 Deferred income taxes ...................................................... 2,800 2,994 2,800 Shareholders' equity Preferred stock of $1 par value per share ............................... Authorized 2,000,000 shares, none issued ............................. -- -- -- Common stock of $.01 par value per share ................................ Authorized 20,000,000 shares, issued 8,210,836 shares at March 31, 1997 8,143,586 shares at March 31, 1996 and 8,181,036 shares at December 31, 1996 ................................ 82 81 82 Additional paid-in capital .............................................. 18,893 18,299 18,640 Retained earnings ....................................................... 59,575 46,642 58,834 Less: treasury stock, 274,500 shares at March 31, 1997 and 1996 and at December 31, 1996 ..................... (2,028) (2,028) (2,028) --------- --------- --------- Total shareholders' equity ......................................... 76,522 62,994 75,528 --------- --------- --------- Total Liabilities and Shareholders' Equity ................................. $ 149,618 $ 118,781 $ 121,757 ========= ========= =========
See accompanying notes to consolidated financial statements Tuesday Morning Corporation and Subsidiaries Consolidated Statements of Operations Unaudited
Three Months Ended March 31, March 31, ---------------------- 1997 1996 -------- -------- (in thousands, except per share data) Net sales............................... $ 47,514 $ 35,740 Cost of sales........................... 29,621 22,343 ------- ------- Gross Profit....................... 17,893 13,397 Selling, general and administrative expenses............................... 16,451 14,185 ------- ------- Operating Income (loss)............ 1,442 (788) ------- ------- Other income (expense): Interest Income...................... 74 60 Interest expense..................... (469) (477) Other income......................... 134 149 ------- ------- (261) (268) ------- ------- Income (loss) before income taxes.. 1,181 (1,056) Income tax expense (benefit)............ 437 (380) ------- ------- Net income (loss).................. $ 744 $ (676) ======= ======= Net income (loss) per share............. $ 0.09 $ (0.09) ======= ======= Weighted average common shares outstanding............................ 8,389 7,851 ======= =======
See accompanying notes to consolidated statements. (2) Tuesday Morning Corporation and Subsidiaries Consolidated Statements of Cash Flows Unaudited
Three Months Ended March 31, ------------------------ 1997 1996 -------- -------- Cash flows from operating activities: (in thousands) Cash received from customers.........................$ 47,514 $ 35,740 Cash paid to suppliers and employees................. (71,067) (51,101) Interest received.................................... 75 60 Interest paid........................................ (469) (477) Income taxes paid.................................... (6,288) (2,533) -------- -------- Net cash used by operating activities.............. (30,235) (18,311) -------- -------- Cash flows from investing activities: Loans to officers.................................... (58) (127) Capital expenditures................................. (1,473) (922) -------- -------- Net cash used by investing activities.............. (1,531) (1,049) -------- -------- Cash flows from financing activities: Proceeds from short and long term borrowings......... 24,369 15,061 Payment of mortgages................................. (255) (255) Principal payments under capital lease obligation.... (204) (179) Proceeds from exercise of common stock options/stock purchase plan.................. 253 22 -------- -------- Net cash provided by financing activities.......... 24,163 14,649 -------- -------- Net decrease in cash and cash equivalents.............. (7,603) (4,711) Cash and cash equivalents at beginning of period....... 10,754 6,276 -------- -------- Cash and cash equivalents at end of period.............$ 3,151 $ 1,565 ======== ========= Reconciliation of net income (loss) to net cash used by operating activities: Net income (loss)......................................$ 744 $ (676) -------- -------- Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization...................... 1,223 1,171 Change in operating assets and liabilities: Increase in income taxes receivable.............. - (776) Increase in inventories.......................... (35,576) (28,724) Increase (decrease) in prepaid expense........... (152) 33 Decrease in other current assets................. 481 43 Decrease in other assets and liabilities......... 92 53 Increase in accounts payable..................... 11,178 13,291 Decrease in accrued expenses..................... (2,375) (590) Decrease in income taxes payable................. (5,850) (2,136) -------- -------- Total adjustments.............................. (30,979) (17,635) -------- -------- Net cash used by operating activities..................$(30,235) $(18,311) ======== ========
See accompanying notes to consolidated financial statements (3) Tuesday Morning Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1. These unaudited financial statements include all adjustments, which, in the opinion of management, are necessary to present fairly the results of the Company for the interim periods presented and should be read in conjunction with the consolidated financial statements and notes thereto in the Company's 1996 Annual Report. 2. Income (loss) per share amounts are based on the weighted average number of shares outstanding during the period. 3. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. 4. Notes payable under the terms of the Company's revolving line of credit agreement are classified between current and long term debt in accordance with the terms of the agreement. This agreement is discussed in more detail in Liquidity and Capital Resources on the next page. (4) TUESDAY MORNING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES: The Company's principal liquidity need is for inventory purchases. The Company's two principal sources of liquidity have been its operating cash flow and borrowings under bank lines of credit. On March 31, 1997, the Company had $24.4 million of long term borrowings from banks. On the same date, the outstanding letters of credit totaled approximately $4.9 million. Based on the line of credit agreement, the Company had the ability to utilize $45.0 million in borrowings and letters of credit at March 31, 1997. The Company entered into a three year $45 million revolving line of credit agreement with a new bank on July 15, 1994. This agreement is secured by a pledge of the Company's assets. Borrowings available under the agreement were limited to the lesser of $45 million or 50% (60% for up to 120 days during each year) of eligible inventory, as defined. The availability is further reduced by the aggregate undrawn amount of outstanding letters of credit and a reserve for foreign currency contracts. During 1996, this agreement was amended to extend the term through July 1999 and to increase the borrowing capacity to $55,000,000 for the period beginning July 1 and ending October 31 of each year. The maximum amount of outstanding and unused letters of Credit was also increased to $12,000,000. The agreement requires the Company and its subsidiaries to comply with various financial and other covenants, including the maintenance of certain operating and financial ratios, and they contain substantial limitations on dividends, indebtedness, liens, capital expenditures, asset sales and certain other items. At March 31, 1997, the Company was in compliance with these covenants. As of April 30, 1997, the Company and the bank reached an agreement to increase the line of credit by an additional $10 million. This amendment, when executed, will give the Company a base of $55 million with the ability to increase the borrowing capacity to $65 million for the period beginning July 1 and ending October 31 of each year. Management believes that the agreement as modified will be adequate to meet its needs for liquidity and growth. In September 1995, the Company entered into a $7.1 million floating rate mortgage collateralized by a first lien deed of trust on all of the Company's owned real estate. This mortgage refinanced and consolidated mortgages which existed prior to 1995. In connection with this mortgage, the Company is required to maintain a minimum net worth and to comply with other financial covenants. At March 31, 1997, the Company was in compliance with these covenants. The Company's principal capital requirement has been the funding of the development of new stores and the resulting increase in inventory requirements. The Company plans to open 25-30 stores during 1997 and plans to fund these from operating cash flow. (5) TUESDAY MORNING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INVENTORY: The Company's inventory increased from $75.5 million at year end to $111.1 million at March 31, 1997. This is an increase of $35.5 million from December 31, 1996. The increase from March 31, 1996, is $30.7 million. The increase in the Company's inventory is attributable to several factors, including normal seasonal activity and continued increases in store count. Also, the Company is building higher inventory levels to support its strong sales growth. At the same time, shipments of merchandise for the fall event are being received earlier to insure timely shipments to the stores. INVENTORY LEVELS BY LOCATION (IN MILLIONS) 3/31/97 3/31/96 12/31/96 ------- ------- -------- Stores $ 45.9 $ 33.4 $ 43.1 Warehouse 65.2 47.7 32.4 ------- ------- -------- $ 111.1 $ 81.1 $ 75.5 ======= ======= ========
STORE OPENINGS/CLOSINGS
3/31/97 3/31/96 12/31/96 ------- ------- -------- Stores Open Beginning of Period 286 260 260 Stores Opened 7 8 33 Stores Closed (2) (5) (7) ------- ------- -------- Stores Open at End of Period 291 263 286 ======= ======= ========
(6) TUESDAY MORNING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1996: The Company reported a net profit in the first quarter of 1997 which is the first time a profit was achieved in that part of the year since the Company went public in 1986. Traditionally, the Company loses money early in the year due to lower sales levels while expenses are relatively flat throughout the year. Comparable store sales increased 23% during the quarter allowing the Company to obtain significant leverage on its SG&A costs which are primarily store related and are relatively fixed on a per store basis. In total, sales increased 27.9%, to $47.5 million from $35.7 million in 1996. This significant sales increase was the result of better product selection, pricing and higher inventory levels. Gross profit increased 0.2% from 37.5% to 37.7% due primarily to leveraging of distribution costs which are relatively fixed.. Selling, general and administrative expenses increased from $14.2 million to $16.5 million but, due to the strong sales performance, decreased 5.1% of sales from 39.7% to 34.6%. Interest expense was consistent between the two periods. (7) TUESDAY MORNING CORPORATION PART II - OTHER INFORMATION Not Applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TUESDAY MORNING CORPORATION (Registrant) DATE: May 7, 1997 /s/Mark E. Jarvis ---------------------------------------- Mark E. Jarvis, Senior Vice President (8)
 


5 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 3,151 0 0 0 111,069 1,445 57,955 (27,317) 149,618 41,258 0 0 0 82 76,440 149,618 47,514 47,514 29,621 16,451 (208) 0 469 1,181 437 744 0 0 0 744 .09 0