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 June 30, 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 June 30, 1997:   11,945,716 shares

 
                          TUESDAY MORNING CORPORATION



                        PART 1 - FINANCIAL INFORMATION

                                                   
Item 1 - Financial Statements                                Page No.
                                                             -------
    
          Consolidated Balance Sheets as of June 30, 1997,
           June 30, 1996  and December 31, 1996                  1
 
          Consolidated Statements of Operations for the
            Three Months and Six Months Ended
            June 30, 1997 and 1996                               2
 
          Consolidated Statements of Cash Flows for the
            Six Months Ended June 30, 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)
June 30, June 30, Dec. 31, ASSETS 1997 1996 1996 -------- -------- -------- (In Thousands) Current assets: Cash and cash equivalents............................................... 1,315 1,748 10,754 Income tax receivable................................................... - 469 - Inventories............................................................. 128,270 91,622 75,493 Prepaid expenses........................................................ 1,109 1,274 1,048 Other current assets.................................................... 302 444 726 -------- -------- -------- Total current assets............................................. 130,996 95,557 88,021 -------- -------- -------- Property, plant and equipment, at cost: Land.................................................................... 8,356 8,356 8,356 Buildings............................................................... 13,730 13,285 13,926 Furniture and fixtures.................................................. 18,757 16,379 17,658 Equipment............................................................... 16,315 13,994 14,469 Leasehold improvements.................................................. 2,181 2,032 2,082 -------- -------- -------- 59,339 54,046 56,491 Less accumulated depreciation & amortization............................ (28,433) (23,616) (26,104) -------- -------- -------- Net property, plant and equipment................................ 30,906 30,430 30,387 -------- -------- -------- Other assets, at cost: Due from Officer........................................................ 2,801 2,441 2,679 Other assets............................................................ 549 762 670 -------- -------- -------- Total Assets................................................................. 165,252 129,190 121,757 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of mortgages....................................... 1,021 1,021 1,021 Current installments of capital lease obligation........................ 318 795 625 Accounts payable........................................................ 39,282 26,753 22,543 Accrued expenses Sales tax............................................................ 596 454 2,105 Other................................................................ 3,659 3,127 5,637 Deferred income taxes................................................... 57 231 57 Income taxes payable.................................................... 821 - 6,465 -------- -------- -------- Total current liabilities........................................ 45,754 32,381 38,453 -------- -------- -------- Mortgages on land, buildings and equipment................................... 4,084 5,104 4,594 Long term notes payable...................................................... 34,055 24,695 - Long term capital lease obligation........................................... 276 594 382 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 12,357,466 shares at June 30, 1997 12,215,379 shares at June 30, 1996 12,271,629 shares at December 31, 1996................................ 124 122 123 Additional paid-in capital.............................................. 18,896 18,254 18,599 Retained earnings....................................................... 61,291 47,074 58,834 Less: treasury stock 411,750 shares at June 30, 1997, June 30, 1996 and at December 31, 1996.............................................. (2,028) (2,028) (2,028) -------- -------- -------- Total shareholders' equity....................................... 78,283 63,422 75,528 -------- -------- -------- Total Liabilities and Shareholders' Equity................................... 165,252 129,190 121,757 ======== ======== ========
See accompanying notes to consolidated financial statements. (1) Tuesday Morning Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 1997 1996 1997 1996 ---------- --------- ---------- --------- (In thousands, (In thousands, except per share data) except per share data) Net sales................................................................ 67,377 54,286 114,891 90,026 Cost of sales............................................................ 44,369 36,068 73,989 58,411 ---------- --------- ---------- --------- Gross profit..................................................... 23,008 18,218 40,902 31,615 Selling, general and administrative expenses............................. 19,848 17,094 36,299 31,279 ---------- --------- ---------- --------- Operating income ................................................ 3,160 1,124 4,603 336 ---------- --------- ---------- --------- Other income (expense): Interest income....................................................... 78 76 153 135 Interest expense...................................................... (728) (677) (1,197) (1,154) Other income ......................................................... 212 149 346 299 ---------- --------- ---------- --------- (438) (452) (698) (720) ---------- --------- ---------- --------- Income (loss) before income taxes................................ 2,722 672 3,905 (384) Income tax expense (benefit)............................................. 1,007 238 1,445 (142) ---------- --------- ---------- --------- Net income (loss)................................................ 1,715 434 2,460 (242) ========== ========= ========== ========= Net income (loss) per share .......................................... 0.13 0.03 0.19 (0.02) ========== ========= ========== ========= Weighted average common shares outstanding............................... 12,641 12,479 12,706 11,778 ========== ========= ========== =========
See accompanying notes to consolidated financial statements. (2) Tuesday Morning Corporation and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, -------------------------- 1997 1996 ---------- --------- (In Thousands) Cash flows from operating activities: Cash received from customers.................................................... 114,891 90,026 Cash paid to suppliers and employees............................................ (146,527) (112,919) Interest received............................................................... 153 135 Interest paid................................................................... (1,197) (1,154) Income taxes paid............................................................... (7,089) (2,463) ---------- --------- Net cash used by operating activities........................................... (39,769) (26,375) ---------- --------- Cash flows from investing activities: Loans to officers............................................................... (122) (230) Capital expenditures............................................................ (2,977) (1,750) ---------- --------- Net cash used by investing activities........................................... (3,099) (1,980) ---------- --------- Cash flows from financing activities: Proceeds from short and long term borrowings.................................... 34,055 24,695 Payment of short-term borrowings................................................ - - Payment of mortgages............................................................ (510) (510) Principal payments under capital lease obligation............................... (414) (375) Proceeds from exercise of common stock options/stock purchase plan.......................................... 298 17 ---------- --------- Net cash provided by financing activities....................................... 33,429 23,827 ---------- --------- Net decrease in cash and cash equivalents........................................... (9,439) (4,528) Cash and cash equivalents at beginning of period.................................... 10,754 6,276 ---------- --------- Cash and cash equivalents at end of period.......................................... 1,315 1,748 ========== ========= Reconciliation of net income (loss) to net cash used by operating activities: Net income (loss)................................................................... 2,460 (242) ---------- --------- Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization............................................... 2,458 2,382 Change in operating assets and liabilities: Increase in income taxes receivable....................................... - (469) Increase in inventories................................................... (52,777) (39,255) Increase in prepaid expense............................................... (61) (281) Decrease in other current assets.......................................... 424 14 Decrease in other assets and liabilities.................................. 121 114 Increase in accounts payable.............................................. 16,738 14,046 Decrease in accrued expenses.............................................. (3,488) (548) Decrease in income taxes payable.......................................... (5,644) (2,136) ---------- --------- Total adjustments....................................................... (42,229) (26,133) ---------- --------- Net cash used by operating activities............................................... (39,769) (26,375) ========== =========
See accompanying notes to consolidated financial statements. (3) Tuesday Morning Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) 1. The consolidated interim financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These unaudited financial statements include all adjustments, consisting only of those of a normal recurring nature, 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. Net income/(Loss) per share amounts are based on the weighted average number of shares and dilutive share equivalents outstanding during the period. See note 5 below. 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 in accordance with the terms of the agreement. This agreement is discussed in more detail in Liquidity and Capital Resources on the next page. 5. On May 13, 1997 the Board of Directors approved a three-for-two stock split of the Company's common stock. All financial statements reflect this transaction, which was completed in June, 1997. (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. The Company entered into a three year $45 million revolving line of credit agreement 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 was reduced by the aggregate undrawn amount of outstanding letters of credit. This agreement was amended on June 25, 1996 to increase the amount to $55 million from July 1 to October 31 of each year, extend the maturity date to July, 1999 and lower the interest rate by 1/2%. On April 30, 1997 the agreement was amended further to increase the amount to $65 million for July 1 to October 31 and $55 million the rest of the year. Based on the line of credit agreement, the Company had the ability to utilize $55 million in borrowings and letters of credit at June 30, 1997. On June 30, 1997, the Company had $34.1 million of long term borrowings from banks. On the same date, the outstanding letters of credit totaled approximately $9.3 million. 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, asset sales and certain other items. At June 30, 1997, the Company was in compliance with these covenants. Management believes that the agreement 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 June 30, 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 approximately 30 stores during 1997 and plans to fund these from operating cash flow. (5) INVENTORY: The Company's inventory increased from $75.5 million at year end to $128.3 million at June 30, 1997. This is an increase of $52.8 million from December 31, 1996. As reflected on the following chart, most of the increase is in the warehouse. The Company anticipates that the recent sales trends will continue and has purchased inventory for the Fall accordingly. Total inventory increased $36.7 million from June 30, 1996 - again, primarily in the warehouse. The increase is attributable to the store count increase and the expected sales levels for the Fall. (6) TUESDAY MORNING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INVENTORY LEVELS BY LOCATION (IN MILLIONS) 6/30/97 6/30/96 12/31/96 -------- -------- --------- Stores $ 47.6 $ 33.4 $ 43.1 Average per store (0.160) (0.123) (0.151) Warehouse 80.7 58.2 32.4 -------- -------- --------- Total Inventory $ 128.3 $ 91.6 $ 75.5 ======== ======== =========
STORE OPENINGS/CLOSINGS Six Months Six Months Ending Ending FYE 6/30/97 6/30/96 12/31/96 ------- ------- -------- Stores Open at Beginning of Period 286 260 260 Stores Opened 14 16 33 Stores Closed <2> <5> <7> ------- ------- -------- Stores Open at End of Period 298 271 286 ======= ======= ========
(7) TUESDAY MORNING CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996 The Company's income of $2.5 million or $0.19 per share for the first half of 1997 compares to a loss of $0.2 million or $0.02 per share for the first half of 1996. The Company reported this significant improvement for the first half due to the financial leverage obtained from increased sales and gross margin improvements while expenses, up slightly on a per store basis, decreased as a percent of sales. During the first half of 1997, comparable store sales increased 19%. Total gross profit increased from $31.6 million to $40.9 million due primarily to increased sales volume. The gross profit percent increased from 35.1% to 35.6% as a result of improved efficiencies in the buying and distribution processes which were driven by the increase in inventory levels. Selling, general and administrative expenses increased 6% when comparing average stores but decreased from 34.7% to 31.6% of sales as a result of the strong sales activity. Interest expense remained unchanged at $1.2 million. THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996 As during the six months, the financial results of the Company during the quarter were driven by the financial leverage discussed above. For the quarter ended June 30, 1997, the Company made $1.7 million or $0.13 per share versus an income of $0.4 million or $0.03 per share for the same period during 1996. During the quarter, comparable store sales increased 16%. Total gross profit increased from $18.2 million to $23.0 million due primarily to increased sales volume. The gross profit percentage increased from 33.6% to 34.2%, due to the leveraging of buying and distribution costs which did not increase in proportion to the increases in the volume of merchandise produced. Selling, general and administrative expenses increased from $17.1 to $19.8 and interest expense was essentially unchanged at $0.7 million. (8) 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: August 8, 1997 /s/ Mark E. Jarvis -------------------------------------- Mark E. Jarvis, Senior Vice President (9)
 


5 1,000 3-MOS 6-MOS DEC-31-1997 DEC-31-1997 APR-01-1997 JAN-01-1997 JUN-30-1997 JUN-30-1997 1,315 1,315 0 0 0 0 0 0 128,270 128,270 1,411 1,411 59,339 59,339 (28,433) (28,433) 165,252 165,252 45,754 45,754 0 0 0 0 0 0 124 124 78,159 78,159 165,252 165,252 67,377 114,891 67,377 114,891 44,369 73,989 19,848 36,299 (290) (499) 0 0 728 1,197 2,722 3,905 1,007 1,445 1,715 2,460 0 0 0 0 0 0 1,715 2,460 0 0 0.13 0.19