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TM

TUESDAY MORNING CORP/DE (TUEMQ)·Q1 2023 Earnings Summary

Executive Summary

  • Q1 FY2023 was weak: net sales fell to $157.1M (−11% y/y), comparable-store sales declined 10.4%, and gross margin rate dropped to 22.0%; adjusted EBITDA was −$20.0M and GAAP net loss was −$28.2M (−$0.29) .
  • Sequentially, revenue dipped vs Q4 ($161.9M → $157.1M), but gross margin rate improved to 22.0% from 18.7% as supply chain pressure eased modestly; operating loss remained elevated (−$25.9M) .
  • Management withdrew full-year FY2023 guidance following leadership changes and investment timing impacts; earlier guidance had called for flat to −3% comps and adjusted EBITDA of −$18M to −$23M (now withdrawn) .
  • Liquidity actions and capital structure moves were significant: a $35M convertible financing closed in Sept (REV/Ayon-led) and a 1-for-30 reverse split (effective Nov 30, 2022) to regain Nasdaq compliance .
  • Near-term narrative risks: continued macro headwinds, elevated supply chain/transportation costs, and uncertainty post guidance withdrawal; watch vendor flow normalization and Pier 1 product integration as potential catalysts .

What Went Well and What Went Wrong

What Went Well

  • Sequential gross margin rate improved to 22.0% in Q1 vs 18.7% in Q4, despite ongoing cost pressures .
  • Store inventory ended lower by 6.4% y/y with 487 stores (better inventory discipline and footprint optimization vs 489 in Q4 and 490 in Q3) .
  • Management expects sequential top-line improvement as FY progresses and Pier 1 product arrives; “We expect to deliver sequential top line improvement by quarter…” (Q4 outlook) . Andrew Berger: “execute our plans to drive traffic and profitability” (Q1) .

What Went Wrong

  • Q1 net sales fell to $157.1M vs $176.9M y/y; comps −10.4% y/y; gross margin dollars and rate declined y/y (22.0% vs 28.8%) on supply chain/transportation costs .
  • Operating loss widened to −$25.9M vs −$11.7M y/y; adjusted EBITDA deteriorated to −$20.0M vs −$5.7M y/y .
  • FY2023 guidance withdrawn; reverse split signals urgency to maintain listing and potentially constrained investor confidence near term .

Financial Results

P&L and Profitability (USD Millions unless noted)

MetricQ3 2022 (oldest)Q4 2022Q1 2023 (newest)
Net Sales$159.6 $161.934 $157.105
Gross Margin ($)$38.9 $30.342 $34.636
Gross Margin Rate (%)24.4% 18.7% 22.0%
SG&A ($)$55.6 $57.363 $60.523
Operating Loss ($)$(16.4) $(26.895) $(25.887)
Net Loss ($)$(18.2) $(28.143) $(28.163)
Diluted EPS ($)$(0.21) $(0.33) $(0.29)
EBITDA ($)—$(23.211) $(22.672)
Adjusted EBITDA ($)$(11.9) $(22.323) $(19.957)

KPIs and Balance/Liquidity

KPIQ3 2022 (oldest)Q4 2022Q1 2023 (newest)
Comparable Store Sales (y/y)+0.6% −8.0% −10.4%
Store Count490 489 487
Inventories ($)$176.6 $148.462 $132.464
Cash & Equivalents ($)—$7.816 $6.912
Revolving Borrowings ($)$54.1 $62.191 $31.355
ABL Availability ($)$26.6 $10.3 $25.3

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Comparable Store SalesQ1 FY2023−10% to −12% Actual −10.4% Achieved within range
Adjusted EBITDA ($)Q1 FY2023−$21M to −$24M Actual −$20.0M Better than guided
Comparable Store SalesFY2023Flat to −3% Withdrawn Withdrawn
Adjusted EBITDA ($)FY2023−$18M to −$23M Withdrawn Withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4)Current Period (Q1)Trend
Supply chain & freight costsQ3: ~390 bps GM hit; Q4 GM rate down on higher supply chain costs GM rate 22.0%; y/y decline driven by supply chain/transportation costs Costs elevated; sequential margin improvement
Strategic investment & Pier 1Sept financing; Pier 1 licensing; sequential improvement expected Receipt flow disruption due to timing of strategic investment finalization; CEO transition Integration ongoing; leadership reset
Outlook & guidanceQ4 issued Q1/FY guidance FY guidance withdrawn Higher uncertainty
Footprint & DC networkQ3: 700-store potential; DC redesign 487 stores; inventory discipline Rationalization; discipline
Capital markets—1-for-30 reverse split to regain Nasdaq compliance Compliance actions escalated

Management Commentary

  • Andrew Berger (CEO, Q1 release): “Our first quarter sales performance was inline with our expectations… As we look ahead… execute our plans to drive traffic and profitability for Tuesday Morning.”
  • Fred Hand (CEO, Q4 release): reiterated long-term opportunities and sequential topline improvement expectations with Pier 1 product; emphasized strengthened balance sheet and strategic partner impact .
  • Q3 prepared remarks highlighted supply chain/DC network optimization and 700-store long-term potential .

Q&A Highlights

  • Macro impact in March/Q3: Sales weakness driven by inflation and broader macro headwinds; traffic slowed; trends improved into Q4 without promotional events (focus on value) .
  • Inventory strategy: Reduced store receipts to match traffic; use DC reserves to opportunistically buy desirable brands at value as oversupply emerges .
  • Credit facilities/liquidity: New ABL/FILO reduced borrowing rate 100 bps, extended maturity, added liquidity ($7M incremental, plus $5M FILO accordion after Nov) .
  • Q4 outlook context: Sequential sales improvement expected post Easter/stimulus lapping; permanent markdowns to clean aged inventory (not POS events) .

Estimates Context

  • S&P Global/Capital IQ consensus data was unavailable for TUEMQ due to missing CIQ mapping; comparison to Street estimates could not be performed. Values from estimates are unavailable; we attempted retrieval but mapping for TUEMQ is not present in SPGI systems.

Key Takeaways for Investors

  • Revenue/comps are under pressure (Q1 net sales $157.1M; comps −10.4%), with y/y margin compression on supply chain costs; sequential margin rate improved to 22.0%—watch whether this holds into holiday .
  • Guidance withdrawal signals elevated uncertainty; position sizing should reflect potential volatility until visibility improves .
  • Liquidity has improved (availability $25.3M; revolver borrowings down to $31.4M), aided by Sept financing—monitor covenant posture and vendor relations .
  • Strategic partner (REV/Ayon) and Pier 1 licensing could be traffic drivers in later periods; integration timing affected receipt flow in Q1—track product arrival and execution .
  • Reverse split (1-for-30) is a technical catalyst to maintain listing; may impact trading dynamics and investor base near term .
  • Inventory discipline and lower store inventories suggest cleaner positioning for opportunistic off-price buys—watch KPIs (turns, markdowns) as macro oversupply persists .
  • Focus on sequential trends: management expects improvement by quarter; Q1 adjusted EBITDA beat guidance (−$20.0M vs −$21M to −$24M)—assess if this momentum can continue .