Executive Summary

Q2 FY2022 delivered net sales of $251.4M, operating income of $3.4M, and net income of $1.9M ($0.02/share); adjusted EBITDA improved to $9.3M despite gross margin rate declining to 28.5% on elevated supply chain costs .
Sequentially stronger revenue versus Q1 FY2022 ($176.9M) with materially better profitability (Q2 operating income vs Q1 operating loss), while year-over-year comparisons to Q2 FY2021 are distorted by prior-year reorganization gains; adjusted EBITDA rose from $0.8M in Q2 FY2021 to $9.3M in Q2 FY2022 .
Management guided Q3 comps to mid-single digits vs FY2021 and expects second-half comps in low-to-mid single digits, but warned second-half gross margin will decline versus first half due to ongoing freight and supply chain pressures; full-year adjusted EBITDA is still expected to be a slight loss, modestly better than FY2021, with sufficient liquidity maintained .
Potential stock reaction catalysts: improvement in comps and adjusted EBITDA trajectory, execution on pack-and-hold inventory strategy, and supply chain network redesign; offset by continued inbound freight cost inflation and gross margin pressure .

What Went Well and What Went Wrong

What Went Well

Adjusted EBITDA inflected to $9.3M in Q2 vs $0.8M a year ago; operating income turned positive at $3.4M vs a loss last year, indicating improved core performance despite macro cost headwinds .
Comparable store sales rose 1.0% vs Q2 FY2020 despite 26% lower ending store inventory, driven by merchandising strategy focused on higher average unit retail; seasonal merchandise achieved a 91% sell-through before markdowns (“freshness at all-time highs”) .
SG&A leveraged meaningfully: 26.9% of sales in Q2 vs 31.9% last year, with higher sales driving overhead efficiency .

Quote: “Our comp sales increase was driven entirely by our merchandising strategy focused on driving higher average unit retail categories… the freshness of our inventories was at all-time highs.” — CEO Fred Hand .

What Went Wrong

Gross margin rate fell to 28.5% (vs 30.2% last year) due to elevated supply chain and transportation costs; management expects second-half gross margin to be lower than first half as costs flow through with inventory turns .
December softness (Omicron) and weather in January impacted sales cadence; management flagged continued macro disruption and inbound freight cost pressure through FY2022 .
Liquidity reliance increased with revolver borrowings rising to ~$17.9M outstanding and inventories up to $157.1M; reserve inventory (pack-and-hold, flow/hold) roughly doubled vs plan—beneficial for margin mix later but near-term liquidity drag .

Financial Results

Quarterly Trend (oldest → newest)

Metric	Q4 2021	Q1 2022	Q2 2022
Net Sales ($USD Millions)	$177.3	$176.9	$251.4
Gross Margin ($USD Millions)	$46.7	$51.0	$71.5
Gross Margin (%)	26.3% (46.7/177.3) — note: ratio shown in filing table context	28.8%	28.5%
SG&A ($USD Millions)	$59.6	$60.3	$67.7
SG&A (% of Sales)	33.6% (59.6/177.3) — filing table context	34.1%	26.9%
Operating Income (Loss) ($USD Millions)	$(16.2)	$(11.7)	$3.4
Net Income (Loss) ($USD Millions)	$(18.9)	$(14.6)	$1.9
Diluted EPS ($USD)	$(0.22)	$(0.17)	$0.02
Adjusted EBITDA ($USD Millions)	$(8.2)	$(5.7)	$9.3

Note: Where a percentage is not explicitly disclosed, we reference the filing table context ratios; explicit % figures are cited from text where provided .

Q2 YoY Comparison (Q2 2022 vs Q2 2021)

Metric	Q2 2021	Q2 2022
Net Sales ($USD Millions)	$198.6	$251.4
Gross Margin ($USD Millions)	$60.1	$71.5
Gross Margin (%)	30.2%	28.5%
SG&A ($USD Millions)	$63.3	$67.7
SG&A (% of Sales)	31.9%	26.9%
Operating Income (Loss) ($USD Millions)	$(4.3)	$3.4
Net Income ($USD Millions)	$40.3 (incl. $48.1M reorg gains)	$1.9
Diluted EPS ($USD)	$0.88 (incl. reorg gains)	$0.02
Adjusted EBITDA ($USD Millions)	$0.8	$9.3

KPIs and Operating Metrics

KPI	Q4 2021	Q1 2022	Q2 2022
Store Count (period-end)	490	489	492
Comparable Store Sales vs baseline	+1.2% vs Q4 2019	+3.2% vs Q1 2020	+1.0% vs Q2 2020
Ending Inventory ($USD Millions)	$145.1	$174.1	$157.1
Cash & Cash Equivalents ($USD Millions)	$6.5	$4.6	$4.3
Revolver Outstanding ($USD Millions)	$12.0	$22.4	$17.9
Revolver Availability ($USD Millions)	$38.9	$39.7	$58.0
Adjusted EBITDA ($USD Millions)	$(8.2)	$(5.7)	$9.3

Segment breakdown: N/A as company reports results in aggregate .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Comparable Store Sales	Q3 FY2022	Not provided (Q1: no detailed comps guidance)	Mid-single-digit increase vs Q3 FY2021	Introduced guidance (raised visibility)
Comparable Store Sales	2H FY2022	Not provided (Q1: no detailed comps guidance)	Low-to-mid single-digit increase vs 2H FY2021	Introduced guidance (raised visibility)
Adjusted EBITDA	FY2022	Slight loss, modestly improved vs FY2021	Reiterated: slight loss, modestly improved vs FY2021	Maintained
Gross Margin	2H FY2022	Implicit pressure from supply chain (no explicit 2H guide)	Expected to decline vs 1H due to higher supply chain costs	Lowered
Liquidity	FY2022	Sufficient liquidity to cover obligations	Continue to maintain sufficient liquidity	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2021, Q1 2022)	Current Period (Q2 2022)	Trend
Supply chain cost inflation	Headwinds expected to increase before improving toward end of FY2022; DC wages raised; 70% of goods require manual touch increasing DC costs	Inbound freight headwinds now expected at least through FY2022; 2H gross margin to be lower; added ~$4M incremental transportation costs in Q4	Persistent headwinds, worse than initially planned
Merchandising strategy (AUR focus)	Transition to off-price, eliminate promotions, scarcity and freshness	Comp growth driven entirely by higher AUR categories; 91% seasonal sell-through pre-markdown	Executing well
Inventory freshness & pack-and-hold	Clean year-end inventory; ready to take advantage of supply	Freshness at all-time highs; reserve inventory roughly twice plan to secure high-IMU goods	Increased strategic inventory buffer
Real estate footprint optimization	Fleet reduced/post-bankruptcy; renegotiated rents	Reviewing leases; targeting ~10,000 sq. ft optimal store size vs ~12,800 current	Active footprint optimization
Supply chain network redesign	Not detailed previously	Engaged third party; evaluating 1 vs 2 DC network to support speed/cost through 2028	Structural improvement underway
Macro/COVID/weather	FY2021 uncertainty, no detailed guidance	December Omicron softness; weather disruptions in January; comps still guided positive	Macro disruptions impacting cadence

Management Commentary

“We were able to achieve positive comparable store sales versus fiscal 2020 despite ending with 26% less store inventory and being up against 14 promotional events.” — CEO Fred Hand .
“Our seasonal merchandise had strong sell-through rates with 91% sold through before taking a markdown.” — CEO Fred Hand .
“We have begun a thorough review of our real estate footprint… optimal size approximately 10,000 gross square feet compared to an average of 12,800 today.” — CEO Fred Hand .
“We engaged a third party… evaluating a 1 and 2 distribution center network to determine which would be the best option… through 2028.” — CEO Fred Hand .
“We now expect that we will see cost pressures due to the macro supply chain dislocation at least through the 2022 fiscal year… still guiding full-year adjusted EBITDA to be slightly better than last year.” — CEO Fred Hand .

Q&A Highlights

Merchandise sourcing and vendor relationships: Management credited merchant team agility and adding new vendors to secure inventory across direct import and domestic buys; freshness and holiday preparedness highlighted .
Sales cadence and macro: On December softness and January weather, management noted Q2 was on plan through November; Q3 off to a good start with mid-single-digit comps guided despite weather risk .
Comp drivers: Combination of improved content (brands, differentiation) and higher AUR; inventory plan finally in line at end of fall, setting up spring with very fresh receipts .
Gross margin vs EBITDA guidance: ~$4M incremental transportation costs added to Q4; SG&A savings (labor, professional fees, travel) expected to mitigate over half, allowing reiteration of adjusted EBITDA outlook .

Estimates Context

Wall Street consensus estimates via S&P Global were unavailable for TUEMQ for the specified periods due to missing CIQ mapping in the S&P Global dataset; therefore, comparisons to consensus revenue/EPS/EBITDA and target price are not available at this time (attempted retrieval failed due to missing mapping).

Key Takeaways for Investors

Sequential inflection: Q2 showed strong seasonal revenue and a pivot to positive operating income and adjusted EBITDA; comp growth driven by higher AUR categories and very fresh inventory positioning .
Margin watch: Expect gross margin compression in 2H FY2022 as elevated inbound freight and DC costs flow through; SG&A actions partially offset, keeping adjusted EBITDA loss outlook slightly improved vs FY2021 .
Strategic inventory: Reserve inventory (pack-and-hold/flow-and-hold) doubled vs plan to secure high-IMU goods for timely release—near-term liquidity drag but supportive of future merchandise margin .
Structural initiatives: Real estate optimization (smaller optimal box), supply chain network redesign (1 vs 2 DC) and IT roadmap signal medium-term operating leverage opportunities once macro cost pressures ease .
Liquidity: Revolver availability expanded to $58M with $17.9M outstanding; management reiterated sufficient liquidity to cover obligations and plans .
Trading implications: Near-term, monitor monthly sales cadence amid macro/weather and freight costs; medium-term, watch execution on supply chain network decisions and inventory turn improvements to support margin recovery .

TUESDAY MORNING CORP/DE (TUEMQ)·Q2 2022 Earnings Summary