Q3 2022 Tuesday Morning Corp Earnings Call

May 12, 2022

[music].

Greetings and welcome to the Tuesday morning third quarter fiscal 2022 earnings call.

Greetings and welcome to the Tuesday morning, third quarter fiscal 2022 earnings call.

At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Jennifer Robinson, Chief Financial Officer. Please go ahead.

I would now like to turn the conference over to your host Jennifer Robinson, Chief Financial Officer. Please go ahead.

Good morning, I would like to welcome you to the Tuesday morning, third quarter fiscal 2022 earnings call.

Good morning. I would like to welcome you to the Tuesday morning third quarter fiscal 2022 earnings call.

Joining me on the call today is Fred Hand, our Chief Executive Officer, and Mark Katz, our Chief Operating Officer.

Joining me on the call today is Fred hand, our Chief Executive Officer, and Marc Katz, Our Chief operating officer.

Before we begin today's prepared remarks, I would like to remind you that some of the information presented may contain forward-looking statements.

Before we begin todays prepared remarks, I would like to remind you that some of the information presented may contain forward looking statements.

that involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements.

That involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements.

Information regarding the company's risk factors was included in our press release and in our Form 10-K, and other SEC filings.

Information regarding the company's risk factors was included in our press release and in our Form 10K and other SEC filings.

Any forward-looking statements made during this call speak only as of the date of this call.

Any forward looking statements made during this call speak only as of the date of this call.

Today's presentation will also include certain non- GAAP financial measures, including EBITDA and adjusted EBITDA.

Todays presentation will also include certain non-GAAP financial measures.

Including EBITDA and adjusted EBITDA.

A reconciliation of the non-GAAP financial measures used in this presentation to the most directly comparable GAAP financial measures may be found in the Investor Relations section of the Tuesday morning website at TuesdayMorning.com.

A reconciliation of the non-GAAP financial measures used in this presentation to the most directly comparable GAAP financial measures maybe found in the Investor Relations section of the Tuesday morning website at.

Tuesday morning Dot com.

I will now turn the call over to Brad.

Thank you, Jennifer. Good morning, everyone. And thank you for joining us for our third quarter fiscal 2022 conference.

Thank you Jennifer good morning, everyone and thank you for joining us for our third quarter fiscal 2022 conference call.

I will begin my remarks this morning by highlighting our recent debt transaction and then providing an update on our progress on three key strategic initiatives since our last conference.

I will begin my remarks, this morning by highlighting our recent debt transaction and then providing an update on our progress on three key strategic initiatives since our last conference call.

Next, I will provide a brief review on third quarter sales.

Next I will provide a brief review on third quarter sales, which we noted in the release were negatively impacted by macro headwinds in March.

which we noted in the release, were negatively impacted by macro hitwinds in MARC.

and then finish with an update on our store experience before turning it over to Jennifer, who will discuss our financial results and outlook in more detail.

And then finish with an update on our store experience before turning it over to Jennifer who will discuss our financial results and outlook in more detail.

Okay.

First, I'd like to take a moment to highlight the current business climate and our response.

First I'd like to take a moment to highlight the current business climate and our response.

In light of the many macro headwinds, we are very fortunate to have an experienced leadership team who remain vigilant on expense controls while continuing to make progress on our priority.

In light of the many macro headwinds we are very fortunate to have an experienced leadership team who remain vigilant on expense controls, while continuing to make progress on our priorities.

Moreover, as I will discuss in more detail later, times like these historically have been a positive for off-pride.

Moreover, as I will discuss in more detail later times like these historically have been a positive for off price and we have an experienced off price buying team to take advantage of the opportunity.

And we have an experienced off-line spying team to take advantage of the opportunity.

With that, I'm pleased to inform you that we completed a debt transaction that resulted in sufficient liquidity to support us at least through the next 12 months.

With that I'm pleased to inform you that we completed the debt transaction that resulted in sufficient liquidity to support us at least through the next 12 months.

In addition, based on negotiating favorable financial terms, we reduced our ABL borrowing rate by approximately 100 basis points.

reduction of $5 million on our term loan, received forgiveness on accrued interest for that $5 million, and extended our ABL at least through September 2024.

Reduction of $5 million on our term loan received forgiveness on accrued interest for that $5 million and extended our ABL at least through September 'twenty 'twenty four.

Now that we bought paint this additional liquidity we are laser focused on moving forward on our strategic initiatives.

Now that we've obtained this additional liquidity, we are laser focused on moving forward on our strategic initiative.

Our first major strategic initiative is our DC network design project.

On the last call, we mentioned that we had engaged a third party who specializes in developing supply chain network strategies to help us identify our optimal distribution network.

On the last call. We mentioned that we had engaged a third party who specializes in developing supply chain network strategies to help us identify an optimal distribution networks.

This study includes everything from the location size and number of distribution centers to the design of the building the pool point strategy to support our entire network and evaluation of startup and ongoing costs for each scenario.

This study includes everything from the location, size, and number of distribution centers to the design of the building, the pool point strategy to support our entire network, and evaluation of startup and ongoing costs for each scenario.

They are evaluating one and two distribution center networks.

They are evaluating one and two distribution center networks to determine which would be the best option to support both the growth.

Determined which would be the best option to support both the growth and storage assumptions through 2028.

and storage assumptions through 2028.

This work incorporates minimizing labor and inbound and outbound transportation costs as well as maximizing

This work incorporates minimizing labor.

And inbound and outbound transportation costs as well as maximizing speed to store.

The initial findings indicate that a to D C network, where the west coast and East Coast presence would eliminate a significant amount of redundant miles created with a one D C network.

The initial findings indicate that a 2DC network with a West Coast and East Coast present

would eliminate a significant amount of redundant miles created with a 1DC network.

This transportation savings, coupled with efficiency savings based on DC's built for the off-price model, are suggesting an attractive internal rate of return on the investment. Obviously, this is a multi-year initiative.

This transportation savings coupled with efficiency savings based on D. C is built for the off price model.

Suggesting an attractive internal rate of return on the investment.

Obviously this is a multiyear initiative.

That would be accomplished in phases.

We expect to be operating our Dallas DCs at least through June of 2024. We have more work to do to finalize this analysis, but are very

We expect to be operating our Dallas DC at least through June of 2024.

We have more work to do to finalize this analysis.

But I'm very encouraged by the initial findings.

The second major strategic initiative is the thorough review of our real estate footprint.

The second major strategic initiative is the thorough review of our real estate footprint as.

As we mentioned on the last call, we engaged another third party that focuses on using a comprehensive analytical approach to evaluate store locations.

As we mentioned on the last call. We engaged another third party that focuses on using a comprehensive analytical approach to evaluate store locations.

This data-based insight is intended to ensure that we make the right decisions in either extending existing leasements.

This database insight is intended to ensure that we make the right decisions in either extending existing leases.

or identifying better real estate within the market for a relocation.

Or identifying better real estate within the market for a relocation.

This review also provided a C point strategy for new store growth identifying those locations across the country that provide the best demographics for a successful Tuesday morning location.

This review also provided a seed point strategy for new store growth identifying those locations across the country that provide the best demographics for a successful Tuesday morning location.

We are excited to announce that our data-driven seed point strategy now indicates that Tuesday morning over the long term can grow to approximately 700 store locations within the United States.

We are excited to announce that our data driven C point strategy now indicates that Tuesday morning over the long term can grow to approximately 700 store locations within the United States.

In addition, we have partnered with three master real estate brokers to assist us in building and executing our overall real estate strategy.

In addition.

We have partnered with three master real estate brokers to assist us in building and executing our overall real estate strategy.

With one based in the east, one in central, and one in the west coast, we will utilize their large networks of local brokers to identify market opportunities and help negotiate our 174 fiscal year 2023 lease expirations.

With one based in the east one in central and one in the West Coast, we will utilize their large networks of local brokers to identify market opportunities and helped negotiate our 170 for fiscal year 2023 lease explorations.

which include relocation opportunities in addition to our new stores.

Which include relocation opportunities in addition to our new stores.

As I mentioned on the last call, our new store going forward will be approximately 10,000 gross square feet.

As I mentioned on the last call our new stores going forward will be approximately 10000 gross square feet.

Finally, our third strategic initiative is related to our information system.

Finally, our third strategic initiative is related to our information system infrastructure.

During the quarter, we completed a system enhancement that aligned our merchandising and financial calendar.

During the quarter, we completed a system enhancement that aligned our merchandising and financial calendars.

I cannot tell you how important it is for our entire company to be looking at the business in the exact same way.

This requires touching virtually all of our systems and making some type of change.

This required touching virtually all of our systems and making some type of change.

This successful implementation gives us confidence in our abilities to continue to address our existing systems and infrastructure.

This successful implementation gives us confidence in our abilities to continue to address our it.

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which we believe can create efficiencies to simplify the business, reduce manual work and improve our decision making process.

Which we believe can create efficiencies to simplify the business reduce manual work and improve our decision making processes.

With respect to sales during the third quarter, we were running in line with our expectations through February .

While our third quarter comp guide contemplated the Easter shift.

While our third quarter comp guide contemplated the Easter shift, and prior year's stiff

And prior year stimulus payments.

It did not incorporate the disruption in Europe and incremental impact on inflation, notably gas prices.

It did not incorporate the disruption in Europe , an incremental impact on inflation.

<unk> gas prices.

March was a very difficult month, which negatively impacted our quarterly comps significantly.

The 0.6 comp increase was driven entirely by our merchandising strategy focused on driving higher average unit retail categories.

In terms of inventory availability in the last 30 days, we have seen an incredible amount of availability.

In terms of inventory availability, in the last 30 days, we have seen an incredible amount of availability and the product we've been offered is priced as aggressively as we have seen in the last two years.

And the product we've been offered is priced as aggressively as we have seen in the last two years.

In addition, the oversupply of inventory is allowing us to open up new vendors.

In addition, the oversupply of inventory is allowing us to open up new vendors, which is also very important as it contributes to us having broader assortments.

which is also very important as it contributes to us having broader assortment.

Yeah.

Long story short, the current environment is conducive to off-price buying.

Long story short the current environment is conducive to off price buying.

Turning next to our stores, the stores have continued to make great progress on improving execution and simplifying the shopping experience.

Turning next to our stores the stores have continued to make great progress on improving execution and simplifying the shopping experience.

As I mentioned last quarter, we recently rolled out a new customer survey program.

We received feedback from over 20,000 customers during the third quarter.

We received feedback from over 20000 customers during the third quarter.

And our overall satisfaction score was 900 basis points, higher.

And our overall satisfaction score was 900 basis points higher than the retail average.

Our store teams far exceeded retail benchmarks in the areas of friendliness and health.

Our store teams far exceeded retail benchmarks in the areas of friendliness and helpfulness.

We look forward to using this feedback tool to assist our store teams on improving the customer experience.

And finally, I am very pleased to announce that on April 30th, we kicked off a month-long campaign to collect funds in each of our stores and online to support the efforts of the American Heart Association.

And finally, I am very pleased to announce that on April 30th we kicked off a month long campaign to collect funds in each of our stores and online to support the efforts of the American Heart Association.

This is the first ever national charitable effort, we've conducted at Tuesday morning.

This is the first ever national charitable effort we've conducted at Tuesday morning.

One in three women are diagnosed with heart disease, and it is the top cause of death for both men and women.

One in three women are diagnosed with heart disease and it is the top cause of death for both men and women.

Our teams are incredibly excited to have this opportunity to support an organization that can help so many.

Teams are incredibly excited to have this opportunity to support an organization that can help so many.

I would now like to turn it over to Jennifer to discuss our financial results.

Denver.

Thank you Brad and good morning, everyone.

I will begin by discussing our third quarter financial results and will focus on year-over-year comparisons as we have now anniversaries the elimination of promotional events.

I will begin by discussing our third quarter financial results and will focus on year over year comparison, as we have now anniversaried the elimination of promotional events.

as well as the actions the company took related to a three organization under chapter 11 and the impact related to COVID-19.

Well as the actions the company tech related to a three organization under chapter 11.

And the impact related to COVID-19.

In addition, our shift toward a more typical retail calendar <unk>.

In addition, our shift toward a more typical retail calendar, driven by weeks starting on Sunday and ending on Saturday, resulted in us revising comparable store sales for both this year and last year to ensure consistency.

Driven by week, starting on Sunday, and ending on Saturday resulted in us revising comparable store sales for both this year and last year to ensure consistency.

We delivered net sales of $159.6 million compared to $153.3 million in the third quarter of fiscal 2021.

We delivered net sales of $159 $6 million compared to $153 3 million in the third quarter of fiscal 2020 one.

The third quarter of fiscal 2022 included two additional days when compared to Q3 fiscal 2021 due to the fiscal calendar change.

The third quarter of fiscal 2022 included two additional days when compared to Q3 of fiscal 2021 due to the fiscal calendar change.

During the quarter two stores were closed and we ended the quarter with 490 stores.

During the quarter, two stores were closed, and we ended the quarter with 490 stores.

which was comparable to the end of the third quarter of fiscal 2021.

Which was comparable to the end of the third quarter and fiscal 2021.

Compared to Q3 F. 2021 we delivered comp store sales growth.

Compared to Q3 of 2021, we delivered comp store cell growth of 0.6% in Q3 of fiscal 2022.

0.6% in Q3 fiscal 2022.

As Fred noted, the comp increase was entirely driven by the increase in AUR and was materially impacted by the slowdown we experienced in March.

As Fred noted the comp increase was entirely driven by the increase in AUR.

And was materially impacted by the slowdown we experienced in March.

Obviously, our comp store self-calculation is based on the same number of days for both this year and last year.

Obviously, our comp store sales calculation is based on the same number of days for both this year and last year.

Growth margin was $38.9 million compared to $48.2 million for the third quarter of fiscal 2021.

Gross margin was $38 $9 million compared to $48 2 million for the third quarter of fiscal 2020 one.

Gross margin rate in the third quarter of fiscal 2022 declined to 24, 4%.

Growth margin rate in the third quarter of fiscal 2022 declined to 24.4% compared to 31.4% in the third quarter of fiscal 2021.

<unk> to 31, 4% in the third quarter of fiscal 2021.

We estimate that our gross margin was negatively impacted by the recognition of capitalized supply chain and freight cost of approximately 390 basis points or $6 million.

driven by the elevated costs encountered earlier this year.

Driven by the elevated cost encountered earlier this year.

Moving to SG&A, SG&A was $55.6 million in Q3 of fiscal 2022 compared to $59.2 million in the same period of fiscal 2021.

Moving to SG&A SG&A was $55 $6 million in Q3, ethical 2022 compared to $59 2 million in the same period of fiscal 2021.

As a percentage of net sales, FDNA decreased to 34.8 percent from 38.6 percent in the same period of fiscal 2021, driven by leveraging store occupancy costs.

As a percentage of net sales SG&A decreased to 34, 8% from 38, 6% in the same period of fiscal 2021 driven by leveraging store occupancy cost.

Our operating loss was $16 $4 million compared to a loss of $12 million in Q3 FY 2021.

Our operating loss was $16.4 million compared to a loss of $12 million in Q3 of fiscal 2021.

Our net loss was $18 2 million or 21 cents per share for Q3 fiscal 2022.

Our net loss was $18.2 million or $0.21 per share for Q3 of fiscal 2022.

This compared to net loss of $37.1 million or $0.55 per share for the third quarter of fiscal 2021.

That's compared to net loss of $37 1 million or 55 cents per share for the third quarter of fiscal 2021.

Adjusted EBITDA, a non-GAAP measure was a loss of $11 9 million for the third quarter of fiscal 2022.

Adjusted EBITDA, a non-GAP measure, was a loss of $11.9 million for the third quarter of fiscal 2022.

compared to a loss of 6.9 million for the same period of fiscal 2021.

Compared to a loss of $6 9 million for the same period of fiscal 2021.

As we look at the first nine months of fiscal 2022, adjusted EBITDA was negative $8.2 million compared to negative $12.1 million in the first nine months of fiscal 2021.

As we look at the first nine months of fiscal 2022 adjusted EBITDA was negative $8 $2 million compared to negative $12 $1 million in the first nine months of fiscal 2021.

Turning now to the balance sheet.

We ended the quarter with an inventory position of $176.6 million, an increase of 29 percent compared to Q3 2021.

We ended the quarter with an inventory position of $176 $6 million, an increase of 29% compared to Q3 2021.

We had planned inventory up year over year. However, it ended higher than our plan due to the incremental deceleration in top line performance beginning in March as well as earlier than expected timing of receipts.

We had planned inventory up year over year, however, it ended higher than our plan due to the incremental deceleration in top line performance beginning in March as well as earlier than expected timing of receipt.

Given that the majority of our buys are made in season, we have been able to quickly adjust our Q4 receipt flow.

Given that the majority of our buys are made in-season, we have been able to quickly adjust our Q4 receipt flow.

In addition, we will be taking above planned markdowns in Q4 as we aim to exit the fiscal year with a clean inventory position so that we can take advantage of the tremendous supply of merchandise available in the marketplace.

In addition, we will be taking above planned markdowns in Q4, as we aim to exit the fiscal year with a clean inventory position.

So that we can take advantage of the tremendous supply of merchandise available in the marketplace.

Total liquidity as of the end of Q3 was $35 million, including 26.6 million of availability under our post emergence ABL facility.

Total liquidity, as of the end of Q3, was $35 million, including $26.6 million of availability under our post-emergence ABL facility.

As of quarter end, we had $54 1 million in borrowings outstanding under our line of credit compared to zero borrowings at the end of Q3 2021.

As a fifth quarter end, we had 54.1 million in borrowings outstanding under our line of credit compared to zero borrowings at the end of Q3 2021.

As Fred discussed we successfully completed a debt transaction, which will provide us with sufficient capacity to cover obligations and meet our plans for at least the next 12 months.

As Fred discussed, we successfully completed a debt transaction, which will provide us with sufficient capacity to cover our obligations and meet our plans for at least the next 12 months.

With respect to our outlook.

With respect to our outlook, given the continued macro headwinds, we now expect fourth quarter comparable cells to decline by 3 to 5%.

Given the continued macro headwinds, we now expect fourth quarter comparable sales to decline by 3% to 5%.

Given the slower Q4 guidance, coupled with our lower than expected Q3 cells.

Given the slower Q4 guidance, coupled with our lower than expected Q3 cells, as well as the incremental Q4.

As well as the incremental Q4, Mark down we.

We now expect a full year adjusted EBITDA loss to be between $26 million and $29 million.

We now expect a full year adjusted EBITDA loss to be between 26 and $29 million.

I will now turn the call back over to Fred for some concluding remarks.

I will now turn a call back over to Fred for some concluding remarks.

Fred.

Thank you Jennifer.

You're all very aware of the many macro issues all retailers are facing ranging from decade high inflation rates to continued disruptions in Europe to COVID lockdowns in China.

You are very aware of the many macro issues all retailers are facing ranging from decade high inflation rates to continued disruptions in Europe to Covid Lockdowns in China.

In the short term, while we don't know exactly how this will impact the consumer we.

In the short term, while we don't know exactly how this will impact the consumer.

We do know the importance of delivering value and that any type of dislocation or economic downturn can be very beneficial for the off-price model.

We do know the importance of delivering value.

And then any type of dislocation or economic downturn can be very beneficial for the off price model.

This is a time when inventory availability becomes abundant.

which we have started to see over the last 30 days.

Which we have started to see over the last 30 days.

Fortunately, we have an experienced off-price buying organism.

Fortunately, we have an experienced off price buying organization and they've all been through this before.

and they've all been through this before. In the long term, I shared the progress we're making with our DC network study and are very encouraged by the initial findings.

In the long term I shared the progress, we're making with our D. C network study and are very encouraged by the initial findings. Moreover, we now have comprehensive data behind our ability to grow to a 700 store location retailer.

Moreover, we now have comprehensive data behind our ability to grow to a 700 store location retailer.

I remain encouraged by both the short term and long term opportunities at Tuesday morning and I'm excited to continue on our transformation to become a world-class off-price retailer.

I remain encouraged by both the short term and long term opportunities at Tuesday morning, and I'm excited to continue on our transformation to become a world class off price retailer.

In closing I want to thank the entire Tuesday morning team for their dedication and execution during the third quarter.

In closing, I want to thank the entire Tuesday morning team for the dedication and execution during the third quarter.

The team is working with a sense of urgency on executing our initiative.

The team is working with a sense of urgency on executing on our initiatives.

In addition, I would like to thank the vendor community for their continued partnership and support we will now open the call up for questions.

In addition, I would like to thank the vendor community for their continued partnership and support. We will now open the call up for questions.

Thank you.

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session.

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Please while we poll for questions.

Our first question comes from Hamed Korsan with UWS Financial. Please proceed.

Our first question comes from Amit <unk> with Dws financial Please proceed.

Good morning. Could you first talk about, you know, a little bit more detail about what happened in March? Was it?

Good morning could you first talk about a.

A little bit more detail about what happened in March.

related to merchandise, or is the consumer just completely retracking from spending, and how has that transcended into what you're seeing now? We're now in May, two months later.

Related to merchandise or was it just the consumer just completely re trucking from spending and how has that transcended into.

What youre seeing now you know we're now in May two months later.

Yeah.

Good morning, Hamid. Thank you for the question. As I mentioned in the prepared remarks, are cop sales

Good morning, Amit.

Thank you for your question.

As I mentioned in the prepared remarks, our comp sales.

through February , we're in line with our expectations.

February .

We're in line with our expectations.

And in March, what we had expected, we were going to have the lapping of the stimulus. We had expected, obviously, the Easter shift. But we had not expected the disruption that happened in Ukraine, the war, and then the inflationary issues.

And in March.

We had expected we were going to have the lapping of the stimulus we had expected obviously the Easter shift.

But we had not expected the disruption that happens in Ukraine. The war and then the inflationary issues.

And I would tell you that.

You know, a lot of that, I think, was external factors. The traffic really slowed down in our stores, starting practically in week two of March.

You know a lot of that I think was external factors the traffic really slowed down in our stores starting frankly.

Throughout March.

And that's the reason why, you know, we had such a tough month in the month of March. As far as the quarter that we're in, I will tell you that business has gotten better, and we're tracking towards the favorable side of our guide.

And that's the reason why we had such a tough month in the month of March as far as the quarter that we're in I will tell you that.

And this has gotten better.

And we're tracking.

Towards the favorable side of our guidance.

which is good to see. And, you know, we're very focused on making sure that we're doing everything we can within our control so that when the customer comes into our buildings, they're still able to find great product, great value at a great presentation and friendly store.

Which is good to see.

And you know, we're very focused on making sure that we're doing everything we can within our control. So the ones that customer comes into our buildings are still able to find great product a great value and a great presentation and friendly store. So you know what.

So, you know, we're managing the business as best as we can and as far as the product is concerned, as Jennifer talked about, we're also trying to address some of the product categories, the age product that we have based on the slowdown in sales.

We're managing the business as best as we can as far as the product is concerned as Jennifer talked about we'll also try to address.

Some of the product categories. The H product that we have based on the slowdown in sales but.

But I wouldn't say that that was the reason why the business was tough. I would say the majority of it was...

But I wouldn't say that that was the reason why the business supposed to top I would say majority of it was.

Macro issues.

The positive sales that you're seeing now in the quarter, I would say positive in a manner that you're speaking, is that because you're doing more promotions or is that because the consumer is just coming back to the store?

Yeah.

Positive sales that Youre seeing now and in the quarter I would say positive.

You're speaking is that because youre doing more promotions or is that because the the consumers just coming back to the stores.

No, as I said, we're trending towards the favorable side of our guide.

No.

As I said.

We're trending towards the favorable side of our guidance.

But theres no promotions whatsoever.

But there's no promotions whatsoever. Remember that we anniversaryed all of our promotional events last December , so we have no promotions at all. That's basically anti-off-price model. So I will tell you that what we're seeing is ever so much increased traffic.

Rather we anniversaried all of our promotional events last December so are we.

We have no promotions at all.

And you know that's basically anti off price model so I.

I will tell you that what we're seeing is a ever so you know much increased traffic.

versus what we had in March. And I think, you know, again, we're focused on value. We're focused on making sure that we offer the best product that we can and maintaining the value gap versus our company.

Versus what we had in March.

And I think again, we're focused on value we're focused on making sure that we offer the best product that we can and maintaining the value gap versus our competition.

That's really our focus, and I would tell you that people are just coming back Tuesday morning because of the value offer that we have, and I think I would tell you our customer service in the stores has really improved. Our team has done a very nice job of doing this.

That's really that's really our focus in that that you know that I would tell you that people are just.

Coming back to Tuesday morning, because of the value offer that we have and then.

I think I will tell you our customer service in the stores has really improved our team has done a very nice job of focusing on the service aspect.

focusing on the service aspect. If you recall, my comments in the past have been to try to simplify the store experience for both for our associates and our customers.

If you recall my comments in the past has been to try to simplify the store experience for both for our associates and our customers and I think that's resonating with our customer I think our customer sees that they can find the product that they're looking for they don't have to fight through a lot of goods all.

And I think that's resonating with our customer. I think our customer sees that they can find a product that they're looking for. They don't have to fight through a lot of good.

All of those things is culminating in what we're seeing hopefully as we transition out of

All of those things is culminating in what we're seeing hopefully as we transition out of.

March and April and to the rest of the fourth quarter and just just to piggyback on that I'm at this distance mark and as you think about the quarter that we're in now remember as you get through what April week To the you had left, you know, you've been through the Easter chef

March and April and into the rest of the fourth quarter can you just just to piggyback on that hi, Matt. This is mark if you think about the quarter that we're in now remember as you got through with April week too you had left you've been through the Easter shift and you are also getting well past the big March stimulus payments. It happens so what was happening.

And you've also getting well past the big March stimulus payment that happened. So what was happening in stimulus is far less than it was, you know, back in the prior March. So you're through those things. And when we talk about taking above plan markdowns, these are permanent markdowns we're taking. This is not a POS event. These are permanent markdowns we're taking on the goods that every off-price retailer does to eventually clear them out. And that's what we're starting to do, and that's what we're doing.

Stimulus is far less than it was back in the prior March so youre through those things and when we talk about taking above planned markdowns. These are permanent markdowns were taken this is not a P. O S. T shirt permanent markdowns were taking on the goods that every off price retailer does eventually clear them out and that's what we're starting to do.

That's what we're talking about.

This is not a POS event where we're buying goods specifically for like a green card that was done in the past. Again, permanent markdowns to clear.

So this is not a P O S. A that we're buying goods specifically for like a green card that was done in the past again permanent markdowns to clear goods.

Got it. That's helpful. And then, as far as the credit facility is concerned, could you just provide a little bit more color on that and what your intentions are with the increase in working capital over the next 12 months?

Got it that's helpful and then as far as the credit facility is concerned could you just provide a little bit more color on that and what your intentions are with what the increase in working capital over the next 12 months.

Sure absolutely Hi, Matt Good morning, So as Fred mentioned, we are very happy to announce that we were able to replace our existing ABL with a new ABL and FILO facility and the benefits of the new debt.

So as Fred mentioned, we are very happy to announce that we were able to replace our existing ABL with a new ABL and FILO facility. The benefits of the new debt are that we are able to make sure that we are able to

include the borrowing rate improvement of approximately 100 basis points, as well as extending the maturity of that facility. Our prior ABL matured in December 2023. This new facility has a maturity currently as of September 2024. However, there is a springing maturity to May 2027 once the term loan is addressed.

And clearly the borrowing rate improvement of approximately 100 basis points.

Well, it's extending the maturity of that facility or our prior ABL matured in December 2023.

This new facility has a maturity currently as of September 2024. However, there is a springing maturity to May 2027, once the term loan is addressed.

And then as Fred also mentioned, we were able to pay down $5 million of our term loan facility and had approximately a million dollars of interest expense forgiven.

And then it spread also mentioned we were able to pay down $5 million of our term loan facility.

And had approximately a million dollars of interest expense forgiving.

The $10 million FILO has an approximate interest rate of 7% compared to the 14% that they term loans.

The $10 million pilot.

Has an approximate interest rate of 7% compared to the 14% that the term loan.

facility has, so despite technically having about $5 million more in total debt due to the favorable interest rates, we do expect to see a slightly lower interest expense under the new revised facility.

So what do you have so despite technically having about $5 million more in total that due to the favorable interest rates, we do expect to see a slightly lower interest expense under the new revised facilities.

We anticipate that incremental liquidity generated from this transaction is approximately $7 million, very slightly by month in eligible assets, but it's roughly $7 million. And that excludes the FILO committed accordion of $5 million that's available after November .

We anticipate that.

Incremental liquidity generated from this transaction is approximately $7 million very slightly by month and eligible assets that it's roughly $7 million and that excludes the silo committed accordion at $5 million that's available after November .

of this year. And then lastly, the transaction also included a financial covenant with a net leverage ratio that we will begin to measure in September 2023.

Sure.

And then lastly, the transaction also included a financial covenant with a net leverage ratio and we will begin to measure in September 2023.

Given that our current term loan matures in December of 24, we expect to look for alternatives about 15 months prior to that. So that would ensure that we have a solution on the term loan by December 2023 in order to prevent the term loan from becoming current on our balance sheet.

Given that our current term loan matures in December of 'twenty, four we expect to look for alternatives about 15 months prior to that so that would ensure that we have a solution on the term loan by December 2023 in order to prevent the term loan from becoming current on our balance sheet.

So long story short, we view the timing of that covenant to be commiserate with our need to replace the term loan in normal practice.

So long story short, we view the timing of that kind of a net to be commensurate with our need to replace the term loan and normal practice.

Okay, and then Fred it's.

Okay. And then Fred, it's approaching about a year since you've joined. Obviously, stock has been a very difficult year. Have you been able to achieve what you want to do in this year other than what the stock has done?

Approaching about a year since you've joined.

Obviously, the stock is telling me it's been a very difficult year have you been able to achieve what you want to do in this year other than what the stock has done.

Yeah.

Yeah, it's heavily been, um...

Yeah.

It's definitely been.

an interesting year, we'll put it that way, but we definitely made headway in progress on the initiatives that we put forth internally within the four walls of our company. We're making progress as I made in my prepared remarks on our DC study. We have a good roadmap as we are finalizing our study when it comes to our stores.

And interesting gear and put it that way.

But you know we've definitely made headway and progress on the initiatives that we put forth are internally within the four walls of our company.

You know, we're making progress as I made in my prepared remarks.

D C study.

We have a good roadmap.

As we are finalizing our study, but when it comes to our stores and you know, we're making progress and I will tell you that the calendar change for US was a huge win.

And, you know, we're making progress and I will tell you that the calendar change for us was a huge win because it really gives us confidence.

Because it really.

Gives us confidence that we're able to make.

make the progress that we need to make and the improvements on our system and infrastructure. And I will most importantly tell you that I feel great about our team.

Make the progress that we need to make in the improvements in our systems and infrastructure.

Most importantly tells you that I feel great about our team.

You know, the team that we put together is very well-versed in off-price.

The team that we put together is very well versed in off price.

not just the senior leadership team, but our merchandising team.

Not just the senior leadership team, but our merchandising team and you know this is a great opportunity for off price retailers any disruption of any kind, we had weather issues are global issues or supply chain.

And, you know, this is a great opportunity for off-price retailers. Any disruption of any kind, be it weather issues or global issues or supply chain, it just creates opportunity for off-price. And we're very excited to be able to pounce on those opportunities as we go forward.

It creates opportunity for off price and we're very excited to be able to pounce on those opportunities as we go forward.

So my response to you in a long-winded way would be, yeah, I feel good about the progress we've made. I'm very energized and motivated about short-term and long-term progress.

So my response to you in a long winded way would be yeah, I feel good about the progress we've made I'm very energized and motivated about short term and long term progress.

Our mode of operation, frankly, is we can't control the macro issues and the external issues. We're laser focused on what we can execute within the four walls of our company and our team is very much motivated to get that done.

And you know our our mode of operation frankly is we can't control the macro issues and the external issues.

We're laser focused on what we can execute within the four walls of our company and our team is very much motivated to get that done.

Okay, and then as far as the inventory is concerned.

Okay, and then as far as the inventory is concerned, your comments about the...

Our comments about the.

holding off purchases in June quarter, how are you going to re-align that balance? Are you going to hold the same kind of inventory as you go into the holiday season? Are you going to increase it? And what's the mix going to be like as far as the product is concerned?

Holding off purchases in June quarter is that going to how are you going to realign that balance is it are you going to hold the same kind of inventory as you go into the holiday season, but are you going to increase it and what's the mix going to be like as far as the product is concerned merchandise.

Yeah, just just to be clear on that again, this is Mark, when we talk about, you know, reducing receipts, we're talking our store inventory level. So we obviously, you know, Q3 was was bumpy, and we expect Q4 to be bumpy. And as a result of that, we've lowered our sales, as we've talked about, when you lower your sales, you lower your receipts.

Just just to be clear on that again. This is mark when we talk about reducing receipts were talking our store inventory levels. So we obviously you know Q3 was lumpy and we expect Q4 to be lumpy and as a result of that we've lowered our sales as we've talked about when you lowered your sales you lower your receipts so are stored inventory.

So our store inventories are going to be lower. Doesn't necessarily mean our total inventories will be lower because there's a lot of available merchandise available in the market. So, but what we don't want to do is just send goods to the store because we can. We want that to match the traffic levels we expect to see in the market.

Tories are going to be lower doesn't necessarily mean, our total inventories will be lower because there's a lot of available merchandise available in the market. So we don't want to do is just send goods to the stores because we can we want that to match the traffic levels, we expect to see in the stores. So it's the store inventories that will be down but again.

So it's the store inventories that will be down. But again, based on merchandise available in the market, this is why we have DC Reserve locations. This is one of the beauties of the off-price model, is a highly desirable brand at a great value or a highly desirable trend at a great value is never a bad buy. So to the extent those are out there, we'll take advantage and that's why we have DC Reserve.

Based on merchandise available in the market. This is why we have D. C reserve locations. This is one of the beauties of the off price model is.

Highly desirable brand at a great value or a highly desirable trend at a great value is never a bad box. So to the extent those are out there we'll take advantage and that's why we have D. C reserve locations.

Thank you.

This concludes our question and answer session. I'd like to hand the call back to Fred Hans for any closing remarks.

This concludes our question and answer session I would like to hand, the call back to Fred hands for any closing remarks.

Thank you for joining us for this earnings call. We look forward to speaking to you at our fourth quarter earnings call. Have a great day, everybody.

Thank you for joining us.

This earnings call. We look forward to speaking to you at our fourth quarter earnings call have a great day everyone.

Yeah.

This concludes today's conference. Thank you very much for your participation. You may now disconnect.

This concludes today's conference. Thank you very much for your participation you may now disconnect.

Q3 2022 Tuesday Morning Corp Earnings Call

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