Tuesday Morning Corp. :TUES-US: Earnings Analysis: Q3, 2017 By the Numbers : June 23, 2017

Tuesday Morning Corp. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Tuesday Morning Corp. – Fred’s, Inc. Class A, Williams-Sonoma, Inc., The Container Store Group, Inc., Target Corporation, Big Lots, Inc., Dollar Tree, Inc., Don Quijote Holdings Co.Ltd. Unsponsored ADR and Wal-Mart Stores, Inc. (FRED-US, WSM-US, TCS-US, TGT-US, BIG-US, DLTR-US, DQJCY-US and WMT-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 203.00 million, Net Earnings of USD -14.80 million.
  • Gross margins narrowed from 36.65% to 33.08% compared to the same period last year, operating (EBITDA) margins now -4.44% from 1.97%.
  • Year-on-year change in operating cash flow of -407.21% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 203 328.14 211.89 222.81 211.38
Revenue Growth (%YOY) -3.96 2.58 4.72 4.59 11.41
Earnings (mil) -14.8 8.36 -8.86 -3.85 -5.24
Earnings Growth (%YOY) -182.37 -55.76 -44.22 8.46 -86.88
Net Margin (%) -7.29 2.55 -4.18 -1.73 -2.48
EPS -0.34 0.19 -0.2 -0.09 -0.12
Return on Equity (%) -26.63 14.91 -15.86 -6.74 -9.04
Return on Assets (%) -15.42 8.16 -8.81 -4.2 -5.72

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Market Share Versus Profits

Revenues History
Earnings History

TUES-US‘s change in revenue this period compared to the same period last year of -3.96% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that TUES-US is holding onto its market share. Also, for comparison purposes, revenues changed by -38.14% and earnings by -277.03% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 36.65% to 33.08%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 1.97% to -4.44% in this time frame. For comparison, gross margins were 32.30% and EBITDA margins were 4.32% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

TUES-US‘s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 65.71 days, compared to last year’s level of 64.82 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

TUES-US‘s change in operating cash flow of -407.21% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 0.13% to -7.23% and (2) one-time items that contributed to a decrease in pretax margins from -2.79% to -7.24%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Tuesday Morning Corp. engages in the retail of decorative home accessories, housewares and gifts. The company product portfolio includes home decor, furniture, bed and bath, kitchen, toys, crafts, pets and seasonal goods. Its brands include Peacock Alley, Sferra, Lenox, Waterford and Hartmann. The company was founded by Lloyd Ross in 1974 and is headquartered in Dallas, TX.

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