Tuesday Morning (TUEMQ) 12 May 222022 Q3 Earnings call transcript

Greetings, and welcome to Tuesday Morning Third Quarter Fiscal 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. turn Financial over Officer to Jennifer your like Chief Robinson, at now the to conference host, I'd Tuesday Morning. you. to Over

Good welcome to third earnings would the I call. Morning’s XXXX quarter you Tuesday fiscal morning. to like

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

financial materially actual anticipated statements that the company's information cause these release presented we prepared Information I risk XX-K to only remarks, non-GAAP financial that EBITDA Any measures, will date statements. of found Before factors results the call directly call. of call of A Fred. Tuesday measures including risks I would like the uncertainties this contain some our turn most press financial forward-looking the now this used non-GAAP that filings. and the in from section Investor this reconciliation will also certain our forward-looking speaks Morning by those begin website Today's may as of today's include during regarding statements to the EBITDA. in other measures comparable involve over and to SEC was of adjusted Relations the included and remind and made presentation the in you @tuesdaymorning.com. differ presentation may GAAP be Form to could in

call. three And initiatives for our goal. our us our and joining highlighting key on everyone. you providing transaction for quarter thank morning morning, conference begin will since update I conference then Good my fiscal debt strategic on last third Jennifer. XXXX you, remarks progress Thank recent an by our this

negatively our discuss and which March. on on review experience Next, will an more in release before outlook I finish it headwinds in sales, our a macro the by Jennifer, financial store to quarter who in will we update detail. impacted with provide noted turning over And then third brief were results

later, the an discuss to current while on response. our haven't business will the historically off-price. moment to inform completed you off-price as to for who take headwinds, fortunate buying vigilant times a to of we at more that least to team light continuing like With pleased sufficient has leadership through of been like macro take to liquidity debt highlight And many detail that, make have the In these our experienced Moreover, I climate a controls us, to resulted in priorities. very next experienced in progress on positive advantage I'd First, a expense remain and transaction are the opportunity. we we I'm that support team XX-months.

$X ABL our In that financial terms, rate addition, and reduced for our reduction forgiveness based XXX $X on million through received XXXX. ABL negotiating accrued favorable basis interest on approximately at least our borrowing we points, loan, term on by extended September of million

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

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

significant optimal to distribution costs third size, of the would distribution On support and evaluation study the strategy option developing be of everything scenario. had growth in mentioned an us startup building, savings to transportation return to savings, we this one built This the network. speed a network the the initial for distribution party attractive the evaluating a networks of which our based on the presence on of is assumptions support center and to amount an East through model, two the and well Coast supply eliminate point network investment. and network created transportation are pool DC storage strategies coupled one in XXXX. initiative findings would a internal both and who to for help are The minimizing network. multiyear Coast best entire rate work as This a the that ongoing from that outbound DC’s with indicate engaged West suggesting last They accomplished and miles each would call, we with be maximizing determine labor, phases. design and chain number Obviously, costs, off-price DC centers, location, a identify incorporates efficiency inbound two and a to of specializes This with that includes as redundant store.

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

are to encouraged finalize the do by have findings. more We this but initial very work to analysis,

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

focuses database call, Morning better insight locations across that the we country location. within on we third store This demographics using successful best market or to location. the seed real Tuesday is engaged for As identifying new existing evaluate another analytical the last those for store decisions we leases, in provided estate a make for comprehensive to right point ensure also either intended review the on a a growth. party every approach extending mentioned, strategy the provide This Identifying that locations. that

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

our Central Coast. In real With West brokers East, in one the addition, and in three with in estate one master one the we and have to estate assist partnered in executing based us overall building real strategy.

identify will opportunities stores. in local new brokers We opportunities, addition to help relocation XXXX which market networks expirations, fiscal large includes to their of our negotiate year utilize lease and XXX

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

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

while line were shift our expectations gas by higher was significantly. it payments, decision inflation, simplify and stimulus incremental with of in Europe, that completed to business, and confidence difficult impacted prior during comp through incorporate the of a to us on I an With quarter is for retail and our we strategy processes. year Easter our abilities to increase important the efficiencies comp believe merchandising how in did our systems prices. manual our quarter, be making we month, can it create enhancement average making tell change. in business work calendars. guide This to infrastructure, you address X.X implementation same and existing type very successful exact the categories. notably quarterly to our some require virtually in February entirely The our quarter, March the respect comp not third and entire looking impact third continue at the contemplated company reduce gives sales on the disruption running This merchandising systems which which system improve the focused all was cannot negatively driven During aligned financial way. a our our unit touching driving our we

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

us short, In is assortments. allowing is open vendors is the current the inventory conducive oversupply new of us addition, which having to important Long contributes very broader to also off-price up environment story it to as buying.

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

satisfaction was customers recently program. We during rolled I last overall survey score the basis out XX,XXX retail feedback XXX And higher customer new our received points over from the As quarter, third than quarter. a mentioned we average.

to teams assist first stores in collect our announce long We off of men women am look month it XX, are each improving the to benchmarks is far areas we've Our And top the support of to campaign efforts experience. and this store for Heart conducted finally, and pleased we I in women. funds American of effort disease, the is store of the our cause using helpfulness. online the very diagnosed a heart on friendliness death Morning. at in national April forward tool Tuesday teams ever charitable the retail Association. feedback with One to both customer on and that kicked This to and three exceeded

Our incredibly over like Jennifer? can to financial I it to are this support so many. to discuss would help organization turn Jennifer teams results. have to now an that opportunity to excited our

the begin our of as actions you, Chapter a quarter to impact organization XX events, discussing by related under the I and morning, on financial third And anniversary the results. Thank as year-over-year as well to good related we'll And the now three elimination Fred. took will company COVID-XX. focus have comparisons we promotional everyone.

starting In this $XXX.X fiscal net both ensure addition, by Sunday third our and to us shift weeks, on compared in million the toward last on for XXXX. ending revising of of Saturday year We driven consistency. resulted in a $XXX.X more delivered retail typical sales sales calendar, quarter store year million comparable to and

of of to two fiscal quarter days third additional included fiscal fiscal XXXX compared calendar The when QXX due to the XXXX change.

comparable to of of in of Compared end of delivered were the third stores two XXXX, quarter XXX ended the with store stores, QX X.X% was and the XXXX. fiscal During we which growth fiscal sales quarter, comp quarter of XXXX. to we QX closed, the

noted, of was We capitalized to XXXX. gross entirely $XX.X $XX.X by fiscal margin for this Fred sales to compared Gross estimate last negatively store by to third of encountered increase XXXX quarter points, of AUR of elevated is of the fiscal experienced driven XXXX. the the compared on materially the earlier both slowdown in approximately margin declined rate As quarter chain increase this year supply the same comp impacted by in our our third and Gross XX.X% the comp quarter for by the was March. cost driven XXX million third million impacted number $X XX.X% in or in margin calculation recognition year. basis the million, and Obviously, year. was was fiscal of we and costs freight based days the that

of million $XX.X Moving the million in to to SG&A, fiscal SG&A in compared fiscal XXXX. $XX.X of same QX XXXX period was

of As of a XX.X% XXXX, cost. the from period fiscal by SG&A leveraging decreased store to percentage XX.X% same net occupancy in driven sales,

a $XX.X $XX to of was loss operating million, compared million fiscal QX Our in XXXX. of loss

was or That's quarter loss the was fiscal fiscal QX XXXX million loss for $XX.X XXXX. share for million million, Our of for compared quarter XXXX. a compared share loss per $X.XX fiscal $X.X XXXX. to measure $X.XX per Adjusted EBITDA, third net of non-GAAP the net to of $XX.X fiscal or million a same for of of third a of loss of period $XX.X the

the first first look compared As fiscal months $XX.X EBITDA nine XXXX, fiscal months million XXXX. negative the nine in of $X.X was negative of million, adjusted to at we

Turning now We up compared inventory an to balance XXXX. increase of the had to XX% quarter sheet, inventory $XXX.X we million, position year-over-year. of an QX the with planned ended

in it However, than well due beginning deceleration of incremental top as in our performance, receipt. as expected line March, earlier timing than plan higher ended the to

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

a $XX.X clean be we we position we aim end as ABL Total available QX in exit tremendous taking the of fiscal liquidity so addition, as with that QX inventory of markdowns $XX million advantage of In supply million, our marketplace. will including above post in year take emergence was availability the to the facility. of the can merchandise of in planned

of in line fiscal at zero had As outstanding end, QX, credit we $XX.X end our compared borrowings of XXXX. to quarter and million the borrowings

discussed, decline with we fourth to provide sufficient now Fred meet at continued cover capacity transaction, sales to expect next completed the our us will successfully we As the a comparable headwinds, With X% our X%. and outlook, least quarter debt respect which to to given plans obligations XX-months. by for macro our

a QX concluding QX to markdowns, lower incremental the million. will this as between than some $XX million year lower we to our adjusted call full expected well Fred EBITDA with QX loss $XX be back coupled Fred? and I over remarks. sales, for turn now Given the expect guidance, now as

Thank you, Jennifer.

many know last availability the this can is to how economic short issues the inflation delivering of ranging facing we when have are retailers value, know consumer, of will which off-price days. or the This in do XX that don't a importance inventory You abundant, started becomes while of COVID to all to be lockdowns the the China. macro very dislocation term, In any high impact we over rates Europe, from in all time model. type disruptions we see decade aware very downturn continued the and for beneficial exactly

want this Moreover, I through to the we retailer. experienced study, long have comprehensive class working both urgency are off- for initiatives. DC to very all execution short behind Tuesday In to I by we're Tuesday long-term the third closing, term, thank at encouraged have world store shared Fortunately, during Morning The ability and our grow off-price excited findings. and with on quarter. I'm organization. the sense initial Morning, now with dedication price a XXX the to the network our term to team In opportunities the is and encouraged been an I buying our team a we data retailer. remain our on by And they've progress making executing a become continue before. the and transformation entire location of

In support. community to vendor thank their partnership for addition, the like I would and continued

open now the questions. up will We for call

[Operator BWS first from comes Instructions] Hamed Our with question Financial. Khorsand

a talk Or it March? is what now how Was Good little transcended just bit detail in to morning. We're has now? happened months Could you're first in seeing two merchandise? about that about the spending? completely retracting later. from May, And you related into what consumer more

the Thank question. Hamed. for morning, you Good

the the the the March. And were we line of expected I the to happened the then of our a the But not that's the prepared comp two stores, month in We expectations. I really we with I March, in the why obviously, was month war expected, tell And the in slowed As in mentioned have you reason Easter of a inflationary disruption our our shift. of will and tough starting we back And were Ukraine, that February, external such lapping stimulus. had through we expected, traffic week in issues. in lot in what had that, March. remarks, going had have down think that factors, sales

And of will as in, very we're good far favorable better. control. focused is the we're doing you gotten that sure our And As our can tracking to on that guidance, see. has business we're making towards that the we everything within which quarter side we're I tell

presentation into friendly great ones able So our great comes and to product, still customer that the are buildings value store. find great and

was as the to business age of based the far try sales. also say the reason why it about, would the was have the majority is of product managing some I the slowdown tough. as on Jennifer as talked we we concerned, we're product can. that as So wouldn't as say best in business product was that But And we'll address that categories, issues. the macro I

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

And at December, guidance. our promotional that all. anti But I said, there's we of trending side all promotions towards no as no No, promotions we're whatsoever. That's have anniversaries the we favorable of off-price our basically last so remember events models.

really think in offer what tell traffic product So we much in people improved. That's our coming competition. I we because and I would really increased our has will And you you so just focused tell Tuesday that we I would think, had to on back we're seeing stores are focus. customer is what versus that that the maintaining And that Morning of value gap making service the I the sure our we can, tell you, again, that focused have. that offer ever And on we're I best March. we're versus value the value,

has on done a of the very aspects. Our job focusing team service nice

to the and experience If recall, customer. have my for in the you customers. been try comments for And our I that's past associates simplify think our store resonating both our with to

I of through they're don't think can They fight that a lot the looking to goods. find sees for. they have that our product customer

hopefully out quarter. of seeing, as rest March we're what April of into and the in culminating is things fourth those of All we transition the

through the Easter as getting last, big as the payment we too March shift. to been think through numbers this you've then And also that you Marc. in that you quarter April Hamed, stimulus happened. had Just about is well you've the on that, piggyback this we're And past with get now, you

-- So that back the in what far is less than happening March. it stimulus was, was was in prior

every markdowns, that's through when And on POS we're goods we we're These not And So we're that's to playing a about eventually does And we're that retailer do. off-price talking taking, those out. the you're what are permanent markdowns this taking talk things. clear above starting taking about. them event. is are permanent these markdowns, what

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

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

Sure, absolutely, Hamed. Good morning.

of new So facility. replace as happy debt very the benefits new points, the ABL of facility. that we The Fred were mentioned, are announce XXX maturity as we with ABL FILO to a rate well that of to existing improvement include approximately basis our as the borrowing extending able and

This prior currently XXXX. as ABL September a new December of Our maturity XXXX. matured facility has in

However, a $XX to loan term of to approximately million XX% springing around then is of XXXX facility mentioned, the able of our has $X rate X% Fred FILO facility The addressed. interest maturity make term million compared the had there approximate also an And were loan we loan interest million is forgiven. that expense the term to as once and has. $X

the So FILO covenant million transaction of approximately the with month then to we November XXXX. assets. roughly vary revised the eligible leverage Due slightly committed favorable that $X this $X a liquidity financial million. million. under September is net We begin interest ratio rates, available that debt. $X a expense and transaction included $X in generated lastly, will anticipate from expect do million it's despite to And But about to this year. accordion And also by facilities. lower excludes we that That's after a measure of slightly more incremental technically total new interest in having the see

look December XX in matures months about prior of ‘XX, for loan term expect current that. alternatives our to that to Given we

December XXXX, the that on ensure current by a would prevent term term on from our loan order the we to in have balance sheet. that becoming loan solution So

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

Fred, you a and want Obviously, doing the stock approaching year, been is it's what telling stock this about you've achieve able have has you than very it's then, joined. difficult been year the done? Okay, a year, since other what to

interesting we we have I And that able we price our four for those just retailers progress really very we've the kind tell have great we're that We're put study that infrastructure. as our made opportunity let improvements as as way. and stores, make on need The And be that forward. really progress any leadership I the company. any be and senior just on our go importantly we're team it we in within that very when will the issues progress you DC that to our for chain, in we we on issues merchandising remarks systems and finalizing it my tell me comes to the or gives well a not confidence opportunity team off-price team. progress a Yes, off-price, initiatives us our pounce a will creates roadmap, of calendar I make in internally disruption on to our team. together study, But or put opportunities versed great have of headway supply most that was and it is excited the but been to for I it's this a feel about we're is global our Because weather as put walls made change us forth, an good definitely to it huge win. and able making year, prepared making the you

and external the is within we focused and very long progress would issues. done. of company, my on the macro four feel can't issues is control mode walls to motivated frankly yes, our we term very motivated the And in our way our and I'm to progress. a We're laser So get we've team I what long-term made. about the of much short about winded be, good operation, that response execute can and energized you

going realign as -- as then quarter? that June comments the is how far what's as are same of hold off in inventory the be you Okay, Is holding it holiday as going are your that balance? you mix to increase you as and to going far to purchases kind the concerned -- going Is going to about go it concerned, the to inventory into are product season, the and merchandise? is and you like,

that, Marc, when Yes, this just we're be inventory about levels. we receipts, again, talking reducing clear to on our talk is store

be So that bumpy. as your receipts. we you And result sales, QX bumpy. lower obviously, you when we've lower your sales, was we've we a as QX talked to expect And about, our lowered of

the our because store inventories lower be are So of available in there's will to lot doesn't lower, necessarily our merchandise available inventories going be mean a total market.

So we we goods to we can, send we the see is to the to that don't because want the levels do in traffic match want expect just to stores. store

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

are reserve and So out we those why have to the DC locations. there, we'll that's take extent advantage

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

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

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

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