Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - TUESDAY MORNING CORP/DE | tues-ex322_6.htm |
EX-32.1 - EX-32.1 - TUESDAY MORNING CORP/DE | tues-ex321_9.htm |
EX-31.2 - EX-31.2 - TUESDAY MORNING CORP/DE | tues-ex312_10.htm |
EX-31.1 - EX-31.1 - TUESDAY MORNING CORP/DE | tues-ex311_8.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED December 31, 2019
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 0-19658
TUESDAY MORNING CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware |
|
75-2398532 |
(State or Other Jurisdiction of |
|
(I.R.S. Employer |
Incorporation or Organization) |
|
Identification Number) |
6250 LBJ Freeway
Dallas, Texas 75240
(Address of principal executive offices) (Zip code)
(972) 387-3562
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
|
TUES |
|
The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
☐ |
|
Accelerated filer |
☒ |
|
|
|
|
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
|
|
|
|
|
|
|
|
Emerging growth company |
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at February 3, 2020 |
Common Stock, par value $0.01 per share |
|
48,024,022 |
PART I. |
|
|
3 |
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ITEM 1. |
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3 |
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Consolidated Balance Sheets as of December 31, 2019 and June 30, 2019 |
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3 |
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Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2019 and 2018 |
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4 |
|
|
|
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5 |
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Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2019 and 2018 |
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7 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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8 |
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ITEM 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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13 |
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ITEM 3. |
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19 |
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ITEM 4. |
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20 |
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PART II. |
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21 |
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ITEM 1. |
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21 |
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ITEM 1A. |
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21 |
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ITEM 2. |
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21 |
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ITEM 6. |
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22 |
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2
PART I — FINANCIAL INFORMATION
Tuesday Morning Corporation
December 31, 2019 (unaudited) and June 30, 2019
(In thousands, except share and per share data)
|
|
December 31, |
|
|
June 30, |
|
||
|
|
2019 |
|
|
2019 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,903 |
|
|
$ |
11,395 |
|
Inventories |
|
|
204,008 |
|
|
|
237,895 |
|
Prepaid expenses |
|
|
5,262 |
|
|
|
5,388 |
|
Assets held for sale |
|
|
4,601 |
|
|
|
— |
|
Other current assets |
|
|
2,861 |
|
|
|
1,822 |
|
Total Current Assets |
|
|
221,635 |
|
|
|
256,500 |
|
Property and equipment, net |
|
|
101,252 |
|
|
|
110,146 |
|
Operating lease right-of-use assets |
|
|
355,187 |
|
|
|
— |
|
Deferred financing costs |
|
|
885 |
|
|
|
994 |
|
Other assets |
|
|
2,561 |
|
|
|
2,881 |
|
Total Assets |
|
$ |
681,520 |
|
|
$ |
370,521 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
72,945 |
|
|
$ |
91,251 |
|
Accrued liabilities |
|
|
44,963 |
|
|
|
45,923 |
|
Operating lease liabilities |
|
|
71,590 |
|
|
|
— |
|
Total Current Liabilities |
|
|
189,498 |
|
|
|
137,174 |
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities — non-current |
|
|
310,814 |
|
|
|
— |
|
Borrowings under revolving credit facility |
|
|
3,600 |
|
|
|
34,650 |
|
Deferred rent |
|
|
— |
|
|
|
23,551 |
|
Asset retirement obligation — non-current |
|
|
3,002 |
|
|
|
3,002 |
|
Other liabilities — non-current |
|
|
1,149 |
|
|
|
835 |
|
Total Liabilities |
|
|
508,063 |
|
|
|
199,212 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01 per share, authorized 10,000,000 shares; none issued or outstanding |
|
|
— |
|
|
|
— |
|
Common stock, par value $0.01 per share, authorized 100,000,000 shares; 49,820,109 shares issued and 48,036,448 shares outstanding at December 31, 2019 and 48,466,930 shares issued and 46,683,269 shares outstanding at June 30, 2019 |
|
|
462 |
|
|
|
465 |
|
Additional paid-in capital |
|
|
242,899 |
|
|
|
241,456 |
|
Retained deficit |
|
|
(63,092 |
) |
|
|
(63,800 |
) |
Less: 1,783,661 common shares in treasury, at cost, at December 31, 2019 and 1,783,661 common shares in treasury, at cost, at June 30, 2019 |
|
|
(6,812 |
) |
|
|
(6,812 |
) |
Total Stockholders’ Equity |
|
|
173,457 |
|
|
|
171,309 |
|
Total Liabilities and Stockholders’ Equity |
|
$ |
681,520 |
|
|
$ |
370,521 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Consolidated Statements of Operations (unaudited)
Three and Six Months Ended December 31, 2019 and 2018
(In thousands, except per share data)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
December 31, |
|
|
December 31, |
|
||||||||||
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Net sales |
|
$ |
324,414 |
|
|
$ |
338,418 |
|
|
$ |
548,853 |
|
|
$ |
565,731 |
|
Cost of sales |
|
|
218,638 |
|
|
|
221,673 |
|
|
|
361,945 |
|
|
|
366,568 |
|
Gross profit |
|
|
105,776 |
|
|
|
116,745 |
|
|
|
186,908 |
|
|
|
199,163 |
|
Selling, general and administrative expenses |
|
|
94,677 |
|
|
|
100,437 |
|
|
|
184,460 |
|
|
|
190,442 |
|
Operating income |
|
|
11,099 |
|
|
|
16,308 |
|
|
|
2,448 |
|
|
|
8,721 |
|
Other income/(expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(726 |
) |
|
|
(767 |
) |
|
|
(1,391 |
) |
|
|
(1,355 |
) |
Other income, net |
|
|
166 |
|
|
|
242 |
|
|
|
234 |
|
|
|
432 |
|
Other income/(expense) total |
|
|
(560 |
) |
|
|
(525 |
) |
|
|
(1,157 |
) |
|
|
(923 |
) |
Income before income taxes |
|
|
10,539 |
|
|
|
15,783 |
|
|
|
1,291 |
|
|
|
7,798 |
|
Income tax benefit |
|
|
(398 |
) |
|
|
(223 |
) |
|
|
(18 |
) |
|
|
(99 |
) |
Net income |
|
$ |
10,937 |
|
|
$ |
16,006 |
|
|
$ |
1,309 |
|
|
$ |
7,897 |
|
Earnings Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
|
$ |
0.35 |
|
|
$ |
0.03 |
|
|
$ |
0.17 |
|
Diluted |
|
$ |
0.24 |
|
|
$ |
0.35 |
|
|
$ |
0.03 |
|
|
$ |
0.17 |
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
45,218 |
|
|
|
44,733 |
|
|
|
45,086 |
|
|
|
44,612 |
|
Diluted |
|
|
45,218 |
|
|
|
44,736 |
|
|
|
45,086 |
|
|
|
44,618 |
|
Dividends per common share |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4
Consolidated Statements of Stockholders' Equity (unaudited)
Three Months Ended December 31, 2019 and 2018
(In thousands)
|
Common Stock |
|
|
Additional Paid-In |
|
|
Retained |
|
|
Treasury |
|
|
Total Stockholders' |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
||||||
Balance at September 30, 2019 |
|
47,738 |
|
|
$ |
462 |
|
|
$ |
242,179 |
|
|
$ |
(74,030 |
) |
|
$ |
(6,812 |
) |
|
|
161,799 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10,937 |
|
|
|
— |
|
|
|
10,937 |
|
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
720 |
|
|
|
— |
|
|
|
— |
|
|
|
720 |
|
Shares issued or canceled in connection with employee stock incentive plans and related tax effect |
|
298 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at December 31, 2019 |
|
48,036 |
|
|
$ |
462 |
|
|
$ |
242,899 |
|
|
$ |
(63,092 |
) |
|
$ |
(6,812 |
) |
|
$ |
173,457 |
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Retained |
|
|
Treasury |
|
|
Total Stockholders' |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
||||||
Balance at September 30, 2018 |
|
46,987 |
|
|
$ |
469 |
|
|
$ |
238,728 |
|
|
$ |
(59,469 |
) |
|
$ |
(6,812 |
) |
|
$ |
172,916 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
16,006 |
|
|
|
— |
|
|
|
16,006 |
|
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
988 |
|
|
|
— |
|
|
|
— |
|
|
|
988 |
|
Shares issued in connection with exercises of employee stock options |
|
3 |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
Shares issued or canceled in connection with employee stock incentive plans and related tax effect |
|
(189 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at December 31, 2018 |
|
46,801 |
|
|
$ |
469 |
|
|
$ |
239,723 |
|
|
$ |
(43,463 |
) |
|
$ |
(6,812 |
) |
|
$ |
189,917 |
|
5
Consolidated Statements of Stockholders' Equity (unaudited)
Six Months Ended December 31, 2019 and 2018
(In thousands)
|
Common Stock |
|
|
Additional Paid-In |
|
|
Retained |
|
|
Treasury |
|
|
Total Stockholders' |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
||||||
Balance at June 30, 2019 |
|
46,683 |
|
|
$ |
465 |
|
|
$ |
241,456 |
|
|
$ |
(63,800 |
) |
|
$ |
(6,812 |
) |
|
$ |
171,309 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,309 |
|
|
|
— |
|
|
|
1,309 |
|
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
1,441 |
|
|
|
— |
|
|
|
— |
|
|
|
1,441 |
|
Shares issued or canceled in connection with employee stock incentive plans and related tax effect |
|
1,353 |
|
|
|
(3 |
) |
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Cumulative effect of accounting change |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(601 |
) |
|
|
— |
|
|
|
(601 |
) |
Balance at December 31, 2019 |
|
48,036 |
|
|
$ |
462 |
|
|
$ |
242,899 |
|
|
$ |
(63,092 |
) |
|
$ |
(6,812 |
) |
|
$ |
173,457 |
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Retained |
|
|
Treasury |
|
|
Total Stockholders' |
|
|||||||||
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Stock |
|
|
Equity |
|
||||||
Balance at June 30, 2018 |
|
45,865 |
|
|
$ |
469 |
|
|
$ |
237,957 |
|
|
$ |
(51,360 |
) |
|
$ |
(6,812 |
) |
|
$ |
180,254 |
|
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,897 |
|
|
|
— |
|
|
|
7,897 |
|
Share-based compensation |
|
— |
|
|
|
— |
|
|
|
1,759 |
|
|
|
— |
|
|
|
— |
|
|
|
1,759 |
|
Shares issued in connection with exercises of employee stock options |
|
3 |
|
|
|
— |
|
|
|
7 |
|
|
|
— |
|
|
|
— |
|
|
|
7 |
|
Shares issued or canceled in connection with employee stock incentive plans and related tax effect |
|
933 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance at December 31, 2018 |
|
46,801 |
|
|
$ |
469 |
|
|
$ |
239,723 |
|
|
$ |
(43,463 |
) |
|
$ |
(6,812 |
) |
|
$ |
189,917 |
|
6
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended December 31, 2019 and 2018
(In thousands)
|
|
Six Months Ended |
|
|||||
|
|
December 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,309 |
|
|
$ |
7,897 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
12,807 |
|
|
|
13,283 |
|
Amortization of financing fees |
|
|
108 |
|
|
|
158 |
|
(Gain)/loss on disposal of assets |
|
|
137 |
|
|
|
(18 |
) |
Share-based compensation |
|
|
1,559 |
|
|
|
1,832 |
|
Construction allowances from landlords |
|
|
483 |
|
|
|
598 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Inventories |
|
|
33,769 |
|
|
|
7,389 |
|
Prepaid and other current assets |
|
|
(578 |
) |
|
|
(42 |
) |
Accounts payable |
|
|
(23,263 |
) |
|
|
(15,244 |
) |
Accrued liabilities |
|
|
1,424 |
|
|
|
15,869 |
|
Operating lease assets and liabilities |
|
|
219 |
|
|
|
— |
|
Deferred rent |
|
|
— |
|
|
|
(38 |
) |
Income taxes payable |
|
|
46 |
|
|
|
73 |
|
Other liabilities — non-current |
|
|
101 |
|
|
|
957 |
|
Net cash provided by operating activities |
|
|
28,121 |
|
|
|
32,714 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(8,365 |
) |
|
|
(8,067 |
) |
Purchases of intellectual property |
|
|
(20 |
) |
|
|
(273 |
) |
Proceeds from sales of assets |
|
|
22 |
|
|
|
21 |
|
Net cash used in investing activities |
|
|
(8,363 |
) |
|
|
(8,319 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings under revolving credit facility |
|
|
142,300 |
|
|
|
86,600 |
|
Repayments of borrowings under revolving credit facility |
|
|
(173,350 |
) |
|
|
(120,080 |
) |
Change in cash overdraft |
|
|
4,957 |
|
|
|
5,770 |
|
Payments on finance leases |
|
|
(157 |
) |
|
|
(81 |
) |
Proceeds from exercise of stock options and stock purchase plan purchases |
|
|
— |
|
|
|
7 |
|
Net cash used in financing activities |
|
|
(26,250 |
) |
|
|
(27,784 |
) |
Net decrease in cash and cash equivalents |
|
|
(6,492 |
) |
|
|
(3,389 |
) |
Cash and cash equivalents, beginning of period |
|
|
11,395 |
|
|
|
9,510 |
|
Cash and cash equivalents, end of period |
|
$ |
4,903 |
|
|
$ |
6,121 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
7
Notes to Condensed Consolidated Financial Statements (unaudited)
The terms “Tuesday Morning,” the “Company,” “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries. Other than as disclosed in this document, please refer to our Annual Report on Form 10-K for the fiscal year ended June 30, 2019 for our critical accounting policies.
1. Basis of presentation — The unaudited interim consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These financial statements include all adjustments, consisting only of those of a normal recurring nature, which, in the opinion of management, are necessary to present fairly the results of the interim periods presented and should be read in conjunction with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The consolidated balance sheet at June 30, 2019 has been derived from the audited consolidated financial statements at that date. These interim financial statements do not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. The results of operations for the three and six months ended December 31, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending June 30, 2020, which we refer to as fiscal 2020, due in part to the seasonality of our business. Certain reclassifications were made to prior period amounts to conform to the current period presentation. None of the reclassifications affected our net income in any period.
We do not present a consolidated statement of comprehensive income as there are no other comprehensive income items in either the current or prior fiscal periods.
The preparation of unaudited interim consolidated financial statements, in conformity with GAAP, requires us to make assumptions and use estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to inventory valuation under the retail method and estimation of reserves and valuation allowances specifically related to insurance, income taxes and litigation. Actual results could differ materially from these estimates. Our fiscal year ends on June 30 and we operate our business as a single operating segment.
Accounting Pronouncement Recently Adopted
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”). ASC 842 requires entities (“lessees”) that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASC 842, a right-of-use asset and lease liability is recorded for all leases, whether operating or finance, while the income statement will reflect lease expense for operating leases and amortization/interest expense for finance leases. In addition, ASC 842 requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.
We adopted ASC 842 effective July 1, 2019 on a modified retrospective basis. We elected the transition option that allows entities to only apply the standard at the adoption date and not apply the provisions to comparative periods; therefore, prior periods were not restated. This transition option allows the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. Our adoption of the standard resulted in a cumulative effect adjustment to retained earnings of $0.6 million, as of July 1, 2019. The adoption of the standard resulted in the recognition of operating lease assets of approximately $350 million and liabilities of approximately $375 million as of July 1, 2019.
We elected certain practical expedients permitted under the transition guidance, including the package of practical expedients, which allows us to not reassess whether existing contracts contain leases, the lease classification of existing leases, or initial direct costs for existing leases. We elected not to separate lease and non-lease components for new and modified leases and not to recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less. We did not elect the hindsight practical expedient. The adoption of the standard did not materially impact our consolidated net income or liquidity, and did not have an impact on debt-covenant compliance under our current revolving credit agreement.
See Note 5 for additional information.
2. Revenue Recognition — Our revenue is earned from sales of merchandise within our stores and is recorded at the point of sale and conveyance of merchandise to customers. Revenue is measured based on the amount of consideration that we expect to receive, reduced by point of sale discounts and estimates for sales returns, and excludes sales tax. Payment for our sales is due at the time of sale. We maintain a reserve for estimated returns, as well as a corresponding returns asset, and we use historical customer return
8
behavior to estimate our reserve requirements. No impairment of the returns asset was identified or recorded as of December 31, 2019. Gift cards are sold to customers in our stores and we issue gift cards for merchandise returns in our stores. Revenue from sales of gift cards and issuances of merchandise credits is recognized when the gift card is redeemed by the customer, or if the likelihood of the gift card being redeemed by the customer is remote (gift card breakage). The gift card breakage rate is determined based upon historical redemption patterns. An estimate of the rate of gift card breakage is applied over the period of estimated performance and the breakage amounts are included in net sales in the Consolidated Statement of Operations. Breakage income recognized was $0.1 million in the second quarter of fiscal 2020 and was $0.2 million in the second quarter of fiscal 2019. Breakage income recognized was $0.2 million in the first six months of fiscal 2020 and was $0.3 million in the first six months of fiscal 2019. The gift card liability is included in “Accrued liabilities” in the Consolidated Balance Sheet.
3. Share-based incentive plans — Stock Option Awards. We have established the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (the “2008 Plan”) and the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”), which allow for the granting of stock options to directors, officers and key employees of the Company, and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan, but equity awards granted under the 2008 Plan are still outstanding.
Stock options were awarded under the 2008 Plan and the 2014 Plan with a strike price at the fair market value equal to the closing price of our common stock on the date of the grant
Options granted under the 2008 Plan and the 2014 Plan typically vest over periods of one to four years and expire ten years from the date of grant. Options granted under the 2008 Plan and the 2014 Plan may have certain performance requirements in addition to service terms. If the performance conditions are not satisfied, the options are forfeited. The exercise prices of stock options outstanding on December 31, 2019 range between $1.64 per share and $20.91 per share. The 2008 Plan terminated as to new awards as of September 16, 2014. There were 2.1 million shares available for grant under the 2014 Plan at December 31, 2019.
Restricted Stock Awards—The 2008 Plan and the 2014 Plan authorize the grant of restricted stock awards to directors, officers, key employees and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan, but restricted stock awards granted under the 2008 Plan are still outstanding. Restricted stock awards are not transferable, but bear certain rights of common stock ownership including voting and dividend rights. The 2014 Plan also authorizes the issuance of restricted stock units which, upon vesting, provide for the issuance of an equivalent number of shares of common stock or a cash payment based on the value of our common stock at vesting. Restricted units are not transferable and do not provide voting or dividend rights. Shares and units are valued at the fair market value of our common stock on the date of the grant. Shares and units may be subject to certain performance requirements. If the performance requirements are not met, the restricted shares or units are forfeited. Under the 2008 Plan and the 2014 Plan, as of December 31, 2019, there were 2,737,884 shares of restricted stock and 1,558,138 restricted stock units outstanding with award vesting periods, both performance-based and service-based, of one to four years and a weighted average grant date fair value of $2.33 and $1.76 per share, respectively.
Performance-Based Restricted Stock Awards and Performance-Based Stock Option Awards. As of December 31, 2019 there were 1,679,047 unvested performance-based restricted stock awards and performance-based restricted stock units payable in cash outstanding under the 2014 Plan.
Share-based Compensation Costs. Share-based compensation costs were recognized as follows (in thousands):
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Amortization of share-based compensation during the period |
$ |
721 |
|
|
$ |
988 |
|
|
$ |
1,441 |
|
|
$ |
1,759 |
|
Amounts capitalized in ending inventory |
|
(190 |
) |
|
|
(332 |
) |
|
|
(391 |
) |
|
|
(617 |
) |
Amounts recognized and charged to cost of sales |
|
323 |
|
|
|
452 |
|
|
|
509 |
|
|
|
690 |
|
Amounts charged against income for the period before tax |
$ |
854 |
|
|
$ |
1,108 |
|
|
$ |
1,559 |
|
|
$ |
1,832 |
|
4. Commitments and contingencies — We are involved in legal and governmental proceedings as part of the normal course of our business. Reserves have been established when a loss is considered probable and are based on management’s best estimates of our potential liability in these matters. These estimates have been developed in consultation with internal and external counsel and are based on a combination of litigation and settlement strategies. Management believes that such litigation and claims will be resolved without material effect on our financial position or results of operations.
5. Leases — We conduct substantially all operations from leased facilities, with the exception of the corporate headquarters in Dallas and the Dallas warehouse, distribution and retail complex, which are owned facilities. The other warehouse facilities across the country and all other retail store locations are under operating leases that will expire over the next 1 to 11 years. Many of our leases include options to renew at our discretion. We include the lease renewal option periods in the calculation of our operating lease assets
9
and liabilities when it is reasonably certain that we will renew the lease. We also lease certain equipment under finance leases that expire generally within 60 months.
As discussed in Note 1, we adopted ASC 842 effective July 1, 2019 using the modified retrospective adoption method, which resulted in an adjustment to opening retained earnings of $0.6 million as of July 1, 2019 to recognize impairment of the opening right-of-use asset balance for two stores for which assets had been previously impaired under ASC 360, “Property, Plant, and Equipment.”
We utilized the simplified transition option available in ASC 842, which allowed the continued application of the legacy guidance in ASC 840, including disclosure requirements, in the comparative periods presented in the year of adoption.
We determine whether an agreement contains a lease at inception based on our right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the right-of-use (ROU) assets represent our right to use the underlying assets for the respective lease terms.
The operating lease liability is measured as the present value of the unpaid lease payments and the ROU asset is derived from the calculation of the operating lease liability. As our leases do not generally provide an implicit rate, we use our incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow over a similar term, on a collateralized basis in a similar economic environment.
Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses allocated on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as lease expense in the period incurred. The ROU asset is adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities.
Our lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements.
The components of lease cost are as follows (in thousands):
|
|
Three Months Ended December 31, 2019 |
|
|
Six Months Ended December 31, 2019 |
|
||
Operating lease cost |
|
$ |
23,424 |
|
|
$ |
47,550 |
|
Variable lease cost |
|
|
6,328 |
|
|
|
12,823 |
|
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
|
71 |
|
|
|
142 |
|
Interest on lease liabilities |
|
|
8 |
|
|
|
16 |
|
Total lease cost |
|
$ |
29,831 |
|
|
$ |
60,531 |
|
The table below presents additional information related to the Company’s leases as of December 31, 2019:
|
|
As of December 31, 2019 |
|
|
Weighted average remaining lease term (in years) |
|
|
|
|
Operating leases |
|
|
6.2 |
|
Finance leases |
|
|
3.1 |
|
Weighted average discount rate |
|
|
|
|
Operating leases |
|
|
5.8 |
% |
Finance leases |
|
|
3.8 |
% |
10
Other information related to leases, including supplemental disclosures of cash flow information, is as follows (in thousands):
|
|
Three Months Ended December 31, 2019 |
|
|
Six Months Ended December 31, 2019 |
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
22,787 |
|
|
$ |
44,037 |
|
Operating cash flows from finance leases |
|
|
8 |
|
|
|
16 |
|
Financing cash flows from finance leases |
|
|
71 |
|
|
|
142 |
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
|
(1,929 |
) |
|
|
10,573 |
|
Maturities of lease liabilities were as follows as of December 31, 2019 (in thousands):
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
Fiscal year: |
|
|
|
|
|
|
|
|
|
|
|
2020 (remaining) |
$ |
46,580 |
|
|
$ |
154 |
|
|
$ |
46,734 |
|
2021 |
|
85,509 |
|
|
|
315 |
|
|
|
85,824 |
|
2022 |
|
73,375 |
|
|
|
236 |
|
|
|
73,611 |
|
2023 |
|
63,488 |
|
|
|
97 |
|
|
|
63,585 |
|
2024 |
|
54,627 |
|
|
|
10 |
|
|
|
54,637 |
|
2025 |
|
47,274 |
|
|
|
— |
|
|
|
47,274 |
|
Thereafter |
|
86,542 |
|
|
|
— |
|
|
|
86,542 |
|
Total lease payments |
$ |
457,395 |
|
|
$ |
812 |
|
|
$ |
458,207 |
|
Less: Interest |
|
74,991 |
|
|
|
43 |
|
|
|
75,034 |
|
Total lease liabilities |
$ |
382,404 |
|
|
$ |
769 |
|
|
$ |
383,173 |
|
Less: Current lease liabilities |
|
71,590 |
|
|
|
293 |
|
|
|
71,883 |
|
Non-current lease liabilities |
$ |
310,814 |
|
|
$ |
476 |
|
|
$ |
311,290 |
|
Current and non-current finance lease liabilities are recorded in “Accrued liabilities” and “Other liabilities – non-current,” respectively, on our consolidated balance sheet. As of December 31, 2019, there were no operating lease payments for legally binding minimum lease payments for leases signed but not yet commenced.
6. Earnings per common share — The following table sets forth the computation of basic and diluted income per common share (in thousands, except per share amounts):
|
Three Months Ended December 31, |
|
|
Six Months Ended December 31, |
|
||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Net income |
$ |
10,937 |
|
|
$ |
16,006 |
|
|
$ |
1,309 |
|
|
$ |
7,897 |
|
Less: Income to participating securities |
|
(267 |
) |
|
|
(159 |
) |
|
|
(15 |
) |
|
|
(96 |
) |
Net income attributable to common shares |
$ |
10,670 |
|
|
$ |
15,847 |
|
|
$ |
1,294 |
|
|
$ |
7,801 |
|
Weighted average number of common shares outstanding — basic |
|
45,218 |
|
|
|
44,733 |
|
|
|
45,086 |
|
|
|
44,612 |
|
Effect of dilutive stock equivalents |
|
— |
|
|
|
3 |
|
|
|
— |
|
|
|
6 |
|
Weighted average number of common shares outstanding — diluted |
|
45,218 |
|
|
|
44,736 |
|
|
|
45,086 |
|
|
|
44,618 |
|
Net income per common share — basic |
$ |
0.24 |
|
|
$ |
0.35 |
|
|
$ |
0.03 |
|
|
$ |
0.17 |
|
Net income per common share — diluted |
$ |
0.24 |
|
|
$ |
0.35 |
|
|
$ |