Tuesday Morning revealed the departure of chief financial officer Jennifer Robinson on July 29, just nine days after a Bloomberg report said the off-price home goods retailer could file for its second bankruptcy in about two years.
The timing of Robinson’s exit announcement, scheduled for Aug. 12 according to a regulatory filing, raises questions about the financial health of the Dallas company. CFO departures often precede broader corporate turmoil, with Slync losing its CFO just months before the supply chain software startup suspended its CEO for using the company as its “personal piggy bank.” “.
Chief Operating Officer Marc Katz will serve as Tuesday Morning’s interim CFO. The retailer also elevated Odette Benico to vice president, chief accountant after the former BDO audit director joined the chain in February as head of financial reporting before becoming vice president and controller in July.
According to Bloomberg’s report, the 490-store chain tapped Piper Sandler to review restructuring options, while Dallasnew.com reported that lenders forced Tuesday Morning to hire the financial specialist. Neither company responded to a request for comment.
Tuesday morning was part of a month of mayhem in May 2020 that saw businesses from JC Penney to John Varvatos to Aldo seek bankruptcy court protection. It ended up closing 230 stores in its Chapter 11 case. Although it emerged from bankruptcy in January last year and got $10 million this summer to stabilize its finances, the company may not not be able to fend off the fallout from inflation.
The company managed to narrow its third-quarter net loss to $18.2 million from a net loss of $37.1 million a year ago, and posted a 4.1% revenue gain to 159 .6 million. It expects markdowns in the fourth quarter to result in an EBITDA loss of $26 million to $29 million.
Even more troubling is an update from July 29 indicating that Tuesday Morning expects an 8% year-over-year drop in comparable sales in the fourth quarter. This is a steeper decline than the expected 3-5% decline.
The homeware discounter sells homewares including textiles and furniture, bath and body, housewares, gourmet foods, toys, crafts and seasonal decorations .
Supply chain dislocation appears to be hitting the household goods sector the hardest. Last month, Altmeyer Home Stores filed for bankruptcy and went into liquidation after 81 years in business. A court document said the company does not expect to have any funds left over to repay unsecured creditors after administrative fees are paid.
Home retailers not only have to split large shipments into smaller lots for multiple stores, but they also have to absorb the higher freight costs associated with shipping bulky furniture. This is in addition to shipping delays and long transit times.
These problems are compounded by a slowdown in foot traffic as consumers cope with inflation by making fewer non-essential purchases. Data from Cowen & Co. indicates that foot traffic began to decline in May. Last month’s high temperatures also failed to encourage consumers to leave their homes and hit the stores.
The downturn has some retail analysts questioning the financial outlook for off-price chains.
Wells Fargo analyst Ike Boruchow on Wednesday lowered his second-quarter off-price estimates for Burlington, Ross Stores and TJX, which include an 8% lower estimate for its HomeGoods division from its previous lower projection of 3%. Boruchow also noted a drop in foot traffic trends that emerged in May.
And Jay Sole, analyst at UBS retail and softlines, said on Wednesday that sales of the Big Three began to slow in the second quarter, as high inventories contributed to unexpected pressure on their gross margins. Sole said their inventory levels “will stay high through September” in part because they don’t have the pricing power they thought they had and are selling mostly casual items instead of dressier styles than the customers want now.
“Off-price retailers likely still have too much inventory coming out of July. July is a month when off-price retailers typically clear excess merchandise. However, we don’t believe off-price retailers have been able to eliminate all of their excess merchandise by the end of the month,” Sole said. “This means higher than normal clearance inventory levels will likely continue into the third quarter and we believe this will put greater than expected pressure on off-price retailers’ gross margin in the third quarter.”
Additional reporting by Jessica Binns.