Executives
Lorie Pete - Lorie Pete and Associates
Kathleen Mason - President and Chief Executive Officer
Stephanie Bowman - Executive Vice President and Chief Financial Officer
Michael Marchetti - Executive Vice President and Chief Operating Officer
Analysts
David Weiner - Deutsche Bank Securities
Tuesday Morning Corp. (TUES) F2Q09 (Qtr End 12/31/08) Earnings Call January 27, 2009 10:00 AM ET
Operator
Good morning, ladies and gentlemen. This is Tuesday Morning Corporation's Second Quarter Fiscal Year 2009 Earnings Conference Call. Today's call is being recorded. (Operator Instructions).
At this time for opening remarks, I'd like to turn the conference over to Lorie Pete with Lorie Pete and Associates. Please go ahead, Lorie.
Lorie Pete
Thank you for joining us. I'd like to welcome you all to the Tuesday Morning Corporation's second quarter fiscal year 2009 conference call. Today you will hear from Tuesday Morning President and Chief Executive Officer, Kathleen Mason; Executive Vice President and Chief Operating Officer, Mike Marchetti; and Executive Vice President and Chief Financial Officer, Stephanie Bowman.
We are here to discuss the company's second quarter results which were reported this morning. If you have not yet received a copy of today's release please call Lorie Pete and Associates at 214-871-8787. This morning's call will begin with formal remarks by management. When they have concluded a question-and-answer period will follow. The operator will instruct you on procedure at that time.
I'd also like to remind participants that remarks made by management during the course of this call may contain certain forward-looking statements within the meaning of the Federal Securities laws and the Private Securities Litigation Reform Act of 1995 which are based on management's current expectations, estimates, and projections. Words such as: expect, anticipate, intend, plan, believe, estimate and variations of such words and similar expressions are intended to identify such forward-looking statements.
Forward-looking statements are subject to risk and uncertainties which could cause actual results to differ materially from those projected or implied in the forward-looking statements. Such risk and uncertainties include the success of new store openings, competitive factors, access to merchandise and unanticipated changes in consumer demand and economic trends, as well as other risk detailed in the company's filings with the Securities and Exchange Commission including form 8-K, 10-Q, 10-K and 10-KT.
We will start with Kathleen Mason's overall comments on the quarter and year-to-date results. Then move to Stephanie Bowman for financial details, and finally we'll open the call for your questions. Mike Marchetti will answer operational questions. Kathleen, please begin.
Kathleen Mason
Thank you for joining us today. As reported this morning, net sales for the second quarter ended December 31, 2008 were $272.7 million as compared to $308.7 million for the quarter ended December 31, 2007, a decrease of 11.7 % or $36 million.
Comparable store sales for the quarter decreased 14.9%. Net income for the second quarter of fiscal 2009 was $12.7 million or $0.31 per diluted share compared to net income of $20.5 million or $0.50 for the same quarter in 2008.
With the six months ended December 31, 2008, net sales were $446.1 million versus $510.3 million for the same period ended December 31, 2007, a decrease of 12.6%.
Comparable store sales decreased by 15.8% during the six months period ended December 31, 2008 compared to the same period last year. Decreases in traffic of 11.4%, and average ticket of 4.4% comprised the comparable store sales decline.
For the six months period ended December 31, 2008, net income was $8.4 million or $0.20 per diluted share compared with net income of $21.7 million or $0.52 per diluted share for the period ended December 31, 2007.
The impact of lower sales for the second quarter was partially offset by reductions in SG&A cost of 4.4% on a per store basis.
For the six months period, SG&A cost were reduced by 4.8% on a per store basis. It is well documented that this is one of the worst economic environment that we have seen in decades. The downturn in the home furnishing sector, as a result of the housing and credit crisis, has impacted our results in particular.
The shorter holiday selling season, a highly promotional liquidation environment and the weakest consumer confident reports on record produced less traffic and lower average baskets than in previous seasons.
Our customer has drastically reduced discretionary spending. The regions with the largest decline continue to be the areas most affected by housing such as Florida, California, Nevada and Arizona.
In December, we secured a new credit facility which provides us with greater flexibility than our previous facility.
We believe the new facility represents a significant advantage in this challenging retail environment and should give greater confidence to our shareholders and vendor partners that we are well positioned to weather the current economic storm.
We are focused on generating positive cash flow, managing inventories and maintaining our strong balance sheet. We ended the second quarter with inventory of $260.9 million compared to inventory of $259.3 million at December 31, 2007 which was a 3.3% decrease on a per store basis. Markdowns were taken to address aged and slow moving inventory.
We operated 860 stores in 45 states as of December 31, 2008. During the second quarter of fiscal year 2009, we opened nine stores, relocated six stores and expanded one store. We do not expect to add additional stores or square footage for the balance of fiscal 2009, which ends on June 30, 2009.
We believe relocating and expanding stores in our existing store base will improve the overall portfolio and performance of our store. The flexibility in our execution will better position us for the long-term while maintaining a low cost per square foot and rent expense.
I'll now turn the call over to Stephanie, who will discuss our financial results in more detail.
Stephanie Bowman
Thank you Kathleen, and good morning everyone. This morning, I will discuss the financial results for the second quarter of fiscal 2009.
Net sales for the second quarter of fiscal 2009 were $272.7 million compared to $308.7 million for the quarter ended December 31, 2007, a decline of 11.7%.
A drop in comparable store sales of 14.9% offset by sales of non-comparable stores was the reason for the variance. Comparable store sales were comprised of decreases in traffic of 9.6% and average ticket of 5.3%.
Gross Profit for the second quarter was $100.9 million and gross margin was 37.1% compared to a gross profit of $114.9 million and a gross margin of 37.2% for the same period in 2007.
The primary reasons for the drop in gross margins percentage were a slight increase in capitalized inventory cost as a percent of sales, partially offset by slight declines in shrink, merchandise cost and markdowns.
SG&A expense for the quarter was $80.3 million or 29.5% of sales versus $80.7 million or 26.1% of sales last year.
We were able to lower cost on a per store basis by 4.4%. Our operating income for the quarter was $20.6 million compared to operating income of $34.2 million in the prior year with operating margins of 7.6% for 2008 and 11.1% for 2007.
Net interest expense decreased to $0.5 million, due to lower average daily borrowings under our revolving credit facility in 2008 versus 2007. At December 31, 2008 borrowings were lower by $5 million versus 2007.
Net income for the second quarter ended December 31, 2008 was $12.7 million or $0.31 per diluted share compared to net income of $20.5 million or $0.50 per diluted share last year.
For the six months ended December 31, 2008, net sales were $446.1 million compared to $510.3 million for the period ended December 31, 2007, a decrease of 12.6%. A drop in the comparable store sales of 15.8% offset by sales of non-comparable stores was the reason for the variance.
Comparable store sales were comprised of decreases in traffic of 11.4% and average ticket of 4.4%.
Gross profit for the six month period was $165.1 million and gross margin was 37% compared to a gross profit of $190.6 million and a gross margin of 37.3% for the same period in 2007.
The primary reasons for the drop in gross margin percentage was a slight increase in capitalized inventory cost as a percent of sales.
SG&A expense for the six months was $151.2 million or 33.9% of sales versus $153.2 million or 30% of sales last year. We were able to lower cost on a per store basis by 4.8% for the six month period.
Our operating income for the quarter was $13.8 million compared to operating income of $37.4 million in the prior year with operating margins of 3.1% for 2008 and 7.3% for 2007.
Net interest expense decreased to $0.9 million due to lower average sale in borrowings under our revolving credit facility, during the six month in 2008 versus 2007. At December 31, 2008, borrowings were lower by $5 million versus 2007.
Net income for the six months ended December 31, 2008 was $8.4 million or $0.20 per diluted share compared to net income of $21.7 million or $0.52 per diluted share last year.
Inventory as of December 31, 2008 was $260.9 million versus $259.3 million at December 31, 2007. Our inventory levels per store decreased 3.3% year-over-year. We had $2 million outstanding under the revolving credit facility versus $7 million at December 31, 2007. At December 31, 2008 we had outstanding letters of credit of $12.8 million primarily for insurance program.
We are in compliance with all debt covenants at December 31, 2008. Our accounts payable balance at December 31, 2008 increased to $73.3 million from $59.6 million at December 31, 2007, primarily a result of the timing of inventory purchases.
We invested $3.4 million for the quarter and $7 million for the six month period in capital expenditure.
For the fiscal year ending June 30, 2009, our guidance remains, net sales in the range of $800 million to $810 million. Comparable stores sales in the low negative double-digits, diluted earnings per share in the range of zero to $0.05 and capital expenditures are projected to be approximately $10 million.
At this point, I'll turn the call back over to you, Kathleen.
Kathleen Mason
Thank you, Stephanie. We reaffirm our commitment to generating positive cash flow, maintaining our strong balance sheet and to match expenses and inventories with revenues. We firmly believe that our strong balance sheet, flexible format and ability to generate those positive cash flows will place us in a position to weather the current economic environment.
And now, I'd like to open the call for questions.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions).
Kathleen Mason
We have no questions. Thank you.
Operator
Your first question comes from the line of Dave Weiner with Deutsche Bank. Please proceed.
David Weiner - Deutsche Bank Securities
Great. Good morning, everyone. Happy New Year. So, two quick questions, the first for Michael. Last quarter, I think you said that the inventory per store plan for fiscal year end was going to be flat year-over-year. Could you kind of update us on what that's going to be?
Michael Marchetti
We will be still projecting it to be flat.
David Weiner - Deutsche Bank Securities
Still flat. Okay. And on your SG&A per store that continues to come down nicely year-over-year. In terms of a percentage of run rate, do you vision that the back half of the year inline with what you've done in first half?
Michael Marchetti
Yes.
David Weiner - Deutsche Bank Securities
Okay, that's it. Thanks.
Operator
At this time, there are no additional questions.
Kathleen Mason
Thank you all for joining us.
Operator
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Thank you and have a good day.
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