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Tuesday Morning Corp. (NASDAQ:TUES)

Q3 2014 Results Earnings Conference Call

May 08, 2014, 04:30 PM ET

Executives

Jonathan Morgan - Perry Street Communications

Jeff Boyer - CFO

R. Michael Rouleau - CEO

Analysts

Mark Montagna - Avondale Partners

Seth Sigman - Credit Suisse

David Mann - Johnson Rice

Aram Rubinson - Wolfe Research

Justin Ruiss - Sidoti

Operator

Good day, ladies and gentlemen, and welcome to the Tuesday Morning Corporation Third Quarter 2014 Results Conference Call.

At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded.

I would now like to introduce your host for today’s conference, Jonathan Morgan. Please go ahead.

Jonathan Morgan

Thank you, Charlotte, and good afternoon, everyone. I’d like to welcome you all to the Tuesday Morning Corporation’s fiscal third quarter 2014 earnings conference call. On today’s call are Michael Rouleau, Chief Executive Officer; and Jeff Boyer, Executive Vice President, Chief Administrative Officer and Chief Financial Officer.

If you’ve not yet received a copy of today’s earnings release, you may obtain one by visiting the Investor Relations section of Tuesday Morning website at www.tuesdaymorning.com.

Before we begin today’s discussion, I would like to make you all aware that some of the information presented today may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those implied in the forward-looking statements. Information regarding the company’s risk factors was included in our press release and is also included in the company’s filings with the SEC. Reconciliation information related to non-GAAP financial measures discussed on this call may be found in the company’s third quarter earnings release and on the company’s website under Investor Information.

We'll start with a few opening comments from Michael Rouleau, and Jeff Boyer will give the financial review of the quarter. Michael will then follow-up with the company's progress in the quarter and the plans for the remainder of the year. At the close, we’ll open up the call for your questions. Michael?

R. Michael Rouleau

Thank you, Jonathan. Good afternoon, everyone and thanks for joining us on our call today. Before Jeff provides financial review, on our last call, I told you that there are three key measures that I believe tell a story of our continued progress here at Tuesday Morning. There are quarterly comp store sales results, our inventory turnover and current condition of our inventory and then our overall financial conditions.

First, our comp store sales were up 6.4% and held up well in a weather-affected quarter. If you exclude the non-core categories we exited and I think this is a very important note, our going forward core categories drove a comp sales increase of 10.5%.

Second, our inventory turnover continues to improve. On a trailing five quarter basis, our turnover has climbed to 2.5 times versus 2.2 times last year at this time, almost a 15% improvement and at the end of March, our inventory was much fresher and more current. The average age of our store inventory has declined to under 3.8 months from about 4.5 months last year at this time.

And third, our cash position at the end of Q3 was $42 million versus $35 million at the same time last year with no debt and no use of our revolver during the quarter and currently as of the end of April, our cash balance is over $20 million higher than this time last year.

Overall, I would have to say I'm very, very pleased with all of the rebuilding work we have done and our progress, our company turnaround, especially our performance trend on these three key measures, comp store sales, inventory and our cash position.

I'll be back in a few minutes to provide more specifics on this quarter's accomplishments and our plans for the remainder of the year.

Now, let me turn the call over to Jeff.

Jeff Boyer

Thanks, Michael, and good afternoon, everybody. Earlier today, the company reported net sales for the third quarter ended March 31, 2014, of $182.8 million, a 2.6% increase from $178.1 million for the same period last year. Year-to-date, net sales totaled $652.2 million, an increase of 2.5% from $636.2 million for the same period last year.

Comparable store sales for the third quarter increased 6.4% and were comprised of an increase in customer transactions of 8.4% offset by a decrease in average ticket of 1.9%. As part of the company's turnaround strategy, the company determined that certain categories were non-core such as women's apparel and footwear and decided to significantly downsize or exit those businesses.

As Michael mentioned, our total comparable store sales growth was affected by the category exit as well as by the higher level of promotional intensity last year. It's important to note that our ongoing core categories performed well -- very well, despite these challenges and were up approximately 10.5% on a comparable store basis in the quarter.

Total comparable store sales for the year-to-date period ended March 31, 2014, increased 5.7% comprised of an increase in customer transactions of 9.4%, offset by a decrease in average ticket of 3.4%.

Including business turnaround related charges the company reported a net loss for the third quarter of $8.4 million or $0.20 per share. And a net loss of $2.8 million or $0.06 per share for the nine months ended March 31, 2014. This compares to a net loss of $12.4 million or $0.29 per share in the same period last year for the quarter. And a net loss, a $40.8 million or $0.97 per share for the nine months ended March 31, 2013.

The company's fiscal 2014 third quarter results include $2.2 million in expenses for turnaround related SG&A items. These items include the settlement of the former CEO litigation as well as severance and compensation expenses related to management changes.

Excluding these turnaround charges, non-GAAP net loss for the third quarter was $5.7 million or $0.13 per share, compared to non-GAAP net loss for the third quarter a year ago of $4.8 million or $0.11 per share. For the year-to-date period ended March 31, 2014, non-GAAP net income was $3.7 million or $0.09 per share compared to non-GAAP net income of $4.6 million or $0.11 per share.

In today's press release, we've included tables that reconcile GAAP to non-GAAP, operating income and loss to net income and net loss and net income and net loss per share for the third quarter of fiscal years 2014 and 2013 and the nine months ended March 31, 2014 and March 31, 2013.

We believe these non-GAAP financial measures provide a more informative comparison of the underlying operating results for the company. Additional details concerning these charges are included in our 10-Q.

Gross margin for the third quarter was 37.3% of sales, compared to last year's third quarter gross margin rate of 37.2%. Year-over-year improvement in gross margin rate was primarily driven by efficiencies in our buying, freight and distribution center expenses.

Third quarter SG&A expenses decreased 2.8% to $75.7 million, compared to $77.9 million for the third quarter last year. As a percent of net sales, SG&A was 41.4% of sales versus 43.7% in the same period last year. Excluding business turnaround charges from the comparable periods, SG&A was 40.2% of sales compared to 41% in the same period last year.

SG&A expenses benefited from solid cost management and a favorable settlement of our California employment class action suit, partly offset by higher utility and general liability costs.

Our operating loss for the third quarter of fiscal 2014 was $7.6 million compared to an operating loss of 11.7 in the third quarter of fiscal 2013. Excluding business turnaround charges, our adjusted operating loss on a non-GAAP basis decreased from $6.9 million in the prior year third quarter to $5.4 million for the third quarter ended March 31, 2014.

Due to the accounting for our deferred tax valuation allowance, minimal benefit has been incurred on pretax loss for the third quarter. Minimal tax expense will be recorded on an operating profit until the deferred tax valuation allowance has been fully utilized.

In the third quarter of fiscal 2014, our federal income tax benefit was largely offset by a corresponding increase in our deferred tax valuation allowance. As of March 31, 2014, our deferred tax valuation allowance was $18.9 million.

Moving to the balance sheet, we ended the quarter with inventory down $31.1 million or 13% to $205.8 million from $236.9 million a year ago. On a per store basis, inventory decreased 11.2% from the same period last year. With our merchandising strategy focus on broader assortments and shale wear purchases, we expect total inventories to be below last year for the balance of this fiscal year.

Note that our inventory on a unit basis is 19% below last year, but our inventory has a higher value per unit. Our inventory turnover for the trailing five quarters is 2.5 turns and compares favorably to our prior year trailing five quarter turnover of 2.2 turns.

As Michael mentioned, the quality of our inventory has improved considerably and the average age of our current store level inventory is now below four months. We continue to benefit from our strong balance sheet. Cash and cash equivalents were $41.6 million at March 31, 2014, with no cash borrowings outstanding under the line of credit and availability on net line of credit of $99.2 million compared to a cash and cash equivalent position of $34.5 million at the end of the third quarter last year. Currently, as Michael mentioned, as of the end of April, our cash balance is over $20 million higher than the same time last year.

During the third quarter, we invested $2 million in capital expenditures, primarily for store systems such as our new POS registers, store relocations, and capital improvements at existing stores.

During the third quarter of fiscal 2014, we opened four new stores, closed 12 and relocated five ending with a store count of 811. During fiscal year 2014, we have opened six new stores, closed 23 and relocated eight stores. We continue to be very pleased with our new and relocated store performance.

Our new stores are exceeding their pro forma plans and our 23 stores relocated since January 1, 2013, continue to deliver a 40% to 50% sales increase versus the same period last year. In the fourth quarter, we expect to open three stores, close three stores, expand one and relocate six.

Now, I will turn the call back over to Michael. Michael?

R. Michael Rouleau

Thank you, Jeff. On our last call, I spent a few minutes describing what I would call the three phases of our turnaround. If you remember, phase one, which just started last summer, we cleaned up the very poor condition of our stores at our warehouses while establishing both a company direction and merchandising direction.

Then phase two, which started in October where we very quickly changed focus and spent our efforts preparing for Christmas. And where we did our very best in a very short period of time, the result actually turned out pretty darn good. We delivered solid results.

Then phase three, which we're in now, is what we call the final phase of the turnaround, which we expect to complete by about September 1st of this year, and while the final phase may not be perfect, we will be positioned to start producing consistent sales and profit increases versus the prior year.

This final phase consists of seven initiatives, which we communicated to you on the last call but I want to describe the seven initiatives to you once again and update you as to our current progress.

If you remember, the first phase is the continued implementation of our updated merchandise strategy, which calls for broad and shallower purchases of branded, better best quality merchandise. We continue to make great progress on this initiative. You can see it in our stores. Fresh merchandise arriving every day.

In fact, now that we have a good feel for where additional merchandise opportunities are, we have split up a few of our merchandise categories and added two more experienced buyers. This expansion in our buying team will help us capitalize on our undeveloped categories.

Additionally, about two weeks ago, we hired Melissa Phillips to the team as EVP and General Merchandise Manager, and I'm extremely excited to have Melissa here at Tuesday Morning. She brings excellent home and home-related buying experience, great vendor relationships and outstanding leadership skills to our team here at Tuesday Morning. And I'm confident that she will make many contributions here as we continue to refine and execute our merchandising strategies.

The second initiate is the successful transition of our stores from the merchandise we are exiting to the merchandise that will take its place. By late August, we will be out of all, the discontinued apparel merchandise and most of the replacement merchandise will be in our stores. Our sell-through of our discontinued merchandise has gone very well. We expect to be fully out of it by mid August.

Although I'm certain many of you are interested in our replacement or expansion categories for competitive reasons, I'm not going to mention what they are but you'll see them in our stores in August.

Third, is the further reduction of our clearance merchandise. In the future, our new merchandise direction of broad and shallower purchases will significantly reduce the amount of clearance merchandise we have in our stores. However, we are going to need more store space for our expanded categories. So this quarter, we are going to put forth great effort on reducing our liability on our clearance merchandise with some additional clearance efforts plan.

We need expansion space and we got to get this clear effort behind us. Our goal is to have clearance inventory at a normal range of 5% to 10% of our total inventory going into the fall season.

Fourth is the implementation of a disciplined, seasonal buying process. In the past, we really had nothing working for us in the important seasonal area. We just didn't understand how to do it. Merchandise showed up early. Merchandise showed up late or never. Caused very heavy markdowns and frankly we lost our shirt. We now have all of this organized going into fall and Christmas and you'll see a big improvement in our seasonal store sets this fall and we're also experiencing – really expecting a nice improvement in profitability also.

Fifth is the refinement of our real estate strategy and direction. You all know we have too many non-optimal store sites, 40% to 50% of our store locations could be vastly improved.

Improved store locations will bring strong store sales increases. In late February, we added Doug Sullivan as our new Senior VP of Real Estate. Doug was a former Head of Real Estate for a number of years at Michael's including my 10 year run there. Doug knows the drill well. Michael's stores was fundamentally a roll-up of many local and regional arts and crafts chains built through acquisition.

As a result, we had a very similar challenge, a very diverse group of store sizes and locations. Doug has been here very short period of time but already he has replaced the master corporate structure we had in place. Reconstructed real estate department and staffed his team.

His team is focused on billing pro-active, strategic real estate development plans for each one of our markets. We have also modified our approach on site selection and we have stepped up the pace in terms of both closing substandard locations and aggressively looking for new relocation opportunities.

Our new stores will have standardized floor plans and serve a more consistent demographic group. In the past, we were trying to serve too many different demographic groups through stores with widely varying, floor plans that were placed in opportunistic locations but not consistent demographic groups.

As we have said in the past, one of the biggest opportunities is relocating the stores we have. So, our focus in the near term will be on fixing our store fleet through store relocations and not necessarily adding new stores.

Sixth, is continued efficiency and effectiveness of our supply chain. We define supply chain as the process from the time the vendor ships the merchandise until it is sold to our customer.

The supply chain process includes the distribution center, our transportation group and also includes the planning and allocation team who ensures the right product gets to the right store at the right time. And I'm happy to say we have built a strong seasonal planning and allocation team and they're fully in place and performing very well.

In addition, we've added experienced leadership to our transportation department, and we have a very strong team running our distribution network. Altogether, the supply chain team is making significant improvements in supply chain operations every day.

As you may remember, we had a national consulting firm in here in the first part of this fiscal year to take a look at what we had to work with and our supply operation and help us develop a long-term plan. They gave us an assessment, a long-term direction that we're comfortable with and support of our long-term distribution center vision, we have recently implemented a regional cross dock operation in our Florida market with great success.

So for the next year or so, we will be focused on getting more out of the current supply chain operations, including expanding the successful Florida cross dock program. We feel we have a very good handle on our future supply chain direction, but in the next several months, we are mostly focused on the completion of the turnaround and just getting operationally better every day.

And seventh is the transition from multi-page circulars to much smaller impactful four-page circulars. We're learning to do more with less. Four page circular is properly executed will allow us to make a much better presentation, execute better, increase sales and significantly reduce our exposure to future clearance markdowns. During the third quarter, we successfully transitioned all our circulars to the cleaner, more impactful and more effective vehicle.

One item that I wanted to mention because it’s not on our list of seven key initiatives is our system. And it’s not on the list for a reason. Except our old cash registers which were replaced with new registers in all stores, last October the systems we currently have in place are adequate.

However, we do need to utilize them better and need some minor enhancements to improve their effectiveness. We have recently hired a new Senior VP of I.T., Mike Jones who also worked with us during our reconstruction of Michael's. He has the experience and he also knows the turnaround drill.

He's getting the lay of the land and as a result of extensive management input combined with his prior experience, he will be presenting to our team his prioritized list of 2015 projects. For the short term, we do not expect any major capital expenditures for systems. Just utilizing the capabilities of the system we now have while making some small investments to fully power up our existing critical applications.

Longer term, we are committed to billing a more robust system platform that when combined with solid company discipline, will really allow great productivity to happen here at Tuesday Morning.

Now I want to talk about a near-term outlook. As I have said in the past, our major focus has been on September 1, 2014. The next four out of five months leading up to that date will be spent on making the final conversion from the old to the new, selling off the remaining discontinued merchandise while bringing in the replacement merchandise and then aggressive selling off more of our clearance – more of the clearance merchandise that we have now and then making some very minor modifications to our store layouts and then getting ready for the fall and Christmas season.

This effort is going to be very, very taxing on our team. And will take the full focus of the entire company and I'm sure we're going to have a few lumps and bumps this quarter as we move through the final phase of the turnaround. It is a great undertaking. As I have said in the past, our focus is and has been on September 1, 2014, when we expect to be in a position to enjoy the start of consistent sales and profit increases.

Now, what do we want you to take away from this call? Number one, the continued recognition that Tuesday Morning has a great name to build on. Second, we're in the sweet spot of retail off-price. Third, this company is very underdeveloped, and when fixed, has great sales and profit potential.

Fourth, we now have a very, very experienced turnaround management team in place that has done this before. We waste little time trying to figure out what needs to be done as we know what to do. We've been through this before and that's why we can move through this so quickly.

Five, we have made great, great progress in a very short period of time. You can see it for yourself in our stores, especially in the numbers, sales, inventory and our cash position. Sixth, we are right on schedule with the implementation of the aggressive plan we put in place and told you about nine months ago. Seven, we expect to complete phase three, the final phase of our turnarounds by September 1st of this year.

Eighth, our financial performance is, this upcoming quarter could be affected by the final cleanup associated with the completion of phase three. However, we've got to get all of this behind us. September 1st is what all of our efforts have been focused on

And lastly, we are building this company to last. Not looking for grand slam, just a lot of singles and maybe a double now and then.

What can you expect starting in September? Stores looking even better, expanded categories in place, replacing the exiting clothing business. Lots of fresh, timely merchandise, great-looking, relocated stores, great merchandise values, great company morale both in the stores, distribution centers and here in our home office a lot of energy throughout the company, more traffic in our stores and all this positioning us for consistent sales and profit results.

Thanks for joining us today. We will now take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question will be coming from the line of Mark Montagna from Avondale Partners. Your line is open.

Mark Montagna - Avondale Partners

Hi, thank you. Have a few questions. Really, first I want to focus on the balance sheet. I am just wondering are you guys expected to be working capital positive for 2014, and can you possibly comment on your expectations for fiscal year 2015 on that?

And then inventory per store, should that decline further by the end of this fourth quarter, and then can you give us any projections on year end in cash and Cap Ex?

Jeff Boyer

On the working capital question for this year, I think our explanation was we expected inventory levels to be relatively constant or down from where they were last year. With that, with the sale, purchase that we have and the payables leverage, we do think we'll generate some working capital favorability, Mark and we don't give a pure forecast for guidance out there.

So just expect that we'll continue to have sales turnover – inventory turnover to pick up with leverage against that and get some modest working capital advantages and benefits in the fourth quarter.

Mark Montagna - Avondale Partners

Okay. So then inventory, you guys said that per store was down about 11% in the third quarter. Should we expect it down roughly the same in the fourth quarter?

R. Michael Rouleau

Probably a rough number is probably pretty good, Mark. 10%-ish per store.

Mark Montagna - Avondale Partners

Okay. And then just hoping you could talk about further, a little bit more in your supply chain efforts. I am trying to understand potentially the future of your distribution centers. We all know you have some real estate down in Dallas. Is there a plan that you have got going forward that you perhaps are working on for moving DCs to other parts of the country and what kind of timing could that be?

R. Michael Rouleau

I don't really -- we got a study from a consulting group here. We're implementing small pieces of it now. We really have been focused on the turnaround. The facilities we have now serve us well, but we're going to start shifting very soon now into really laying out what the future looks like. So, we're not really in a position to talk about it today. What we have today works fine.

Mark Montagna - Avondale Partners

Okay. Thank you.

Operator

Thank you. Our next question will be coming from the line of Seth Sigman from Credit Suisse. Your line is open.

Seth Sigman - Credit Suisse

Okay. Great. Thank you and congrats on the progress that you guys are making. Just a couple of questions on the exited categories. The drag this quarter, I think you said 400 basis points or so. How do you think about that in Q4, and at what point do you start to anniversary that so I guess it is a cleaner number?

R. Michael Rouleau

Yeah, actually for the fourth quarter, that drag should contract. It shouldn't be nearly as high as 400 basis points; rough estimate, Seth, probably about 200 basis points. So, that will be truly -- truly we'll probably get out as we cycle into the first quarter of next year.

Seth Sigman - Credit Suisse

Okay. And then just -- as it relates to the core business, if you could maybe just elaborate on the 8.4% transaction improvement, any areas you would call out as outperforming? Any categories that still need a little bit of love? Any color there would be helpful.

R. Michael Rouleau

In the past, we have shared with you some of the categories that have performed well and consistently as kind of our core categories continue to do well, our home décor business, our furniture business, our rugs business, gifts, textiles. Those kind of core what Tuesday Morning is known for continue to drive a lot of our business. So, that's where the transactions are coming from a lot, Seth.

Seth Sigman - Credit Suisse

Okay. And maybe if you could just talk about the quality of the inventory, given the improvement and results that you're seeing, are you getting access to maybe brands that you didn't get in the past?

R. Michael Rouleau

We really are -- I just -- I don't want to talk too much about them, but we're certainly much more aggressive in going out and talking with people about them selling us. But I just don't want to talk about it on the call.

Seth Sigman - Credit Suisse

Okay. Understood. But it sounds like you're making progress on that front.

R. Michael Rouleau

Yeah, we absolutely are. And Melissa just joined the company, has a lot of contacts, too so we're using her. And -- I mean we have a lot cooking here.

When I first got here, our buyers were -- spent most of the time in the office for different reasons. They weren't traveling much. And I was upstairs again today looking for everyone and the office has been empty for weeks because everyone's out finding merchandise and lining up suppliers, etcetera. So, I think we're making tremendous progress.

Seth Sigman - Credit Suisse

Okay. One last one and I'll hop off. But given the progress you're making in some of your commentary, I mean are you seeing any competitive responses to the progress you're making and the traction that you're getting with your customer?

R. Michael Rouleau

I think my buyers are telling me at the show they're getting a little bit more recognized by suppliers, for sure, because they've been in our stores and see good work that we've done there. And I would say that maybe some buyers from some other companies are talking to our people now in a more friendly tone than they did in the past. So I think we're feeling a little bit, but beyond that, not much.

Seth Sigman - Credit Suisse

All right. Thanks. Good luck, guys.

R. Michael Rouleau

Thanks, Seth.

Operator

Thank you. Our next question will be coming from the line of David Mann from Johnson Rice. Your line is open.

David Mann - Johnson Rice

Yes, thank you, and congratulations, as well, on the progress. First question on gross margin, and I think compared to your comments in the last call the margin was better than expected. So can you talk about the ability to sustain that? What kind of pressure you're seeing in terms of the IMU? And how much should we expect in terms of markdowns in the fourth quarter as you clear inventory? What kind of level should we expect there?

R. Michael Rouleau

It was a quarter where we performed better on gross margin and really all elements of kind of what go in a gross margin rates were favorable for us. Actually our IMU, while still down year-over-year, because we made some price adjustments on it, not down as much. We're making ground on that from a comparability standpoint.

Our markdown numbers still unfavorable to last year because of comparability we had in last year's market numbers but we did better on that. It really goes to the fact that we have better inventory turnover and cleaner merchandise, so we have less clearance markdowns coming through. But the big opportunity that we had or the big benefit that went through in the third quarter was actually our buying, distribution and freight costs were very, very favorable and came through in the third quarter.

Probably that was more of a pleasant surprise than the other one to be honest with you, David. They will continue to come through, maybe not at the same rate. We kind of overachieved in this particular quarter, but anticipate still good performance on all of those metrics in the fourth quarter. The 37% number we did this quarter though probably isn't something that you should take to the bank in the fourth quarter.

David Mann - Johnson Rice

And in terms of when we make that trip to the bank, what kind of level -- I mean you're around 35 for the year. That's what you were in the first half. Should we still think about that or lower than that because of the markdowns?

Jeff Boyer

Probably it is a good point, to your point is given the fact that we'll be focused on September 1st, we're anticipating being a little bit more aggressive on markdowns in the fourth quarter to be really clean on inventory. So 35% number, we've talked about in the past is a target number.

Overachieve this quarter, probably be a little bit under that number in the fourth quarter. For the year, still end up in the 35% range on it. Give us a really nice platform this year to jump off for growth in 2015.

David Mann - Johnson Rice

Okay. And then in terms of your real estate plans, it sounds like you're pulling back a little bit from new stores to focus on relocation. Can you just give us a road map of at least year end and next year how we should think about those two buckets?

Jeff Boyer

From a store count standpoint, we'll probably end up right about where we're at now in 810 to 812 range. For next year, we think there's still the potential to have a few more closures than we have openings on it as we continue to clean up some of our real estate issues and assets out there.

So we could be in the high 700s, low 800s. So we could be down another 10, 15 stores net from this year where we're at the end of the year and call it 8, 10 or so – in the high 790s or 800 or so.

David Mann - Johnson Rice

And then just – talk about relocations, any chance to ramp that up? I think you've talked about a 20, 40, 60 cadence. Is that still the case?

R. Michael Rouleau

We'll get done roughly I think 14 or 15 relocations this year fiscal 2014. The goal next year is to roughly double that. Take that from a 14, 15 number to a 30 or so number. So looking at being able to accelerate that. Doug and team are just really getting up to speed so it takes time to build the pipeline. I think you see the real benefit out there a year to 18 months is when the new stores and the relocations – the pipeline will be fuller at that point in time.

David Mann - Johnson Rice

Okay. And just one last question just to clarify on the performance for relocations, you're talking 40 to 50. I thought last quarter you talked about in excess of 50%. Any material difference in terms of what you're seeing in the relocation performance or can you just clarify that?

Jeff Boyer

Not really. I would say that's fairly consistent. We sometimes are slightly above 50. Sometimes we average around 45%. So we're kind of averaging in that, nicely above 40% and sometimes give a good week or a good month, we're north of 50% on the sales increase.

R. Michael Rouleau

The thing you got to remember here is the fact these relocations, we're not putting in clearance merchandise, clothing and the apparel, et cetera, right. And we don't really have the new assortment in there yet. So we're putting in five or six or seven categories that we are going to be expanding and that merchandise is just barely starting to get in our stores now. So we're running those numbers without the replacement goods in there. So that's why we're more optimistic than just that number.

David Mann - Johnson Rice

That's great. The stores look great Michael. Thank you.

R. Michael Rouleau

Good. Thanks, David.

Operator

Thank you. Our next question will be coming from Aram Rubinson from Wolfe Research. Your line is open.

Aram Rubinson - Wolfe Research

Hey, guys. Thanks for taking my question. Few things for you. One on the inventory. It seems like the price per unit is up while your average ticket in the register is down. Should we expect that your ticket can inflect as a result of that? I'm just trying to make sure I understand why the difference between the ticket – the POS?

R. Michael Rouleau

Part of the average ticket comparison year-over-year was last year we were in the final clearance elements of a big markdown and write-down in December 2012. So as in inventory with a lot of D valued – lots of units but lots of D valued units. So that will cycle through and be gone shortly.

We're seeing in general, Aram, general contraction in that differential. Average ticket has been down as much as 3.5%, 4%. It started to come down to be 1.5%, 2%. And in point in time we think that will cycle and be less than a drag and some of the transaction strength will come through as the average ticket discrepancy or difference moderates.

Aram Rubinson - Wolfe Research

Okay. And then I'm hoping you can give us a for instance. Because it sounds like its transitioning better into seasonal. And you talked about how that's a key pillar for you guys to improve upon. Can you give us a sense of how Easter went going in and out, there were some weather complications with it. But just wondering if you can give us a little story around how Easter looked?

R. Michael Rouleau

Well, you know, I'll give you the story, really. The Easter, we shifted to the stores in one shot this year. Never really happens to this company ever before. And so we shifted there on time. This was really but almost before I got here but we did a pretty good job on the buying. We got it in. We tracked it. We got it in the stores in one shot and we have a tracker now. And I think the sell-through at full price was something about 89% because we bought last -- because in the past, we just haven't had good buying plans.

So, we're cleaning it up now. It's probably all gone this week and it's over and now we're on to the next season. So, while it was a small category, we were kind of rehearsing for the bigger categories, the Halloween, the Christmas, the fall, etcetera. So, we had a real good start on that. Stores were excited and we had a good sell-through.

Aram Rubinson - Wolfe Research

Okay. And you mentioned the cash balance in April was up 20 million from prior year. Can you give us a sense in terms of how the business trended toward that period of time? Is that because of the business trends improved through April?

Jeff Boyer

Probably the primary driver for the cash balance and if you take a closer look at the balance sheet, the A.P. balance last year at the end of March was actually pretty sizable.

So, really what it was the timing of inventory receipts year-over-year and payables. So, last year, they had a lot of payables hung up, a lot of them hung up in payables last year where this year we were flowing inventory much more consistently. So, it's primarily, Aram, a time difference versus a sales difference.

We're happy with our sales numbers. No issues there at all, but that particular element, the cash element is really driven by receipt timing and payables timing differences.

Aram Rubinson - Wolfe Research

And my last question is what percent of inventory today is clearance?

Jeff Boyer

Under 10, Michael. We tracked it every week. I think it's right around 10%.

Aram Rubinson - Wolfe Research

Okay. And that was kind of your goal to get to by September 1 it sounded like.

Jeff Boyer

What.

Aram Rubinson - Wolfe Research

I thought that was what you said your goal was to try and get to by the end of the next quarter was to get your clearance inventory of 5%.

Jeff Boyer

Depending on how much your total dollars are, we just put a range out there of 5% to 10%. Obviously, we're always going to keep beating it down. But we're not just going to be perfect overnight. So, that target will probably continue to come down, but that's the range for now.

Aram Rubinson - Wolfe Research

Okay. All right. I appreciate your responses. Thanks, and good luck.

Jeff Boyer

Thank you.

Operator

Thank you. Our next question will be coming from the line of Justin Ruiss from Sidoti. Your line is open.

Justin Ruiss - Sidoti

Hi, Jeff, hi, Mike. I just had a quick question when it came to -- when you're doing the relocations and you're doing kind of your change in demographic. What type of the customer are you really kind of pinpointing at this point? And are you afraid that alienating that old type of customer from previous locations, will that kind of eat into traffic at all going forward?

Jeff Boyer

We believe that our customers -- many customers out there are -- our demographic is very broad. It's really an income level. It's always primarily female, or female destination on it, it's just 50,000, 60,000 income level. We really like this population density and visibility.

So, many times what we're doing, we're not moving out of kind of the current demographics or different areas, we're literally moving to good locations to be able to have better visibility and better presentation in the stores.

In some cases, Michael's comment was on some of the demographic diversity we had, we were very opportunistic. And we took a spot and it might have been in a poorer location with poor demographics. We just took it. Those are the ones we're going to clean up. And those aren't performing well right now, Justin, so I'm not concerned that that's going to be an issue whatsoever. They tend to be, as I said, opportunistic, real estate locations in the past that made marginal income and revenue for us and they'll just go away.

Justin Ruiss - Sidoti

Got you. All right perfect. Thank you.

Jeff Boyer

Okay.

Operator

Thank you. Our next question will be coming from the line of David Mann from Johnson Rice. Your line is open.

David Mann - Johnson Rice

Thank you. Obviously your comp was pretty good against a really bad backdrop. So I'm just -- for other retailers, I'm just curious, were you able to quantify how much you think weather hurt you in the quarter?

Jeff Boyer

Yeah, we were. We were able to take a look. Really on a regional basis was our best metric on it to take a look at some of the non-weather affected regions. What was really weather affected for us was the Midwest and the Northeast they got slammed throughout that first quarter -- sorry, our third quarter is January-March time period, bad habits on my part.

And what we saw was those non-weather related regions -- their comps were up about 8%. So our difference between the two was about 160 basis points between the non-weather related ones and then the all in company ones. You can imagine the ones that had the poor performance pulled down the average pretty well.

David Mann - Johnson Rice

Got it.

Jeff Boyer

150 basis points.

David Mann - Johnson Rice

Got you. In terms of marketing, the change in number of pages, just curious if you've been able to assess some of the impact on that, are you seeing much better sell through in items in the circular? Or any other metric you are looking at.

R. Michael Rouleau

Sell-through -- we're buying it differently than we used to. If you remember, maybe you don't, they would be buying real deep on these items and they would be sitting around for a year.

And now we're buying much smaller quantities. I think our ads look a lot better. We put way less items in there. They're more effective. We ran one last Sunday. I don’t want to get in all the numbers, but it was quite impactful and we were excited about it.

And now it is just a matter of continuing practicing to make damn sure that we get maybe -- if it’s a front cover item we may have to buy a little more, little less, whatever. We're in kind of rehearsal mode on that. But we're extremely pleased with that format.

Jeff Boyer

I just had a little more color to what Michael said, David. And that is in the third quarter in the February and March green cards, we went from ten page circulars to four page circulars. We took about 60% of the volume out, which was pretty significant.

With that significant volume decline, we saw a little bit of falloff in what we typically see in a green card, but we love the answer in terms of the productivity of it, less inventory carryover.

The great news is -- and Michael is being modest on this is that we saw some great results in May, the early May card, actually. So as he says, practice and getting better on it, the four-page circular is starting to pull nicely for us. We're look forward to that in the back half of this year.

David Mann - Johnson Rice

Got you. One last question relating to your new Chief Merchandising Officer. Looks like she has tremendous overlap with your categories, but she doesn't necessarily have closeout experience, at least most recently.

R. Michael Rouleau

I'll answer that.

David Mann - Johnson Rice

Yeah, please.

R. Michael Rouleau

She's a great General Manager. She's got rapport with a lot of the companies. We have a very experienced buying group here and a general merchandise manager group. It just fits perfectly. So that doesn't bother me one iota.

David Mann - Johnson Rice

We shouldn't necessarily expect any tilt toward regular goods because of her background.

R. Michael Rouleau

Absolutely not. I mean, she is shadowing me for the next several months. I think between myself and the merchants, I mean, I think we really know what we've got to do here. We're doing it. We're pretty successful at it. We're going to get better. So I'm -- that shouldn't be a worry.

In fact, she brings so much in terms of the leadership and the merchandise leadership and the report with a lot of the suppliers that she knows to go in there and make better arrangements. So anyway, I wouldn't worry about that. I think that she's a real plus.

David Mann - Johnson Rice

Very good. Thank you very much. Good luck.

R. Michael Rouleau

Thanks, David.

Operator

Thank you. And our final question from this afternoon will come from the line of Mark Montagna from Avondale partners. Your line is open.

Mark Montagna - Avondale partners

Hi, just have a follow-up question on the freight and distribution efficiencies that helped with you gross margin. Can you just expand on what it was within freight and distribution that helped? Did it have something to do with the cross dock facility in Florida? Is that – how new is that and what exactly is that facility doing in terms of impacting all of the stores or just a region?

R. Michael Rouleau

Yeah, I'm going to answer two parts to that question. First of all, the freight and the distribution savings really weren't part of that – really just more consistency and better processes. We've got a great team on the supply chain with our DCs and our transportation. And they are doing everything they can to optimize what's a sub-optimal kind of configurationally up here. So the most of us through that hard work.

This cross dock or cross side, really came up, it’s warning to came up, I guess early in the third quarter. It does service the Florida stores, must have 65, 70 stores. It’s in Lakeland, Lakeland, Florida. What it really does it allows us to consolidate all of our freight coming out of here and really get it right to that market.

The way we ship right now is a number of trucks, you know, store-based trucks that have a lot of area to get to the stores. This way we can consolidate and save on freight cost by really packing out the trucks.

Then at the local location there in Lakeland, Florida, they'll break it down and make local deliveries. And that combination can have some savings from a freight standpoint. Also lots of improvements in terms of how they manage the stores and things.

Mark Montagna - Avondale partners

Okay. And then just last quick follow-up. Michael, when you're looking out to the future years, I know you want to hit singles and doubles at the most. When you look at comps, what is your general accepted comp you think that if you can achieve four to six, that's what you're looking for and you're happy with that or could it be more high single digits?

R. Michael Rouleau

I would only say it this way, I think that we have tremendous opportunity in all departments and on all fronts. So, and I'm so excited about that. I can hardly even stand it. But the point is that that would be my answer. I mean, I don't know where the ceiling is but we have – we've underperformed for so long and we have such upside potential that its going to be probably significant, but beyond that, I don't know what to say.

Jeff Boyer

I mean, Mark, we've been running at a 5% to 6% comp and what you consider a pretty challenging environment, not just the weather but just thinking about the turnaround, how many things are changing. So we're running pretty much mid single digit with one hand tied behind our back largely.

I think that with all of the merchandising things that Michael has going on, and seen us going on, its going to be fantastic. I think some of the marketing programs will be helpful. I'll tell you at some point, we'll get some added benefit from our relocations.

And our relocations as you get 30, 50, 60 going on, those are – they will generate an extra point or two of growth. So, will it be a 10% comp on it? I can't say that, but I think mid single digit would be – I don't think it’s acceptable to Michael.

Mark Montagna - Avondale partners

Okay. Yeah, all right. That's great. It helps. Just kind of helps frame the future. Appreciate it. Thanks.

R. Michael Rouleau

Sure. I think that's it, operator. And we appreciate everybody dialing in this afternoon. And look forward to speaking to you in about another 90 days at the end of the year. Thanks much. Bye.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.

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