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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report pursuant to section 13 or 15 (d) of the Securities
Exchange Act for the fiscal year ended December 31, 1996; or
[ ] Transition report pursuant to section 13 or 15 (d) of the
Securities Act of 1934 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 no.)
14621 INWOOD ROAD 75244
DALLAS, TEXAS (ZIP CODE)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(972) 387-3562
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Secton 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the proceding 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 ___X___ No _______
Indicate by check mark if the disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment of this Form 10-K....( ).
The aggregate market value of the voting stock held by non-affiliates
of the registrant on January 31, 1997 was $143,465,663.
Number of shares of common stock of the registrant outstanding on
January 31, 1997 was 7,909,136.
The following documents are incorporated by reference into the
part of this annual report on Form 10-K as indicated:
Portions of 1996 Annual Report to Shareholders - Parts II and IV.
Portions of Definitive Proxy Statement for Annual Meeting of
Shareholders to be held on May 13, 1997 - Part III.
PART 1
ITEM 1. BUSINESS
GENERAL
- -------
The Company operates under the name "Tuesday Morning" a chain of 286 deep
discount retail stores in 33 states. As a deep discount retailer, the Company
purchases closeout merchandise at prices generally ranging from 10% to 50% of
normal wholesale prices and sells the merchandise at prices that are 50% to 80%
lower than retail prices generally charged by department and specialty stores.
Merchandise offered by Tuesday Morning stores primarily consists of crystal,
dinnerware, silver serving pieces, gourmet housewares, bathroom, bedroom and
kitchen accessories, linens and domestics, Christmas trim, luggage, toys,
stationery and silk plants. The Company's strategy is to target middle and
upper income customers, to offer high quality merchandise and to open its stores
for only four sales events each year. Tuesday Morning stores are not in use
when there are no sales events, other than to house inventory and to restock for
the next sales event.
The Company commenced retail sales in June 1974 and was organized as a
Texas corporation in September 1975. In 1991, Tuesday Morning Corporation, a
Delaware corporation, was formed as an indirect holding company for Tuesday
Morning, Inc. Unless the context otherwise requires, the term "Company" as used
in this report refers to Tuesday Morning, Inc. and the Tuesday Morning stores,
except that financial statement information includes both Tuesday Morning
Corporation and its consolidated subsidiaries.
DEEP DISCOUNT RETAIL INDUSTRY
- -----------------------------
The deep discount retail industry is distinguished from other retail
formats by the purchase of closeout merchandise at exceptionally low prices and
the sale of this merchandise substantially below normal retail prices. Deep
discount retailers are also distinguished from other retailers by the lack of
continuity of specific products in their stores arising from their purchase of
closeout merchandise.
Closeout merchandise is available to deep discount retailers at low prices
for a variety of reasons, including: the inability of a manufacturer or
importer to dispose of merchandise through regular channels; the discontinuance
of merchandise due to a change in style, color, shape or packaging; the
insufficiency of sales to justify continued production of an item; the fact that
merchandise is out of season; or the termination of business by a manufacturer
or wholesaler. Occasionally the deep discount retailer may be able to purchase
closeout merchandise at low prices because a manufacturer may have an excess of
raw material or production capacity. Most manufacturers of retail goods
anticipate that they will sell a percentage of their products at substantially
reduced prices. Accordingly, merchandise offered by deep discount retailers
covers most categories of merchandise at all levels of quality.
1
Deep discount retailers, because of their buying practices, are able to
offer consumers lower prices than they would pay for the same products
elsewhere.
MERCHANDISE
- -----------
Tuesday Morning stores sell a wide assortment of new, quality closeout
merchandise. The Company does not sell "seconds," "irregulars," or "factory
rejects". The merchandise can be generally described as gift merchandise and
primarily consists of crystal, dinnerware, silver serving pieces, gourmet
housewares, bathroom, bedroom and kitchen accessories, linens and domestics,
luggage, Christmas trim, toys, stationery and silk plants. Fine jewelry centers
have been added to a limited number of stores.
Tuesday Morning differs from discount and off-price retailers in that
Tuesday Morning does not stock continuing lines of merchandise. Although
general categories of merchandise are usually available during each sale,
specific lines of merchandise frequently change, depending upon the availability
of closeout merchandise at suitable prices. Tuesday Morning sells a limited
selection of apparel, which is the focus of many discount and off-price retail
operations.
Since its inception, the Company has not experienced any difficulty in
obtaining quality closeout merchandise in adequate volumes and at suitable
prices. The largest single vendor accounted for 2.70% of the Company's
purchases for the year ended December 31, 1996. The second largest vendor
accounted for 2.69%.
ADVERTISING
- -----------
The Company plans and implements an "event selling" advertising program for
each sales event. The program includes direct mail, newspaper, radio and
television advertising and in-store promotion banners. Prior to each sales
event, the Company initiates a direct mailing to "preferred customers" who have
visited the stores and who have requested to be included on the Company's
"preferred customer" mailing list. These direct mailings offer customers the
opportunity to purchase merchandise prior to the formal advertising of a sale.
The Company's mailing list includes in excess of 4,000,000 customers.
Tuesday Morning stores advertise in local newspapers in each market.
Newspaper advertising commences after the first three days of the sale. The
Company's advertising focuses on the significant price reductions available to
customers and the high quality of the merchandise offered.
Advertising expenses as a percentage of net sales were approximately 6.4%,
7.3% and 7.2% for the years ended December 31, 1996, 1995 and 1994 respectively.
2
PRICING
- -------
Tuesday Morning's pricing policy is to sell all merchandise at 50% to 80%
below the retail prices generally charged by department and specialty stores.
Prices are determined centrally and are uniform at all Tuesday Morning stores.
Once a price is determined for a particular item, labels displaying Tuesday
Morning's selling price, as well as the prices the Company identifies as the
normal retail price, are affixed to each item. In some instances the department
store's sale price is shown as an additional comparison. Company management and
buyers verify retail prices by reviewing prices published in advertisements and
manufacturers' suggested retail price lists and by visiting department or
specialty stores selling similar merchandise. On a systematic basis, Tuesday
Morning further reduces or marks down the price of merchandise that has remained
unsold.
STORE OPERATIONS
- ----------------
The Company does not keep its Tuesday Morning stores open throughout the
year but instead opens them four times a year for six to twelve week "events"
during the retail industry's peak selling seasons. These "events" are generally
the last six weeks of the 1st quarter, the last eight weeks of the 2nd and 3rd
quarter and the entire 4th quarter. During sales events, new items are
delivered, stocked and promoted to encourage new and repeat shopping visits
during the sale. Tuesday Morning stores are closed to the public in between
sales events, and are used in these periods only to house inventory and to
restock for the next sales event.
The Company accepts cash, personal checks, VISA, MasterCard and Discover
credit cards. The funds are available to the Company within two days after the
transaction date.
Operating hours during each sale are typically from 10:00 a.m. to 6:00 p.m.
six days a week and until 8:00 p.m. on Thursday.
The Company utilizes a "no-frills" approach to presenting merchandise.
Stores are designed to be functional, with little emphasis placed upon fixtures
and leasehold improvements. All merchandise at each store is displayed by type
and size on racks or counters, and minimum inventory is maintained in
stockrooms. Most merchandise is sold in its original shipping carton. Because
most merchandise is sold on a self-service basis, the Company does not employ
people solely to assist customers in locating merchandise or making selection.
In keeping with Tuesday Morning's advertised policy of "Satisfaction
Guaranteed or Your Money Cheerfully Refunded," any merchandise purchased from
Tuesday Morning stores may be returned within 90 days with proof of purchase,
for any reason. Customers, if not completely satisfied, are given a choice of
either a cash refund or an equivalent value in merchandise.
3
STORE MANAGEMENT
- ----------------
Each store has a manager who is responsible for supervising store personnel
and assuring that the store is managed in accordance with Company guidelines and
established procedures. Store managers are full-time employees of the Company.
When sales events are not in progress, these employees review store inventory
and supervise restocking activities in preparation for the next sales event.
The Company also employs temporary employees at each Tuesday Morning store to
serve as cashiers and to assist in stocking during each sales event. These
temporary employees generally return to work in subsequent sales events,
reducing the need for new hiring prior to each sales event. Typically more
temporary employees will work at a Tuesday Morning store during the first few
days of a sale when customer traffic is highest.
Company management and area managers visit Tuesday Morning stores while
sales are in progress to review inventory levels and presentation, personnel
performance, expense control, security and adherence to Company procedures. In
addition, regional and area managers periodically meet with Company management
to review store policies and to discuss purchasing, merchandising and
advertising strategies for future sales events.
DISTRIBUTION
- ------------
Essentially all merchandise is received by the Company at its central
warehouse and distribution facilities in Dallas, Texas, where it is inspected,
counted, priced, ticketed and designated for individual stores. The Company
warehouses merchandise until shortly before each sale, at which time merchandise
is distributed to individual Tuesday Morning stores, where it usually remains
until sold at that sale or later sales. The merchandise sold by Tuesday Morning
stores is generally carried by all Company stores. The amount of inventory
carried by any single store varies depending upon the size and projected sales
for that store.
The Company utilizes a leased fleet of trucks and trailers to distribute
merchandise to its stores. In addition, at peak stocking periods, the Company
uses common and contract carriers to distribute merchandise to stores.
STORE LOCATIONS
- ----------------
At December 31, 1996, the Company operated 286 Tuesday Morning stores in 33
states. During the year ended December 31, 1996, no single store accounted for
more than 1.38% of the Company's net sales. The Company plans to open twenty-
five to thirty-five stores in 1997. The new stores will be similar in size,
appearance and operation to the Company's existing Tuesday Morning stores.
The Company reviews detailed demographic information for each new market
area and generally limits its potential store locations to upscale communities.
In order to reduce rental expense, Tuesday Morning does not select prime real
estate sites. The Company believes that its customers are attracted to its
stores principally by event selling,
4
advertising and direct mail marketing that emphasizes the large assortment of
quality merchandise and the low prices, rather than by location. Tuesday Morning
has generally selected sites where there was a suitable existing building
requiring minimal refurbishing. New store leases are typically written to allow
the Company to exit the lease after 12 to 18 months if the store does not
achieve sales expectations. These policies have enabled the Company to establish
stores in new geographic markets or to relocate stores in existing geographic
markets in a relatively short period of time. Fixture costs and store
improvements are not material because of the Company's no-frills approach to
selling its merchandise.
MANAGEMENT INFORMATION SYSTEMS
- ------------------------------
The Company has installed point-of-sale equipment at all of its store
locations. This equipment captures daily sales data at the SKU (stock keeping
unit) level. The data is polled daily by the central office and used to
identify selling trends on a Company-wide basis for each sale. This
installation of equipment and the taking of a physical inventory at the stores
after most sale events enhances the ability of the Company to monitor very
closely the selling of its merchandise.
TRADEMARKS AND TRADENAMES
- -------------------------
The Company has registered the name "Tuesday Morning" as a service mark
with the United States Patent and Trademark office.
COMPETITION
- -----------
The retail business is highly competitive. The Company competes in the
sale of merchandise with a variety of other retail merchandisers, including
department, discount, off-price and specialty stores, many of which have
locations nationwide, are larger and have greater financial resources than the
Company. In addition, at various times throughout the year, department,
discount, off-price and specialty stores also offer merchandise similar to that
sold by the Company at reduced prices.
Unlike the Company's stores, the Company's competitors primarily offer
continuing lines of merchandise. The Company attempts to compete with other
retail establishments by offering new closeout merchandise, all of which is sold
at substantial reductions from original retail prices, and by offering a
changing variety of high quality merchandise at prices which the customer will
recognize as significant values.
EMPLOYEES
- ---------
At December 31, 1996, the Company employed approximately 690 persons on a
full-time basis. In addition, at December 31, 1996 the Company also employed
approximately 2,750 individuals in part-time positions. The Company's employees
are not represented by any union. The Company has not experienced any work
stoppage due to labor disagreements and regards its employee relations as
satisfactory.
5
SUBSIDIARIES
- ------------
Friday Morning, Inc., a wholly owned subsidiary, is primarily a property
management company that holds title to developed retail properties adjacent to
Tuesday Morning's corporate office and warehouse. These retail centers were
fully leased and provided approximately $417,000 rental income and $71,000 net
income to the Company for the year ended December 31, 1996.
TMIL Corporation, a wholly owned subsidiary, is an asset holding company.
Its assets include the trademark and logo for Tuesday Morning, Inc., various
brand name copyrights and other trademarks of currently inactive companies.
FORWARD-LOOKING STATEMENTS IN THIS RELEASE ARE MADE PURSUANT TO THE "SAFE
HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
INVESTORS ARE CAUTIONED THAT ACTUAL RESULTS MAY DIFFER SUBSTANTIALLY FROM SUCH
FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO: CONTINUED ACCEPTANCE OF THE
COMPANY'S PRODUCTS IN THE MARKETPLACE, COMPETITIVE FACTORS, THE AVAILABILITY OF
CLOSEOUT MERCHANDISE, CONSUMER SPENDING PATTERNS, GENERAL ECONOMIC TRENDS, THE
AVAILABILITY OF NEW STORE LOCATIONS, AND OTHER RISKS DETAILED IN THE COMPANY'S
PERIODIC REPORT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
ITEM 2. PROPERTIES
The Company owns 400,000 square feet of building space in Dallas, Texas.
This houses its corporate offices, the main warehouse distribution facility and
one store.
The Company also leases 225,000 square feet of warehouse space in Dallas,
Texas. The lease commenced January 1, 1993 and has been extended to June 30,
2001. In addition, the Company has entered into a 5-year lease for 280,000
square feet of warehouse space. This lease will commence in 1997. These
current distribution facilities, supplemented with short term rentals for peak
times each year, are considered adequate to meet warehouse space requirements
for the next several years.
On August 29, 1990 the Company purchased approximately 51 acres of land in
the north Dallas area. This acreage may be used for future warehouse expansion.
It is within approximately 5 miles of the current office and distribution
facility.
The Company owns one store located adjacent to its corporate offices in
Dallas, Texas. All of the Company's other stores are leased from unaffiliated
parties. The leases for those stores provide for rentals which ranged from
$1.85 per square foot to $18.64 per square foot per year during 1996 with an
average rental of $7.97 per square foot per year. At December 31, 1996, the
remaining maturities of such leases ranged from one month to eight years. The
Company believes that the termination of any particular lease would not have a
material adverse effect on the Company's operations.
6
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any legal proceedings, pending or threatened,
against the Company that could have a material effect on the Company's financial
position or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET PRICE OF REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Shares of the Company's common stock have been traded in the over-the-
counter market under the Nasdaq symbol TUES. The following table summarizes the
highest and lowest reported sale price per share for each fiscal quarter during
1996 and 1995, as reported by Nasdaq.
1996 1995
---- ----
HIGH LOW HIGH LOW
------ ------ ----- -----
First Quarter 8 5/8 5 1/2 6 3/4 5 3/8
Second Quarter 14 1/8 8 1/2 6 7/8 5 1/2
Third Quarter 18 3/4 11 6 1/2 5 1/2
Fourth Quarter 24 1/8 16 7/8 6 3/8 5 1/8
The Company had approximately 3,600 beneficial owners of its common
stock, as well as 135 which were of record, as of February 28, 1997.
The Company has not paid cash dividends on its common stock since its
inception. The Board of Directors does not anticipate payment of any cash
dividends in the foreseeable future and intends to continue its present policy
of retaining earnings for reinvestment in the operations of the Company. The
Company's present bank credit agreement restricts the payment of dividends on
its common stock.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Consolidated Financial Data" from the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis" from the Company's 1996 Annual
Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 (a).
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the caption "Directors and Executive
Officers" in the Company's proxy statement for the annual meeting of
stockholders on May 13, 1997 is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information included under the captions "Directors and Executive
Officers--Summary of Executive Compensation" and "Stock Options" in the
Company's proxy statement for the annual meeting of stockholders on May 13, 1997
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information included under the caption "Beneficial Ownership of Common
Stock" in the Company's proxy statement for the annual meeting of stockholders
on May 13, 1997 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the caption "Directors and Executive
Officers--Certain Transactions" in the Company's proxy statement for the annual
meeting of stockholders on May 13, 1997 is incorporated herein by reference.
8
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (i) and (ii) Financial Statements and Schedules.
Reference is made to the listing on page F-1 of all
financial statements and schedules filed as a part of
this report.
(iii) Exhibits
Reference is made to the Exhibit Index on page E-1
for a list of all exhibits filed as a part of this
report.
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TUESDAY MORNING CORPORATION
Date: March 25, 1997 By:/s/ Jerry M. Smith
-------------------
Jerry M. Smith
President, Chief
Operating Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 25, 1997.
Name Title
---- -----
/s/ Lloyd L. Ross Chairman of the Board and
- ------------------ Chief Executive Officer
Lloyd L. Ross (Principal executive officer)
/s/ Mark E. Jarvis (Principal financial and
- ------------------- accounting officer)
Mark E. Jarvis
/s/ Jerry M. Smith Director
- -------------------
Jerry M. Smith
/s/ James A. Mabry Director
- -------------------
James A. Mabry
___________________ Director
H. Russell Potts
/s/ William C. Saunders
- ------------------------
William C. Saunders Director
10
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following is a listing of the consolidated financial statements which
are incorporated herein by reference. The consolidated financial statements of
the Company included in the Company's 1996 Annual Report to Shareholders are
incorporated herein by reference in Item 8.
1996 Annual
Report Page(s)
--------------
Consolidated Balance Sheets
December 31, 1996 and 1995 25
Consolidated Statements of Operations
Years Ended December 31, 1996,
1995 and 1994 26
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996, 1995
and 1994 27
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 28
Notes to Consolidated Financial Statements 29 - 36
Independent Auditors' Report 37
F-1
TUESDAY MORNING CORPORATION
Index to Exhibits
Exhibit Page
Number Description Number
- ------ ----------- -------
3(a) Certificate of Incorporation of the registrant (1)
3(b) Bylaws of the registrant (1)
10(a) Incentive Stock Option Plan (2)
10(d) Credit Agreement between the registrant, certain
of its affiliates and BankAmerica Business Credit (3)
10(f) Employee Stock Purchase Plan (4)
10(g) Loan Agreement dated June 20, 1995, between
registrant and Compass Bank-Dallas (5)
13(a) 1996 Annual Report to Stockholders (6)
21 Subsidiaries of the registrant (6)
23(a) Consent of KPMG Peat Marwick LLP (6)
- ---------------------
(1) Filed as an Exhibit to Registration Statement No. 33-42508 on Form S-4
and incorporated herein by reference.
(2) Filed as an Exhibit to Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference.
(3) Filed as an Exhibit to Report on Form 10-K for the year ended December 31,
1994 and incorporated herein by reference.
(4) Filed as an Exhibit to Registration Statement No. 33-68126 on Form S-8
and incorporated herein by reference.
(5) Filed as an Exhibit to Report on Form 10-K for the year ended December 31,
1995 and incorporated herein by reference.
(6) Filed herewith.
E-1