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Operator: 00:05 Thank you for joining the Tuesday Morning fourth quarter and full year fiscal twenty twenty one earnings Conference Call. At this time, all participants are in a listen only mode. Following remarks, there will be no question and answer session. As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. I will now turn the call over to Jennifer Robinson.

Jennifer Robinson: 00:30 Good morning. I would like to welcome you to the Tuesday Morning fourth quarter and full year fiscal twenty twenty one earnings call. Joining me on the call today is Fred Hand, our Chief Executive Officer and Marc Katz, our Chief Operating Officer. 00:49 Before we begin today's prepared remarks, I would like to remind you that some of the information presented may contain forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from those anticipated by these statements. 01:09 Information regarding the company's risk factors was included in our press release and in our Sec filings. Any forward looking statements made during this call speaks only as of the date of this call. Today's presentation will also include certain non-GAAP financial measures, including EBITDA and adjusted EBITDA. 01:33 A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures may be found in the Investor Relations section of the Tuesday Morning website at tuesdaymorning.com. 01:49 I will now turn the call over to Fred.

Fred Hand: 01:53 Good morning and thank you for joining us for our fourth quarter and full year fiscal twenty twenty one conference call. As this is my first conference call since joining the company in mid-May, I thought I would begin with a few comments highlighting the reasons that I joined Tuesday Morning. 02:11 First and foremost, I'm a true believer in the off price model. Delivering highly recognizable brands add great values, while simultaneously creating a treasure on shopping experience that continues to resonate with consumers. 02:27 Second, I also believe the home category has consistent growth ahead of it with more people working from home than in the past. Third, I've known Tuesday Morning throughout my career understood that it had cultivated a very loyal customer base over its forty five year history. 02:47 I also looked at a company that had just come through bankruptcy and had reduced its store fleet with most profitable four ninety stores, negotiated favorable lease terms approximately four hundred stores and made reductions in corporate overhead. 03:06 Finally, I knew that Paul Metcalf whom I worked within the past was the acting chief merchant and had a year and a half head start, leading the merchandising team instilling off price buying principles. 03:21 Before I begin with some initial impressions, I would like to acknowledge the Tuesday Morning team and their unwavering commitment during what was a very challenging time for the business and the industry. 03:35 Many on the team worked incredibly long hours during the past year and a half as the company entered and then emerged from bankruptcy. It is a testament to their hard work that Tuesday Morning is now able to focus on its next chapter and improving its execution as an off price retailer. 03:57 In my first month here, my focus has been on building out the leadership team of Tuesday morning, as we had several open positions. These positions included the CFO, CIO, and a VP role in supply chain. I am delighted to announce that we have filled all those positions and the new executives are in place. 04:21 I believe these hires are a great complement to this strong and dedicated team that was onboard when I began. This morning, we announced our current interim CFO, Marc Katz, who spent eleven years at Burlington Stores most recently as CFO and Principal, is transitioning to the full time COO of Tuesday morning. 04:45 We're also excited to announce the addition of Jennifer Robinson as our new CFO who joined us from Michaels Stores. One area that needed a little focus for me was merchandising. Paul Metcalf, our Chief Merchant has done a great job over the past year and a half building out the team and implementing off price buying disciplines within our buying organization. 05:13 During this time, the company transitioned the way from its prior promotional calendar. And move to focusing on treasure hunt and delivering value every day to our customers. I believe the strides made across our merchandising organization have positioned us well as we move forward. 05:33 We will continue to operate the off price model of driving scarcity and bringing in opportunistic buys into the assortment with the focus on delivering fresh receipts from nationally recognized brands. 05:49 Supporting these efforts has been the great relationships we have with our vendors, which is why it was so important for us to fulfill all our obligations for them as we emerged from bankruptcy, which we did. With this behind us, we look forward to continuing to build on our existing and new vendor relationships. 06:13 As I look out over the next couple of years, I believe there are some of the more foundational areas of the company that can be improved upon to help drive greater efficiencies within the organization. Over time, we will discuss in more detail our plans related to supply chain, information technology, and the stores. 06:37 At a high level, our Dallas DC network is made up of five non-contiguous buildings and a recently added building for pack-and-hold and flow and hold storage. We believe efficiencies in speed to market can be gained by moving to a DC network specifically designed for off price. This is a top priority for us. And we will share more as we learn over time. 07:05 In terms of information technology, we have the opportunity to implement and enhance existing systems. This will not be erased to change all systems within a short amount time, but rather in a methodical process to address key systems first and develop an IT roadmap over several years to address the rest. 07:29 We believe efficiencies will be gained across all areas by simplifying the business reducing manual work and improving the decision making process. As far as the stores organization, we have a strong store base with ample opportunity for growth over time. In the near term, however, we will be looking at everything from merchandise flows and adjacencies, the tasks being performed in our stores to the customer’s shopping experience. 08:01 I came up through the stores organization and I'm looking forward to spending more time in our stores and working with the stores team. 08:09 I would now like to turn it over to Marc to discuss our financial results and provide high level comments regarding fiscal twenty twenty two. Marc?

Marc Katz: 08:20 Thank you, Fred, and good morning, everyone. Before I begin, I would just like to comment that my reasons for joining Tuesday morning, aligned with what Fred previously stated, with the additional point that Fred was here as CEO. Fred and I met in the nineteen ninety and worked very closely together over the years, and I have a tremendous amount of respect for him, both professionally and personally. 08:49 I will now provide a few highlights from our fourth quarter performance before reviewing our full year results, and providing high level comments on fiscal twenty twenty two. 09:01 Given the impact from temporary store in DC closures due to COVID-nineteen, as well as actions taken with our bankruptcy filing in Q4 of fiscal twenty twenty, prior year Q4 results are not comparable. 09:16 Moreover, in Q4 of twenty nineteen, the company operated seven fourteen stores with a fair amount of promotional activity, which clouds comparability versus twenty nineteen as well. 09:31 With that said, the company reviews sales and inventory metrics based on the comparable four ninety stores that were open in twenty twenty one and twenty nineteen. Compared to Q4 of twenty nineteen, we delivered comp store growth of one point two percent in Q4 of fiscal twenty twenty one while store inventories were down thirty four percent compared to twenty nineteen levels. 09:59 Comp increase was entirely driven by an increase in AUR. It is important to note that Q4 of twenty twenty one contained one promotional event while Q4 of twenty nineteen contained thirteen. Our ending inventory levels were slightly below our plan indicating our desire to maintain the treasure hunt experience and turn faster. 10:24 We believe our ability to deliver positive comp growth despite significantly reduced inventories indicates progress our merchandising team is making with its transition to a true off price retailer. 10:39 As Fred discussed, the off price model is focused on scarcity and consistently delivering fresh receipts. This requires operating with leaner inventory levels and remaining liquid to enable us to take advantage of the robust supply of merchandise available in the marketplace. 10:59 Turning now to our full year results. We delivered net sales of six ninety one million dollars compared to eight seventy five million dollars in fiscal twenty twenty. During fiscal twenty twenty one, one hundred and ninety seven stores were closed and two were opened for an ending store count of four ninety as of June thirty, twenty twenty one. 11:23 Gross profit was two zero six million dollars compared to two eighty five million dollars for fiscal twenty twenty. Gross margin for fiscal twenty twenty one declined to twenty nine point eight percent compared to thirty two point six percent last year. 11:38 The decrease in gross margin was primarily driven by the industry wide supply chain dislocation, which was partially offset by improved merchandise margin due to a reduction in promotional activity compared to the prior year. 11:54 As part of our transition to a true off price retail strategy, we eliminated all promotional activity beginning calendar year twenty twenty one. Provide more context on the supply chain costs, it’s important to understand the three areas in which we are experiencing elevated expenses. 12:17 First, as you have heard from other retailers, the dislocation in the global supply chain is resulting in several cost increases and delays. The imbalance to treat supply and demand results in capacity issues, which leads to an increased inbound and outbound freight costs. 12:38 As it relates to inbound freight, even though we direct import a small percent of our receipts, our vendors often import goods. And those costs are being passed on to us. From an outbound freight point of view, capacity issues are impacting both road and rail methods of transportation. This congestion is not just affecting costs, but also speed to market given the delays. 13:04 Second, we recently increased our wages in the distribution center, so that we can hire and retain the workers we need to get through the peak receipt period of the year. And finally, as our merchandising team continues to move more toward off price buying disciplines, we are receiving goods that require more value added services. 13:27 our way, approximately seventy percent of the goods we now receive need to be touched by human hands. For example, full cases broken down to be delivered to multiple stores to maintain scarcity in addition to the extra touches required for pack-and-hold and flow-and-hold. 13:49 Looking ahead, we expect the freight and DC cost headwinds to increase before they get better toward the end of our fiscal twenty twenty two. 14:00 Moving to SG&A, as a percentage of net sales, S&A was thirty five point three percent compared to thirty seven point eight percent in the same period last year. S&A was two forty four million dollars in fiscal twenty twenty one compared to three thirty one million dollars in the same period last year. 14:19 The decrease in SG&A was primarily due to lower store expenses on a smaller store base, including a significant decrease in store rents for closed stores and renegotiated rents for the ongoing store base. Labor costs and depreciation were also lower on a smaller base. 14:40 Operating loss was forty nine million dollars compared to an operating loss of one fifty nine million dollars in fiscal twenty twenty. In connection with the company's restructuring and reorganization with respect to the chapter eleven filing, we had a forty nine million dollars net credit, which drove net income to three million dollars or zero point zero five dollars per share for fiscal twenty twenty one. This compared to a net loss of one hundred and sixty six million dollars or three point six eight dollars per share for fiscal twenty twenty. 15:15 Fiscal twenty twenty had restructuring and reorganization costs of one hundred and seventeen million dollars. Adjusted EBITDA, a non-GAAP measure was negative twenty point three million dollars for fiscal twenty twenty one compared to a negative fifteen point four million dollars for the prior year period. 15:34 Turning now to the balance sheet. We ended the year with a very clean inventory position at one hundred and forty five million dollars, which was slightly below our plan as I mentioned earlier. 15:45 We had ample open to buy as we enter twenty twenty two and are ready to take advantage of the great supply available in the marketplace. Total liquidity was forty five million dollars including approximately thirty nine million dollars available in our revolver. 16:01 As of fiscal year end, we had twelve million dollars in borrowings outstanding under our line of credit compared to one hundred thousand dollars last year. It was very important for the company to come out of bankruptcy having paid our vendor claims in full. 16:19 We expect to be net cash flow neutral during twenty twenty two with total monthly liquidity from now, through the end of the year averaging over fifty million dollars. We believe this is more than enough capacity to cover our obligations and meet our plans for twenty twenty two. 16:39 Now, a few comments as it relates to fiscal year twenty twenty two. When we discuss sales and inventory metrics during the year, our comparison for fall will be calendar twenty nineteen and spring will be calendar twenty twenty one. So far this quarter, comp store sales were up low single digits versus twenty nineteen, which had eleven promotional events. 17:05 Due to the continued uncertainty in the current environment, the company is not providing financial guidance at this time. With That said, given the continued headwinds, from the industry wide supply chain dislocation previously discussed, we are expecting an adjusted EBITDA loss for the year slightly improved from fiscal year twenty twenty one. 17:31 I will now turn the call back over to Fred for some concluding remarks. Fred?

Fred Hand: 17:35 Thank you, Marc. Despite near term headwinds, we see tremendous opportunity over the long term for Tuesday morning. With our team now in place, we're focused on improving our execution of the off price model across all areas of the organization. We have a strong brand, loyal customer and an opportunity to close store count in a meaningful way. 18:03 In my opening remarks, I commented on the attributes of Tuesday Morning that attracted me to the company. Now that I've been here for a few months, as I look at the opportunities before us, these are opportunities that we have seen before, and give us confidence in our ability to transform Tuesday Morning into a world class off price home goods retailer. It will take time and a great deal of effort. 18:32 Given the level of effort required, and our very lean corporate team, we will be focusing our time on improving our execution of the off price model. We believe this is in the best interest of our shareholders. 18:48 We truly appreciate the investor interest and support that we have received. And at some point, in the future, we will become more involved in investor relations activities. I would like to close our prepared remarks with once again thanking the entire Tuesday Morning team, for their hard work and dedication in twenty twenty one and look very forward to working with you on writing the next chapter for Tuesday morning. Thank you.

Operator: 19:27 This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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