Just Another Tuesday Morning

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It was a pretty uneventful quarter at discount retailer and Income Investor recommendation Tuesday Morning (Nasdaq: TUES). Yesterday, the company reported a sales improvement during the second quarter of 5.6%, growing revenue to $219.4 million. However, comps only managed to inch up a meager 0.1%. For the first half of the year, net sales increased 3.3% to $408.5 million, while comps fell 2.5%. Despite seemingly disappointing sales, the Street actually reacted kindly to the news and pushed Tuesday Morning stock 3.2% higher.

I assume the Street was forgiving of Tuesday Morning's mediocre performance because it saw it coming well in advance. Management previously warned that this year would prove challenging and full-year comps would be flat to down as much as 2%. Further, the company said it expects to earn between $0.04 and $0.06 per share in the second quarter as energy costs negatively impact earnings. Although that's down from the $0.07 per share it earned in the second quarter last year, it is right in line with analysts' predictions of $0.05 per share.

While I understand the reasons why investors are choosing to stick with Tuesday Morning, including its impressive 6.7% dividend yield, I'm a bit surprised to see its stock price pushed so much higher. While it continues to keep earnings positive, earnings growth is negative. It also continues to operate in a very challenging environment that has taken its toll on the likes of Bed Bath & Beyond (Nasdaq: BBBY), which has pointed to the housing market as the culprit behind its disappointing full-year earnings guidance.

I see nothing to indicate there are upcoming improvements in the environment that will soon benefit Tuesday Morning. Energy costs don't seem to be set to decrease anytime soon, the housing market is still in a slump, and competition remains fierce. Therefore, I see little reason to invest in a company that is battling these factors and has declining earnings and flat or declining full-year comps as a result.

To catch up on recent news in home furnishings, read:

• Fool on Call: Bed Bath & Beyond U.S. Borders
• Tuesday Morning Sees the Clouds Clearing
• A Tuesday Morning Hangover

Bed Bath & Beyond has been recommended by two of our market-beating newsletters, Stock Advisor and Inside Value. Check out the latest picks from both with your free 30-day trial.

Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article. The Fool has a disclosure policy.