You'd think that a company with a name like Tuesday Morning
Today's press release was a real stinker. The company lowered its fourth-quarter earnings guidance to $.83 a share, the same level as last year -- and ended a streak of 15 consecutive quarters of double-digit earnings growth.
The bad news started in the third quarter when same-store sales decreased 4.0%. Taking the blame: severe weather and lower-than-expected sales in seasonal products.
The news was much more upbeat in July, when the company announced a 60% increase in second-quarter earnings. At that time, the company forecast earnings of $1.67 to $1.69 a share for the year. Analysts used that guidance and projected fourth-quarter earnings at $1.05 and full-year earnings at $1.67 a share.
The Wall Street reaction to today's news is decidedly bearish. Tuesday Morning is the largest percentage decliner on the NYSE. At its low, it lost 20.5% (though it gave back a few points of decline in later trading). Yikes!
When James Early looked at the stock in July, the company's strong return on invested capital (ROIC) and smart operating strategy caught his eye. When Chris Mallon looked in September, he too noted that the ROIC had grown strongly since 2000 -- and the stock responded with a 530% gain.
Tuesday Morning has joined Pier 1 Imports
Tuesday Morning is a closeout retailer, and bargain pricing is still in vogue. The company also has a low-cost operating model, which keeps its stores open only 250 days a year. While traditional retailers like Wal-Mart
Tuesday Morning sells for 20 times earnings -- around the retail industry average. With its low-cost operating model, that valuation fails to recognize the operating leverage that allowed this company to have 15 consecutive quarters of double-digit earnings growth.
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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.