Tuesday Morning Corp files for bankruptcy protection

May 2023 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

May 2023 Issue

Discount retailer Tuesday Morning Corp has filed for Chapter 11 bankruptcy protection for the second time since the beginning of the coronavirus (COVID-19) pandemic.

Tuesday Morning filed in the US Bankruptcy Court for the Northern District of Texas, Fort Worth Division. According to a press release, the company has also obtained a commitment from Invictus Global Management, LLC to provide $51.5m of debtor-in-possession (DIP) financing to support ongoing operations during the proceedings. The DIP financing is subject to approval of the bankruptcy court.

In the weeks prior to the company’s filing, Tuesday Morning says its creditors, led by Wells Fargo, increased the company’s reserve requirements from $10m to $30m, a move which, the retailer says, “effectively eliminated” its operating liquidity and significantly contributed to the company’s untenable financial position.

Tuesday Morning also said it “has too many stores and stores in unprofitable locations”. As such, the company wants to close 264 of the 464 stores it operates in 39 states, according to court filings. Post-bankruptcy, the company expects to operate about 200 stores, down from 500 locations last year. These plans are subject to court approval. Real estate and lease-related costs are one of the company’s largest expenses. “The store closings are a critical component of [Tuesday Morning’s] bankruptcy strategy,” the company said in court filings. The company believes this targeted approach to winding down unprofitable and underperforming stores will position it to emerge from bankruptcy with a profitable, cash-generating store fleet.

Operational challenges in the form of reduced foot traffic, reduced in-person store sales and global supply chain issues are cited as being key contributors to Tuesday Morning’s financial difficulties following its exit from a previous bankruptcy filing in 2020 during the worst of the pandemic. In the 12-month period ending 2 July 2022, Tuesday Morning said it generated net sales of approximately $749.8m, resulting in a gross profit of approximately $191.8m. The company said that it has liabilities and assets of between $100m to $500m.

The company noted that its latest round of financial trouble began in summer 2022, which is when Tuesday Morning “experienced a significant deterioration in their financial condition and liquidity”. The company sought additional financing to improve its distribution centre and reduce logistics costs. The company last year secured $35m in financing from an investor group, Retail Ecommerce Ventures, however this injection was insufficient. In January 2023, the company began to search for ways to raise more capital, including non-bankruptcy-related financing, DIP financing or selling the company. Later that month, Tuesday Morning received a default notice from its lenders, and in February, the lenders accelerated reserve requirements and terminated Tuesday Morning’s ability to borrow more.

“After considering how best to address Tuesday Morning’s exceedingly burdensome debt, we have determined that the best path to reorganizing and transforming the Company begins with a Chapter 11 filing,” said Andrew Berger, chief executive and director of Tuesday Morning. “Fortunately, we have the support of a committed capital provider in Invictus and a clear vision for transforming into a focused retailer that serves its core, heritage markets in a profitable manner. We look forward to taking steps that enable us to emerge as a stronger retailer that draws on a legacy of offering a unique off-price value proposition to our loyal customer base. We appreciate all the support of our employees, customers, creditors and other partners as we seek to sustain commercial operations with minimal disruptions.”

“We look forward to playing an important role in reorganizing and transforming Tuesday Morning,” said Amit Patel, a partner at Invictus. “As a Texas-based investment firm with strong roots in the state, we have long admired Tuesday Morning’s strong connection to customers seeking unique home goods at competitive prices. Andrew and his leadership team have our full support as they guide the Company through this process and lay a foundation for a brighter future.”

Richard Summerfield