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Bear of the Day: Tuesday Morning (TUES)

Using a smartphone to calculate data

Tuesday Morning Inc. ( TUES ) has been struggling with its brand for several years. This Zacks Rank #5 (Strong Sell) is now in the midst of a "Rebuilding Program."

Will it succeed? Tuesday Morning operates 750 off-price retail stores in 41 states selling discounted home accessories, housewares, seasonal goods and branded gifts. What Happened to the Brand? My mother worked as a sales clerk at a Tuesday Morning store for years in the Chicago suburbs in the 1990s and early 2000s. The brand previously had a strong identity. It used to be famous for its Tuesday morning sales wherein the stores would literally close for several weeks four times a year while new merchandise was brought in. While the stores were closed and being restocked, fliers would go out to dedicated customers highlighting the merchandise that would be available that Tuesday morning when the store would reopen. The items were usually one-of-a-kind items such as 1,000 thread count sheets for half the price you could get at a department store or unique well-known designer lamps or rugs. But quantities were limited of the high quality merchandise which meant if you wanted to buy it, you had to be there the day the sale began. That Tuesday morning of the re-open, at my mother's store in Naperville, customers would be lined up at 7 am for a 9 am opening and would literally run into the store when the doors opened. My mother saw customers nearly come into fist fights over some of the merchandise. It was a retail dream. Who else had people lining up to get into their stores for sales? Only a select few retailers saw that and it was on Black Friday. But this model was before Amazon.com and the Internet changed the way shopping was done. Tuesday Morning Sales No More The Tuesday morning sales, where the stores actually shut down, were phased out years ago. They tried to remain open while restocking but that meant customers could "see" the merchandise but not buy it until the sale began. That didn't work either so they did away with the famous closing of the stores for a few weeks and the Tuesday morning sales. But with that phase out, meant the brand lost a lot of its identity. It has now just become another discount retailer. Many shoppers love the thrill of the chase, and the Tuesday morning re-openings and sales were just that. It was an adrenalin rush, plus, you were getting a really great deal on unique merchandise. The Rebuilding Program Tuesday Morning is in the midst of a company turnaround its calling the "Rebuilding Program." That entails relocating underperforming stores, opening a new distribution center, upgrading the company's systems and enhancing its buying processes. It considers fiscal 2016 to be an "investment" year. Early returns look promising, however. On Aug 20, it reported fiscal fourth quarter 2015 results and saw same store sales rise 8.5%, excluding the big sale of inventory it did in the fourth quarter of 2014 which artificially pumped up those numbers. Estimates Cut for F2016 and F2017 The turnaround is going to take time. In the meantime, the analysts are bearish as estimates for fiscal 2016 and 2017 were cut in the last month. Fiscal 2016's Zacks Consensus Estimate was cut to $0.35 from $0.63. Additionally, 2017's Zacks Consensus Estimate was cut to $0.47 from $0.71. Shares Plunge to 2-Year Lows Shares have been falling for most of 2015 and recently hit 2-year lows.

But does that mean they're cheap? With estimates being cut, Tuesday Morning looks more like a value trap than a buying opportunity. It still has a high forward P/E of 22.5 despite the plunge in the shares. If you want to own a discount retailer, why not buy Ross Stores ( ROST )? It's cheaper than Tuesday Morning with a forward P/E of 19.8 and is expected to grow earnings by 11% this year. Want More of Our Best Recommendations? Zacks' Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential . Learn More>>Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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