Dive Brief:

• In the weeks ahead of the bankruptcy filing, Tuesday Morning says its creditors, led by Wells Fargo, increased the company’s reserve requirements from $10 million to $30 million. The retailer says the move “effectively eliminated” Tuesday Morning’s operating liquidity and significantly contributed to the company’s untenable financial position. The company filed for bankruptcy on Tuesday.
• Tuesday Morning also said it “has too many stores and stores in unprofitable locations.” It wants to close 264 of the 464 stores it operates in 39 states, Chapter 11 court filings show. Post-bankruptcy, the company expects to operate about 200 stores, down from 500 locations last year.
• Operational challenges in the form of reduced foot traffic, reduced in-person store sales and global supply chain issues contributed to the company’s difficulties following its exit from a previous bankruptcy filing in 2020 during the COVID-19 pandemic. 

Dive Insight:

Tuesday Morning says lenders on Feb. 7 accelerated the company’s obligations under its credit facility, according to court documents. The lenders also terminated the company’s ability to borrow additional money to finance operations.

“In my opinion, there was no legitimate reason for the Prepetition ABL Lenders to increase reserves from approximately $10 million to $30 million and deprive the company of operating funds or demand that the company liquidate and fire hundreds of employees,” CEO Andrew Berger said in the company’s delcaration. 

In the 12-month period ending July 2, 2022, Tuesday Morning said it generated net sales of approximately $749.8 million, resulting in a gross profit of approximately $191.8 million.

The company said this week that it has liabilities and assets of between $100 million to $500 million.

Tuesday Morning says its most recent round of financial issues began last summer. That’s when the company “experienced a significant deterioration in their financial condition and liquidity.” The company sought additional financing to improve its distribution center and reduce logistics costs.

The company last year secured $35 million in financing from an investor group, Retail Ecommerce Ventures. But the cash infusion wasn’t enough.

In January, Tuesday Morning began looking for ways to raise more capital. They included non-bankruptcy-related financing, debtor-in-possession financing, or selling the company. Later that month, Tuesday Morning states it received a default notice from its lenders, and in February, the lenders accelerated reserve requirements and terminated Tuesday Morning’s ability to borrow more. 

The company also said that its lenders required the company to enter a contract with Gordon Bros. to liquidate merchandise, furniture, fixtures and equipment at stores, the distribution center and its corporate offices. Tuesday Morning has objected to the contract.

Instead, Tuesday Morning has received a $51.5 million debtor-in-possession commitment from Invictus Global Management. That funding will support the company’s operations while the bankruptcy case is pending. 

“Supply chain problems are being addressed and it is contemplated that cost savings will result from the fact that it is likely that Tuesday Morning Corporation will no longer be a publicly held company,” Berger said. “With funding by Invictus, Tuesday Morning Corporation and its affiliated entities have the capability to be profitable companies.”

If the Invictus debtor-in-possession financing is approved, Tuesday Morning says it will have the capacity to pay its pre-bankruptcy obligations in full. Berger also said the company “intends to rapidly replace its letters of credit currently with Wells Fargo with those of a replacement bank, close its accounts at Wells Fargo and open new accounts at another bank.”

As part of its reorganization, Tuesday Morning wants the court to let the company out of 264 leases at unprofitable locations. 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. Tuesday Morning expects 200 stores to remain open after exiting bankruptcy.

Hearings are scheduled to continue in U.S. Bankruptcy Court for the Northern District of Texas, Fort Worth Division.