TUES Morningstar Rating 5 stars (Strong Buy)
01-18-2006
Stock Price
As of 12-06-2005
$26.04
Fair Value Estimate
$28.00
Consider Buying
$21.60
Consider Selling
$35.10
Here is the analyst report from MorningStar, share with you guys. The reason I pick TUES is majorly from TA chart. With 10% short interest, and $20 level showing strong support, I believe stock price will rebounce from here. I do not have a target at this point, but definately around $28
"Tuesday Morning is the sole national closeout retailer of first-quality, brand-name home furnishings. The company has built up a large, upscale customer base through its unique strategy of offering attractive items at compelling prices in stores that are open only during periodic three- to five-week sale events.
While Tuesday Morning's stores consistently offer the same merchandise categories, limited quantities of each product are available at each sale, creating a "treasure hunt" environment. In addition, Tuesday Morning's long operating history and strong balance sheet make it the closeout retailer of choice for many of its suppliers. We think that the company's brand name recognition, loyal shoppers, and close supplier relationships provide it with a narrow economic moat.
Tuesday Morning's unique business model goes beyond just its value prices and sales events. By keeping stores closed during the slow January and July selling periods and between sales events, locating them in strip malls and other low-rent areas, and using Spartan fixtures, the company keeps operating costs extremely low.
Tuesday Morning's financial results are evidence of this strategy's success. Over the past five years, annual sales growth has averaged 13%, as the company has expanded its store base at a 12% average annual rate. Tuesday Morning believes the United States can support at least 1,000 of its stores. Although we expect sales growth to slow in the near term due to a weak market for home furnishings, we think the unique store format presents the company with plenty of room to expand its store base and continue growing the top line at a decent pace.
The main risk is that Tuesday Morning may have problems sourcing enough quality items to sell at compelling prices as it grows. Many manufacturers are improving their inventory management, leaving them with fewer goods to sell to closeout retailers at rock-bottom prices. Growth in comparable-store sales, or comps (sales at stores open at least a year), has declined significantly from the double-digit rates of a few years ago, which could indicate that the company is having a tougher time finding first-quality goods to sell. If this trend continues, it could pressure Tuesday Morning's margins, as well as force it to increasingly offer lesser-known brands, which could hurt customer loyalty. In addition, the company's plans to accelerate store openings in the Northeast could pressure margins, thanks to higher store operating costs such as rent and labor in that region.
Valuation
Our $28 per share fair value estimate is based on a discounted cash-flow analysis. We expect sales growth to average about 9% per year for the next five years, driven by about 70 annual new store openings. We expect comps to be down slightly in 2005 and 2006, based on the weak current market for home furnishings, before recovering to low-single-digit levels. We expect operating margins to be challenging over the next couple of years as comps declines leave the company with less sales revenue to spread over its fixed costs. In the longer term, we anticipate that the operating margin will improve modestly, primarily based on continued gross margin improvements resulting from the company's recently implemented distribution and inventory-allocation systems.
Risk
The biggest risk facing Tuesday Morning is that as it continues to grow, it will become more difficult to find quality brand-name merchandise to sell at compelling values--while still generating attractive profit margins. Many manufacturers have improved their inventory management, leaving them with fewer goods to unload at rock-bottom prices.
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