Investor Group Proposes Michael W. Barnes to Become New Tuesday Morning CEO in Letter to Board

LOS ANGELES, Sept. 25, 2017 /PRNewswire/ -- Jeereddi Partners, LLC and Purple Mountain Capital Partners, LLC (collectively, the "Investor Group"), value investment firms and significant shareholders in Tuesday Morning Corporation (NASDAQ: TUES) ("Tuesday Morning" or the "Company"), today sent a letter to Tuesday Morning's Board of Directors (the "Board") outlining the Investor Group's significant concerns regarding the destructive underperformance at the Company and demanding immediate leadership change to drive shareholder value and address the poor operational execution, inconsistent financial results, and stock underperformance at Tuesday Morning. 

The Investor Group has attempted to work privately and constructively with the Board to make the required senior management change and has proposed Michael W. Barnes, a world-class executive with a history of creating tremendous shareholder value, to be appointed as the next CEO. 

Tuesday Morning currently trades at a massive discount to its off-price peers on an enterprise value to sales basis. The Investor Group believes the stock could be worth in excess of $10-20 per share through enhanced sales productivity, by implementing certain operational measures and through proper capital allocation. Such a share price would represent an undemanding enterprise valuation of 0.5-1.0x current sales.

The Investor Group believes that Mr. Barnes has the ideal set of skills needed to turnaround Tuesday Morning and is deeply disappointed in the Board's refusal to consider a senior management change at this critical juncture. 

The Investor Group revealed it has nominated two director candidates: Mr. Barnes and Mr. James Corcoran of Purple Mountain, to ensure that the Company's shareholders can make their voices heard at Tuesday Morning's upcoming 2017 Annual Meeting should the Board continue to resist long overdue management change.

The full text of the letter follows:

September 25, 2017

Terry Burman
Chairman of the Board of Directors
Tuesday Morning Corporation
6250 Lyndon B. Johnson Freeway
Dallas, Texas 75240-6321

cc: Board of Directors

Dear Terry:

We appreciate the ongoing dialogue we have had with you over the past few weeks, and we know you share our view that Tuesday Morning Corporation ("Tuesday Morning" or the "Company") has significant untapped potential.  We are, however, extremely disappointed that the Company's Board of Directors (the "Board") remains resistant to much-needed senior management change, despite the Company's underperformance relative to its peers in recent years.

We identified and helped to recruit a transformational CEO candidate in Michael ("Mike") W. Barnes, who we believe has the skill sets and operational expertise to put the Company back on the right track towards shareholder value creation.  Unfortunately, it appears the Board does not appreciate the urgency surrounding this imminent need for leadership change at Tuesday Morning.

The Company has approximately $1 billion in sales, positive same-store sales growth, and minimal financial leverage, yet it has only a $108 million market capitalization.¹  We believe that an experienced CEO can drive the creation of long-term shareholder value that has been latent in recent years due to poor management execution.

Two years ago, Tuesday Morning's Board of Directors was unable to find suitable candidates for CEO, so Chairman Steven R. Becker was appointed as permanent CEO.²  Mr. Becker had zero prior operational experience, and the results have been predictably disastrous for Tuesday Morning's shareholders.  Tuesday Morning's operating margins have sharply deteriorated despite positive same-store sales and stable merchandise margins.  The durability of the business has been corroded as the Company has moved from a net cash position to a net debt position, to say nothing of the approximate 60% collapse in the share price since Mr. Becker became permanent CEO in December 2015.³ 

Despite the difficulty of finding a CEO for a challenged retailer (as attested to by a recent Wall Street Journal article⁴), we recruited a world-class CEO candidate with decades of retail operational experience: Mike Barnes.  Furthermore, Mike is a Dallas-area resident and could begin the turnaround of Tuesday Morning immediately. Since most of Tuesday Morning's peers have CEOs with decades of retail operational experience (as demonstrated in Annex A attached hereto) and Mr. Becker's lack of experience has been demonstrably negative for shareholders, we have been stunned by the Board's outright rejection of Mike Barnes in favor of Mr. Becker and the status quo.

We were especially disappointed by the Board's unwillingness to even consider making a transformative change at this time.  While the Company's issues have largely been driven by poor execution, at no time was Mike invited to present his thoughts on how Tuesday Morning's untapped potential could be realized: invigorated merchandising, revitalized store operations, maximized real estate, optimized inventory management, and enhanced marketing strategies.

We hoped that Mr. Becker's previous career as an activist investor would have led the Board to be more receptive to shareholder concerns and offers to help.  Five years ago, Mr. Becker, who was then co-managing partner of Becker Drapkin Management, L.P., wrote a letter to Tuesday Morning's Board critical of the Company's performance under then-CEO Kathleen Mason.  The letter highlighted the Company's poor operating performance and the 64% decline in its market capitalization since Mason became CEO in 2000.  History is sadly repeating itself as this letter's criticism can be repeated practically verbatim as an indictment of Mr. Becker's leadership.

Since Mr. Becker was named permanent CEO in December 2015:

• Adjusted EBITDA on a trailing-twelve-month basis has collapsed from approximately $30 million to negative $3 million.
• Tuesday Morning's cash position has deteriorated by nearly $50 million since September 30, 2015, from a net cash position of $23 million to a net debt position of $24 million as of June 30, 2017 – reducing the durability of the business.
• Tuesday Morning's market capitalization has fallen by approximately 60%.
• The market appraises Tuesday Morning's enterprise value at approximately 0.1x sales while it appraises its off-price retail peers at 1.0-2.0x sales – an enormous discount.

It is imprudent to waste precious resources and imperil the Company any longer when attractive, viable alternatives exist. The Board must promptly make a change for the benefit of all shareholders as well as employees. It is the logical course of action for fiduciaries. With hindsight, Mr. Becker's lack of operational experience made him a risky selection two years ago and an irresponsible choice today. 

Mike Barnes is excited about the opportunity to lead Tuesday Morning and help the Company realize its full potential.  Tuesday Morning suffers from the lowest store productivity and operating margin profile of any company in its peer group.  The Company currently trades at a steep discount to its GAAP book value, and immediate management change is required to begin closing the productivity and margin gap in a meaningful way.

Mike has over three decades of relevant operational experience.  He began his career at Fossil, where he spent more than twenty-five years, culminating as the Fossil's COO and a board director.  He was one of Fossil's initial employees, helping take the company public in 1993. Shareholders enjoyed prodigious gains as Mike helped create and build Fossil: earning over thirty times their money by the time he left to become CEO of Signet Jewelers in 2010.  He transformed Signet through a $1.5 billion acquisition of Zale, adding to its market-leading position, including the important outlet store channel. Signet's share price almost tripled during his nearly four-year tenure.

In 2014, Mike joined Francesca's as CEO, where he implemented a multi-pronged strategic plan focused on driving same-store sales through better merchandising and accelerating the flow of inventory through improved supply chain efficiency. During a time of significant retail disruption, Francesca's share price was up nearly 30%, considerably outperforming the S&P 500 during that time.

By any conceivable metric, Mike has had overwhelming success in his prior endeavors, in stark contrast to the operating and financial performance of Tuesday Morning on Mr. Becker's watch.  In an uncertain retail environment, Tuesday Morning shareholders cannot simply hope for the best with such an inexperienced leader, and they should not be forced to settle for mediocrity (or worse) when a transformational alternative exists. 

Shareholders should have a say in choosing who leads their Company after a Board-determined transition period to avoid unnecessary disruption. We are confident that Mr. Becker, a former activist investor, wholeheartedly shares that belief.

The time to act is now.  We believe that significant opportunity exists to increase shareholder value if the Board takes immediate action.  Mr. Becker has overseen a decline in shareholder value during his intimate involvement in the leadership of Tuesday Morning over the past five years.  In a striking contrast to Mr. Becker's lack of prior operational experience and underwhelming performance as CEO, we believe that Mike Barnes is the clear choice to lead Tuesday Morning based on his thorough operational experience and proven track record of shareholder value creation. 

While we look forward to working constructively with the Board and intend to closely monitor the developments at Tuesday Morning, we also plan to use all available means necessary to protect the best interests of shareholders going forward.

ABOUT JEEREDDI PARTNERS

Jeereddi Partners, LLC is a value-based, event-oriented investment partnership based in Los Angeles, California. 

ABOUT PURPLE MOUNTAIN CAPITAL PARTNERS

Purple Mountain Capital Partners, LLC is a private investment firm focusing on event-driven opportunities.

FORWARD LOOKING STATEMENTS

The information in this press release contains 'forward-looking statements.' Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as "may", "can", "will", "expects", "believes", "anticipates", "plans", "estimates", "projects", "targets", "forecasts", "seeks", "could", "would" or the negative of such terms or other variations on such terms or comparable terminology. Similarly, statements that describe our objectives, plans or goals are forward-looking. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers are cautioned not to rely upon these forward-looking statements as a prediction of actual results and actual results may vary materially from what is expressed in these forward-looking statements.  Any forward-looking statements are expressed only as of the date hereof based on the current intent, belief, expectations, estimates, and projections of the Investor Group. The Investor Group undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

CERTAIN INFORMATION CONCERNING THE PARTICIPANTS

Jeereddi Partners, LP and Purple Mountain Capital Partners, LLC (the "Investor Group") and certain of their affiliated funds intend to make a preliminary filing with the Securities and Exchange Commission (the "SEC") of a proxy statement and accompanying proxy card to be used to solicit proxies in connection with the election of a slate of director nominees at the upcoming 2017 annual meeting of stockholders (the "Annual Meeting") of Tuesday Morning Corporation, a Delaware Corporation (the "Company").

THE INVESTOR GROUP STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.  SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV.  IN ADDITION, THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST.

The participants in the proxy solicitation are Jeereddi I, LP ("Jeereddi I"), Jeereddi II, LP ("Jeereddi II"), Jeereddi Partners, LLC ("Jeereddi GP"), Jeereddi Investments, LP ("Jeereddi IM"), Jeereddi Capital, LLC ("Jeereddi IM GP"), PMCP I, LP ("PMCP"), PMCP GP, LLC ("PMCP GP"), Purple Mountain Capital Partners LLC ("PMCP IM"), and Messrs. Barnes, Corcoran, and Jeereddi (each a "Participant" and, collectively, the "Participants").

As of the date of this filing, Jeereddi II is the direct beneficial owner of 129,348 shares of common stock of the Company, $0.01 par value per share (the "Common Stock"), 100 shares of which are held in record name.  Jeereddi I is the direct beneficial owner of 514,455 shares of Common Stock.  Each of Jeereddi GP, as the general partner of each of Jeereddi I and Jeereddi II, Jeereddi IM, as the investment manager to each of Jeereddi I and Jeereddi II, Jeereddi IM GP, as the general partner of Jeereddi IM, and Mr. Jeereddi, by virtue of his relationship with Jeereddi GP, may be deemed to beneficially own the (i) 514,455 shares of Common Stock owned directly by Jeereddi I and (ii) 129,348 shares of Common Stock owned directly by Jeereddi II.

As of the date of this filing, PMCP is the direct beneficial owner of 357,885 shares of Common Stock.  Each of PMCP GP, as the general partner of PMCP, and PMCP IM, as the investment manager to PMCP, may be deemed to beneficially own the 357,885 shares of Common Stock owned directly by PMCP.

As of the date of this filing, Mr. Corcoran directly owns 65,000 shares of Common Stock, including 1,000 shares of which are held in record name. By virtue of his relationship with PMCP IM, Mr. Corcoran may be deemed to beneficially own the 357,885 shares of Common Stock owned directly by PMCP. As of the date of this filing, Mr. Barnes does not beneficially own any shares of Common Stock.

¹ Based upon the closing share price of $2.40 on September 22, 2017.
² Taken from interview with Mr. Becker in "How Steven Becker Will Make Tuesday Morning a Success (Again)," D Magazine, January-February 2017.
³ Mr. Becker was named permanent CEO of Tuesday Morning on December 14, 2015.  The closing share price on December 11, 2015 was $6.26.
⁴ "Signet Jewelers CEO to Retire, Citing Health Reasons," Wall Street Journal, July 17, 2017.

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SOURCE Purple Mountain Capital Partners, LLC and Jeereddi Partners, LLC