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# Tuesday Morning Corporation Message Board

• gvaol gvaol Aug 22, 2013 5:54 PM Flag

## The Math Behind Shorting TUES

This is why I am now short TUES. The amount of growth that's needed to justify the current price is, well, dopey. The market is going to come to its senses after the momo is over. Why? Let's assume TUES is fixable. Then let's see how much TUES has to grow to be valued the same way as TJ Maxx and Big Lots. Those two companies are "not broken" and are reasonable benchmarks for relative valuation purposes after TUES is "fixed".

Compared to TJ Maxx-----
TJX enterprise multiple = 9.63x
TUES enterprise value = \$445M
EBITDA required for TUES to be in line with a 9.63 multiple = \$445M / 9.63 = \$46M
TUES current trailing EBITDA = -\$20M
Therefore: Incremental Improvement in EBITDA that's required = \$66M (i.e. from -\$20M to \$46M)
Lets say TUES performs as well as TJX. TJX's EBITDA margin = 14%
Incremental TUES sales needed to generate \$66M at TJX's margins = \$66M / 14% = \$471M
"Growth" rate implied at TUES = 56% (\$471M / \$832M revenue last year)
TUES IS NOT GOING TO GROW 56%!!!!!. THE IMPLIED GROWTH IS DOPEY!!!

Compared to BIG----
BIG enterprise multiple = 5.22x
TUES enterprise value = \$445M
EBITDA required for TUES to be in line with a 5.22 multiple = \$445/5.22 = \$85M
TUES current trailing EBITDA = -\$20M
Therefore: Incremental Improvement in EBITDA that's required = \$105M (i.e. from -\$20M to \$85M)
Lets say TUES performs as well as BIG. BIG's EBITDA margin = 7.5%
Incremental TUES sales needed to generate \$105M at BIG's margins = \$105M / 7.5% = \$1.4 Billion
"Growth" rate implied at TUES = 168% (\$1.4 billion / \$832M revenue last year)
TUES VALUATION IS IN BAD SHAPE. THE IMPLIED GROWTH IS NOW IN THE LAND OF THE ABSURD.

Some of the profit improvement will come from cost cutting. But Rouleau also kept saying TUES is lean and mean. He also said some of the profit improvement will come from process improvement. That's probable. But there is no way the process improvement will overcome the absurd implied growth rates. Short it.

Sentiment: Strong Sell

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• lets talk about the fraudulent poster, you, who makes up a moniker just to bash a stock where you made an incorrect bet and are now desperate for a solution.

At least LTF doesn't hide behind fake newly created monikers. He just has a gambling addiction. LOL

• My longstanding Yahoo name is my real first and last name. How anonymous would it be if that was used? That's why I created a new one. I did go short after doing my math, and posted it publicly. You and everyone know why I did what I did. I could be wrong, or "too early", but this company is in no way shape or form properly valued at \$14. It's a short at the current level.

In any event, my final remark is that we have free-functioning capital markets in which you and I are able to express our views with our own capital. Markets overshoot, up and down, and I am taking a position that TUES has run ahead too fast.

• The fact of the matter is, TUES needs to get the profit growth from both increased sales, primarily. In theory, they could get profits back to what they were in the mid 2000's, which would be maybe \$1.50 in EPS. But, this is not a hyper growth concept by any means. So, even if they get back to historical peak earnings of \$1.50, with competitor BIG selling at 11x earnings, if slap a similar multiple on TUES, you are talking a \$16.50 stock. And the stock is at \$14 right now? With NO turnaround that has even begun yet??!

It is the same "sheep" that bought into Ron Johnson's coming in JCP, and driving that stock up, that have bought into a TUES turnaround. It was one thing to be buying this stock in the mid single digits, upon the arrival of the activist firm, and removal of Kathleen Mason. But do we really have anything yet to show, now, compared to the day Kathleen Mason left? Yes, this CEO sounds pretty decent. But so did Brady Churches...and he failed so much in getting any traction, that, my belief is that the board wanted him out. When Rouleau fails to get traction, he gets rewarded? Granted, he hasn't had much time, but, considering how much inventory they blew out in the June quarter, if we do NOT see material year over year improvement in the September quarter, this thing is going to be a very juicy short, for after the fiscal Q1 (Sept qtr) earnings release. And, frankly, even if they DO have a decent quarter, I would expect the stock to drop. Because it won't be decent enough, to justify a \$14 price.

But for now, I'm a loser here. Fortunately, I see an extension of such pricing disparities as an even greater "stretching of the rubberband," and, therefore, as an even greater potential opportunity on the short side.

TUES has a \$600 M market cap, on \$800 M in sales, and is losing money. BIG has a \$2 B market cap, on \$5.4 billion in sales, and has a 3% net profit margin. That doesn't make sense. Which is the better buy?

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