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DALLAS-Tuesday Morning Corp. surprised Wall Street early this week by revising downwards its earnings guidance for the company’s Q4. Earnings per share for the quarter are now expected to be flat at about $0.83, the same as they were in the final quarter of last year, which included a $0.06 charge for the early paying down of debt.

According to a Thompson First Call poll of analysts, the per share earnings of the company had been expected to come in at $1.05 per share. Earnings for all of 2004, according to the company, will be $1.44 per share, compared with an analysts’ average prediction of $1.67.

The company noted that the Christmas sales season thus far has been tough. “This season has provided a challenging environment for home furnishings-focused retailers,” says Kathleen Mason, Tuesday Morning president and CEO. “While business in some of our key decorative home categories, as well as in seasonal merchandise, hasn’t met expectations, we’re encouraged by sales of new receipts of non-seasonal merchandise.”

On Monday morning, Dallas-based Southwest Securities downgraded Tuesday Morning’s stock to “neutral” from “strong buy,” the first major downgrading of the stock in more than two years. Share prices responded yesterday by dropping $6.27, or 17.28%. In a note to investors, Southwest analyst Ozarslan Tangun wrote that his concern for the company was “primarily due to concern in the short term.” He called the long-term outlook “intact.”

Though the retailer isn’t going to hit analysts’ targets, its numbers for the quarter aren’t expected to be bad. According to Tuesday Morning, total sales for the year ending December 31 will be about $890 million, up over 8% from $822.6 million in the prior year. Year over year comp-store sales are anticipated to be in the low single digits. Final numbers for the quarter will be announced in early January.

Tuesday Morning has an unusual retail model—A closeout retailer of home accessories, gifts and other odds and ends. The company opened its first store in 1974 and currently operates 662 stores in 43 states during periodic “sale events.” For example, the latest sales event began on Dec. 7 and (except for Christmas Day) will run until New Year’s Eve, after which all the stores will be closed for a period to restock. The retailer repeats this cycle throughout the year, with the longest down times typically in January and summer.

All together, Tuesday Mornings are open about 300 days a year. According to the company, its run of merchandise is typically discounted in the range of 50% to 80% off regular retail prices.

“We don’t really have a typical customer,” said a manager of a suburban Chicago Tuesday Morning location on Monday evening, when GSR visited the store. The store reflected its eclectic sales model, with the slightly chaotic look of a place that’s always being stocked, perhaps adding to a customer’s feeling that something unexpected might be waiting among the somewhat jumbled items.

“We sell overstock and discontinued items, so there’s no guarantee something you see will be here next time,” the manager said, “Our regular customers like that—it’s more interesting than an ordinary store, where everything is always the same. You never know what you’re going to find here, at a discount.”

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