(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	March 31,			June 30,			December 31,			June 30,
	2019			2018			2019			2019
ASSETS
Current assets:
Cash and cash equivalents		13,768		$	9,510		$	4,903		$	11,395
Inventories		238,280			234,365			204,008			237,895
Prepaid expenses		4,756			6,301			5,262			5,388
Assets held for sale								4,601			—
Other current assets		2,052			1,206			2,861			1,822
Total Current Assets		258,856			251,382			221,635			256,500
Property and equipment, net		111,518			121,117			101,252			110,146
Operating lease right-of-use assets								355,187			—
Deferred financing costs		1,050			671			885			994
Other assets		3,185			3,086			2,561			2,881
Total Assets	$	374,609		$	376,256		$	681,520		$	370,521
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		82,954		$	88,912		$	72,945		$	91,251
Accrued liabilities		46,114			41,765			44,963			45,923
Income taxes payable		141			66
Operating lease liabilities								71,590			—
Total Current Liabilities		129,209			130,743			189,498			137,174

Operating lease liabilities — non-current								310,814			—
Borrowings under revolving credit facility		35,200			38,480			3,600			34,650
Deferred rent		23,864			22,883			—			23,551
Asset retirement obligation — non-current		3,002			3,100			3,002			3,002
Other liabilities — non-current		809			796			1,149			835
Total Liabilities		192,084			196,002			508,063			199,212
Commitments and contingencies
Stockholders’ equity:
Preferred stock, par value $0.01 per share, authorized 10,000,000 shares; none issued or outstanding		—			—			—			—
Common stock, par value $0.01 per share, authorized 100,000,000 shares; 48,523,910 shares issued and 46,740,249 shares outstanding at March 31, 2019 and 47,648,958 shares issued and 45,865,297 shares outstanding at June 30, 2018		465			469
Common stock, par value $0.01 per share, authorized 100,000,000 shares; 49,820,109 shares issued and 48,036,448 shares outstanding at December 31, 2019 and 48,466,930 shares issued and 46,683,269 shares outstanding at June 30, 2019								462			465
Additional paid-in capital		240,623			237,957			242,899			241,456
Retained deficit		(51,751	)		(51,360	)		(63,092	)		(63,800	)
Less: 1,783,661 common shares in treasury, at cost, at March 31, 2019 and 1,783,661 common shares in treasury, at cost, at June 30, 2018		(6,812	)		(6,812	)
Less: 1,783,661 common shares in treasury, at cost, at December 31, 2019 and 1,783,661 common shares in treasury, at cost, at June 30, 2019								(6,812	)		(6,812	)
Total Stockholders’ Equity		182,525			180,254			173,457			171,309
Total Liabilities and Stockholders’ Equity	$	374,609		$	376,256		$	681,520		$	370,521

The accompanying notes are an integral part of these unaudited consolidated financial statements.

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	March 31,						March 31,						December 31,						December 31,
	2019			2018			2019			2018			2019			2018			2019			2018
Net sales	$	210,984		$	223,296		$	776,716		$	775,860		$	324,414		$	338,418		$	548,853		$	565,731
Cost of sales		134,486			142,993			501,054			511,922			218,638			221,673			361,945			366,568
Gross profit		76,498			80,303			275,662			263,938			105,776			116,745			186,908			199,163
Selling, general and administrative expenses		84,309			88,092			274,751			275,445			94,677			100,437			184,460			190,442
Operating income/(loss)		(7,811	)		(7,789	)		911			(11,507	)
Operating income														11,099			16,308			2,448			8,721
Other income/(expense):
Interest expense		(513	)		(493	)		(1,868	)		(1,473	)		(726	)		(767	)		(1,391	)		(1,355	)
Other income, net		165			179			597			907			166			242			234			432
Other income/(expense) total		(348	)		(314	)		(1,271	)		(566	)		(560	)		(525	)		(1,157	)		(923	)
Loss before income taxes		(8,159	)		(8,103	)		(360	)		(12,073	)
Income tax provision/(benefit)		130			(23	)		31			(431	)
Net loss	$	(8,289	)	$	(8,080	)	$	(391	)	$	(11,642	)
Income before income taxes														10,539			15,783			1,291			7,798
Income tax benefit														(398	)		(223	)		(18	)		(99	)
Net income													$	10,937		$	16,006		$	1,309		$	7,897
Earnings Per Share
Net loss per common share:
Net income per common share:
Basic	$	(0.18	)	$	(0.18	)	$	(0.01	)	$	(0.26	)	$	0.24		$	0.35		$	0.03		$	0.17
Diluted	$	(0.18	)	$	(0.18	)	$	(0.01	)	$	(0.26	)	$	0.24		$	0.35		$	0.03		$	0.17
Weighted average number of common shares:
Basic		44,811			44,365			44,677			44,236			45,218			44,733			45,086			44,612
Diluted		44,811			44,365			44,677			44,236			45,218			44,736			45,086			44,618
Dividends per common share	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	—

The accompanying notes are an integral part of these unaudited consolidated financial statements.

	Common Stock				Additional Paid-In		Retained			Treasury			Total Stockholders'
	Shares		Amount		Capital		Deficit			Stock			Equity
Balance at September 30, 2019		47,738	$	462	$	242,179	$	(74,030	)	$	(6,812	)		161,799
Net income		—		—		—		10,937			—			10,937
Share-based compensation		—		—		720		—			—			720
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		298		—		—		—			—			—
Balance at December 31, 2019		48,036	$	462	$	242,899	$	(63,092	)	$	(6,812	)	$	173,457

	Common Stock					Additional Paid-In		Retained			Treasury			Total Stockholders'
	Shares			Amount		Capital		Deficit			Stock			Equity
Balance at September 30, 2018		46,987		$	469	$	238,728	$	(59,469	)	$	(6,812	)	$	172,916
Net income		—			—		—		16,006			—			16,006
Share-based compensation		—			—		988		—			—			988
Shares issued in connection with exercises of employee stock options		3			—		7		—			—			7
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		(189	)		—		—		—			—			—
Balance at December 31, 2018		46,801		$	469	$	239,723	$	(43,463	)	$	(6,812	)	$	189,917

Common Stock

Additional
Paid-In

Retained
Earnings

Treasury

Total
Shareholders'

Shares

Amount

Capital

(Deficit)

Stock

Equity

Balance at December 31, 2018

46,801

$
469

$
239,723

$
(43,462
)

$
(6,812
)

$
189,918

Net loss

—

—

—

(8,289
)

—

(8,289
)
Share-based compensation expense

—

—

896

—

—

896

Shares issued or canceled in connection with
employee stock incentive plans and related tax effect

(61
)

(4
)

4

—

—

—

Balance at March 31, 2019

46,740

$
465

$
240,623

$
(51,751
)

$
(6,812
)

$
182,525

	Common Stock					Additional Paid-In		Retained			Treasury			Total Stockholders'
	Shares		Amount			Capital		Deficit			Stock			Equity
Balance at June 30, 2019		46,683	$	465		$	241,456	$	(63,800	)	$	(6,812	)	$	171,309
Net income		—		—			—		1,309			—			1,309
Share-based compensation		—		—			1,441		—			—			1,441
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		1,353		(3	)		3		—			—			—
Cumulative effect of accounting change		—		—			—		(601	)		—			(601	)
Balance at December 31, 2019		48,036	$	462		$	242,899	$	(63,092	)	$	(6,812	)	$	173,457

Common Stock

Additional
Paid-In

Retained
Earnings

Treasury

Total
Shareholders'

Shares

Amount

Capital

(Deficit)

Stock

Equity

Balance at December 31, 2017

45,919

$
469

$
236,436

$
(32,984
)

$
(6,812
)

$
197,109

Net loss

—

—

—

(8,080
)

—

(8,080
)
Share-based compensation expense

—

—

860

—

—

860

Shares issued in connection with exercises of
employee stock options

3

—

3

—

—

3

Shares issued or canceled in connection with
employee stock incentive plans and related tax effect

2

—

—

—

—

—

Balance at March 31, 2018

45,924

$
469

$
237,299

$
(41,064
)

$
(6,812
)

$
189,892

	Common Stock				Additional Paid-In		Retained			Treasury			Total Stockholders'
	Shares		Amount		Capital		Deficit			Stock			Equity
Balance at June 30, 2018		45,865	$	469	$	237,957	$	(51,360	)	$	(6,812	)	$	180,254
Net income		—		—		—		7,897			—			7,897
Share-based compensation		—		—		1,759		—			—			1,759
Shares issued in connection with exercises of employee stock options		3		—		7		—			—			7
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		933		—		—		—			—			—
Balance at December 31, 2018		46,801	$	469	$	239,723	$	(43,463	)	$	(6,812	)	$	189,917

Common Stock

Additional
Paid-In

Retained
Earnings

Treasury

Total
Shareholders'

Shares

Amount

Capital

(Deficit)

Stock

Equity

Balance at June 30, 2018

45,865

$
469

$
237,957

$
(51,360
)

$
(6,812
)

$
180,254

Net loss

—

—

—

(391
)

—

(391
)
Share-based compensation expense

—

—

2,655

—

—

2,655

Shares issued in connection with exercises of
employee stock options

3

—

7

—

—

7

Shares issued or canceled in connection with
employee stock incentive plans and related tax effect

872

(4
)

4

—

—

—

Balance at March 31, 2019

46,740

$
465

$
240,623

$
(51,751
)

$
(6,812
)

$
182,525

Common Stock

Additional
Paid-In

Retained
Earnings

Treasury

Total
Shareholders'

Shares

Amount

Capital

(Deficit)

Stock

Equity

Balance at June 30, 2017

45,121

$
469

$
234,604

$
(29,422
)

$
(6,812
)

$
198,839

Net loss

—

—

—

(11,642
)

—

(11,642
)
Share-based compensation expense

—

—

2,691

—

—

2,691

Shares issued in connection with exercises of
employee stock options

3

—

4

—

—

4

Shares issued or canceled in connection with
employee stock incentive plans and related tax effect

800

—

—

—

—

—

Balance at March 31, 2018

45,924

$
469

$
237,299

$
(41,064
)

$
(6,812
)

$
189,892

	Nine Months Ended						Six Months Ended
	March 31,						December 31,
	2019			2018			2019			2018
Cash flows from operating activities:
Net loss	$	(391	)	$	(11,642	)
Adjustments to reconcile loss to net cash provided by operating activities:
Net income							$	1,309		$	7,897
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		19,727			19,087			12,807			13,283
Amortization of financing fees		220			236			108			158
Gain on disposal of assets		(10	)		(69	)
Gain on sale-leaseback		—			(371	)
(Gain)/loss on disposal of assets								137			(18	)
Share-based compensation		2,671			2,729			1,559			1,832
Deferred income taxes		—			(571	)
Construction allowances from landlords		1,121			6,688			483			598
Change in operating assets and liabilities:
Inventories		(3,931	)		(23,122	)		33,769			7,389
Prepaid and other current assets		885			883			(578	)		(42	)
Accounts payable		(15,349	)		19,396			(23,263	)		(15,244	)
Accrued liabilities		5,063			2,199			1,424			15,869
Operating lease assets and liabilities								219			—
Deferred rent		(141	)		1,921			—			(38	)
Income taxes payable		82			71			46			73
Other liabilities — non-current		34			367			101			957
Net cash provided by operating activities		9,981			17,802			28,121			32,714
Cash flows from investing activities:
Capital expenditures		(10,924	)		(25,552	)		(8,365	)		(8,067	)
Purchase of intellectual property		(292	)		(30	)
Proceeds from sale of assets		25			69
Purchases of intellectual property								(20	)		(273	)
Proceeds from sales of assets								22			21
Net cash used in investing activities		(11,191	)		(25,513	)		(8,363	)		(8,319	)
Cash flows from financing activities:
Proceeds under revolving credit facility		156,200			153,900
Repayments under revolving credit facility		(159,480	)		(140,000	)
Proceeds from borrowings under revolving credit facility								142,300			86,600
Repayments of borrowings under revolving credit facility								(173,350	)		(120,080	)
Change in cash overdraft		9,391			(60	)		4,957			5,770
Payments on capital leases		(121	)		(119	)
Proceeds from exercise of common stock options and stock purchase plan purchases		7			4
Payment of financing fees		(529	)		—
Net cash provided by financing activities		5,468			13,725
Net increase in cash and cash equivalents		4,258			6,014
Payments on finance leases								(157	)		(81	)
Proceeds from exercise of stock options and stock purchase plan purchases								—			7
Net cash used in financing activities								(26,250	)		(27,784	)
Net decrease in cash and cash equivalents								(6,492	)		(3,389	)
Cash and cash equivalents, beginning of period		9,510			6,263			11,395			9,510
Cash and cash equivalents, end of period	$	13,768		$	12,277		$	4,903		$	6,121

The accompanying notes are an integral part of these unaudited consolidated financial statements.

The terms “Tuesday Morning,” the “Company,” “we,” “us” and “our” as used in this Quarterly Report on Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries. Other than as disclosed in this document, please refer to our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018~~2019 for our critical accounting policies.

1. Basis of presentation — The unaudited interim consolidated financial statements included herein have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These financial statements include all adjustments, consisting only of those of a normal recurring nature, which, in the opinion of management, are necessary to present fairly the results of the interim periods presented and should be read in conjunction with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019. The consolidated balance sheet at June 30, ~~2018~~2019 has been derived from the audited consolidated financial statements at that ~~date, but does~~date. These interim financial statements do not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019. The results of operations for the three and ~~nine month periods~~six months ended ~~March~~December 31, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending June 30, ~~2019,~~2020, which we refer to as fiscal ~~2019.~~2020, due in part to the seasonality of our business. Certain reclassifications were made to prior period amounts to conform to the current period presentation. None of the reclassifications affected our net income in any period.

We do not present a consolidated statement of comprehensive income as there are no other comprehensive income items in either the current or prior fiscal periods.

The preparation of unaudited interim consolidated financial statements, in conformity with GAAP, requires us to make assumptions and use estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate ~~to:~~to inventory valuation under the retail method and estimation of reserves and valuation allowances specifically related to insurance, income taxes and litigation. Actual results could differ materially from these estimates. Our fiscal year ends on June 30 and we operate our business as a single operating segment.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASC 842”). ASC 842 requires entities (“lessees”) that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASC 842, a right-of-use asset and lease liability is recorded for all leases, whether operating or finance, while the income statement will reflect lease expense for operating leases and amortization/interest expense for finance leases. In addition, ASC 842 requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

We adopted ASC 842 effective July 1, 2019 on a modified retrospective basis. We elected the transition option that allows entities to only apply the standard at the adoption date and not apply the provisions to comparative periods; therefore, prior periods were not restated. This transition option allows the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption rather than the earliest period presented. Our adoption of the standard resulted in a cumulative effect adjustment to retained earnings of $0.6 million, as of July 1, 2019. The adoption of the standard resulted in the recognition of operating lease assets of approximately $350 million and liabilities of approximately $375 million as of July 1, 2019.

We elected certain practical expedients permitted under the transition guidance, including the package of practical expedients, which allows us to not reassess whether existing contracts contain leases, the lease classification of existing leases, or initial direct costs for existing leases. We elected not to separate lease and non-lease components for new and modified leases and not to recognize a right-of-use asset and a lease liability for leases with an initial term of 12 months or less. We did not elect the hindsight practical expedient. The adoption of the standard did not materially impact our consolidated net income or liquidity, and did not have an impact on debt-covenant compliance under our current revolving credit agreement.

2. Revenue Recognition — Our revenue is earned from sales of merchandise within our stores and is recorded at the point of sale and conveyance of merchandise to customers. Revenue is measured based on the amount of consideration that we expect to receive, reduced by point of sale discounts and estimates for sales returns, and excludes sales tax. Payment for our sales is due at the time of sale. We maintain a reserve for estimated returns, as well as a corresponding returns asset, and we use historical customer return

behavior to estimate our reserve requirements. Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), adopted in the first quarter of fiscal 2019 as discussed in Note 14 below, required a change in presentation of the sales return reserve on the balance sheet, which we previously presented net of the estimated value of returned merchandise, but is now being presented on a gross basis. In the first quarter of fiscal 2019, we recorded an immaterial adjustment to present the reserve on a gross basis, increasing “Accrued Liabilities” and recording the corresponding returns asset, as evaluated for impairment, in “Other Assets,” in the Consolidated Balance Sheet. No impairment of the returns asset was ~~indicated~~identified or recorded as of ~~March~~December 31, 2019. Gift cards are sold to customers in our stores and we issue gift cards for merchandise returns in our stores. Revenue from sales of gift cards and issuances of merchandise credits is recognized when the gift card is redeemed by the customer, or if the likelihood of the gift card being redeemed by the customer is remote (gift card breakage). The gift card breakage rate is determined based upon historical redemption patterns. An estimate of the rate of gift card breakage is applied over the period of estimated performance and the breakage amounts are included in net sales in the Consolidated Statement of Operations. Breakage income recognized was ~~less than $0.01~~$0.1 million in the ~~third~~second quarter of fiscal ~~2019~~2020 and was $0.2 million in the ~~third~~second quarter of fiscal ~~2018.~~ 2019. Breakage income recognized was $0.2 million in the first six months of fiscal 2020 and was $0.3 million ~~for~~in the ~~nine~~first six months ~~ended March 31, 2019 and was $0.6 million for the nine months ended March 31, 2018.~~of fiscal 2019. The gift card liability is included in “Accrued ~~Liabilities”~~liabilities” in the Consolidated Balance ~~Sheet at March 31, 2019.~~Sheet.

3. Share-based incentive plans — Stock Option Awards. We have established the Tuesday Morning Corporation 2008 Long-Term Equity Incentive Plan (the “2008 Plan”) and the Tuesday Morning Corporation 2014 Long-Term Incentive Plan, as amended (the “2014 Plan”), which allow for the granting of stock options to directors, officers and key employees of the Company, and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan, but equity awards granted under the 2008 Plan are still outstanding.

On November 16, 2016, our stockholders approved amendments to the 2014 Plan to increase the number of shares of the Company’s common stock available for issuance under the 2014 Plan by 2,500,000 shares and to make additional amendments to the 2014 Plan, including (i) reducing the percentage of shares exempt from the minimum vesting requirements under the 2014 Plan, (ii) adding a clawback policy, (iii) generally eliminating the discretion of the Board of Directors to accelerate the vesting of outstanding and unvested awards upon a change of control and (iv) providing that certain shares surrendered in payment of the exercise price of awards or withheld for tax withholding would count against the shares available under the 2014 Plan.

Stock options were awarded under the 2008 Plan and the 2014 Plan with a strike price at athe fair market value equal to the closing price of our common stock on the date of the grant ~~under the 2008 Plan and the 2014 Plan.~~

Options granted under the 2008 Plan and the 2014 Plan typically vest over periods of one to four years and expire ten years from the date of grant. Options granted under the 2008 Plan and the 2014 Plan may have certain performance requirements in addition to service terms. If the performance conditions are not satisfied, the options are forfeited. The exercise prices of stock options outstanding on ~~March~~December 31, 2019 range between ~~$1.80~~$1.64 per share and $20.91 per share. The 2008 Plan terminated as to new awards as of September 16, 2014. There were ~~1.9~~2.1 million shares available for grant under the 2014 Plan at ~~March~~December 31, 2019.

Restricted Stock Awards—The 2008 Plan and the 2014 Plan authorize the grant of restricted stock awards to directors, officers, key employees and certain other key individuals who perform services for us and our subsidiaries. Equity awards may no longer be granted under the 2008 Plan, but restricted stock awards granted under the 2008 Plan are still outstanding. Restricted stock awards are not transferable, but bear certain rights of common stock ownership including voting and dividend rights. The 2014 Plan also authorizes the issuance of restricted stock units which, upon vesting, provide for the issuance of an equivalent number of shares of common ~~stock.~~stock or a cash payment based on the value of our common stock at vesting. Restricted units are not transferable and do not provide voting or dividend rights. Shares and units are valued at the fair market value of our common stock aton the date of ~~award.~~the grant. Shares and units may be subject to certain performance requirements. If the performance requirements are not met, the restricted shares or units are forfeited. Under the 2008 Plan and the 2014 Plan, as of ~~March~~December 31, 2019, there were ~~1,910,659~~2,737,884 shares of restricted stock and ~~230,770~~1,558,138 restricted stock units outstanding with award vesting periods, both performance-based and service-based, of one to four years and a weighted average grant date fair value of ~~$2.07~~$2.33 and ~~$3.49~~$1.76 per share, respectively.

Performance-Based Restricted Stock Awards and Performance-Based Stock Option Awards. As of ~~March~~December 31, 2019 there were ~~1,481,507~~1,679,047 unvested performance-based restricted stock awards and performance-based restricted stock ~~options~~units payable in cash outstanding under the 2014 Plan.

Share-based Compensation Costs. Share-based compensation costs were recognized as follows (in thousands):

	Three Months Ended March 31,						Nine Months Ended March 31,						Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018			2019			2018			2019			2018
Amortization of share-based compensation during the period	$	896		$	860		$	2,655		$	2,691		$	721		$	988		$	1,441		$	1,759
Amounts capitalized in ending inventory		(275	)		(318	)		(892	)		(1,041	)		(190	)		(332	)		(391	)		(617	)
Amounts recognized and charged to cost of sales		218			242			908			1,079			323			452			509			690
Amounts charged against income for the period before tax	$	839		$	784		$	2,671		$	2,729		$	854		$	1,108		$	1,559		$	1,832

4. Commitments and contingencies — weWe are involved in legal and governmental proceedings as part of the normal course of our business. Reserves have been established when a loss is considered probable and are based on management’s best estimates of our potential liability in these matters. These estimates have been developed in consultation with internal and external counsel and are based on a combination of litigation and settlement strategies. Management believes that such litigation and claims will be resolved without material effect on our financial position or results of operations.

5. Leases — We conduct substantially all operations from leased facilities, with the exception of the corporate headquarters in Dallas and the Dallas warehouse, distribution and retail complex, which are owned facilities. The other warehouse facilities across the country and all other retail store locations are under operating leases that will expire over the next 1 to 11 years. Many of our leases include options to renew at our discretion. We include the lease renewal option periods in the calculation of our operating lease assets

and liabilities when it is reasonably certain that we will renew the lease. We also lease certain equipment under finance leases that expire generally within 60 months.

As discussed in Note 1, we adopted ASC 842 effective July 1, 2019 using the modified retrospective adoption method, which resulted in an adjustment to opening retained earnings of $0.6 million as of July 1, 2019 to recognize impairment of the opening right-of-use asset balance for two stores for which assets had been previously impaired under ASC 360, “Property, Plant, and Equipment.”

We utilized the simplified transition option available in ASC 842, which allowed the continued application of the legacy guidance in ASC 840, including disclosure requirements, in the comparative periods presented in the year of adoption.

We determine whether an agreement contains a lease at inception based on our right to obtain substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the right-of-use (ROU) assets represent our right to use the underlying assets for the respective lease terms.

The operating lease liability is measured as the present value of the unpaid lease payments and the ROU asset is derived from the calculation of the operating lease liability. As our leases do not generally provide an implicit rate, we use our incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow over a similar term, on a collateralized basis in a similar economic environment.

Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses allocated on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as lease expense in the period incurred. The ROU asset is adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities.

Our lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements.

The table below presents additional information related to the Company’s leases as of December 31, 2019:

Other information related to leases, including supplemental disclosures of cash flow information, is as follows (in thousands):

Maturities of lease liabilities were as follows as of December 31, 2019 (in thousands):

	Operating Leases		Finance Leases		Total
Fiscal year:
2020 (remaining)	$	46,580	$	154	$	46,734
2021		85,509		315		85,824
2022		73,375		236		73,611
2023		63,488		97		63,585
2024		54,627		10		54,637
2025		47,274		—		47,274
Thereafter		86,542		—		86,542
Total lease payments	$	457,395	$	812	$	458,207
Less: Interest		74,991		43		75,034
Total lease liabilities	$	382,404	$	769	$	383,173
Less: Current lease liabilities		71,590		293		71,883
Non-current lease liabilities	$	310,814	$	476	$	311,290

Current and non-current finance lease liabilities are recorded in “Accrued liabilities” and “Other liabilities – non-current,” respectively, on our consolidated balance sheet. As of December 31, 2019, there were no operating lease payments for legally binding minimum lease payments for leases signed but not yet commenced.

6. Earnings per common share — The following table sets forth the computation of basic and diluted ~~income/(loss)~~income per common share (in thousands, except per share amounts):

Three Months Ended
March  31,

Nine Months Ended
March 31,

2019

2018

2019

2018

Net loss
$
(8,289
)

$
(8,080
)

$
(391
)

$
(11,642
)

Less: Income to participating securities

—

—

—

—

Net loss attributable to common shares
$
(8,289
)

$
(8,080
)

$
(391
)

$
(11,642
)

Weighted average number of common shares
   outstanding basic

44,811

44,365

44,677

44,236

Effect of dilutive stock equivalents

—

—

—

—

Weighted average number of common shares
   outstanding diluted

44,811

44,365

44,677

44,236

Net loss per common share basic
$
(0.18
)

$
(0.18
)

$
(0.01
)

$
(0.26
)

Net loss per common share diluted
$
(0.18
)

$
(0.18
)

$
(0.01
)

$
(0.26
)

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net income	$	10,937		$	16,006		$	1,309		$	7,897
Less: Income to participating securities		(267	)		(159	)		(15	)		(96	)
Net income attributable to common shares	$	10,670		$	15,847		$	1,294		$	7,801
Weighted average number of common shares outstanding — basic		45,218			44,733			45,086			44,612
Effect of dilutive stock equivalents		—			3			—			6
Weighted average number of common shares outstanding — diluted		45,218			44,736			45,086			44,618
Net income per common share — basic	$	0.24		$	0.35		$	0.03		$	0.17
Net income per common share — diluted	$	0.24		$	0.35		$	0.03		$	0.17

For the quarters ~~and year to date periods~~ ended ~~March~~December 31, 2019 and ~~March~~December 31, 2018, ~~all~~ options representing the rights to purchase approximately 2.8 million weighted average shares ~~respectively,~~and 4.0 million weighted average shares were not included in the ~~dilutive~~diluted income per share calculation, because the assumed exercise of such options would have been anti-dilutive. For the six months ended December 31, 2019 and December 31, 2018, options and awards representing rights to purchase approximately 3.0 million weighted average shares and 3.9 million weighted average shares were excluded from the diluted income per share calculation, because the assumed exercise of such options and awards would have been anti-dilutive.

6.7. Revolving credit facility — We are party to a credit agreement providing for an asset-based, five-year senior secured revolving credit facility in the amount of up to $180.0 million which matures on January 29, 2024 (the “Revolving Credit Facility”) ~~which originally was scheduled to mature on August 18, 2020. On January 29, 2019, the Revolving Credit Facility was amended to extend the maturity date to January 29, 2024.~~. The availability of funds under the Revolving Credit Facility is limited to the lesser of a calculated borrowing base and the lenders’

aggregate commitments under the Revolving Credit Facility. Our indebtedness under the Revolving Credit Facility is secured by a lien on substantially all of our assets. The Revolving Credit Facility contains certain restrictive covenants, which affect, among others, our ability to incur liens or incur additional indebtedness, change the nature of our business, sell assets or merge or consolidate with any other entity, or make investments or acquisitions unless they meet certain requirements. The Revolving Credit Facility requires that we satisfy a fixed charge coverage ratio at any time that our availability is less than the greater of 10% of our calculated borrowing base or $12.5 million. Our Revolving Credit Facility, in some instances, limits our ability to pay cash dividends and repurchase our common stock. In order for the borrower under the Revolving Credit Facility, our subsidiary, to make a restricted payment to us for the payment of a dividend or a repurchase of shares, we are required to, among other things, maintain availability of 20% of the lesser of our calculated borrowing base or our lenders’ aggregate commitments under the Revolving Credit Facility on a pro forma basis for a specified period prior to and immediately following the restricted payment. As of ~~March~~December 31, 2019, we were in compliance with all of the Revolving Credit Facility covenants.

At ~~March~~December 31, 2019, we had ~~$35.2~~$3.6 million outstanding under the Revolving Credit Facility, ~~$11.0~~$8.8 million of outstanding letters of credit and availability of ~~$71.1~~$91.4 million. Letters of credit under the Revolving Credit Facility are generally for self-insurance purposes. We incur commitment fees of up to 0.25% on the unused portion of the Revolving Credit Facility, payable quarterly. Any borrowing under the Revolving Credit Facility incurs interest at the prime rate, or LIBOR, plus an applicable margin, at our election (except with respect to swing loans, which incur interest solely at the prime rate plus the applicable margin), subject to a floor of ~~one~~one- month LIBOR plus an applicable margin in the case of loans based on the prime rate. Interest expense for the ~~third~~second quarter of the current fiscal year from the Revolving Credit Facility of ~~$0.5~~$0.7 million was comprised of interest of ~~$0.3~~$0.6 million, commitment fees of less than $0.1 million and the amortization of financing fees of less than $0.1 million. Interest expense for the second quarter of the prior fiscal year from the Revolving Credit Facility of $0.8 million was comprised of interest of $0.6 million, commitment fees of $0.1 million and the amortization of financing fees of $0.1 million. Interest expense for the ~~third quarter~~first six months of the ~~prior~~current fiscal year from the Revolving Credit Facility of ~~$0.5~~$1.4 million was comprised of interest of ~~$0.3~~$1.1 million, commitment fees of ~~$0.1~~$0.2 million and the amortization of financing fees of $0.1 million. Interest expense for the ~~nine months ended March 31, 2019~~second quarter of ~~$1.9~~the prior fiscal year from the Revolving Credit Facility of $1.4 million was comprised of interest of ~~$1.3~~$1.0 million, commitment fees of ~~$0.3~~$0.2 million and the amortization of financing fees of $0.3 million. Interest expense for the nine months ended March 31, 2018 of $1.5 million was comprised of interest of $0.8 million, commitment fees of $0.4 million, and the amortization of financing fees of $0.3$0.2 million.

The fair value of the Company’s debt approximated its carrying amount as of ~~March~~December 31, 2019.

7.8. Depreciation — Accumulated depreciation of owned property and equipment ~~at March~~as of December 31, 2019 and June 30, ~~2018~~2019 was ~~$173.5~~$175.5 million and ~~$157.0~~$179.7 million, respectively. Upon determining that a long-lived asset meets the criteria to be classified as held for sale, the Company ceases depreciation and records the assets at the lower of fair value, net of selling costs, or the carrying amount of the asset. As of December 31, 2019, we committed to a plan to sell certain non-core property associated with our Dallas distribution center facility and concluded that the criteria were met for recording these assets as held for sale. The estimated fair value of these assets was higher than the carrying amount, therefore the assets were reclassified on our balance sheet from Property and equipment, net to Assets held for sale at their carrying amount, with no impact to the statement of operations.

8.9. Income taxes — The Company or one of its subsidiaries files income tax returns in the U.S. federal, state and local taxing jurisdictions. With few exceptions, the Company and its subsidiaries are no longer subject to state and local income tax examinations for years through fiscal ~~2013.~~2014. The Internal Revenue Service has concluded an examination of the Company for years ending on or before June 30, 2010.

The effective tax rates for the quarters ended ~~March~~December 31, 2019 and ~~March 31,~~ 2018 were ~~(1.6%~~(3.8%) and ~~0.3%~~(1.4%), respectively. The effective tax rates for the ~~nine~~six months ended ~~March~~December 31, 2019 and ~~March 31,~~ 2018 were ~~(8.6%~~(1.4%) and ~~3.6%~~(1.3%), respectively. The income tax benefit in the prior year included a favorable tax impact of approximately $0.6 million resulting from the release of a valuation allowance on deferred taxes due to enactment of the Tax Cuts and Jobs Act of 2017 (“TCJA”), as discussed further below. A full valuation allowance is currently recorded against substantially all of the Company’s ~~other~~ deferred tax assets. A deviation from the customary relationship between income tax expense/(benefit) and pretax income/(loss) results from the effects of the valuation allowance.

We have completed our accounting for the impact of the enactment of the TCJA, within the one year measurement period ending December 22, 2018, as required under the rules issued by the SEC. Through the third quarter of fiscal 2018, we applied the provisions of the newly enacted TCJA, resulting in an approximate $0.6 million income tax benefit connected with future refunds of alternative minimum tax credits no longer requiring a valuation allowance. The impact of the new tax law, including the remeasurement of our deferred taxes at the new corporate tax rate, did not have a material impact on our deferred taxes as substantially all of our other deferred tax assets have corresponding valuation allowances. The Company currently expects the effect of the TCJA to have a nominal impact on its annual effective tax rate, given its cumulative loss position and the related valuation allowance.

9.10. Cash and cash equivalents — Cash and cash equivalents include credit card receivables and all highly liquid instruments with original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. ~~At March~~As of December 31, 2019 and June 30, ~~2018,~~2019, credit card receivables from third party consumer credit card providers were ~~$11.3~~$2.0 million and ~~$7.9~~$9.7 million, respectively. Such receivables are generally collected within one week of the balance sheet date.

~~10.~~11. Intellectual property — Our intellectual property primarily consists of indefinite lived trademarks. We evaluate annually whether the trademarks continue to have an indefinite life. Trademarks and other intellectual property are reviewed for impairment annually in the fourth fiscal quarter, and may be reviewed more frequently if indicators of impairment are present. As of ~~March~~December 31, 2019, the carrying value of the intellectual property, which included indefinite-lived trademarks, was $1.3 million, and no impairment was identified or recorded.

11. Cease use liability — Amounts in “Accrued liabilities” in the Consolidated Balance Sheet at March 31, 2019 include the current portions of accruals for the net present value of future minimum lease payments, net of estimated sublease income, attributable to closed stores with remaining lease obligations. There was no cease use liability at March 31, 2019. The cease use liability at June 30, 2018 was $77 thousand, and was all classified as short-term. Expenses related to store closings are included in “Selling, general and administrative expenses” in the Consolidated Statements of Operations.

12. Sale-leaseback —During the fourth quarter of fiscal 2016, we entered into a sale-leaseback transaction to sell two buildings and land utilized in our Dallas distribution center operations, which we did not consider part of our long-term distribution network, and leased back these facilities through December 2017. We subsequently exercised our option to extend the related lease through March 2018, which was accounted for as an operating lease and has now expired. We had no continuing involvement with the properties sold other than a normal leaseback.

The consideration received for the sale, as reduced by closing and transaction costs, was $8.8 million, and the net book value of properties sold was $5.2 million, resulting in a $3.6 million gain. The gain recognized in fiscal 2016 was $2.5 million, which included the portion of the gain in excess of the present value of the minimum lease payments for the leaseback, and was included in “Other income” in our Consolidated Statement of Operations. During fiscal 2017, we recognized $0.7 million of the gain. During the first three months of fiscal 2018, we recognized $0.2 million of the gain. The final $0.2 million gain deferred on the Consolidated Balance Sheet at September 30, 2017 was classified as short-term and was recognized in the second quarter of fiscal 2018.

13. Capital lease — During fiscal 2017, we entered into a 5-year capital lease maturing on January 31, 2022 for equipment and software. At March 31, 2019, the capital lease asset balance was $0.5 million, the current lease liability was $0.2 million and the long-term lease liability was $0.3 million. The capital lease asset is amortized on a straight-line basis. Capital lease amortization was less than $0.1 million in the third quarter of both fiscal 2019 and 2018.

~~14. Recent accounting pronouncements —~~ In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118),” which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. As discussed in Note 8, the Company has completed its analysis of the effects of the TCJA within the measurement period in accordance with SAB 118.

In August 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”), which provides guidance on eight specific cash flow issues in regard to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those years, and required adoption on a retrospective basis. The Company adopted ASU 2016-15 in the first quarter of fiscal 2019. The adoption of this standard did not materially impact our consolidated financial statements and disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which is intended to improve financial reporting in connection with leasing transactions. ASU 2016-02 will require entities (“lessees”) that lease assets with lease terms of more than twelve months to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all leases, whether operating or finance, while the income statement will reflect lease expense for operating leases and amortization/interest expense for finance leases. Accounting by entities that own the assets leased by lessees (“lessors”) will remain largely unchanged from current GAAP. In addition, ASU 2016-02 requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the financial statements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), which provided an additional transition option that allows companies to continue applying the guidance under the current lease standard in the comparative periods presented in the consolidated financial statements. Companies that elect this option would record a cumulative-effect adjustment to the opening balance of retained earnings on the date of adoption. The Company currently plans to elect this transition option. The Company will

adopt this standard in the first quarter of fiscal 2020. While the Company is currently evaluating the provisions of ASU 2016-02, including which practical expedients to apply and assessing the impact on the Company’s consolidated financial statements and disclosures, the primary effect of adopting the new standard will be to record assets and obligations for current operating leases.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), an updated standard on revenue recognition, and has since modified the standard with additional ASUs. The new guidance provides enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies reporting using IFRS and GAAP. The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration, or payment, to which the company expects to be entitled in exchange for those goods or services. The Company adopted this standard in the first quarter of fiscal 2019 using the modified retrospective method, and the adoption did not have a material impact on its consolidated financial statements and disclosures. See Note 2 for further information.

The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

Our business is highly seasonal, with a significant portion of our net sales and most of our operating income generated in the quarter ending December 31.

There can be no assurance that the trends in sales or operating results will continue in the future.

We define EBITDA as net income or net loss before interest, income taxes, depreciation, and amortization. Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of certain items, including certain non-cash items and other items that we believe are not representative of our core operating performance. These measures are not presentations made in accordance with GAAP. EBITDA and Adjusted EBITDA should not be considered as alternatives to net income or loss as a measure of operating performance. In addition, EBITDA and Adjusted EBITDA are not presented as, and should not be considered as, alternatives to cash flows as a measure of liquidity. EBITDA and Adjusted EBITDA should not be considered in isolation, or as substitutes for analysis of our results as reported under GAAP and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by such adjustments. We believe it is useful for investors to see these EBITDA and Adjusted EBITDA measures that management uses to evaluate our operating performance. These non-GAAP financial measures are included to supplement our financial information presented in accordance with GAAP and because we use these measures to monitor and evaluate the performance of our business as a supplement to GAAP measures and we believe the presentation of these non-GAAP measures enhances investors’ ability to analyze trends in our business and evaluate our performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. The non-GAAP measures presented may not be comparable to similarly titled measures used by other companies.

The following table reconciles net ~~income/(loss),~~income, the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA, each of which is a non-GAAP financial measure (in thousands):

Three Months Ended
March 31,

Nine Months Ended
March  31,

2019

2018

2019

2018

Net loss (GAAP)
$
(8,289
)

$
(8,080
)

$
(391
)

$
(11,642
)
Depreciation and amortization

6,444

6,363

19,727

19,087

Interest expense, net

510

485

1,846

1,450

Income tax provision/(benefit)

130

(23
)

31

(431
)
EBITDA (non-GAAP)
$
(1,205
)

$
(1,255
)

$
21,213

$
8,464

Share based compensation expense  (1)

839

784

2,671

2,729

Cease-use rent expense  (2)

(3
)

(396
)

68

398

Stockholder nominations related expenses  (3)

—

—

—

408

Gain on sale of assets  (4)

—

—

—

(371
)
Adjusted EBITDA (non-GAAP)
$
(369
)

$
(867
)

$
23,952

$
11,628

(1)  Adjustment includes charges related to share-based compensation programs, which vary from period to period depending on volume and vesting timing of awards. We adjust for these charges to facilitate comparisons from period to period.

(2)  Adjustment includes accelerated rent expense recognized in relation to closing stores prior to lease termination.  A favorable lease buyout agreement was negotiated and executed in the third quarter of fiscal 2018, resulting in the reversal of previously recorded accelerated cease-use rent expense.  While accelerated rent expense may occur in future periods, the amount and timing of such expenses will vary from period to period.

(3)  Adjustment includes only certain incremental expenses which relate to the stockholder nominations as described in our Preliminary and Definitive Proxy Statements filed with the SEC on September 25, 2017 and October 5, 2017.

(4)  Adjustment includes the deferred gain recognized from the sale-leaseback transaction which occurred in the fourth quarter of fiscal 2016.

	Three Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2019			2018
Net income (GAAP)	$	10,937		$	16,006		$	1,309		$	7,897
Depreciation and amortization		6,424			6,729			12,807			13,283
Interest expense, net		719			760			1,382			1,335
Income tax benefit		(398	)		(223	)		(18	)		(99	)
EBITDA (non-GAAP)	$	17,682		$	23,272		$	15,480		$	22,416
Share based compensation expense (1)		854			1,108			1,559			1,832
Cease-use rent expense (2)		—			7			—			72
Adjusted EBITDA (non-GAAP)	$	18,536		$	24,387		$	17,039		$	24,320

(1) Adjustment includes charges related to share-based compensation programs, which vary from period to period depending on volume, timing and vesting of awards. We adjust for these charges to facilitate comparisons from period to period.

(2) Adjustment includes accelerated rent expense recognized in relation to closing stores prior to lease termination. While accelerated rent expense may occur in future periods, the amount and timing of such expenses will vary from period to period.

Net sales for the ~~third~~second quarter of fiscal ~~2019~~2020 were ~~$211.0~~$324.4 million, a decrease of ~~$12.3~~$14.0 million from ~~$223.3~~$338.4 million in the ~~third~~second quarter of fiscal ~~2018.~~2019. Comparable store sales decreased ~~5.3%~~3.0% compared to the same period a year ago, and was comprised of a ~~2.6% decrease in customer transactions along with a 2.8%~~3.7% decrease in average ~~ticket.~~ticket, partially offset by a 0.7% increase in customer transactions. New stores are included in the same store sales calculation starting with the sixteenth month following the date of the store opening. A store that relocates within the same geographic market or modifies its available retail space is generally considered the same store for purposes of this computation. Non-comparable store sales decreased by a total of ~~$0.7~~$4.1 million and resulted in a 30110 basis point negative impact on net sales. Non-comparable store sales include the net effect of sales from new stores and sales from stores that have closed. The non-comparable store sales decrease was driven by 2023 store closures, partially offset by 8 store openings, which have occurred since the end of the ~~third~~second quarter of fiscal ~~2018. Factors that contributed to the sales decline include a reduction~~2019. Store openings and closings are presented in the number of traditional promotional events to one in the third quarter of fiscal 2019 compared to three events in the prior year, comping against the highest quarterly comparable sales increase from fiscal 2018 of 9.1%, and a calendar shift of Easter into our fourth fiscal quarter of fiscal 2019.table below.

We ended the ~~third~~second quarter of fiscal ~~2019~~2020 with ~~712~~705 stores open at ~~March~~December 31, 2019, compared to ~~724~~720 stores open at ~~March~~December 31, 2018. WeNo stores were relocated ~~one existing store~~ during the ~~third~~second quarter of fiscal ~~2019 and 10~~2020, while three stores were relocated in the ~~third~~second quarter of the prior fiscal year.

Gross profit for the ~~third~~second quarter of fiscal ~~2019~~2020 was ~~$76.5~~$105.8 million, a decrease of ~~4.7%~~9.3% compared to ~~$80.3~~$116.7 million in gross profit for the ~~third~~second quarter of fiscal ~~2018.~~2019. Gross profit as a percentage of net sales was ~~36.3%~~32.6% for the ~~third~~second quarter of fiscal ~~2019,~~2020, compared to ~~36.0%~~34.5% for the ~~third~~second quarter of fiscal ~~2018.~~2019. The ~~increase~~decrease in gross margin was primarily a result of higher markdowns, driven by ~~continued improvements in initial~~seasonal merchandise, ~~mark-up and lower~~higher recognized supply chain ~~costs. Partially offsetting these improvements were increased markdowns, inventory shrink,~~ and ~~freight~~transportation costs, ~~largely due to transportation~~and higher other cost ~~headwinds.~~of sales.

Selling, ~~General~~general & ~~Administrative~~administrative (SG&A) expenses for the ~~third~~second quarter of fiscal ~~2019~~2020 decreased ~~4.3%~~$5.7 to ~~$84.3~~$94.7 million, compared to ~~$88.1~~$100.4 million in the same period last year. As a percentage of net sales, SG&A expenses were ~~40.0%~~29.2% for the ~~third~~second quarter of fiscal ~~2019~~2020 compared to ~~39.5%~~29.7% in the same period last year, ~~deleveraging~~leveraging approximately 50 basis points. The decrease in SG&A ~~expenses~~ was ~~driven~~ primarily ~~by lower store labor costs, workers’ compensation expenses, and advertising,~~ due to ~~our reduction in traditional promotional events in the current quarter, partially offset by increased~~lower incentive compensation and retention costs, ~~along with~~as well as reduced advertising costs, partially offset by increased store ~~rent, due in part to our strategy to improve store real estate.~~labor costs.

Our operating ~~loss~~income was ~~$7.8~~$11.1 million for the ~~third~~second quarter of fiscal ~~2019, consistent with an~~2020, compared to operating ~~net loss~~income of ~~$7.8~~$16.3 million during the ~~third~~second quarter of fiscal ~~2018.~~2019.

Interest expense remained ~~flat~~relatively consistent at ~~$0.5~~$0.7 million ~~compared to~~for the ~~third~~second quarter of fiscal ~~2018.~~2020, compared to $0.8 million for the second quarter of fiscal 2019. Other income was $0.2 million in the ~~third~~second quarter of both fiscal 2020 and 2019.

Income tax benefit for the second quarter of fiscal ~~2019~~2020 was $0.4 million compared to $0.2 million ~~in the third quarter of fiscal 2018.~~

~~Income tax expense for the third quarter of fiscal 2019 was $0.1 million compared to an income tax benefit of $23 thousand~~ for the same period last year. The income tax benefit for the third quarter of fiscal 2018 included a favorable tax impact of approximately $0.1 million resulting from the release of a valuation allowance on deferred taxes due to enactment of the TCJA. The effective tax rates for the ~~third~~second quarter of fiscal ~~2019~~2020 and fiscal ~~2018~~2019 were ~~(1.6%~~(3.8%) and ~~0.3%~~(1.4%), respectively. ~~We expect the effects of the TCJA tax law change to have a nominal impact on our annual effective tax rate, given our cumulative loss position and the related valuation allowance.~~ We currently believe the ~~expected effects on~~ future year effective tax rates towill continue to be nominal until the cumulative losses and valuation allowance are fully utilized. A full valuation allowance is currently recorded against substantially all of our ~~other~~ deferred tax assets ~~at March~~as of December 31, 2019. A deviation from the customary relationship between income tax expense and pretax income results from the effects of the valuation allowance.

Net sales for the first ~~nine~~six months of fiscal 2020 were $548.9 million, a decrease of $16.8 million from $565.7 million for the first six months of fiscal 2019. Comparable store sales decreased 2.1% compared to an increase of 2.6% in the first six months of fiscal 2019, ~~were $776.7 million, an increase of $0.9 million from $775.8 million in the same period last year. Comparable store sales increased 0.3% compared to the same period in fiscal 2018,~~ and ~~were~~was comprised of a ~~0.3%~~3.4% decrease in average ticket, partially offset by 1.4% increase in customer ~~transactions along with a 0.1% increase in average ticket.~~transactions. New stores are included in the same store sales calculation starting with the sixteenth month following the date of the store opening. A store that relocates within the same geographic market or modifies its available retail space is generally considered the same store for purposes of this computation. Non-comparable store sales decreased by a total of ~~$1.6~~$5.4 million and resulted in a 2090 basis point negative impact on net sales. Non-comparable store sales include the net effect of sales from new stores and sales from stores that have closed. The non-comparable store sales decrease was driven by 4033 store closures, partially offset by 2112 store openings, which have occurred since the beginning of the prior fiscal year. Store openings and closings are presented in the table below.

	Store Openings/Closings									Store Openings/Closings
	Nine Months Ended March 31, 2019			Nine Months Ended March 31, 2018			Fiscal Year Ended June 30, 2018			Six Months Ended December 31, 2019			Six Months Ended December 31, 2018			Fiscal Year Ended June 30, 2019
Stores open at beginning of period		726			731			731			714			726			726
Stores opened during the period		6			13			15			1			4			11
Stores closed during the period		(20	)		(20	)		(20	)		(10	)		(10	)		(23	)
Stores open at end of period		712			724			726			705			720			714

We ended the first ~~nine~~six months of fiscal ~~2019~~2020 with ~~712~~705 stores open at December 31, 2019, compared to ~~724~~720 stores open at ~~the end of the first nine months of the prior year. We~~December 31, 2018. One store was relocated ~~11 existing stores~~ during the first ~~nine~~six months of fiscal ~~2019 and 36~~2020. Ten stores were relocated in the first ~~nine months of the prior fiscal year. We expanded one store during the first nine months of fiscal 2019 and seven stores in the first nine~~six months of the prior fiscal year.

Gross profit for the first ~~nine~~six months of fiscal ~~2019~~2020 was ~~$275.6~~$186.9 million, ~~an increase~~a decrease of ~~4.5%~~6.2% compared to ~~$263.9~~$199.2 million in gross profit for the ~~same period~~first six months of fiscal ~~2018.~~2019. Gross profit as a percentage of net sales was ~~35.5%~~34.1% for the first ~~nine~~six months of fiscal ~~2019,~~2020, compared to ~~34.0%~~35.2% for the ~~same period~~first six months of fiscal ~~2018.~~2019. The ~~increase~~decrease in gross margin ~~for the nine months~~ was primarily a result of higher markdowns, driven by ~~continued improvements in~~seasonal merchandise, higher recognized supply chain and transportation costs, partially offset by improved initial merchandise mark-up lower supply chain costs, and reduced markdowns. Partially offsetting these improvements were increased freight costs, largely due to transportation cost headwinds along with increased volumes year over year.

SG&A for the six months ended December 31, 2019 decreased ~~0.3%~~$5.9 million to ~~$274.7~~$184.5 million, compared to ~~$275.4~~$190.4 million in the same period ~~of fiscal 2018.~~last year. As a percentage of net sales, SG&A expenses were ~~35.4%~~33.6% for the first ~~nine~~six months of fiscal ~~2019~~2020 compared to ~~35.5%~~33.7% in the same period last ~~year. This~~year, leveraging approximately 10 basis points. The decrease in SG&A was ~~driven~~ primarily bydue to lower store labor costs, workers’ compensation expenses, and advertising, which leveraged as a percentage of net sales, and was partially offset by higher store rent and depreciation, due in part to our strategy to improve store real estate, along with increased incentive compensation and retention costs, as well as reduced advertising costs, partially offset by increased store labor costs.

Our operating income was ~~$0.9~~$2.4 million for the first ~~nine~~six months of fiscal ~~2019 as~~2020, compared to an operating ~~loss~~income of ~~$11.5~~$8.7 million during the ~~same period in~~first six months of fiscal ~~2018.~~2019.

Interest expense ~~increased $0.4~~remained constant at $1.4 million ~~to $1.9~~for the first six months of both fiscal 2020 and 2019. Other income was $0.2 million in the first ~~nine~~six months of fiscal ~~2019~~2020 compared to ~~$1.5~~$0.4 million in the same period of fiscal ~~2018, as a result of increased borrowings, as well as higher interest rates on our Revolving Credit Facility, during the first nine months of fiscal~~ 2019. ~~Other income was $0.6 million in the first nine months of fiscal 2019 compared to $0.9 million in the first nine months of fiscal 2018.~~

Income tax ~~expense~~benefit for the first ~~nine~~six months ~~of fiscal~~ended December 31, 2019 was ~~$31~~$18 thousand compared to ~~$0.4~~$0.1 million ~~tax benefit~~ for the same period last year. The income tax benefit in the prior year included a favorable tax impact of approximately $0.6 million resulting from the release of a valuation allowance on deferred taxes due to enactment of the TCJA. The effective tax rates for the first ~~nine~~six months of fiscal ~~2019~~2020 and fiscal ~~2018~~2019 were ~~(8.6%~~(1.4%) and ~~3.6%~~(1.3%), respectively. ~~We expect the effects of the TCJA tax law change to have a nominal impact on our annual effective tax rate, given our cumulative loss position and the related valuation allowance.~~ We currently believe the ~~expected effects on~~ future year effective tax rates towill continue to be nominal until the cumulative losses and valuation allowance are fully utilized. A full valuation allowance is currently recorded against substantially all of our ~~other~~ deferred tax assets ~~at March~~as of December 31, 2019. A deviation from the customary relationship between income tax expense and pretax income results from the effects of the valuation allowance.

Net cash provided by operating activities for the ~~nine~~six months ended ~~March~~December 31, ~~2018~~2019 was ~~$10.0~~$28.1 million compared to ~~$17.8~~$32.7 million for the ~~nine~~six months ended ~~March~~December 31, 2018. The ~~$10.0 million of~~decrease in cash provided by operating activities ~~for~~in the ~~nine months ended March 31, 2019~~current year was primarily ~~due to an~~the result of a $14.4 million lower increase in accrued liabilities, ~~of $5.1~~primarily due to lower incentive compensation and transportation accruals, as compared to the prior year, an $8.0 million ~~a decrease~~higher cash usage in ~~prepaid~~accounts payable as compared to the prior year, and ~~other assets of~~a $0.9 million ~~along with our net loss of $0.4 million,~~lower increase in non-current liabilities as ~~adjusted for non-cash items, including depreciation and amortization of $19.7 million, and share based~~compared to the prior year related to incentive compensation, ~~of $2.7 million,~~ partially offset by ~~an increase~~a $26.4 million higher reduction in inventory ~~of $3.9 million and a~~in the current year as compared to the prior year. The decrease in accounts payable was due to the inventory decline and the timing of ~~$15.3 million. In~~merchandise receipts and the ~~first nine months of fiscal 2019, we received $1.1~~related payments. Net cash provided by operating activities was impacted by our $6.6 million ~~in construction allowances from landlords related~~lower net income as compared to ~~our real estate improvement strategy.~~the prior year. There were no significant changes to our vendor payments policy during the ~~nine~~six months ended ~~March~~December 31, 2019.

The $17.8 million of cash provided by operating activities for the nine months ended March 31, 2018 was primarily due to an increase in accounts payable of $19.4 million primarily due to increased merchandise purchases in the third fiscal quarter, an increase in accrued liabilities of $2.2 million, and an increase in deferred rent of $1.9 million, partially offset by an increase in inventory of $23.1 million. In the first nine months of fiscal 2018, we received $6.7 million in construction allowances from landlords related to our real estate improvement strategy. Also impacting net cash used in operating activities were our net loss of $11.6 million, adjusted for non-cash items, including depreciation and amortization of $19.1 million, and share based compensation of $2.7 million.

Net cash used in investing activities for the ~~nine~~six months ended ~~March~~December 31, 2019 and 2018 related primarily to capital expenditures. Our capital expenditures are generally associated with store relocations, expansions and new store openings, capital improvements to existing stores, as well as enhancements to our distribution center facilities, equipment, and systems along with improvements related to our corporate office, technology and equipment. Cash used in investing activities totaled ~~$11.2~~$8.4 million and ~~$25.5~~$8.3 million for the ~~nine~~six months ended ~~March~~December 31, 2019 and 2018, ~~respectively,~~respectively. Prior year spending primarily related to our store real estate ~~strategy.~~strategy, while current year spending reflects reduced real estate project activity and increased investment in technology.

We currently expect to incur capital expenditures, net of construction allowances received from landlords, in the range of ~~$12~~$23 million to ~~$15~~$26 million in fiscal year ~~2019.~~2020.

Net cash ~~provided by~~used in financing activities of ~~$5.5~~$26.3 million for the ~~nine~~six months ended ~~March~~December 31, 2019 related ~~primarily~~ to ~~a $9.4 million cash overdraft provision, along with $156.2~~$31.1 million of ~~borrowings~~net payments on our Revolving Credit Facility, ~~offset by repayments of $159.5~~along with a $5.0 million ~~and $0.5 million of financing fees paid related to the January 2019 amendment and extension of our Revolving Credit Facility.~~cash overdraft provision. Net cash ~~provided~~used by financing activities

of ~~$13.7~~$27.8 million for the ~~nine months ended March 31, 2018~~prior year period related to ~~$153.9~~$33.5 million of ~~borrowings~~net payments on our Revolving Credit Facility, ~~offset by repayments of $140.0 million.~~ along with a $5.8 million cash overdraft provision.

We are party to a credit agreement providing for an asset-based, five year senior secured revolving credit facility in the amount of up to $180.0 million that ~~originally was scheduled to mature~~matures on ~~August 18, 2020. On~~ January 29, ~~2019, we entered into an amendment to the Revolving~~2024 (the “Revolving Credit ~~Facility to extend the maturity date to January 29, 2024.~~Facility”). The availability of funds under the Revolving Credit Facility is limited to the lesser of a calculated borrowing base and the lenders’ aggregate commitments under the Revolving Credit Facility. Our indebtedness under the Revolving Credit Facility is secured by a lien on substantially all of our assets. The Revolving Credit Facility contains certain restrictive covenants, which affect, among others, our ability to incur liens or incur additional indebtedness, change the nature of our business, sell assets or merge or consolidate with any other entity, or make investments or acquisitions unless they meet certain requirements. The Revolving Credit Facility requires that we satisfy a fixed charge coverage ratio at any time that our availability is less than the greater of 10% of our calculated borrowing base or $12.5 million. Our Revolving Credit Facility may, in some instances, limit our ability to pay cash dividends and repurchase our common stock. In order for the borrower under the Revolving Credit Facility, our subsidiary, to make a restricted payment to us for the, payment of a dividend or a repurchase of shares, we must, among other things, maintain availability of 20% of the lesser of our calculated borrowing base or our lenders’ aggregate commitments under the Revolving Credit Facility on a pro forma basis for a specified period prior to and immediately following the restricted payment.

~~At March~~As of December 31, 2019, we had ~~$35.2~~$3.6 million outstanding under the Revolving Credit Facility, ~~$11.0~~$8.8 million of outstanding letters of credit and availability of ~~$71.1~~$91.4 million. Letters of credit under the Revolving Credit Facility are generally for self-insurance purposes. We incur commitment fees of up to 0.25% on the unused portion of the Revolving Credit Facility, payable quarterly. Any borrowing under the Revolving Credit Facility incurs interest at the prime rate, or LIBOR, plus an applicable margin, at our election

~~(except~~ (except with respect to swing loans, which incur interest solely at the prime rate plus the applicable margin), subject to a floor of one month LIBOR plus an applicable margin in the case of loans based on the prime rate. Interest expense for the ~~third~~second quarter of the current fiscal year from the Revolving Credit Facility of ~~$0.5~~$0.7 million was comprised of interest of ~~$0.3~~$0.6 million, commitment fees of less than $0.1 million and the amortization of financing fees of less than $0.1 million. Interest expense for the second quarter of the prior fiscal year from the Revolving Credit Facility of $0.8 million was comprised of interest of $0.6 million, commitment fees of $0.1 million and the amortization of financing fees of $0.1 million. Interest expense for the ~~third quarter~~first six months of the ~~prior~~current fiscal year from the Revolving Credit Facility of ~~$0.5~~$1.4 million was comprised of interest of ~~$0.3~~$1.1 million, commitment fees of ~~$0.1~~$0.2 million and the amortization of financing fees of $0.1 million. Interest expense for the ~~nine months ended March 31, 2019~~second quarter of ~~$1.9~~the prior fiscal year from the Revolving Credit Facility of $1.4 million was comprised of interest of ~~$1.3~~$1.0 million, commitment fees of ~~$.0.3~~$0.2 million and the amortization of financing fees of $0.3 million. Interest expense for the nine months ended March 31, 2018 of $1.5 million was comprised of interest of $0.8 million, commitment fees of $0.4 million, and the amortization of financing fees of $0.3$0.2 million.

We have financed our operations with funds generated from operating activities, available cash and cash equivalents, and borrowings under our Revolving Credit Facility. Cash and cash equivalents as of ~~March~~December 31, 2019 and 2018, were ~~$13.8~~$4.9 million and ~~$12.3~~$6.1 million, respectively. Our cash flows will continue to be utilized for the operation of our business and the use of any excess cash will be determined by the Board of Directors. Our borrowings have historically peaked during our second fiscal quarter as we build inventory levels prior to the holiday selling season. Given the seasonality of our business, the amount of borrowings under our Revolving Credit Facility may fluctuate materially depending on various factors, including the time of year, our strategic investment needs and the opportunity to acquire merchandise inventory. Our primary uses for cash provided by operating activities relate to funding our ongoing business activities and planned capital expenditures. We may also use available cash to repurchase shares of our common stock. We believe funds generated from our operations, available cash and cash equivalents and borrowings under our Revolving Credit Facility will be sufficient to fund our operations for the next year. If our capital resources are not sufficient to fund our operations, we may seek additional debt or equity financing. However, we can offer no assurances that we will be able to obtain additional debt or equity financing on reasonable terms.

As of ~~March~~December 31, 2019, there have been no material changes outside the ordinary course of business from the disclosures relating to contractual obligations contained under “Contractual Obligations” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited interim consolidated financial statements, which have been prepared pursuant to the rules and regulations of the SEC. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of certain assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On a recurring basis, we evaluate our significant estimates

which are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates.

Other than as described in Note 141 of our unaudited ~~condensed~~ consolidated financial statements, as of ~~March~~December 31, 2019, there were no changes to our critical accounting policies from those listed in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

Under the retail inventory method, permanent markdowns result in cost reductions in inventory at the time the markdowns are taken. We also utilize promotional markdowns for specific marketing efforts used to drive higher sales volume and customer transactions for a specified period of time. Promotional markdowns do not impact the value of unsold inventory and thus do not impact cost of sales until the merchandise is sold. Markdowns and damages during the ~~third~~second quarter of fiscal ~~2019~~2020 were ~~4.6%~~5.0% of sales compared to ~~4.1%~~4.4% of sales for the same period last year. If our sales forecasts are not achieved, we may be required to record additional markdowns that could exceed historical levels. The effect of a 0.5% markdown in the value of our inventory at ~~March~~December 31, 2019 would result in a decline in gross profit and ~~earnings~~diluted income per share for the second quarter of fiscal ~~2019~~2020 of ~~$1.2~~$1.0 million and ~~$0.03,~~$0.02, respectively.

For a further discussion of the judgments we make in applying our accounting policies, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

Please refer to Note 141 of our unaudited condensed consolidated financial statements for a summary of recent accounting pronouncements.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995, which are based on management’s current expectations, estimates and projections. These statements may be found throughout this Quarterly Report on Form 10-Q, particularly in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” among others. Forward-looking statements typically are identified by the use of terms such as “may,” “will,” “should,” “expect,” “anticipate,” “believe,” “estimate,” “intend” and similar words, although some forward-looking statements are expressed differently. You should consider statements that contain these words or words that state other “forward-looking” information carefully because they describe our current expectations, plans, strategies and goals and our beliefs concerning future business conditions, future results of operations, future financial positions, and our current business outlook. Forward looking statements also include statements regarding our sales and growth expectations, our liquidity, capital expenditure plans, our inventory management plans, productivity of our store base, our real estate strategy, projections regarding gross margin improvement related to our distribution facility retrofit project and other supply chain initiatives, and merchandising and marketing strategies.

The terms “Tuesday Morning”, “the Company”, “we”, “us”, and “our” as used in this Form 10-Q refer to Tuesday Morning Corporation and its subsidiaries.

Readers are referred to Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018~~2019 for examples of risks, uncertainties and events that could cause our actual results to differ materially from the expectations expressed in our forward-looking statements. These risks, uncertainties and events also include, but are not limited to, the following:

•changes in economic and political conditions which may adversely affect consumer spending;

•our ability to identify and respond to changes in consumer trends and preferences;

•our ability to mitigate reductions of customer traffic in shopping centers where our stores are ~~located;~~located;

•our ability to continuously attract buying opportunities for off-price ~~merchandise~~merchandise and anticipate consumer demand;

•loss of, disruption in operations, or increased costs in the operation of our distribution center facilities;

•unplanned loss or departure of one or more members of our senior management or other key management;

•increases in fuel prices and changes in transportation industry regulations or conditions;

•our ability to generate ~~strong~~ cash flows from operations and to continue to access credit markets;

•increases in the cost or a disruption in thethe flow of our imported products;

•our ability to attract, train and retain quality employees in appropriate numbers, including key employees and management;

•our ability to comply with existing, changing and new government regulations;

•our ability to manage ~~litigation risks~~risk to our corporate reputation from our ~~customers,~~customers, employees and other third parties;

•our ability to manage litigation risks from our customers, employees and other third parties;

•our ability to manage risks associated with product liability claims and product recalls;

•the impact of adverse local conditions, natural ~~disasters~~disasters and other events;

•our ability to manage the negative ~~effect~~seffects of inventory shrinkage;

•our ability to manage exposure to unexpected costs related to our insurance programs; and

•increased costs or exposure to fraud or theft resulting from payment card industry related risk and regulations.

The forward-looking statements made in this Form 10-Q relate only to events as of the date on which the statements are made. Except as may be required by law, we disclaim obligations to update any forward-looking statements to reflect events or circumstances after the date on which the statements were made or to reflect the occurrence of unanticipated events. Investors are cautioned not to place ~~undue~~undue reliance on any forward-looking statements.

There have been no material changes to the Company’s market risks as disclosed in our Annual Report on Form 10-K filed for the fiscal year ended June 30, ~~2018.~~2019.

Based on our management’s evaluation (with participation of our principal executive officer and our principal financial officer), our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) were effective as ~~of March~~December 31, 2019 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (2) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that their objectives are met and, as set forth above, our chief executive officer and chief financial officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that their objectives were met.

There were no changes in our internal control over financial reporting that occurred during the quarter ended ~~March~~December 31, 2019 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

We are involved in legal and governmental proceedings as part of the normal course of our business. Reserves have been established when a loss is considered probable and are based on management’s best estimates of our potential liability in these matters. These estimates have been developed in consultation with internal and external counsel and are based on a combination of litigation and settlement strategies. Management believes that such litigation and claims will be resolved without material effect on our financial position or results of operations.

We believe there have been no material changes from our risk factors previously disclosed in Part 1, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2018.~~2019.

Information regarding our repurchases of equity securities during the three months ended ~~March~~December 31, 2019 is provided in the following table:

Period

Total Number
of Shares
Repurchased

Average Price Paid
per Share

Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs

Approximate
Dollar Value of
Shares That May
Yet Be Purchased
Under the Plans or
Programs
(1)

January 1 through January 31, 2019

—

$
—

—

$
3,187,746

February 1 through February 28, 2019

—

$
—

—

$
3,187,746

March 1 through March 31, 2019

—

$
—

—

$
3,187,746

Total

—

$
—

—

$
3,187,746

Period	Total Number of Shares Repurchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1)
October 1 through October 31, 2019		—	$	—		—	$	3,187,746
November 1 through November 30, 2019		—	$	—		—	$	3,187,746
December 1 through December 31, 2019		—	$	—		—	$	3,187,746
Total		—	$	—		—	$	3,187,746

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		75-2398532
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Class		Outstanding at ~~May~~February 3, ~~2019~~2020
Common Stock, par value $0.01 per share		~~46,710,278~~48,024,022

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	Financial Statements (Unaudited)	3

	Consolidated Balance Sheets as of ~~March~~December 31, 2019 and June 30, ~~2018~~2019	3

	Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~March~~December 31, 2019 and 2018	4

	Consolidated ~~Statement~~Statements of Stockholders’ Equity for the Three and Six Months Ended ~~March~~December 31, 2019 and 2018	5

	Consolidated ~~Statement of Stockholders’ Equity for the Nine Months Ended March 31, 2019 and 2018~~	6

	~~Consolidated~~ Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~March~~December 31, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	2019

ITEM 4.	Controls and Procedures	20

PART II.	OTHER INFORMATION	21

ITEM 1.	Legal Proceedings	21

ITEM 1A.	Risk Factors	21

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

ITEM 6.	Exhibits	22

	Three Months Ended December 31, 2019		Six Months Ended December 31, 2019
Operating lease cost	$	23,424	$	47,550
Variable lease cost		6,328		12,823
Finance lease cost:
Amortization of right-of-use assets		71		142
Interest on lease liabilities		8		16
Total lease cost	$	29,831	$	60,531

	Common Stock						Additional Paid-In		Retained Earnings			Treasury			Total Shareholders'
	Shares			Amount			Capital		(Deficit)			Stock			Equity

Balance at December 31, 2018		46,801		$	469		$	239,723	$	(43,462	)	$	(6,812	)	$	189,918
Net loss		—			—			—		(8,289	)		—			(8,289	)
Share-based compensation expense		—			—			896		—			—			896
Shares issued or canceled in connection with employee stock incentive plans and related tax effect		(61	)		(4	)		4		—			—			—
Balance at March 31, 2019		46,740		$	465		$	240,623	$	(51,751	)	$	(6,812	)	$	182,525

	As of December 31, 2019
Weighted average remaining lease term (in years)
Operating leases		6.2
Finance leases		3.1
Weighted average discount rate
Operating leases		5.8	%
Finance leases		3.8	%

	Three Months Ended December 31, 2019			Six Months Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	22,787		$	44,037
Operating cash flows from finance leases		8			16
Financing cash flows from finance leases		71			142
Right-of-use assets obtained in exchange for operating lease liabilities		(1,929	)		10,573

	Store Openings/Closings
	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018			Fiscal Year Ended June 30, 2018
Stores open at beginning of period		720			724			731
Stores opened during the period		2			5			15
Stores closed during the period		(10	)		(5	)		(20	)
Stores open at end of period		712			724			726

	Store Openings/Closings
	Three Months Ended December 31, 2019			Three Months Ended December 31, 2018			Fiscal Year Ended June 30, 2019
Stores open at beginning of period		707			719			726
Stores opened during the period		—			2			11
Stores closed during the period		(2	)		(1	)		(23	)
Stores open at end of period		705			720			714

Exhibit Number		Description

3.1.1		Certificate of Incorporation of Tuesday Morning Corporation (the “Company”) (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (File No. 333-46017) as filed with the Securities and Exchange Commission (the “Commission”) on February 10, 1998)

3.1.2		Certificate of Amendment to the Certificate of Incorporation of the Company dated March 25, 1999 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-1/A (File No. 333-74365) as filed with the Commission on March 29, 1999)

3.1.3		Certificate of Amendment to the Certificate of Incorporation of the Company dated May 7, 1999 (incorporated by reference to Exhibit 3.1.3 to the Company’s Form 10-Q (File No. 000-19658) as filed with the Commission on May 2, 2005)

3.2		Amended and Restated Bylaws of the Company dated September 16, 2014 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K (File No. 000-19658) as filed with the Commission on September 19, 2014)

10.1		Amended and Restated Consulting Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 9, 2019)

31.1		Certification by the Chief Executive Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification by the Chief Financial Officer of the Company pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer of the Company pursuant to 18 U.S.C §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

32.2		Certification of the Chief Financial Officer of the Company pursuant to 18 U.S.C §1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 *

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Schema Document

101.CAL		XBRL Taxonomy Calculation Linkbase Document

101.DEF		XBRL Taxonomy Definition Linkbase Document

101.LAB		XBRL Taxonomy Label Linkbase Document

101.PRE		XBRL Taxonomy Presentation Linkbase Document

	TUESDAY MORNING CORPORATION
	(Registrant)

DATE: ~~May 7, 2019~~February 5, 2020	By:	/s/ Stacie R. Shirley
		Stacie R. Shirley Executive Vice President and Chief Financial Officer (Principal Financial Officer)