Tandy Leather Factory Reports Q3 2015 Financial Results

Third Quarter Sales Flat; Earnings Down 32%


FORT WORTH, Texas, Nov. 11, 2015 (GLOBE NEWSWIRE) -- Tandy Leather Factory, Inc. (NASDAQ:TLF) today reported financial results for the third quarter of 2015.  Consolidated net income for the quarter ended September 30, 2015 was $1.1 million compared to consolidated net income of $1.6 million for the third quarter of 2014, a decrease of 32%.  Fully diluted earnings per share for the quarter were $0.11, compared to $0.16 in the third quarter of last year.  Total sales for the quarter ended September 30, 2015 were $19.4 million, down $61,000 or 0.3% from $19.4 million in the third quarter last year.  

Consolidated sales for the nine months ended September 30, 2015 were $59.9 million, up 2% from 2014’s comparable period sales of $58.9 million.  Consolidated net income for the first three quarters of 2015 was down 23% to $4.1 million or $0.40 per fully-diluted share versus $5.2 million or $0.51 per fully-diluted share in the comparable period last year.       

Sales in the Retail Leathercraft segment, which consists of the Tandy Leather stores, increased $260,000 in the third quarter, a 2% improvement over last year's third quarter.  Eighty-two stores comprised Tandy Leather's operations on September 30, 2015.  For the first nine months of 2015, Retail Leathercraft’s sales increased $1.7 million, or 5%, over the first nine months of 2014.  Third quarter sales for the Wholesale Leathercraft segment, which consists of the Leather Factory stores, were down 3%, or $180,000, from the same quarter last year.  For the first nine months of 2015, Wholesale Leathercraft’s sales were down $342,000, or 2%, compared to the same period in 2014.  For both the quarter and the year, the sales decline for this segment was due to the closing of one store and the elimination of sales to the National Account customer group in 2014.  International Leathercraft, consisting of three stores located in the United Kingdom, Spain and Australia, reported a sales decrease of 13%, or $141,000, compared to the third quarter of 2014.  For the year, International Leathercraft’s sales were down 14%, or $443,000, over the same period last year.  For both the quarter and the year, the sales decline for this segment was due to the negative impact of the change in currency exchange rates in 2015 compared to 2014. 

Consolidated gross profit margin for the current quarter was 61.1%, down from 62.7% for the third quarter of 2014.  For the first three quarters of this year, consolidated gross profit margin was 62.1%, decreasing from last year's gross profit margin of 63.9%.  Consolidated operating expenses rose approximately 3% for both the quarter and the year, or $255,000 in the current quarter and $1.1 million for the first nine months over the same periods a year ago.  For the third quarter, the significant increases in expenses occurred in employee benefits, advertising and marketing, and other outside services.  For the year, expenses increases occurred in advertising and marketing, store rent and utilities, and employee benefits, and depreciation.  As a percentage of sales, consolidated operating margin declined for the quarter to 9.6% compared to 12.7% last year’s third quarter.  On a year-to-date basis, consolidated operating margin decreased from 13.7% last year to 11% in the current year.

Jon Thompson, Chief Executive Officer and President, commented, “Even though earnings were down significantly compared to last year’s third quarter, our results were in line with our internal targets.  Our significant investment in inventory last year had a positive effect on sales.  Further, our gross profit margin was supported by a number of special leather purchases last year.  This year, our lower inventory level and the lack of those special purchases are having a negative impact on our sales and gross margin by comparison. However, we were not taken by surprise by our results.”

Chief Financial Officer and Treasurer, Shannon Greene, added, “In addition to our specific issues related to inventory and the impact they have had on our sales and gross margins this year, our assessment of business in general seems to suggest that things are getting tougher overall.  Many of our small business customers are losing confidence to maintain their normal purchase levels because they are sensing a slowdown is coming in their businesses. We have talked all year about the negative impact of currency exchange rates on our foreign operations which is adding to the negative trends in our results.  Our expenses are not too far out of line but we will continue to look for areas that can be trimmed without sacrificing the customer experience in our stores.” 

Tandy Leather Factory, Inc.,(http://www.tandyleatherfactory.com/), headquartered in Fort Worth, Texas, is a specialty retailer and wholesale distributor of a broad product line including leather, leatherworking tools, buckles and adornments for belts, leather dyes and finishes, saddle and tack hardware, and do-it-yourself kits. The Company distributes its products through its 28 Leather Factory stores, located in 18 states and 3 Canadian provinces, 80 Tandy Leather retail stores, located in 36 states and 6 Canadian provinces, and four combination wholesale/retail stores located in the United Kingdom, Australia, and Spain.  Its common stock trades on the Nasdaq with the symbol "TLF".  To be included on Tandy Leather Factory’s email distribution list, go to http://www.b2i.us/irpass.asp?BzID=1625&to=ea&s=0.

This news release may contain statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results and events may differ from those projected as a result of certain risks and uncertainties. These risks and uncertainties include but are not limited to: changes in general economic conditions, negative trends in general consumer-spending levels, failure to realize the anticipated benefits of opening retail stores; availability of hides and leathers and resultant price fluctuations; change in customer preferences for our product, and other factors disclosed in our filings with the Securities and Exchange Commission.  These forward-looking statements are made only as of the date hereof, and except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Selected financial data:

    
 Quarter Ended 09/30/15 Quarter Ended 09/30/14
  

Sales
 Operating
Income
  

Sales
 Operating
Income
Wholesale Leathercraft$6,114,793  $682,461  $6,294,745  $1,000,329 
Retail Leathercraft 12,328,599   1,122,222   12,068,832   1,270,884 
International Leathercraft 912,545   55,068   1,053,657   185,714 
Total Operations$19,355,937  $1,859,751  $19,417,234  $2,456,927 
 


    
 Nine Months Ended 09/30/15 Nine Months Ended 09/30/14
  

Sales
 Operating
Income
  

Sales
 Operating
Income
Wholesale Leathercraft$19,234,375  $2,602,868  $19,576,180  $3,479,908 
Retail Leathercraft 37,970,423   3,862,343   36,226,810   4,171,500 
International Leathercraft 2,713,431   117,263   3,156,317   428,459 
Total Operations$59,918,229  $6,582,474  $58,959,307  $8,079,867 
 


 
Wholesale Leathercraft Quarter Ended 09/30/15 Quarter Ended 09/30/14
 # of storesSales # of storesSales
Same store sales28$6,114,793  28$6,172,348 
Closed store salesn/a -  1 122,397 
Total Sales – Wholesale Leathercraft28$6,114,793  29$6,294,745 
 


    
Wholesale Leathercraft Nine Months Ended 09/30/15 Nine Months Ended 09/30/14
 # of storesSales # of storesSales
Same store sales28$19,234,375  28$18,859,252 
Closed store sales- -  1 368,278 
National account groupn/a -  n/a 348,650 
Total Sales – Wholesale Leathercraft29$19,234,375  29$19,576,180 
 


    
Retail Leathercraft Quarter Ended 09/30/15 Quarter Ended 09/30/14
   # of storesSales # of storesSales
Same store sales80$12,135,174  80$12,068,832 
New store sales2 193,425  - - 
Total Sales – Retail Leathercraft82$12,328,599  80$12,068,832 
          


    
Retail Leathercraft Nine Months Ended 09/30/15 Nine Months Ended 09/30/14
 # of storesSales # of storesSales
Same store sales76$37,062,412  76$36,001,323 
New store sales4 908,011  2 225,487 
Total Sales – Retail Leathercraft80$37,970,423  76$33,930,587 
          


    
International Leathercraft Quarter Ended 09/30/15 Quarter Ended 09/30/14
 # of storesSales # of storesSales
Same store sales3$912,545  3$1,053,657 
New store sales- -  - - 
Total Sales – Intl Leathercraft3$912,545  3$1,053,657 
          


    
International Leathercraft Nine Months Ended 09/30/15 Nine Months Ended 09/30/14
 # of storesSales # of storesSales
Same store sales3$2,713,431  3$3,156,317 
New store sales- -  - - 
Total Sales – Intl Leathercraft3$2,713,431  3$3,156,317 
          


 
Tandy Leather Factory, Inc.
Consolidated Balance Sheets
 
 September 30,
 2015
(unaudited)
 December 31,
 2014
(audited)
ASSETS   
CURRENT ASSETS:   
 Cash$7,243,288  $10,636,530 
 Accounts receivable-trade, net of allowance for doubtful accounts   
 of $1,492 and $395 in 2015 and 2014, respectively 585,012   625,054 
 Inventory  35,058,012   32,875,492 
 Prepaid income taxes 868,582   336,828 
 Deferred income taxes 342,763   371,491 
 Prepaid expenses 1,659,052   1,348,652 
 Other current assets 249,089   157,758 
 Total current assets 46,005,798   46,351,805 
    
PROPERTY AND EQUIPMENT, at cost 23,242,846   22,199,943 
Less accumulated depreciation and amortization (7,971,654)  (7,037,665)
  15,271,192   15,162,278 
    
GOODWILL 956,584   971,786 
OTHER INTANGIBLES, net of accumulated amortization of approximately   
 $696,000 and $665,000 in 2015 and 2014, respectively 34,025   58,026 
OTHER assets 332,881   329,979 
TOTAL ASSETS$62,600,480  $62,873,874 
    
    
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
CURRENT LIABILITIES:   
 Accounts payable-trade$2,498,058  $1,255,218 
 Accrued expenses and other liabilities 6,396,752   5,394,514 
 Current maturities of long-term debt -   3,702,500 
 Total current liabilities 8,894,810   10,352,232 
     
DEFERRED INCOME TAXES 1,361,631   1,458,005 
    
LONG-TERM DEBT, net of current maturities 3,711,224   1,940,625 
    
COMMITMENTS AND CONTINGENCIES   
    
STOCKHOLDERS’ EQUITY:   
Preferred stock, $0.10 par value; 20,000,000 shares authorized;   
 none issued or outstanding; attributes to be determined on issuance -   - 
 Common stock, $0.0024 par value; 25,000,000 shares authorized;   
 11,275,641 and 11,239,157 shares issued at 2015 and 2014, respectively;   
 9,753,293 and 10,245,534 shares outstanding at 2015 and 2014, respectively 27,062   26,984 
 Paid-in capital 6,129,736   6,013,325 
 Retained earnings 50,728,476   46,664,829 
 Treasury stock at cost (1,522,348 shares at 2015; 993,623 shares at 2014) (6,602,930)  (2,894,068)
 Accumulated other comprehensive income (1,649,529)  (688,058)
 Total stockholders’ equity 48,632,815   49,123,012 
 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$62,600,480  $62,873,874 
         


 
Tandy Leather Factory, Inc.
Consolidated Statements of Income
(Unaudited)
For the Three and Nine Months Ended September 30, 2015 and 2014
 
 THREE MONTHS NINE MONTHS
  2015   2014   2015   2014 
NET SALES$19,355,937  $19,417,234  $59,918,229  $58,959,307 
        
COST OF SALES 7,523,240   7,242,525   22,688,223   21,289,269 
        
Gross profit 11,832,697   12,174,709   37,230,006   37,670,038 
        
OPERATING EXPENSES 9,972,946   9,717,782   30,647,532   29,590,171 
        
INCOME FROM OPERATIONS 1,859,751   2,456,927   6,582,474   8,079,867 
        
OTHER INCOME (EXPENSE):       
Interest expense (228,235)  (63,684)  (307,160)  (154,367)
Other, net 38,320   37,525   68,070   44,203 
Total other income (expense) (189,915)  (26,159)  (239,090)  (110,164)
        
INCOME BEFORE INCOME TAXES 1,669,836   2,430,768   6,343,384   7,969,703 
        
PROVISION FOR INCOME TAXES 558,492   802,206   2,279,737   2,721,244 
        
NET INCOME$1,111,344  $1,628,562  $4,063,647  $5,248,459 
        
        
        
NET INCOME PER COMMON SHARE:       
Basic$0.11  $0.16  $0.40  $0.51 
Diluted$0.11  $0.16  $0.40  $0.51 
        
Weighted Average Number of Shares Outstanding:       
Basic 10,175,650   10,203,711   10,200,590   10,200,411 
Diluted 10,199,092   10,241,410   10,227,626   10,240,109 
                


 
Tandy Leather Factory, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, 2015 and 2014
 
  2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES:   
 Net income$4,063,647  $5,248,459 
 Adjustments to reconcile net income to net cash provided by (used in) operating activities:   
 Depreciation and amortization 1,163,116   1,088,758 
 (Gain) loss on disposal or abandonment of assets 25,782   8,603 
 Non-cash stock-based compensation 106,569   48,441 
 Deferred income taxes (67,646)  (227,486)
 Foreign currency translation (882,354)  (606,442)
 Net changes in assets and liabilities:   
 Accounts receivable-trade, net 40,042   60,403 
 Inventory (2,182,520)  (13,064,374)
 Prepaid expenses (310,400)  (11,683)
 Other current assets (91,331)  380,013 
 Accounts payable-trade 1,242,840   57,471 
 Accrued expenses and other liabilities 1,002,238   131,224 
 Income taxes payable (531,754)  (735,527)
 Total adjustments (485,418)  (12,870,599)
 Net cash provided by (used in) operating activities 3,578,229   (7,622,140)
    
CASH FLOWS FROM INVESTING ACTIVITIES:   
 Purchase of property and equipment (1,339,098)  (1,719,465)
 Proceeds from sale of assets 11,372   19,935 
 Purchase of intangible assets (10,000)  - 
 (Increase) decrease  in other assets (2,902)  6,968 
 Net cash used in investing activities (1,340,628)  (1,692,562)
    
CASH FLOWS FROM FINANCING ACTIVITIES:   
 Net (decrease) increase in revolving credit loans (3,500,000)  6,000,000 
 Proceeds from notes payable and long-term debt 3,711,224   - 
 Payment of dividend -   (2,549,683)
 Payments on notes payable and long-term debt (2,143,125)  (405,000)
 Repurchase of common stock (treasury stock) (3,708,862)  - 
 Proceeds from issuance of common stock 9,920   52,722 
 Net cash (used in) provided by financing activities (5,630,843)  3,098,039 
    
NET CHANGE IN CASH (3,393,242)  (6,216,663)
    
CASH, beginning of period 10,636,530   11,082,679 
    
CASH, end of period$7,243,288  $4,866,016 
    
    
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:   
Interest paid during the period$307,160  $154,367 
Income tax paid during the period, net of (refunds)$2,883,552  $3,690,817 
        

 


            

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