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Tandy Leather Factory Reports 2nd Quarter 2015 Earnings Down 15%

FORT WORTH, Texas, Aug. 06, 2015 (GLOBE NEWSWIRE) -- Tandy Leather Factory, Inc. (NASDAQ:TLF) today reported financial results for the second quarter of 2015. Consolidated net income for the quarter ended June 30, 2015 was $1.5 million compared to consolidated net income of $1.8 million for the second quarter of 2014, a decrease of 15%. Fully diluted earnings per share for the quarter were $0.15, compared to $0.17 in the second quarter of last year. Total sales for the quarter ended June 30, 2014 were $19.8 million, up 0.4% from $19.7 million in the second quarter last year.

Consolidated sales for the six months ended June 30, 2015 were $40.6 million, up 3% from 2014’s first half sales of $39.5 million. Consolidated net income for the first half of 2015 was down 18% to $3.0 million or $0.29 per fully-diluted share versus $3.6 million or $0.35 per fully-diluted share in the comparable period last year.

Sales in the Retail Leathercraft segment, which consists of the Tandy Leather stores, increased $331,000 in the second quarter, a 3% improvement over last year's second quarter. Eighty-two stores comprised Tandy Leather's operations on June 30, 2015. For the first six months of 2014, Retail Leathercraft’s sales increased $1.5 million, or 6%, over the first six months of 2014. Second quarter sales for the Wholesale Leathercraft segment, which consists of the Leather Factory stores, were down 1%, or $63,000, from the same quarter last year. For the first six months of 2015, Wholesale Leathercraft’s sales were down $162,000, or 1%, compared to the same period in 2014. International Leathercraft, consisting of three stores located in the United Kingdom, Spain and Australia, reported a sales decrease of 19%, or $198,000, compared to the second quarter of 2014. For the year, International Leathercraft’s sales were down 14%, or $302,000, over the same period last year.

Consolidated gross profit margin for the current quarter was 64.8%, compared to 64.9% for the second quarter of 2014. For the first two quarters of this year, consolidated gross profit margin was 62.6%, decreasing from last year's gross profit margin of 64.5%. Consolidated operating expenses rose approximately 4% for both the quarter and the year, or $357,000 in the current quarter and $802,000 for the first six months over the same periods a year ago. For the second quarter, the significant increases in expenses occurred in employee compensation, depreciation, legal fees, and outside services. For the year, expenses increases occurred in employee compensation and benefits, depreciation, advertising and marketing, relocation expenses, and store rent. As a percentage of sales, consolidated operating margin declined for the quarter to 11.8% compared to 13.5% last year’s second quarter. On a year-to-date basis, consolidated operating margin increased from 14.2% last year to 11.6% in the current year.

Jon Thompson, Chief Executive Officer and President, commented, “We are disappointed with our second quarter results, although there were some improvements from the first quarter. Our gross profit margin matched that of last year’s second quarter as the majority of the delivery issues we dealt with earlier this year have been resolved, albeit late in the second quarter. While our June sales were good, the first two months of the quarter were extremely weak, which explains the flat sales for the quarter. Looking at the last half of the year, the comps are tough, given the inventory levels we were carrying last year. Those special opportunity purchases of leather that are instrumental to supporting sales and margins were in abundance last year compared to this year. Unless that changes soon, we are going to have a tough time matching last year’s sales. The difficulty is that we can’t predict when those purchases might present themselves so we have to plan like they won’t.”

Shannon L. Greene, Chief Financial Officer, added, “Operating expenses are increasing faster than sales and we will be focusing on expense control through the last half of the year. However, the significant expense increases are in employee compensation and benefits, primarily at the stores due to increased headcount, advertising and marketing, and store rents and utilities, which is the result of the store relocations into larger space. We believe those expenses contribute to an improved customer experience so it would be difficult to trim them back without a negative impact on our customers. As was the case in the first quarter, the foreign currency exchange rates continue to affect us negatively. If the exchange rates this year had matched last year’s rates, our International Leathercraft segment would be reporting flat sales this year, rather than a 14% decline. Unfortunately, we don’t expect the rates to turn around any time soon so the negative impact will continue for the remainder of the year.”

Financial Outlook:

The following statements are based on TLF's current expectations as of August 6, 2015. These statements are forward-looking statements and should be read in conjunction with the cautionary information about these statements that appears below.

The Company expects to open 1-2 stores in 2015. Estimated consolidated net sales for 2015 will be in the range of $83-$84 million. EPS for 2015 are expected to be in the range of $0.60 to $0.63. Average shares outstanding, both basic and diluted, in 2015 are estimated to be approximately 10.2 million. The Company assumes an effective tax rate for the year between 35% and 36%.

Tandy Leather Factory, Inc., (http://www.tandyleather.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 19 states and 3 Canadian provinces, 82 Tandy Leather retail stores, located in 37 states and 6 Canadian provinces, and three 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.

Contact:Shannon L. Greene, Tandy Leather Factory, Inc.(817) 872-3200 or shannon.greene@tandyleather.com
Mark Gilbert, Magellan Fin, LLC(317) 867-2839 or MGilbert@MagellanFin.com


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 06/30/15 Quarter Ended 06/30/14


Sales

Operating

Income


Sales

Operating

Income
Wholesale Leathercraft$6,394,278 $968,552 $6,457,467 $1,106,942
Retail Leathercraft 112,532,411 1,336,669 12,201,624 1,427,913
International Leathercraft 846,839 28,621 1,044,516 121,422
Total Operations$19,773,528 $2,333,842 $19,703,607 $2,656,277


Six Months Ended 06/30/15 Six Months Ended 06/30/14


Sales

Operating

Income


Sales

Operating

Income
Wholesale Leathercraft$13,119,582 $1,920,407 $13,281,435 $2,479,579
Retail Leathercraft 25,641,824 2,740,121 24,157,978 2,900,616
International Leathercraft 1,800,886 62,195 2,102,660 242,745
Total Operations$40,562,292 $4,722,723 $39,542,073 $5,622,940


Wholesale Leathercraft Quarter Ended 06/30/15 Quarter Ended 06/30/14
# of storesSales # of storesSales
Same store sales28$6,394,278 28$6,333,373
Closed store sales- - 1 118,291
National account groupn/a - n/a 5,803
Total Sales – Wholesale Leathercraft28$6,394,278 29$6,457,467


Wholesale Leathercraft Six Months Ended 06/30/15 Six Months Ended 06/30/14
# of storesSales # of storesSales
Same store sales28$13,119,582 28$12,686,904
Closed store sales- - 1 245,881
National account groupn/a - n/a 348,650
Total Sales – Wholesale Leathercraft28$13,119,582 29$13,281,435


Retail Leathercraft Quarter Ended 06/30/15 Quarter Ended 06/30/14
# of storesSales # of storesSales
Same store sales80$12,336,098 80$12,201,624
New store sales2 196,313 - -
Total Sales – Retail Leathercraft82$12,532,411 80$12,201,624


Retail Leathercraft Six Months Ended 06/30/15 Six Months Ended 06/30/14
# of storesSales # of storesSales
Same store sales79$25,047,620 79$24,037,433
New store sales3 594,204 1 120,545
Total Sales – Retail Leathercraft82$25,641,824 80$24,157,978


International Leathercraft Quarter Ended 06/30/15 Quarter Ended 06/30/14
# of storesSales # of storesSales
Same store sales3$846,839 3$1,044,516
New store sales- - - -
Total Sales – Intl Leathercraft3$846,839 3$1,044,516


International Leathercraft Six Months Ended 06/30/15 Six Months Ended 06/30/14
# of storesSales # of storesSales
Same store sales3$1,800,886 3$2,102,660
New store sales- - - -
Total Sales – Intl Leathercraft3$1,800,886 3$2,102,660


Tandy Leather Factory, Inc.

Consolidated Balance Sheets

June 30,
2015
(unaudited)
December 31,
2014
(audited)
ASSETS
CURRENT ASSETS:
Cash$10,867,362 $10,636,530
Accounts receivable-trade, net of allowance for doubtful accounts
of $2,060 and $395 in 2015 and 2014, respectively 758,894 625,054
Inventory 32,810,251 32,875,492
Prepaid income taxes 623,815 336,828
Deferred income taxes 312,943 371,491
Prepaid expenses 1,347,391 1,348,652
Other current assets 121,055 157,758
Total current assets 46,841,711 46,351,805
PROPERTY AND EQUIPMENT, at cost 23,042,912 22,199,943
Less accumulated depreciation and amortization (7,641,889) (7,037,665)
15,401,023 15,162,278
GOODWILL 963,769 971,786
OTHER INTANGIBLES, net of accumulated amortization of approximately
$686,000 and $665,000 in 2015 and 2014, respectively 35,470 58,026
OTHER assets 327,993 329,979
TOTAL ASSETS$63,569,966 $62,873,874
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable-trade$1,679,012 $1,255,218
Accrued expenses and other liabilities 6,661,964 5,394,514
Current maturities of long-term debt 202,500 3,702,500
Total current liabilities 8,543,476 10,352,232
DEFERRED INCOME TAXES 1,408,192 1,458,005
LONG-TERM DEBT, net of current maturities 1,631,813 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;
10,282,018 and 10,245,534 shares outstanding at 2015 and 2014, respectively 27,062 26,984
Paid-in capital 6,090,984 6,013,325
Retained earnings 49,617,132 46,664,829
Treasury stock at cost (993,623 shares at 2015 and 2014) (2,894,068) (2,894,068)
Accumulated other comprehensive income (854,625) (688,058)
Total stockholders’ equity 51,986,485 49,123,012
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$63,569,966 $62,873,874


Tandy Leather Factory, Inc.

Consolidated Statements of Income
(Unaudited)
For the Three and Six Months Ended June 30, 2015 and 2014

THREE MONTHS SIX MONTHS
2015 2014 2015 2014
NET SALES$19,773,528 $19,703,607 $40,562,292 $39,542,073
COST OF SALES 6,959,147 6,924,001 15,164,983 14,046,744
Gross profit 12,814,381 12,779,606 25,397,309 25,495,329
OPERATING EXPENSES 10,480,539 10,123,329 20,674,586 19,872,389
INCOME FROM OPERATIONS 2,333,842 2,656,277 4,722,723 5,622,940
OTHER INCOME (EXPENSE):
Interest expense (34,762) (44,855) (78,925) (90,683)
Other, net 9,877 5,334 29,750 6,678
Total other income (expense) (24,885) (39,521) (49,175) (84,005)
INCOME BEFORE INCOME TAXES 2,308,957 2,616,756 4,673,548 5,538,935
PROVISION FOR INCOME TAXES 801,061 851,271 1,721,245 1,919,038
NET INCOME$1,507,896 $1,765,485 $2,952,303 $3,619,897
NET INCOME PER COMMON SHARE:
Basic$0.15 $0.17 $0.29 $0.35
Diluted$0.15 $0.17 $0.29 $0.35
Weighted Average Number of Shares Outstanding:
Basic 10,212,933 10,198,733 10,212,137 10,198,733
Diluted 10,241,164 10,239,823 10,241,130 10,239,447


Tandy Leather Factory, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 2015 and 2014

2015 2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income$2,952,303 $3,619,897
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization 809,456 715,920
(Gain) loss on disposal or abandonment of assets 25,204 (1,409)
Non-cash stock-based compensation 77,737 29,065
Deferred income taxes 8,735 (143,413)
Foreign currency translation (121,909) 84,854
Net changes in assets and liabilities:
Accounts receivable-trade, net (133,840) (33,701)
Inventory 65,241 (9,700,760)
Prepaid expenses 1,261 331,773
Other current assets 36,703 128,361
Accounts payable-trade 423,794 171,275
Accrued expenses and other liabilities 1,267,450 888,235
Income taxes payable (286,987) (740,505)
Total adjustments 2,172,845 (8,270,305)
Net cash provided by (used in) operating activities 5,125,148 (4,650,408)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,088,231) (949,082)
Proceeds from sale of assets 741 18,736
Decrease (increase) in other assets 1,986 4,984
Net cash used in investing activities (1,085,504) (925,362)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving credit loans - 2,250,000
Payments on notes payable and long-term debt (3,808,812) (354,375)
Net cash provided by (used in) financing activities (3,808,812) 1,895,625
NET DECREASE IN CASH 230,832 (3,680,145)
CASH, beginning of period 10,636,530 11,082,679
CASH, end of period$10,867,362 $7,402,534
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period$78,925 $90,683
Income tax paid during the period, net of (refunds)$2,003,680 $2,567,257
NON-CASH INVESTING ACTIVITIES:
Accrued dividend - $2,549,684


Source:Tandy Leather Factory, Inc.