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

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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 

 

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