Withdraws prior guidance as new leadership provides fresh view of the business

FORT WORTH, Texas, Nov. 07, 2018 (GLOBE NEWSWIRE) -- Tandy Leather Factory, Inc. (NASDAQ: TLF) today reported financial results for the third quarter of 2018:

• Q3’18 net sales increased 2.7% to $18.9 million, compared to prior year’s $18.4 million.  North America reported SSS increase of 2.8% while International reported SSS decline of 13.1%.  New stores added $0.1 million of sales. 
• Q3’18 operating income was $0.3 million compared to prior year’s $0.6 million, or a decrease of $0.3 million.   Gross profit increased $0.2 million, while operating expenses increased $0.5 million.

“The improvement to our top line reflects a continued shift in sales to our retail customer base and an overall positive reception to the launch of our new product category of small machines,” said Tina Castillo, Chief Financial Officer.  “During the third quarter, our teams made progress by opening two new stores in North America, closing one international store, and experimenting with Sunday openings, all of which led to an increase in our operating expenses, quarter over quarter.  In addition, the recent changes in leadership also had some cost impacts to our operating expenses.”

Consolidated net loss for the quarter ended September 30, 2018 was $122,000 compared to $521,000 of net income for the third quarter of 2017.  Fully diluted earnings per share for the third quarter of 2018 was a $0.01 loss, compared to $0.06 income in last year’s third quarter.  For the quarter, higher sales and gross profit were driven by trends in retail vs non-retail customer mix, as well as product mix, with more non-leather sales than leather.  Operating expenses increased $167,000 from the two new stores opened in July 2018, $200,000 of higher labor costs resulting from a tight labor market and our new extended hours including Sunday openings, as well as $304,000 of legal and advisory costs incurred in connection with our recent changes in leadership.  These increases in operating costs were partially offset by lower advertising spend.  Finally, an additional $250,000 of transition tax related to foreign earnings was finalized with our 2017 tax return filed in October 2018.  This additional tax was incurred as certain foreign net losses were subjected to federal limitation rules and did not provide anticipated benefits against cumulative Canadian earnings.

Consolidated sales for the nine months ended September 30, 2018 were $58.4 million, up 0.9% from 2017’s comparable period sales of $57.8 million.  Consolidated net income for the first nine months of 2018 decreased to $2.6 million or $0.28 per fully-diluted share versus $2.8 million or $0.30 per fully-diluted share in the comparable period last year.

Consolidated gross profit margin for the year to date was 64.8%, compared to 63.7% for the year to date 2017.  Consolidated operating expenses increased approximately 3.0% or $969,000 for the year to date, compared to the same period in 2017.   Significant increases in operating expenses related to five new stores opened since the beginning of 2017, investments in our district manager program and new small machine product launch, higher labor costs associated with extended store hours including Sunday openings and a tighter labor market, legal and advisory costs associated with recent changes in leadership, and the closure of Northampton, UK store.  These increases in operating costs were partially offset by lower marketing and advertising spend.

At September 30, 2018, inventory totaled $40.7 million, with an average inventory per store of $190,000 (excluding inventory at our home office manufacturing and distribution center and in-transit inventory).  Compared to a year ago, inventory has decreased $0.4 million.

Newly-appointed Tandy CEO Janet Carr said, “My first few weeks with Tandy have been incredibly exciting.  Tandy’s long history and heritage give the brand a strong foundation to rebuild our credibility in leathercrafting, and to create an emotional and engaging retail experience.  There is a lot of work ahead of us, but we see tremendous opportunity to broaden our customer reach, rebuild our brand equity, and create a platform for long term growth.  I look forward to sharing more in the coming months.”

Financial Outlook

At this time, given our financial results year to date and recent changes in leadership, we are withdrawing our prior guidance for estimated 2018 sales and EPS. 

Conference Call Information

A conference call will be conducted by senior management at 10:00 a.m. Eastern Time on November 8, 2018 and will be accessible to the public by calling 877-312-5524 or 253-237-1144.  Callers should dial in approximately 5 minutes before the call begins. A conference call replay will be available through 1:00 p.m. Eastern Time on November 13, 2018 and can be accessed by calling 855-859-2056 or 404-537-3406.  For both, reference conference ID number 4869105.  This call will be webcast and can be accessed at the company’s web site at www.tandyleather.com.   

Tandy Leather Factory, Inc., (http://www.tandyleather.com), headquartered in Fort Worth, Texas, is a specialty retailer 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 117 North American stores located in 42 US states and 7 Canadian provinces, and three International 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:

International – we announced the closure of our Northampton, UK store at the end of September 2018 and there were no new stores for the three and nine-months ended September 30, 2018 and 2017, so total sales are equal to same store sales.

TANDY LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS

TANDY LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,

TANDY LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,