Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TLF > SEC Filings for TLF > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for TANDY LEATHER FACTORY INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for TANDY LEATHER FACTORY INC


14-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.

Our Business

We are the world's largest specialty retailer and wholesale distributor of leather and leathercraft related items. We market our products to our growing list of customers through company-owned retail and wholesale stores. We are a Delaware corporation, and our common stock trades on the NASDAQ Global Market under the symbol "TLF." We operate our business in three segments: Wholesale Leathercraft, which operates wholesale stores in North America under the trade name, The Leather Factory, Retail Leathercraft, which operates retail stores in North America under the trade name, Tandy Leather Company, and International Leathercraft, which operates combination retail/wholesale stores outside of North America under the trade name, Tandy Leather Factory. See Note 7 to the Consolidated Financial Statements for additional information concerning our segments, as well as our foreign operations.

Our Wholesale Leathercraft segment operates 29 company-owned wholesale stores in 19 states and three Canadian provinces. These stores are engaged in the wholesale distribution of leather and related items, including leatherworking tools, buckles and belt adornments, leather dyes and finishes, saddle and tack hardware, and do-it-yourself kits, to retailers, manufacturers, and end users. Our Wholesale Leathercraft segment also includes our National Account sales group, whose only customers are national craft chains.

Our Retail Leathercraft segment operates company-owned Tandy Leather Company retail stores in 37 states and six Canadian provinces. Tandy Leather Company, one of the oldest and one of the best-known suppliers of leather and related supplies used in the leathercraft industry, has been a primary leathercraft resource for decades. Tandy Leather Company's products include quality tools, leather, accessories, kits and teaching materials. In 2002, we began expanding Tandy Leather Company's industry presence by opening retail stores. As of May 1, 2013, we were operating 78 Tandy Leather Company retail stores located throughout the United States and Canada.

Our International Leathercraft segment operates 3 company-owned stores, all located outside of North America. These stores operate as combination retail / wholesale stores and consist of one store in Northampton, United Kingdom, one store in Sydney, Australia, and one store in Jerez, Spain. We expect to continue opening international stores in the future, but do not intend to open any new stores in 2013.

Critical Accounting Policies

A description of our critical accounting policies appears in Item 7 "Management's Discussions and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Forward-Looking Statements

Certain statements contained in this report and other materials we file with the Securities and Exchange Commission, as well as information included in oral statements or other written statements made or to be made by us, other than statements of historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements generally are accompanied by words such as "may," "will," "could," "should," "anticipate," "believe," "budgeted," "expect," "intend," "plan," "project," "potential," "estimate," "continue," or "future" variations thereof or other similar statements. There are certain important risks that could cause results to differ materially from those anticipated by some of the forward-looking statements. Some, but not all, of the important risks, including those described below, could cause actual results to differ materially from those suggested by the forward-looking statements. Please refer also to our Annual Report on Form 10-K for fiscal year ended December 31, 2012 for additional information concerning these and other uncertainties that could negatively impact the Company.

Our business may be negatively impacted by general economic conditions and the current global financial crisis.

Our performance is subject to worldwide economic conditions and their impact on levels of consumer spending that affect not only the ultimate consumer, but also small businesses and other retailers. Specialty retail, and retail in general, is heavily influenced by general economic cycles. Purchases of non-essential products tend to decline in periods of recession or uncertainty regarding future economic prospects, as disposable income declines. During periods of economic uncertainty, we may not be able to maintain or increase our sales to existing customers, make sales to new customers, open and operate new stores, maintain sales levels at our existing stores, maintain or increase our international operations on a profitable basis, or maintain our earnings from operations as a percentage of net sales. The United States and global economies have suffered from economic uncertainty for the past several years. Consumer spending in the United States appears to have stabilized recently, but could deteriorate in the future. As a result, our operating results may be adversely and materially affected by downward trends or uncertainty in the United States or global economies.

Our profitability may decline as a result of increasing pressure on margins.

Our industry is subject to significant pricing pressure caused by many factors, including fluctuations in the cost of the leather and metal products that we purchase and changes in consumer spending patterns and acceptance of our products. These factors may prohibit us from passing cost increases on to customers which could cause our gross margin to decline. If our product costs increase and our sale prices do not, our future operating results could be adversely affected unless we are able to offset such gross margin declines with comparable reductions in operating costs.

We may be unsuccessful in implementing our planned international expansion, which could impair the value of our brand, harm our business and negatively affect our results of operation.

We plan to grow our net sales and net earnings from our International segment by opening store in various international markets. As we expand outside of North America, we may incur significant costs relating to starting up, maintaining and expanding foreign operations. Costs may include, but are not limited to, obtaining locations for stores, hiring personnel, and travel expenses. We may be unable to open and operate new stores successfully and our growth may be limited, unless we are able to identify desirable sites for store locations, negotiate acceptable lease terms, hire, train and retain competent store personnel; manage inventory effectively to meet the needs and demands of customers on a timely basis, manage foreign currency risk effectively, and achieve acceptable operating margins from the new stores. We cannot be sure that we can successfully open new stores or that our new stores will be profitable.

As we continue to increase our international operations, we face the possibility of greater losses from a number of risks inherent in doing business in international markets and from a number of factors which are beyond our control, such as political instability or acts of terrorism, which disrupt trade with the countries in which our suppliers or customers are located; local business practices that do not conform to legal or ethical guidelines; restrictions or regulations relating to imports or exports; additional or increased customs duties, tariffs, taxes and other charges on imports; significant fluctuations in the value of the dollar against foreign currencies; social, legal or economic instability in the foreign markets in which we do business, which could influence our ability to sell our products in these markets; and restrictions on the transfer of funds between the United States and foreign jurisdictions.

We assume no obligation to update or otherwise revise our forward-looking statements even if experience or future changes make it clear that any projected results, express or implied, will not be realized.


TABLE OF CONTENTS
Results of Operations

The following tables present selected financial data of each of our three
segments for the quarters ended March 31, 2013 and 2012.

                        Quarter Ended March 31,        Quarter Ended March 31,
                                 2013                           2012
                          Sales         Income           Sales         Income
                                         from                           from
                                      Operations                     Operations
Wholesale Leathercraft  $6,729,734    $1,012,965       $7,152,417    $1,232,852
Retail Leathercraft     11,559,861     1,514,839       10,282,814     1,358,725
Int'l Leathercraft         948,232        93,056          741,847      (37,402)
Total Operations       $19,237,827    $2,620,860      $18,177,078    $2,554,175

Consolidated net sales for the quarter ended March 31, 2013 increased $1.1 million, or 5.8%, compared to the same period in 2012. International Leathercraft reported the largest sales gain of 27.8%, followed by Retail Leathercraft, reporting a sales gain of 12.4%. Wholesale Leathercraft reported a sales decrease of 5.9% due to the continued decline in sales to our National Account customers as a result of the elimination of certain products that have not historically produced an acceptable gross profit margin. Income from operations on a consolidated basis for the quarter ended March 31, 2013 was up 2.6%, or $67,000, from the first quarter of 2012.

The following table shows in comparative form our consolidated net income for the first quarters of 2013 and 2012:

2013 2012 % change Net income $1,586,321 $1,574,105 0.8%

All segments contributed to our increased consolidated net income. Additional information appears below for each segment.

Wholesale Leathercraft

Our Wholesale Leathercraft operation consists of 29 wholesale stores and our
National Account sales group. The National Account sales group's customers
consist of national craft chains only. The following table presents the combined
sales mix by customer categories for the quarters ended March 31, 2013 and 2012:

                                                 Quarter ended
Customer Group                                03/31/13   03/31/12
 RETAIL (end users, consumers, individuals)        35%        30%
 INSTITUTION (prisons, prisoners, hospitals,        6%         4%
schools, youth organizations, etc.)
 WHOLESALE (resellers & distributors, saddle       46%        45%
& tack shops, authorized dealers, etc.)
 MANUFACTURERS                                      7%         7%
 NATIONAL ACCOUNTS                                  6%        14%
                                                  100%       100%

Net sales decreased 5.9%, or $423,000, for the first quarter of 2013 compared to the first quarter of 2012 as follows:

                 # Stores Qtr Ended    # Stores Qtr Ended     $ Change  % Change
                           03/31/13              03/31/12
Same store sales    29    $6,444,321      29    $6,340,785     $103,536     1.6%
National account             285,413               811,632    (526,219)  (64.8)%
group
Total sales         29    $6,729,734      29    $7,152,417   $(422,683)   (5.9)%

Sales to our retail customers increased in the first quarter of 2013 compared to the first quarter of 2012, while sales to our wholesale, institution and manufacturer account group customers were down slightly. Sales to our national account customers continue to decline due to the elimination of certain products that these customers were buying from our product line. Income from operations for Wholesale Leathercraft during the current quarter decreased by $220,000 from the comparative 2012 quarter, a decline of 18%.

The decrease in gross profit of $365,000 contributed to the decline in income from operations, partially offset by a decrease in operating expenses. Gross profit as a percentage of sales decreased from 63.3% in the first quarter of 2012 to 61.9% in the first quarter of 2013, due to an increase in sales of leather, which brings lower gross profit margins compared to the other products in our line. Operating expenses increased slightly as a percentage of sales, but decreased $145,000 compared to last year's comparable period, despite an increase in advertising and marketing expenses of $217,000. This was offset somewhat by a decrease in legal fees of $88,000.

Retail Leathercraft

Our Retail Leathercraft operation consists of 78 Tandy Leather Company retail
stores at March 31, 2013, versus 77 stores as of March 31, 2012. Net sales
increased 12.4% for the first quarter of 2013 over the same quarter last year. A
store is categorized as "new" until it is operating for the full comparable
period in the prior year.

                 # Stores  Qtr Ended    # Stores  Qtr Ended     $ Change  % Change
                           03/31/13               03/31/12
Same store sales    77    $11,440,142      77    $10,282,814   $1,157,328    11.3%
New store sales     1         119,719      -               -      119,719      N/A
Total sales         78    $11,559,861      77    $10,282,814   $1,277,047    12.4%

The following table presents sales mix by customer categories for the quarters ended March 31, 2013 and 2012 for our Retail Leathercraft operation:

                                                 Quarter ended
Customer Group                                03/31/13   03/31/12
 RETAIL (end users, consumers, individuals)        62%        62%
 INSTITUTION (prisons, prisoners, hospitals,        3%         4%
schools, youth organizations, etc.)
 WHOLESALE (resellers & distributors, saddle       33%        31%
& tack shops, authorized dealers, etc.)
 NATIONAL ACCOUNTS                                   -          -
 MANUFACTURERS                                      2%         3%
                                                  100%       100%

Sales to retail and wholesale customer groups increased over the first quarter of 2012, while sales to institution and manufacturer customer groups declined slightly over the same period.

Income from operations increased $156,000, or 11%, from the comparative 2012 quarter due to an increase in gross profit partially offset by an increase in operating expenses. Our gross profit increased by $789,000 from the prior period primarily due to higher sales. Operating expenses as a percentage of sales remained virtually unchanged at 49% from the first quarter of 2012. The increase in operating expenses of $633,000 compared to the first quarter of 2012 was caused by increases in employee compensation and benefits ($147,000), rent expense ($35,000), supplies ($33,000), freight out ($42,000), credit card fees ($25,000), travel expenses ($23,000) and advertising and marketing expenses ($97,000).


TABLE OF CONTENTS
International Leathercraft

International Leathercraft consists of all stores located outside of North America. As of March 31, 2013 and 2012, the segment contained three stores located in United Kingdom, Australia, and Spain. This segment's sales totaled $948,000 for the first quarter of 2013, compared to $742,000 in the first quarter of 2012, an improvement of 28%. Operating expenses totaled $511,000 in the first quarter of 2013, up from $501,000 in the first quarter of 2012. Employee compensation is this segment's largest expense, followed by advertising and marketing expenses, rent, travel, and shipping costs to customers.

Other Expenses

We paid $56,000 in interest on our bank debt in the first quarter of 2013, compared to $58,000 in the first quarter of 2012. Due to the reduction in short-term investments compared to last year, we recorded $1,000 in interest income on our cash balances during the quarter compared to $5,000 a year ago. We recorded income of $13,000 for currency fluctuations in the first quarter of 2013. Comparatively, in the first quarter of 2012, we recorded income of $4,000 for currency fluctuations.

Capital Resources, Liquidity and Financial Condition

On our consolidated balance sheet, total assets increased from $49.1 million at year-end 2012 to $49.7 million at March 31, 2013. Total stockholders' equity increased from $37.5 million at December 31, 2012 to $38.9 million at March 31, 2013, the increase being attributable to our net income earned in the first quarter of 2013. Our current ratio increased from 4.5 at December 31, 2012 to 5.0 at March 31, 2013 due primarily to the decrease in accrued expenses during the first quarter of 2013.

As of March 31, 2013, our investment in inventory decreased by $504,000 from year-end 2012. Inventory turnover reached an annualized rate of 3.40 times during the first quarter of 2013, slightly more than 3.30 times for the first quarter of 2012. Inventory turnover was 3.18 times for all of 2012. We compute our inventory turns as sales divided by average inventory.

Trade accounts receivable was $935,000 at March 31, 2013, up $112,000 from $823,000 at year-end 2012. The average days to collect accounts decreased to 40 days for the first quarter of 2013, an improvement from the average days to collect accounts in the first quarter of 2012 of 48 days. We are constantly monitoring our customer accounts very closely in order to minimize the risk of uncollectible accounts in the current economic environment. Our allowance for doubtful accounts decreased from year-end 2012 to March 31, 2013 as a result of our collecting a number of various older accounts, which also contributed to the reduction in the days outstanding.

Accounts payable increased slightly to $1.8 million at March 31, 2013 compared to $1.6 million at year-end 2012. Accrued expenses decreased from $5.9 million at December 31, 2012 to $4.5 million at March 31, 2013. The payment of the 2012 manager bonuses during the first quarter of 2013 accounted for the reduction.

During the first quarter of 2013, cash flow provided by operating activities was $495,000. Net income of $1.6 million and the reduction of inventory of $504,000, offset by the reduction in accrued expenses of $1.4 million accounted for the majority of the operating cash provided in the first quarter of 2013.

By comparison, during the first quarter of 2012, cash flow used by operating activities was $2.0 million. The increase in inventory of $4.2 million from year-end 2011, offset by net income of $1.6 million and the increase in accounts payable of $725,000 from year-end 2011, accounted for the majority of the operating cash used in the first quarter of 2012.

Cash flow used by investing activities totaled $986,000 in the first quarter of 2013, consisting primarily of building construction in progress of a building to house our flagship store, which is expected to open in June 2013, and store fixture purchases. In the first quarter of 2012, cash provided by investing activities totaled $204,000, consisting primarily of certificate of deposit maturities of $336,000 being offset somewhat by purchases of store fixtures and computer equipment totaling $140,000.

Cash flow used by financing activities totaled $51,000 in the first quarter of 2013, consisting entirely of debt repayments. In the first quarter of 2012, cash flow used by financial activities consisted of a one-time cash dividend of $2.5 million and debt repayments of $51,000.

We expect to fund our operating and liquidity needs as well as our store growth from a combination of current cash balances and internally generated funds.

  Add TLF to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TLF - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.