Tandy Leather Factory Inc (TLF) 2006 Q3 法說會逐字稿

Good morning. Welcome to the Tandy Leather Factory Third Quarter 2006 Earnings Conference Call. [Operator Instructions]

Before I turn the call over to Ms. Greene, I want to call your attention to the fact that these conversations will contain forward-looking statements, to the extent Tandy Leather Factory management speaks today of any future events or makes other forward-looking statements. You are reminded of the inherent uncertainties of looking into the future; that there are risks to Tandy Leather Factory that could prevent these events from occurring in the manner foreseen.

Please see Tandy Leather Factory's Form 10-K for 2005 for a discussion of some of these risks. Copies of these documents are available through the SEC's EDGAR system or from the Company's Investor Relations office.

Also, statements made today by management of Tandy Leather Factory are made as of this moment, and Tandy Leather Factory and its management disclaim any duty to the update of these statements.

I would now like to turn the floor over to your host, Ms. Shannon Greene. Ms. Greene, you may begin.

Thank you.

Thank you for joining us for our Third Quarter 2006 Earning Conference Call. I'm Shannon Greene, Chief Financial Officer of Tandy Leather Factory. Mr. Thompson, our Chief Executive Officer, is out of town, so I will be chairing our call today. I will be joined by our President, Ron Morgan, once we get to the Q&A portion of the call.

We are fairly pleased with our third quarter results, although I must say, frankly, that I'm glad the quarter's over. Our goal for 2006 is to grow our earnings faster than our sales, and we've accomplished that every quarter so far this year.

Compared to the third quarter of 2005, consolidated sales increased 7%, and income from operations increased 40%. Our financial position is in good shape, with assets totaling $30 million. At September 30th, we had cash of almost $5 million and inventory of $17 million, while our trade accounts payable was up to $3 million.

You might find it interesting that a year ago at this time, we had a little more inventory, a little more in payables and a lot less cash, and 14 fewer stores than we have now.

As a reminder, the Wholesale Leathercraft division refers to the 29 wholesale distribution centers under the trade name The Leather Factory and our National Account sales group. National Accounts generally refers to the larger retail craft chains. The Retail Leathercraft division consists of the Tandy Leather Retail store chain. There were 62 stores in the chain as of September 30th, 12 of which were opened in 2006. We converted one Leather Factory Wholesale center to a Tandy Leather Retail store in January of this year, and that store is included in the number of new retail stores opened this year.

Our Wholesale Leathercraft division posted a sales decline of 2% this quarter. The wholesale center's sales were flat, within $2,700 of last year's quarterly sales. National Accounts posted a 3% loss, or $35,000 for the quarter. Wholesale Leathercraft is also dealing with the conversion of the one wholesale center to a retail store this year, which affected the sales comparison by $106,000. Gross profit slid two percentage points, while operating margin increased by 40%.

Our Retail Leathercraft division continued its contribution to an overall sales increase, although we did not get the results we wanted in the third quarter. The Tandy Leather Retail store chain grew from 44 stores to 62 stores during the trailing 12 months ended September 2006, and we're still maintaining our commitment of funding this growth from internal cash flow.

Sales are up 22% in this quarter over last year. Gross margins declined almost one percentage point, but our operating margin increased by slightly more than that. We believe our investment in the opening of our 12 new stores earlier in the year is beginning to pay off.

Now for the details of the quarterly results -- third quarter consolidated sales increased 6.6%. Current quarter sales were $12.6 million compared to last year's third quarter sales of $11.8 million. Wholesale Leathercraft sales were $7.1 million this quarter compared to $7.2 million a year ago, a decrease of 2%.

Breaking it down further, the wholesale distribution centers reported sales of $6 million, again within $2,700 of its third quarter '05 sales. Our National Account sales group posted a 3% sales decrease for the quarter, reporting sales of $1.1 million, compared to $1.2 million last year.

We believe sales to our National Account customers will continue to become a smaller part of our business, as we further the expansion of the retail store chain. However, that's not to say we won't continue our efforts toward modest and reasonable sales growth from this customer group.

Our Retail Leathercraft division reported sales of $5.1 million, compared to last year's sales of $4.2 million, an increase of 22%. Sales from the 19 new stores were $794,000 this quarter. The 46 comparable stores posted sales of $4.3 million, an increase of 3.9% compared to last year.

Consolidated gross profit margin for the quarter was 56.3%, a slight decline from last year's gross profit margin of 57.4%. Wholesale Leathercraft's gross profit margin declined from 56.5% last year to 54.1% this year. Retail Leathercraft's gross profit margin declined from 61.3% for the third quarter '05 to 60.4% for the third quarter '06.

Consolidated operating expenses were $5.8 million, or 46.2% of sales in the current quarter; compared to $5.9 million, or 49.8% of sales last year. Wholesale Leathercraft reported operating expenses totaling 41.2% of its sales, versus 47.5% last year. And Retail Leathercraft reported operating expenses of 53.4% of its sales currently, compared to 55.5% last year.

Income from operations was $1.3 million for the quarter, up $366,000 or 40.7%, compared to the third quarter of '05. Wholesale Leathercraft's operating margin was 12.8% for the quarter. Retail Leathercraft's operating margin was 7.1% for the quarter.

Now for the nine-months results -- consolidated sales are up 10.1% over the same period last year. 2006 sales are $40.4 million, compared to 2005 sales of $36.7 million. Wholesale Leathercraft sales are $23.3 million this year versus $22.8 million a year ago, an increase of 1.8%. Retail Leathercraft sales are $15.8 million, compared to last year of $12.6 million, an increase of 26%.

Consolidated gross profit margin for the year is 56.8%, the same as last year's margin. Wholesale Leathercraft's gross profit margin increased minimally, to 55.6% this year compared to 55.5% last year. Retail Leathercraft's gross profit margin is 60.8% currently, versus 61.9% last year.

Given the challenges that we were facing, we feel we accomplished our goal of maintaining margins as of the end of the third quarter, particularly from the cost side. From the sales side, we had two things working against us. First, as we discussed on our last call, leather is the lowest-margin item we sell. However, it's also what brings customers to our stores. We have intentionally increased the amount of leather at the stores during the last 90 days. And as a result, the stores are selling more leather. All else being equal, selling more leather can result in lower gross profit margins. On the flip side, it should positively impact sales.

Secondly, the third quarter is the last one in which we are selling product at the selling prices we set a year ago. Remember, our retail selling prices are set in conjunction with the production of our annual catalog every October. And it is very difficult to change those prices during the life of that catalog. In order to maintain margins, particularly at the retail stores, we have to predict cost fluctuations accurately a year out. If our margins hold or increase, then we did a good job of estimating cost fluctuations. If margins suffer, then we didn't predict as well.

Our new catalog was released on October 1st. With new retail prices in it, we should see an improvement in our fourth quarter gross margin compared to the second and third quarters.

Consolidated operating expenses were $17.9 million, or 44.4% of sales in the current year; compared to $17 million, or 46.5% of sales last year. Wholesale Leathercraft reported operating expenses totaling 39.8% of its sales, versus 43.8% last year. And Retail Leathercraft reported operating expenses totaling 52.4% of its sales currently, compared to 53.6% last year. Income from operations is $5 million this year, an increase compared to year-to-date 2005 of 32.1%.

Some specifics regarding the Tandy stores -- stores open in 2002 -- for the third quarter, the sales were $1.6 million. Gross profit was 60.1%. Operating income was 10.7%. For the nine months ended September 30th, the sales for those same stores were $5.1 million; gross profit percentage, 61.1%; operating income, 12.3 percent.

For the stores opened in 2003, sales were $1 million for the quarter. Gross profit percentage was 62.4%. Operating income was 9.1%. For the year, those same-store sales were $3.4 million; gross profit of 61.9%, operating income of 10%.

For the stores opened in [2002], sales were $1.4 million for the quarter. Gross profit was 58.9%, operating income was 6.5%. For the year, those store sales were $4.5 million, gross profit was 59.9%, operating income was 9.1%.

For the stores opened in 2005, sales for this quarter were $461,000, gross profit was 59%, operating loss was 6.3%. For the year-to-date, the 2005 store sales were $1.5 million, gross profit was 59.5%; operating loss of 2.3%.

For the third quarter of '06, average monthly sales per store was $30,000. The stores open in 2002 had average monthly sales of $39,000 per store. The 2003 and 2004 stores each averaged $29,000 per store, and the 2005 stores averaged $19,000 per store.

Wholesale Leathercraft results for the third quarter are sales of -- I'm sorry -- sales of $7.1 million, gross profit of 54.1%, operating income of 12.8%. For the year, sales are $23.3 million, gross profit of 55.6%, operating income of 15.8%. All 29 wholesale centers posted year-to-date profits as of the end of September.

I was very pleased with our inventory as of the end of the quarter. Total inventory was only 1% higher than at the end of June, and approximately $400,000 less than at September 30th last year. Given that we've got 14 more stores than we had a year ago, I think we did an even better job managing our inventory this quarter than the numbers reflect. We've worked hard to ensure we've got the right products in stock for what we expect will be a strong fourth quarter.

I was also pleased to see our cash balances as of the end of the quarter, although I'm very aware we can impact the amount of cash on the balance sheet by our accounts payable balance. I would point out, though, that when you compare September 30th, '06 to September 30th, '05, we have almost twice as much cash this year than last, and 3% less in trade payables.

In summary, we are glad to be through the third quarter. And I expect we'll approach it a little differently next year, particularly on the sales side. Frankly, we weren't as aggressive as we should have been going into the third quarter, knowing that it's always a tough quarter for us. We got a little nervous in an attempt to protect margins, and didn't market as aggressively as we should have. Specifically, the features in our advertising fliers were not as appealing as they should have been and, as a result, did not draw the customers in.

Also, particularly at the retail stores, what carries us through the summer is our summer camp and youth group business. We didn't work on those relationships early enough in the year, when those customers are planning their summer activities. If you wait to call on those people in July, it's too late. I don't expect we'll make those same mistakes again next year.

On a positive note, we achieved strong earnings growth again this quarter, adding another quarter of earnings growing faster than sales. We are committed to continued execution of our expansion strategy and believe it is working well.

That concludes my prepared remarks. Operator, we are now ready to take questions.

[Operator Instructions] Robert Straus.

This is Robert Straus, from Merriman Curhan & Ford. Hi, guys, how are you doing today?

Hey, Robert, good.

Just a few questions -- sales -- while it did not come in as you had expected or hoped -- it looks like profitability really showed up strong. And with the weakness in July and August, which is your seasonally low point of the year, can you talk to us a little bit about product mix and how you were able to achieve strong profitability, while the sales didn't exactly meet your expectations?

I don't know if -- this is Ron Morgan -- I don't know if the sales mixes contributed as much to the strong profitability more so than the watching -- when we did have our sales worse off, we watched our expenses a little closer. And as Shannon pointed out, our operating costs were down that quarter compared to the year before. And that's what really produced the good profits.

Yes, Robert, I would say that -- I mean, our margins -- our gross profit margins -- did not improve. So we didn't -- the profitability didn't come from --

[Extra growth] [inaudible].

-- better costing, extra gross profit margin, at least on a percentage basis. We are continuing to tighten up on operating expenses, as has been evident for the last several quarters. And when sales are soft, we get a little bit even more tight to make sure that we can still generate the earnings that we want, even if our sales and our gross profit margins didn't come in quite where we wanted.

Regarding the price increase that you'll have in the catalog that just went out, what is -- I don't know if you can even give us an overall price increase that you have implemented -- but give us some feel of how you have moved prices in the way that you can.

The price increases are predominantly in our metal products. Our leather skins and hydes and our larger-volume items didn't increase that much; probably less than 1%. Metal products -- rivets and snaps and belt buckles, and that type of item -- they increased probably, on the average, 7 to 8% nearly across the board.

Our kit business didn't go up, because the leather cost didn't go up. Our laces didn't go up, because they're made out of leather lace. But it was primarily our hardware and all of our metal products that took the big increase, and that's -- everybody's read about the cost of metals, primarily copper and zinc and steel. And we've negotiated; we've changed a bunch of vendors to keep those costs down. And we're researching the market every day to try to find a better price of a quality product.

With regard to the increase in retail prices, how much of the price increases that you are instituting this month are to cover the raw material cost increases over the last year? And how much of the price increases that you just discussed kind of give you a little bit more room for potentially prices to continue to increase on the raw material side?

We've anticipated; we've talked to all of our vendors. And the increases that we have instituted cover the increases that we have had and that we would anticipate going into next year. In most cases -- we've got vendors, and we've got long-term relationships -- and in most cases, they gave us locked-in prices that'll carry us through October of next year, except for some of the metals that are not as -- they don't have a hand on yet.

But all we really did was cover our increases, and increased to where we thought they might be going in anticipation of further increases.

Okay.

Last question, regarding the store manager trainees -- Shannon, how many of those do you now have “in training,” that would be ready to take over their own store, say, starting in January?

The last update I got, Robert, I think we had 15 or 16 trainees in the pipeline right now. And of those, say, 15, I believe there were six or seven that are ready to go right now.

Perfect, okay.

Keep up the good work, guys. Thanks a lot.

Thank you.

[Will Lyons].

Westminster Securities -- hi, guys.

Hey, Will.

Congratulations on another good quarter.

Thank you.

Thank you.

You talked a lot about margins. And I don't want to beat a dead horse there. But the three previous quarters were your strongest margins, I think, certainly in history since we've followed you. And the third quarter seemed to be more in line with the -- certainly, it was strong compared to a year ago. What should we look for going forward? Sort of, is this current quarter going to be representative? Or are you still shooting for those higher margins you had in the previous three quarters?

Will, I think the margins are going to be better, fourth quarter; first quarter in particular. As we've talked before, because of the deal -- the setting of the retail prices in the catalog that comes out in October, it's pretty easy for us to predict -- or to set our selling prices for the next six months; that's easy. Things begin to get a little bit tricky in the second quarter and in the third quarter of the following year.

But no, the margins overall were lower than we wanted for third quarter. I think you'll see the margins increase back into the numbers that we've been looking for and have experienced over the last year or so. Fourth quarter will be good, first quarter will be good, second quarter should be okay. It's the third quarter that's really the report card on whether we've got the crystal ball that predicts where we're going to be come next July with regards to cost increases versus selling prices.

But that's something we should really expect every year, right?

Yes, it's becoming a bigger issue -- or a new issue, really, for us. Because we can change wholesale prices without a whole lot of wailing and gnashing teeth. Business customers don't balk at that. Where you run into problems is when you've got a catalog with published prices in it; you got to honor those until that catalog's not any good.

And so again, as the retail business becomes a larger player, a part of our sales mix, then yes, this kind of pattern is probably going to be more the norm than what we've experienced in the past.

Sure, well, that makes sense.

The press release this morning mentioned same-store sales in retail segment were up 4% in the quarter and 9% in the year. What happened in the quarter as far as same-store sales? Was that primarily due to [this decreasing] importance of leather, or was something else going on?

That's part of it. We do have -- in fact, our November flier even states that we've pushed $1 million of inventory into all of our stores combined. The [Tandy] retail stores in particular are carrying a lot more leather than they have historically carried; historically meaning since we own them, and even the old Tandy days. So any time you're selling -- you're pushing more leather, your margins tend to slide a little bit, because they're the lowest-margin item.

We do have -- and I think we've talked about this before -- we do have some Tandy managers that are getting rather ingenious in terms of finding new customers. And they are stumbling upon some business customers. Even though retail stores generally do a 70, 75% retail; 20, 25% wholesale mix, some of our Tandy managers are aggressive enough that they are adding some more wholesale business to their mix.

It's not a lot yet. But we're certainly not going to discourage them. If they can pick up new customers that we weren't already selling from someplace else -- even though they're having to sell at business prices instead of retail -- we're not going to discourage them from doing that. That plays in a little bit.

On the sales end of it, that quarter is just historically a tough quarter. In the 37 years I've been doing this, there's been many times that we would break even in sales this quarter, and yet run a 10 or 12% sales gain for the year. And it's -- because of the vacations that people go on, the hot weather -- people -- we just don't do -- leather craft is just not real popular in the summer months. Unless we can get in, do a better job with our institutional customers -- the summer camps, the YMCAs; that group -- that's really what carries us.

And that's why, when you noted that our retail sales were off that quarter, we didn't do as good a job as we could have in that. But it's always tough business. And it will continue to be tough business. We just got to do a little better job marketing to the institutional groups during that summer period. Because the leather crafters really don't want to do much leather craft when it's 100 degrees.

Well, I guess that makes sense.

Ron, I know this is sort of your bailiwick. But the catalog business -- is there any reason not to put out catalogs more frequently, so you can take into account your price changes?

We have done that in the past. And it's a good idea. And as our retail business gets stronger and a bigger percent of our business, we will probably do two a year. We did in the old days. And the only reason we don't do it now is that catalog is $0.25 million to $300,000 expense.

Well, do you feel like you need to get out the paper version, rather than having an online version you could update as you wish?

I wish we could. I --

What's the limiting factor? Is that just your market doesn't --

Yes.

-- prefers paper?

They've been getting one since 1919. And a lot of these people believe they still need to get a paper catalog. I would like to see us get completely out of a paper catalog and strictly have it up on the Internet, and let them print it, pull it down if they want it, and be able to change our pricing. But it'll be a year or two. But I really believe that in the future, in the long-term plans, that is something that I'd like to see us do. And I think it will happen, as more -- as the world gets more acclimated to the Internet. And we're seeing it every day. So I think it's a possibility; just not yet.

Well, do you have the numbers in front of you for your order flow and other traffic through your website? That was fairly strong when we talked, I guess, a little over a year ago.

[Oh, yes,] we're running -- our Internet -- remember that our Internet business is really designed to drive customers to our stores. Yet we do get Internet orders every day. And those Internet orders [are] down here in our central collection area. But a lot of cases, those customers are just walking into the store. They saw an e-mail that made some offers. And they walked into the store and bought. And we have no record what caused them to come in.

Sure.

The Internet business that we're doing here in Fort Worth is up about 10 or 12% this year, and still doing well.

Is that in unit or dollar volume?

Dollar volume.

Interesting.

Shannon, I have a couple bookkeeping or housekeeping questions for you, if you don't mind. I know it'll be in your 10-Q. But total assets per segment -- can you give us a breakdown?

Sure. Wholesale Leathercraft -- at the end of September, total assets of $24.6 million. Retail was $5.2 million. Other, which is Cushman, was $330,000.

And can you give us a similar breakdown on cost of goods sold for each segment?

For the quarter, or for the year?

For the quarter.

In dollars, or percent?

Percent.

Percent -- Wholesale was -- cost of goods was 45.9%. Retail was 39.6%. Other was 60.5%.

Okay, that's all I had. Thanks very much, guys.

Thank you.

Thank you.

[Josh Hammer].

Yes, this is Josh Hammer from Knobias. Congratulations on continued growth in your leather business.

I just had a few more questions about the retail stores, particularly. Do you plan to open most of these stores, as you did last year, before Q3 of next year? I still see you're planning on opening 12 retail stores for next year.

We are planning on opening 12, Josh. They will start in January. And right now, the schedule is between January 1 and September 1.

Okay, so [inaudible] --

So spread out at just a tad bit more -- not a whole lot, but a little bit.

Okay.

Can you go back over the gross margins or operating margins for your wholesale division versus your retail? You break those down?

Operating, you said?

Yes, operating margins for your wholesale division, and then operating margins for your retail.

Sure. On the wholesale side for the quarter, operating income was 12.8%. Year-to-date was 15.8%. On the retail side, for the quarter, operating margin was -- for the quarter was 7.1%; for the year, we're at 8.3%.

Okay.

Well, I'm going to [let you end] my question with -- do you expect any more -- when do you expect your retail stores to out-gain your wholesale? Do you feel that's going to happen next year? Or how many more stores do you have to open up before the retail stores start outperforming your wholesale division? Or how's that --

On the sales end of it, or on the profit end of it?

Sales.

I would think that -- starting 2008.

2008?

Yes. I don't think it'll happen in 2007.

No.

So it won't be next year --

[2008] -- I would think that's reasonable.

Okay. Well, most of my other questions got answered, so that'll do for me. Thanks.

Thank you.

Thank you.

[Operator Instructions] [Graham Reid].

Hi, this is [Graham Reinams] from [Barris Capital].

Shannon, can you talk a little bit about the national accounts? I know you guys have said frequently that you expect that part of the business to decline. Are you losing accounts, or is it just kind of selling a little bit less to each account?

[Graham], it's funny. No, we're not losing accounts. The national accounts for us are the Michael's, Wal-Mart, JoAnn's, Hobby Lobby, A.C. Moore -- those are the big five for us. And those are still good customers for us. And we are actually adding -- they are adding new items into their line that they're buying from us.

I think the answer to that is the big five that she mentioned -- probably four out of the five -- maybe all five -- are up in business this year. But the bottom 10, or the rest of them, are down. So we're doing a real good job with the big ones. But some of the small chains out there have -- in the craft industry and otherwise -- have struggled this past year, and not been -- and not done as well. But the Wal-Marts and Michael's and -- I think Hobby Lobby's the only one down; the rest of them are all up considerable -- are up this year.

Okay.

And we've got new products in that we've been showing them, that they're all real excited about. I hope we see a better '07 than we did '06, although there were some bright spots in '06. We just can't quite seem to get everything firing at the same time. We're pretty much holding our own.

And I guess the thing that I keep stressing is, while we would love to have huge sales gains from that customer group -- and we're certainly not turning away business -- the real growth is going to come on the retail store side. And that's a lot of where -- that's a lot about what we talk about. Because that's what's getting us to the next level. We'll keep showing them new product, we'll keep trying to get more shelf space. We hit on some, and others -- they don't like what we showed them, or whatever.

So we'll keep working on it. If we can minimize any kind of sales decline, and hopefully get on a positive trend, and be able to maintain that, even if it's just a percent or two on the positive side, at this point, we'd be happy with that.

When you talked about the retail sales for each annual -- I guess, the stores opened in each year, 2005 seemed a little bit low. Is there a reason for that, or is -- it just kind of hasn't had time to ramp up? Are there any areas of concern there?

That's probably the number-one -- it just takes awhile. It takes a good three years to find all of them -- customers in that market area [and/or to] develop the business. And it's -- I would -- I think Shannon said that the average of the oldest ones, the 2002, were like $39,000 per month.

Right.

And then, the 2002 and -- pardon me -- the 2003 and 2004 were $29,000. I fully expect those to be in the 35s --

Okay.

-- maybe a little more -- the following year, in the 2005s, to be in the 25s. And it takes a little time to develop your markets.

Okay.

I will -- [Graham], I'll add a little bit to that. 2005, we only opened eight stores. So the statistics on those stores -- there's only eight versus --

Oh, okay.

-- 12 or 14 or 16, which we've had prior. Frankly, in my opinion, we don't have -- of those eight stores, I don't think we have one or two that's like the real superstars. And we seem to have that in all the other years. There seems to be -- regardless of how the overall group is doing, there are two or three or four that are just knocking fire and really pulling good numbers. Of the eight, we just don't have -- they're all just kind of there. We've made manager changes in a couple of them. We'll get them -- we'll get them going in the right direction. They just -- we don't have one or two that's just a real superstar for us. So they're just all -- right now, those eight are kind of average. And that's part of the reason that their statistics don't look quite as good.

In regard to your recent press release about protecting your supply chain with Homeland Security --

Yes?

-- are there any financial implications to that?

No. In terms of whether it cost us anything?

Right.

No, no financial outlay. The benefit that we get -- and I don't know if you think of this as a soft cost is -- because we are a partner in this deal, our stuff gets through customs and crosses the border faster, with less inspections than somebody who's not a partner. So that's a soft cost benefit that we may get items across the border faster, with less headaches than we would before. How you put dollars on that, I don't know. But certainly a benefit as we go forward.

It will be a benefit, in the fact that if we can get our product from vendors a couple of weeks quicker because of being able to cross the borders --

Right.

-- faster, it will be a good benefit. And the only real cost that we had was meeting U.S. Customs and different officials in various countries overseas -- for them to go through the plants and the facilities of our vendors, and working with the carriers we're using to make sure they were all in compliance.

Was this prompted by supply issues you were having? Or was it just -- you just kind of saw it as a new opportunity to kind of [inaudible]?

It [gives us] good business. It's --

[Okay].

-- good business to protect your supply chain, and it's good business to make sure that we take care of this country and don't have any problems.

Okay.

And then the last thing -- as far as the cash balance goes, are you comfortable with where it is right now? Or do you see any sort of dividend there, buyback, any time soon? Or is it -- you still looking to grow that a little bit more?

We're still talking about that. I don't know -- stock buybacks are on the agenda at every board meeting. I've got some new information that I will present to the board in December. We will talk about that.

Again, that's -- stock buyback probably makes more sense right now than a dividend, if we go either way, simply because if we can continue to grow our earnings as fast as we are, I don't know of very many places to invest. If we paid out cash in dividends, the issue would be, where can our stockholders take that cash and invest it, and get the same type of return that they feel like they're getting with what we're doing.

But it's -- [Graham], it's something we continue to talk about. $5 million in the bank isn't enough in and of itself to do much. Could we borrow a bunch of money and do a big stock buyback? Yes. I don't know that I'll totally like that idea. But we need to see the cash balance continue to grow some before I think we get real serious about doing any sort of large stock buyback program. Otherwise, we'll wipe out the cash and end up having to borrow a bunch of money.

Okay.

All right. Thanks for your time.

Thanks, [Graham].

Thank you.

[Len Fuchs].

Hi, it's [Len Fuchs], [Faith Botanists].

How have the stores been doing that are in the same market?

Doing very well. They're both -- those two have -- they're both doing very well, they're both running good gains. I don't have it right off the top of my head, but we're tickled to death with that market up there in the business, and they're growing. And each year, they continue -- they're both profitable, and their profits are considerably more than they were last year.

[He] --

Are any of the '07 stores going to be in existing markets, so far?

Really, we thought -- there may be one or two of them in existing markets. But these will primarily -- the new stores will be primarily in the Eastern half of the United States; probably eight out of the 12 markets that we do not have existing [force].

And the last question is, have you seen any resistance to the price increases?

We expect -- that's a good question. Because I really expected some. But we haven't at this time. I'm real happy so far that we're going into this. And it's kind of early. And we've got --

Sure.

-- [inaudible] weeks into it. But it does not look like there was any resistance. We felt like there would be some at our manufacturing customers that The Leather Factory had, or our business customers.

Sure.

But they got the same increases from everybody.

Right.

Everybody had the same problem. So we've really not had any [pricing] resistance at all, and I'm tickled to death over that.

Okay. Thank you.

Yes.

Thanks, [Lenny].

[Operator Instructions] There appear to be no further questions in queue. Do you have any closing comments you'd like to finish with?

Sure.

On behalf of Ron Morgan, myself and the entire management team, we appreciate your time today and your continued interest in our company. We encourage and welcome your calls any time.

Thank you.

Thank you, ladies and gentlemen. This does conclude today's Conference Call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.