Tandy Leather Factory Inc (TLF) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Tandy Leather Factory third-quarter 2011 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today's conference, Shannon Greene. You may begin.

Thank you. Good morning, everyone, and thank you for joining us for our third-quarter 2011 earnings conference call. I am Shannon Greene, Chief Financial Officer of Tandy Leather Factory, and I am joined today by Jon Thompson, our Chief Executive Officer, and Mark Angus, our Senior Vice President.

I call your attention to the fact that these conversations will contain forward-looking statements to the extent we speak today of any future event or make 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 our Form 10-K for 2010 and subsequent Forms 10-Q for a discussion of some of these risks. Copies of these documents are available through the SEC's EDGAR system and from our Investor Relations office.

Also, statements made today by us, as management of Tandy Leather Factory, are made as of this moment, and we disclaim any duty to update those statements.

We performed well in the third quarter, with sales and earnings up 13% and 40%, respectively, compared to the third quarter of 2010. Gross profit margin was 60%, and operating income increased by 14%. Inventory is holding steady at slightly more than $20 million, up $300,000 from the year-end 2010.

The numbers from today's press release -- third-quarter consolidated sales increased 13%. Current-quarter sales were $15.4 million compared to last year's third-quarter sales of $13.6 million. Wholesale Leathercraft sales were $6.2 million this quarter, up 2% from $6 million in the third quarter last year.

The same stores posted a 5% sales increase, reporting sales of $5.4 million compared to $5.1 million in the third quarter of 2010.

Our national account group posted a 4% sales decline, reporting sales of $789,000 compared to $820,000 last year.

Our Retail Leathercraft division reported sales of $8.7 million, a 21% increase over last year's third-quarter sales of $7.2 million. The same stores posted a 27% sales increase, and the one new store, which opened in June this year, added quarterly sales of $66,000.

Our International Leathercraft segment, which consists of the one store in the UK, reported sales of $491,000 for the quarter compared to $415,000 in last year's third quarter, a gain of 18%.

Consolidated gross profit margin for the quarter was 60%, equal to that of last year's third-quarter margin. Wholesale Leathercraft gross profit margin was 60.7% compared to 61.5% in the third quarter 2010.

Retail Leathercraft gross profit margin improved from 58.8% in last year's third quarter to 59.2% in this year's third quarter. International Leathercraft's gross profit margin for the third quarter was 66.5%, up from 58.9% last year.

Consolidated operating expenses were $8 million or 52.1% of sales in the current quarter, compared to $7.1 million, also 52.1% of sales last year, an increase of $900,000 or 13%.

Wholesale Leathercraft reported operating expenses totaling 55.9% of its sales versus 53% last year. Retail Leathercraft reported operating expenses totaling 50% of its sales compared to 51.6% last year. International Leathercraft operating expenses for the quarter were 43.3% of its sales compared to 47.6% last year.

Income from operations was $1.2 million for the third quarter, up 14% or $146,000 compared to the third quarter 2010's operating income.

On a year-to-date basis, consolidated sales increased 11%. 2011 sales are $47.2 million compared to 2010 sales of $42.6 million. Wholesale Leathercraft sales were $19.3 million this year, up 3% from last year's sales of $18.8 million. The increase is the result of a 5% same-store sales gain, with sales this year of $17.1 million compared to $16.3 million last year, partially offset by a 0.5% sales decline for national accounts, with sales this year of $2.2 million versus $2.3 million in 2010.

Our Retail Leathercraft division reported sales of $26.3 million, a 17% gain over last year's sales of $22.5 million. Sales from the two new stores were $314,000 this year compared to $144,000 last year.

The 74 comparable stores posted sales of $26 million, an increase of 16% compared to last year's sales of $22.4 million.

Our International Leathercraft segment reported sales of $1.5 million so far this year compared to $1.2 million last year, an improvement of 28%.

Consolidated gross profit margin for the year is 60.6%, a slight decrease from 2010's gross profit margin of 60.8%. Wholesale Leathercraft's gross profit margin held steady from last year at 60.9%. Retail Leathercraft's gross profit margin decreased from 60.6% last year to 60.1% this year. International Leathercraft's gross profit margin improved from 61.3% last year to 65.2% this year.

Consolidated operating expenses were $23.7 million or 50.2% of sales in the current year compared to $21.8 million or 51.2% of sales last year, an increase of $1.9 million.

Wholesale Leathercraft reported operating expenses totaling 52.1% of its sales, the same as last year. Retail Leathercraft reported operating expenses totaling 49.3% of its sales currently versus 50.8% last year.

International Leathercraft reported operating expenses totaling 43.6% of its sales this year compared to 46.5% last year. On a consolidated basis, the most significant operating expense increases were in employee compensation and benefits, legal fees, and supplies. Freight out and credit card fees are also up as a result of sales increases.

Income from operations was $4.9 million, up 21% compared to 2010.

Regarding the Tandy stores, gross profit margin ranged from 65% to 55%, and operating income ranged from 21% to a negative 25%.

Average monthly sales ranged from $108,000 per month to $18,000 per month. In this third quarter of 2011, average sales per store, per month was $38,000.

There are seven Tandy stores with operating losses as of the end of September, totaling $102,000. All of the Leather Factory stores are profitable as of September 30.

Our store in Sydney, Australia, opened in the first week of October. Sales for its first month were $20,000. The Australian website is up, and we are planning a grand opening event after the first of the year. While we do not expect the store to be profitable in 2011, due to all of the startup expenses, we do expect it to contribute to earnings in 2012.

We are still working on store openings in Spain, and assuming we don't run into any further construction delays on the space, we should have a store opening announcement to make in early December.

In summary, we are meeting our internal financial targets through the first nine months of the year. We expect solid sales growth from our new Australian store as our advertising ramps up there. Our Leather Factory stores are in good shape and contributing nicely to earnings. The majority of our Tandy stores are doing the same, although we still have some work to do with a few of them.

As you all know, there continues to be economic uncertainty, and we expect that to continue for some time. However, we believe that we can continue to grow our business despite that uncertainty, as long as we can attract new customers and properly service our existing ones.

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

(Operator Instructions) And I'm showing no questions at this time.

Very good. On behalf of Jon Thompson, Mark Angus and myself, thank you for your participation in today's call. Have a great day.

Ladies and gentlemen, this does conclude your conference. You may all disconnect, and have a wonderful day.