Tandy Leather Factory Inc (TLF) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Tandy Leather, fourth quarter 2011 earnings conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session. Instructions on how to participate will be given at that time. (Operator Instructions) As a reminder, today's conference is being recorded. Now, I would like to turn the conference over to Shannon Greene.

Thank you. Thank you for joining us for our 2011 earnings conference call. I'm Shannon Greene, Chief Financial Officer and I'm joined today by Jon Thompson, our CEO. We will be discussing our fourth quarter and year end 2011 results, as well as our plans for 2012.

Before we get started 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. We disclaim any duty to the update of those statements.

2011 was a successful year for us. Our sales, gross profit margin and earnings increased compared to 2010. We opened one new store in the US and one new store in Australia. In summary, we achieved a 10% sales gain in 2011 compared to 2010. 2011 was our 15th consecutive year of operating profits increasing 16% from last year. Our consolidated gross profit margin improved for the 15th year in a row.

We ended 2011 with more than $11 million in cash, which allows us to pay another special one time dividend to our stockholders a few weeks from now. Our debt totals $3.3 million, all related to the purchase of our corporate headquarters. We have said before that we would pay it off if we could do so without incurring a prepayment penalty. Before getting into the details of our 2011 results, I thought I'd talk a little bit about our expectations for 2012.

As was stated in the press release this morning, we estimate our 2012 revenue to be in the $72 million to $73 million range. An expected increase of 10% to 12%. The EPS estimate we provided is $0.50 to $0.52. Let me provide a little more detail about how we arrived at that range. We estimate earnings to be in the $5.2 million to $5.3 million range for 2012. That's $500,000 to $600,000 higher than 2011, or an 11% to 13% increase in earnings. That translates to $0.51 to $0.52 in earnings per share, based on outstanding shares of 10.2 million. As most of you know, we tend to err on the side of conservatism, so we set the EPS range at $0.50 to $0.52.

I recognize that looking at the EPS increase of $0.03 to $0.05, which is what the EPS range we provided in the press release suggested, that's a 6% to 11% increase in earnings, not an 11% to 13% increase. However, I would suggest that it's the difference between EPS cents versus earnings dollars. Here's a quick run through of the numbers for the fourth quarter and the year 2011.

Quarterly results are as follows. Consolidated sales increased 9%. Sales were $18.9 million this year, compared to $17.3 million in 2010. Wholesale leathercraft sales were $7.2 million this quarter, compared to $7.1 million a year ago, an increase of 2%. Within the wholesale leathercraft division, same stores reported quarterly sales of $6.4 million in 2011, down 1% from the fourth quarter of 2010. Our national account group reported quarterly sales of $783,000, compared to $574,000 in the prior year fourth quarter, an increase of 36%.

Retail leathercraft sales were $11 million for the quarter, compared to the prior year of $9.7 million, an increase of 13%. The same stores reported sales of $11 million for the fourth quarter of 2011, up 13% from the same quarter of 2010. International leathercraft sales for the quarter were $597,000, up 20% from 2010's fourth quarter sales of $498,000. Same store sales were down $6,000 or 1% compared to the same quarter last year.

Consolidated gross profit margin for the quarter was 62%, up from 59.9% last year. Wholesale leathercraft's gross profit margin increased from 60.1% last year to 62.3% this year. Retail leathercraft's gross profit margin increased from 59.4% in 2010 to 61.4% this year. International leathercraft's gross profit margin for the fourth quarter was 71.3%, up from last year's fourth quarter of 69.7%. Consolidated operating expenses increased $1.1 million for the fourth quarter, to $8.9 million or 47% of sales, compared to 45% of sales last year.

Wholesale leathercraft reported operating expenses totaling 47.1% of its sales, versus 45.6% last year. Retail leathercraft reported operating expenses totaling 45.2% of its sales compared to 45% last year. International leathercraft's operating expenses totaled 86% of its sales this year compared to 39% last year. The significant increase there is due to the set up expenses associated with the openings of the Australia and Spain stores, which was recorded in the fourth quarter of 2011 of approximately $200,000. Income from operations was $2.8 million for the quarter, an increase of $224,000 or 9% compared to the fourth quarter of 2010.

Now for the 2011 annual results. Consolidated sales were up 10% from 2010. Sales were $66.1 million compared to $59.9 million last year. Wholesale leathercraft sales were $26.5 million in the current year, versus $25.9 million a year ago, up 2%. Within the division, same store sales were $23.5 million, an increase of 4% from 2010 sales of $22.7 million. The national account group reported sales of $3 million, compared to $2.9 million in 2010, an increase of 4%.

Retail leathercraft's 2011 sales were $37.4 million, compared to last year's sales of $32.3 million, an increase of 16%. We opened one new retail store in 2011. The new stores which are this one plus one opened in 2010, contributed sales of $533,000 in 2011. The 75 comparable stores contributed sales of $36.9 million in 2011, which translates to same store sales gain of 15% over 2010. International leathercraft sales were $2.1 million this year, compared to last year's sales of $1.7 million, an increase of 26%. Same store sales increased 19% while the new store added sales of $106,000 in 2011.

Consolidated gross profit margin for the year is 61%, improving from 2010's consolidated gross profit margin of 60.5%. Wholesale leathercraft's gross profit margin increased to 61.3% this year compared to 60.7% last year. Retail leathercraft's gross profit margin was 60.5%, improving slightly from 2010's gross profit margin of 60.2%. International leathercraft's gross profit margin was 66.9% for 2011, up from 2010's gross margin of 63.8%.

Consolidated operating expenses were $32.6 million or 49.4% of its sales in the current year, up $3 million compared to $29.6 million or 49.5% of sales last year. Wholesale leathercraft reported operating expenses totaling 50.7% of its sales versus 50.3% last year. Retail leathercraft reported operating expenses totaling 48% of its sales currently, compared to 49% last year. International leathercraft's operating expenses were 55.3% of its sales this year, compared to 44.3% last year. Income from operations, $7.7 million this year, a 16% increase over 2010's operating income of $6.6 million.

Total assets increased by 12% in 2011, compared to the end of 2010, as we ended the current year with total assets of $45.5 million. We held $11.2 million in cash at year end, including CDs, an 89% increase from the end of 2010. Accounts receivable increased by $75,000, and inventory decreased by $295,000. Current liabilities are up $207,000. We paid down $202,000 of debt, and total liabilities increased by $235,000. Our debt related to the 2007 real estate purchase is $3.3 million. Our current ratio is 4.7, and EBITDA for 2011 is $8.8 million.

Some specifics about the Tandy retail stores performance in the fourth quarter. Sales are $11.1 million, gross profit margin, 61.4%, operating income 16.2%. Looking at the individual stores, average monthly sales in the fourth quarter ranged from $120,000 to $23,000, and operating margins ranged from positive 27% to a negative 6%. For the fourth quarter of 2011, average monthly sales per store was $48,000. For the year, average monthly sales per store was $40,000. There are five stores with operating losses in 2011 totaling $69,000. All of our leather factory stores are profitable.

Our balance sheet is in good shape. Cash is up from year end 2010 by $5.3 million, increasing $4.8 million in the fourth quarter alone. Accounts receivable balance is up 6% at the end of 2011 compared to the year end 2010. Inventory is a little low, frankly, given the sales volume we're running. Our buyers are aggressively looking for deals as we don't want to lose any of our momentum, which could happen if we get too low on product. I think we did okay with managing operating expenses in 2011 as they increased at a slower pace than that of sales, although just barely. We will continue to focus on expense control in order to maximize earnings.

Compared to 2010, significant expense increases are in employee compensation and benefits, legal and professional fees, credit card fees, rent and utilities, and freight out. As stated earlier in the call, looking at 2012 we're estimating sales to be up 8% to 10% in the $72 million to $73 million range. Our sales so far this year have been good as we are up 17% through the end of February 2012. Retail same store sales are up 18%, wholesale same store sales are up 7% and international same store sales are up 8%. We opened the one store in Spain in January of this year, and plan to open another one to two stores internationally later this year, possibly in the UK, and another in Spain. We also expect to open one new retail store in the US later this year.

We will continue to relocate stores into larger space in 2012 as leases come up for renewal. We moved 11 stores in 2011 to larger locations. We also remodeled two stores. We have plans to move approximately 12 to 15 stores this year. For those stores that aren't moving in the case of some of the older stores, we are doing some minor remodeling to improve the look and feel, making them more inviting to customers. As evidenced by our sales in the last year or so, we believe our customers are responding positively to the store moves and/ or remodels. Last thing before we go to questions.

Our annual meeting of stockholders is scheduled for June the 5th at 11 AM at our corporate offices in Fort Worth. The meeting is open to the public, and we welcome the opportunity to meet you. Please consider yourselves personally invited. That concludes our prepared remarks today. We appreciate your time and we would be willing to take any questions you may have. Operator, Jon and I are now ready to take questions.

Thank you. (Operator Instructions) I'm currently showing no questions from the phone lines.

Very good. On behalf of the entire management team, I would like to thank you for participating in our 2011 earnings conference call today. We look forward to speaking with you again next quarter. Have a good afternoon.

Ladies and gentlemen, thank you for joining today's conference, this does conclude the program, and you may now disconnect.