Tandy Leather Factory Inc pre-announced that it expects to report third quarter 2007 consolidated sales of approximately $12.8 million and net income of approximately $172,000 for the period. Third quarter per share net income is anticipated to be $0.02 (diluted). These results reflect an estimated 80% reduction in net income when compared to the third quarter of 2006.
All of the anticipated results described herein are subject to completion of the quarterly review of the financial statements by the Company's auditors. The Company plans to outline its third quarter 2007 financial results, plans for the remainder of the year and its 2008 guidance in an announcement to be released before the market opens on Thursday, November 1, 2007. Ron Morgan, CEO, and Shannon Greene, CFO, will hold a conference call that afternoon at 3:00 pm Eastern.
Tandy Leather Factory Inc pointed to the following factors as contributing to the third quarter earnings reduction:
• Third quarter consolidated gross profit margins fell from 56.2% in 2006 to 54.2% in 2007, resulting in $122,000 less
gross profit dollars for the quarter;
• Operating expenses were $1 million higher in the third quarter of 2007 than in the third quarter of 2006;
• The decline in gross profit and the increase in operating expenses were partially offset by an increase in Other income
and expense of $185,000 and a reduction in income tax expense of $255,000.
The company provided further details regarding the increase in operating expenses as follows:
• Additional depreciation of $100,000 consisting of accelerated depreciation on the leasehold improvements at the current corporate headquarters in anticipation of relocating in the first quarter of 2008 and depreciation on the building purchased in July;
• An increase in employee compensation of $350,000, which includes $175,000 in new employees associated with new retail stores opened since October 1, 2006;
• Increased advertising and marketing expenses of $275,000;
• Increased legal and professional expenses, including investor relations efforts, totaling $115,000. In addition to the legal fees incurred regarding the recent building purchase, the company has recently taken a more aggressive stance in defending its intellectual property which has resulted in an increase in legal fees.
• Increased outside service expenses of $115,000, which includes temporary staffing as well as IT consulting services.
Chief Executive Officer and President, Ron Morgan, commented, "I am extremely disappointed in our performance again this quarter and wish I had a better explanation than 'we spent too much.' When sales are flat, expenses must be reduced and we were not successful in accomplishing that goal in the third quarter. That will continue to be the focus until sales strengthen."
Shannon L. Greene, Chief Financial Officer and Treasurer, added, "We didn't reduce our inventory like I thought we would by the end of the September. And in my opinion, it's obvious that we failed miserably in containing, much less reducing, our operating expenses.
I don't expect we'll make up any of the earnings declines from the second or third quarters in this last quarter, which means we have no choice but to adjust our 2007 earnings guidance downward again."
Tandy Leather Factory Inc
