Tandy Leather Factory - Q4 2022

Transcript

Janet Carr (CEO)

Good morning, everyone. Thanks for joining.

Dan Ross (General Counsel and Corporate Secretary)

Can we go ahead?

Janet Carr (CEO)

Let's get going.

Dan Ross (General Counsel and Corporate Secretary)

Thank you for joining us for a discussion of Tandy's Q4 and full year 2022 financial results. I'm Dan Ross, General Counsel and Corporate Secretary for Tandy, I will be co-moderating the discussion today. Our CEO, Janet Carr, will give just a very brief overview of the quarter, then we will devote the conference to investors questions and discussion. If you wish to ask a question or make a comment, please press the Raise Hand button, which is located at the bottom of your Zoom screen. Janet will recognize the questioners and ask you to unmute your line. You will need to ask your questions out loud yourself through your computer or phone audio. Please be sure to state your name and, if applicable, your company when you begin your question.

Unlike in past quarters, I will not be reading questions or comments directly from the chat. With that, let's get started.

Janet Carr (CEO)

Thanks, Dan.

Dan Ross (General Counsel and Corporate Secretary)

I'll do these.

Janet Carr (CEO)

Oh, sorry.

Dan Ross (General Counsel and Corporate Secretary)

Today's presentation will include statements other than historical results that constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, each as amended. These statements reflect our expectations or estimates based on the information we have today, but are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which may cause actual results to differ materially from the statements contained in this presentation. You are cautioned not to put undue reliance on these forward-looking statements. The company assumes no obligation to update or otherwise revise these forward-looking statements except as required by law. Now, here's Janet Carr.

Janet Carr (CEO)

Thanks, Dan. We're not gonna be doing a PowerPoint presentation, getting through a whole year post restatement. We feel like you have the big picture now. If you don't, we are happy to discuss. We're just going to really answer questions and have a discussion today. Just a quick overview of our 2022 results. Revenues came in at $80.3 million, down 2.8% from 2021. Our operating income was $1.4 million and net income $1.2 million. Gross profit. Sorry. Gross profit declined 1.1%, but gross margin rate was up 100 basis points. Adjusted EBITDA, which we've been discussing, was $4 million.

We repurchased about 360,000 shares of stock, for a total of $1.8 million in 2022. We are expecting the current macroeconomic challenges that we saw throughout 2022 to likely continue. As we discussed in our last call and the last couple of calls, we're really looking at rebuilding our sustainable profitability, building a business foundation for future growth, but really focusing on growing profits and cash over the next couple of years, especially in the face of potential economic headsets. That's all I have. Questions. Let me just remind you can click on the reactions down at the bottom and raise your hand if you wanna ask a question or make a comment. Or you can just unmute yourself and bust in.

Joe Coster (Company Representative)

Hey, this is Joe Costner at Fortress Investments. Just wanted to know if you could talk a little bit more about kind of the store base now and, you know, if you could sort of the size and the number of profitable stores that you're comfortable with.

Janet Carr (CEO)

Yes, great question. Ultimately, we would love to see our store base grow. With our focus on profitability and four-wall cash as a key metric of store profitability, we've been really disciplined about closing stores when they don't appear to have a trend towards four-wall cash positive. You know, we would very much like to have a greater number of profitable stores, four-wall cash positive stores, and that's because we consider the retail store to be our competitive advantage. There are lots of geographies that we are not really accessing with a retail store, and we think those represent opportunity. Again, in a period of time when we're trying to be focused on profit, we really can't afford to have these continuing to, you know, be negative.

Especially right now when wages have been increasing and rents have been increasing, we've been very focused on this. You know, to answer your question, I think there can be more, but there won't be more unless we can do it profitably.

Joe Coster (Company Representative)

Thanks. I'll just ask one more if nobody else is jumping in. The historical margins that you said are your eventual goal to get back to, how do you say? Are we sort of in a let's just try to manage the environment, we'll get there eventually or do you have sort of some timeframe on when you think, you know, those could potentially be achievable?

Janet Carr (CEO)

Are you talking about operating margins?

Joe Coster (Company Representative)

Yes. Yes.

Janet Carr (CEO)

Yeah. you know, we are working our way towards that. There's been a lot of sort of environmental factors that have been challenging, as you know. I don't need to reiterate all those things. We're not setting a date for this, but we plan to make significant progress in 2023. I would prefer to say you can be the judge of what that progress looks like as the quarters unfold this year. We have some rough internal timelines. Again, we're a bit bound by the overall economic environment as well as we've seen in 2022. The goal here is to get to strong profitability, strong positive cash flow, even if our sales are to decline.

Joe Coster (Company Representative)

Thank you. I have one final one, and no one else is jumping in. I think in the call last summer or last year.

Janet Carr (CEO)

Mm-hmm.

Joe Coster (Company Representative)

I can't remember if it was you or maybe Jeff had jumped in and mentioned sort of the after-tax value of the real estate was probably somewhere in the $15 million range. Has anything changed on that front or is that sort of still a ballpark estimate for what you guys think?

Janet Carr (CEO)

That's a reasonable ballpark estimate, of what the relocation of Fort Worth is worth.

Joe Coster (Company Representative)

Thank you.

Janet Carr (CEO)

Other questions, comments? Going to be the world's shortest call.

Amir (Company Representative)

Hey, do you want a question here?

Janet Carr (CEO)

Sure.

Amir (Company Representative)

Okay. Amir Anvary Dragon Financial. Hi. Can you walk us through the thought process of buying your own stock? Why, why this stage, and really dividing on, I think the same value, which personally I'm not seeing it reflected in the margin and in the operations? Can you maybe tie that a little bit in just walk us through the thought process behind our hopefully as opposed to maybe increasing the stores or how do you see it?

Janet Carr (CEO)

Yeah. Good question. We do think that our shares are good value, and we've been buying them opportunistically as they are offered to us, generally in a large block. We believe it's great value because while we have been making a lot of change in building the new foundation for profitable growth in the future. You know, it's been a transformation to use kind of a worn out cliché for the last four years. You know, in terms of systems and accounting and leadership and processes and sort of running the business like a professional retail operation, it's been a long slog and we've been building to that. You're not seeing the returns in terms of operating margins today.

As I said, we are building towards that and have a lot of confidence in that and feel frankly, that our shares are undervalued at the prices at which we've been buying them, which is why we've been spending our cash to do that. I also think that if you look at what you don't necessarily see on our balance sheet, we do, as you know, Joe Costner mentioned, have a $15 million real estate value of our property here, and we have a very strong balance sheet with no debt and, you know, a strong asset base. So I feel like I think we all feel like at, you know, under $5 a share, Tandy's great value.

Amir (Company Representative)

Thank you.

Janet Carr (CEO)

You're welcome. Thanks for asking the question. Others?

Amir (Company Representative)

I guess I'll ask another one if no one else does.

Janet Carr (CEO)

Yeah, of course.

Amir (Company Representative)

To what extent do you feel, how can I say this, that your destiny is in your own hands based on environment and/or how much competition do you have and from where? I mean, clearly you are retail and you can innovate here and there, but it's extremely competitive. How do you see or how do you think about that environment that you're operating in?

Janet Carr (CEO)

It's a great question. you know, I think a lot of it is honestly in our hands in the long run. I think that the environment is a lot about short run up and down, as it is. You kind of, you know, you're on the ocean and you're going up and down with the waves. I do think that the long-term prospects for Tandy are in our hands. We do see a lot of opportunities to drive growth. We do see secular trends that are favorable that we've talked about in some of our prior presentations around crafting and leather crafting. We do see interest from a huge younger customer who's really coming in with a new way of thinking about leather crafting than sort of our core customer of the last, you know, 100 years or so.

In that regard, our ability to target those customers, meet their needs, meet, you know, create the distribution model so we are where they are and we're selling to them in the way that they want to buy. I think all of those things are in our control. It's really a question of how we balance. Like every company, right? How we balance the short term with the long term, how we balance, you know, developing a model that delivers acceptable short term profit and cash, honestly, and how we can still invest to drive that long term growth. I don't know if that's a, you know, a satisfactory answer, but I'm not gonna say we're entirely at the whim of, you know, we're not a commodity.

We're not entirely at the whim of the economic environment, though, you know, in the short run, I'd say that does have an impact. Thank you. Other questions, other comments. Other complaints. Anyone else? No. Going once, going twice. All right, guys, I think we get the record for the world's shortest call. Unless, you know, you'd like to reach out to me or Dan individually, we're happy to chat as always. We also are open to suggestions about the format of this discussion. You know, I think that we all would like it to be more of a discussion, and continuing to try to evolve the format so that it feels that way. I think the whole script of blah, blah is not that appealing to any of us.

You know, give us some feedback if you'd like to see this unfold in a different way. As always, we're here, and happy to chat. Looking forward to talking to you again in about six weeks about Q1. Thanks, everyone. Thank you, everyone. Bye.