SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 2, 2004
The Leather Factory, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
1-12368 75-2543540
(Commission File Number) (IRS Employer Identification Number)
3847 East Loop 820 South, Fort Worth, Texas 76119
Address of Principal Executive Offices) (Zip Code)
(817) 496-4414
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Registrant is furnishing the press release attached as Exhibit 99.1
announcing the Registrant's third quarter 2004 financial results. This press
release was issued on November 2, 2004.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
Exhibits.
99.1 Press release dated November 2, 2004 furnished pursuant to Item 2.02.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE LEATHER FACTORY, INC.
Date: November 8, 2004 BY: /s/ Wray Thompson
Wray Thompson, Chairman of the Board
and Chief Executive Officer
EXHIBIT 99.1
FOR IMMEDIATE RELEASE NOVEMBER 2, 2004
THE LEATHER FACTORY REPORTS 3RD QUARTER 2004 RESULTS
FORT WORTH, TEXAS - The Leather Factory, Inc. (AMEX: TLF) today reported
financial results for the third quarter of 2004. Consolidated net income for
the quarter ended September 30, 2004 was $427,000 compared to consolidated net
income of $602,000 for the third quarter of 2003. Fully diluted earnings per
share for the quarter was $0.04, compared to $0.06 in the same quarter of last
year. Total sales for the quarter ended September 30, 2004 increased 4.6% to
$10.6 million from $10.1 million for the third quarter last year.
Consolidated sales for the nine months ended September 30, 2004 were $33.7
million, an increase of 8.3% over total sales of $31.1 million in the first
three quarters of 2003. Consolidated net income for the current year was $1.9
million or $0.17 per fully-diluted share versus $2.1 million or $0.20 per
fully-diluted share in the comparable period last year.
Sales at our Tandy Leather subsidiary increased $720,000 in the third quarter, a
31% improvement over last year's third quarter. Thirty-six stores comprised
Tandy Leather's retail operations on September 30, 2004, compared to twenty-six
retail stores a year ago. Four stores were added in the third quarter of 2004
bringing the total number of new stores added in 2004 to ten as of the end of
the quarter. For the first nine months of 2004, Tandy Leather sales increased
$2.9 million, or 46%, over the first nine months of 2003. Third quarter sales
for the Leather Factory wholesale division decreased $305,000 over the same
quarter last year, a 4.1% decline. The sales decrease is due to a reduction in
sales to our national account customers of $353,000 that was partially offset by
a $48,000 sales gain to our other customer groups. For the first nine months of
2004, the Leather Factory wholesale division sales were down $440,000 over the
same period in 2003 as a result of sales declines to our national account
customers totaling $1.2 million partially offset by sales gains to our other
customer groups of $740,000.
Consolidated gross profit margin for the current quarter was 56.1%, an
improvement from 55.2% for the third quarter of 2003. For the first three
quarters, consolidated gross profit margin was 55.3%, an improvement over last
year's gross profit margin of 54.5%. Consolidated operating expenses rose
$490,000 in the current quarter and $1.8 million for the first nine months over
the same periods a year ago. Operating costs associated with the new Tandy
Leather stores, advertising expenses, and rising healthcare costs account for
the majority of the increase.
Wray Thompson, Chairman and Chief Executive Officer, commented, "Our third
quarter turned out to be a continuation of our second quarter. The Tandy stores
reported solid sales gains although business this summer has been slower than we
initially expected. Nonetheless, we have met our internal goal of opening or
acquiring twelve Tandy stores this year, and our Tandy retail store sales have
increased 46% over the first nine months of 2003, increasing higher-margin
retail sales to 27% of our total revenue. The Leather Factory wholesale centers
generated a modest sales gain for the quarter but are still running better than
4% gains on a year-to-date basis. However, our national account group is still
reporting sales declines which more than offset the wholesale centers' sales
gains. While rising health care costs and expenses associated with
Sarbanes-Oxley compliance continue to impact our operating margins, we believe
the sales decline to our national account group is the reason we must adjust our
2004 guidance downward. However, with the growth in our retail sales division
and a continued focus on cost reduction, we expect 2005 earnings to be up
approximately 15-18% over our 2004 expectations."
Financial Outlook:
The following statements are based on TLF's current expectations as of November
2, 2004. These statements are forward-looking statements and should be read in
conjunction with the cautionary information about these statements that appears
below.
The Company estimates consolidated net sales for 2004 will be in the range of
$44 to $46 million. Diluted EPS for 2004 is expected to be in the range of
$0.24 to $0.26. For 2005, consolidated net sales will be in the range of $47 to
$48 million and diluted EPS is expected to be in the range of $0.28 to $0.30.
Average diluted shares outstanding in 2004 and 2005 is estimated to be
approximately 11 million shares. The Company assumes an effective tax rate
annually between 35% and 37%.
The Leather Factory, Inc., (http://www.leatherfactory.com), headquartered in
Fort Worth, Texas, is a marketer and distributor of a broad product line
including leather, leatherworking tools, buckles and adornments for belts,
leather dyes and finishes, shoe repair supplies, saddle and tack hardware, and
do-it-yourself leathercraft kits. The Company distributes its products worldwide
though its Leather Factory stores, Tandy Leather retail stores and
mail/telephone/website orders (http://www.tandyleather.com). Its common stock
trades on the American Stock Exchange with the symbol "TLF".
Contact: Wray Thompson, CEO, The Leather Factory, Inc. (817) 496-4414
Shannon L. Greene, CFO, The Leather Factory, Inc. sgreene@leatherfactory.com
This news release contains forward-looking statements. All forward-looking
statements made here or in other news releases issued by The Leather Factory,
Inc. are based on current expectations as of the date of the release. These
forward-looking statements involve risks and uncertainties that could cause the
results of The Leather Factory, Inc. to differ materially from management's
current expectations. Many of these risks and uncertainties are detailed from
time to time in TLF's reports filed with the Securities and Exchange Commission,
including its most recent annual report on Form 10-K and the most recent
quarterly report on Form 10-Q. Investors are reminded that past performance may
not be predictive of future results.
Selected financial data:
QUARTER ENDED 09/30/04 NINE MONTHS ENDED 09/30/04
---------------------- --------------------------
OPERATING OPERATING
SALES INCOME SALES INCOME
----------- ---------- ----------- -----------
Leather Factory $ 7,067,483 $ 583,253 $22,934,369 $ 2,306,807
Tandy 3,053,712 168,459 9,193,196 660,782
Cushman 458,879 23,531 1,593,199 108,625
----------- ---------- ----------- -----------
Total Operations $10,580,074 $ 775,243 $33,720,764 $ 3,076,214
=========== ========== =========== ===========
TANDY LEATHER SALES QUARTER ENDED 09/30/04 NINE MONTHS ENDED 9/30/04
======================= =========================
# OF STORES SALES # OF STORES SALES
----------- ---------- ----------- ----------
Same store sales 24 $2,323,564 20 $6,380,603
New store sales 12 730,148 16 2,812,593
---------- ----------
Total Sales - Tandy Leather $3,053,712 $9,193,196
========== ==========
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
Three Months Nine months
-------------------------- --------------------------
2004 2003 2004 2003
------------- ----------- ------------ ------------
NET SALES $ 10,580,074 $10,119,070 $33,720,764 $31,139,830
COST OF SALES 4,640,641 4,529,258 15,075,359 14,183,460
------------- ----------- ------------ ------------
Gross Profit 5,939,433 5,589,812 18,645,405 16,956,370
OPERATING EXPENSES 5,164,190 4,672,820 15,569,191 13,769,241
------------- ----------- ------------ ------------
INCOME FROM OPERATIONS 775,243 916,992 3,076,214 3,187,129
Interest expense 14,910 40,735 41,019 174,555
Other, net (30,600) 6,089 (3,509) (68,433)
------------- ----------- ------------ ------------
Total other expense (15,690) 46,824 37,510 106,122
------------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 790,933 870,168 3,038,704 3,081,007
PROVISION FOR INCOME TAXES 363,548 268,488 1,124,141 926,105
------------- ----------- ------------ ------------
NET INCOME $ 427,385 $ 601,680 $ 1,914,563 $ 2,154,902
============ =========== =========== ============
NET INCOME PER COMMON SHARE - BASIC $ 0.04 $ 0.06 $ 0.18 $ 0.21
============ =========== =========== ============
NET INCOME PER COMMON SHARE - DILUTED $ 0.04 $ 0.06 $ 0.17 $ 0.20
============ =========== =========== ============
Weighted Average Number of Shares Outstanding:
Basic 10,560,661 10,394,374 10,540,374 10,269,415
Diluted 10,931,940 10,902,794 10,986,541 10,840,764
THE LEATHER FACTORY, INC.
CONSOLIDATED BALANCE SHEETS
09/30/04 12/31/03
(UNAUDITED)
------------ ------------
Cash $ 1,328,052 $ 1,728,344
Accounts receivable, net of allowance for doubtful accounts 2,242,548 1,828,738
Inventory 12,880,245 11,079,893
Prepaid income taxes 14,357 206,023
Deferred income taxes 199,881 134,312
Other current assets 608,857 702,236
------------ ------------
TOTAL CURRENT ASSETS 17,273,940 15,679,546
------------ ------------
Property and equipment, net 1,889,187 1,905,893
Goodwill and other intangibles, net 1,153,774 1,136,784
Other assets 324,795 336,183
------------ ------------
$20,641,696 $19,058,406
============ ============
Accounts payable $ 1,632,357 $ 1,545,079
Accrued expenses and other liabilities 1,178,921 1,000,427
Notes payable and current maturities of long-term debt - 1,134
------------ ------------
TOTAL CURRENT LIABILITIES 2,811,278 2,546,640
------------ ------------
Deferred income taxe 288,617 209,289
Notes payable and long-term debt, net of current maturities 1,006,821 1,792,984
------------ ------------
Total liabilities 4,106,716 4,548,913
------------ ------------
Common stock 25,345 25,171
Paid-in capital 4,796,999 4,673,158
Treasury stock (23,960) -
Retained earnings 11,719,281 9,804,719
Notes receivable secured by common stock (15,000) (20,000)
Accumulated other comprehensive loss 32,315 26,445
------------ ------------
Total Stockholders' Equity 16,534,980 14,509,493
------------ ------------
$20,641,696 $19,058,406
============ ============
THE LEATHER FACTORY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,914,563 $ 2,154,902
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation & amortization 366,077 397,959
Loss on disposal of assets - 9,372
Deferred income taxes 13,759 59,508
Other 3,136 14,960
Net changes in assets and liabilities:
Accounts receivable-trade, net (413,809) (390,808)
Inventory (1,739,977) 1,074,217
Income taxes 191,666 2,936
Other current assets 93,380 (37,153)
Accounts payable 87,279 (162,618)
Accrued expenses and other liabilities 178,494 (1,538,342)
------------ ------------
Total adjustments (1,219,995) (569,969)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 694,568 1,584,933
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (267,552) (326,284)
Payments in connection with businesses acquired (156,454) -
Proceeds from sale of assets - 6,217
Increase in other assets 11,387 (22,305)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (412,619) (342,372)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in revolving credit loans (786,162) (1,544,417)
Payments on notes payable and long-term debt - (4,878)
Decrease in cash restricted for payment on revolving credit facility (1,134) 43,685
Payments received on notes secured by common stock 5,000 24,003
Repurchase of common stock (treasury stock) (23,960) -
Proceeds from issuance of common stock 124,015 325,688
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (682,241) (1,155,919)
------------ ------------
NET CHANGE IN CASH (400,292) 86,642
CASH, beginning of period 1,728,344 101,557
------------ ------------
CASH, end of period $ 1,328,052 $ 188,199
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 43,960 $ 178,558
Income taxes paid during the period, net of (refunds) 848,427 809,602