Good day, ladies and gentlemen, and welcome to the Tandy Leather Factory's Fourth Quarter 2016 Earnings Conference 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 call is being recorded. I would now like to introduce your host for today's conference, Ms. Shannon Greene. Ma'am, you may begin.

Thank you. Good morning and welcome to Tandy Leather’s 2016 earnings conference call. We will be discussing our fourth quarter and year-end 2016 results, as well as our plans and expectations for 2017. I am Shannon Greene, CEO and I am joined today by Tina Castillo, CFO; and Mark Angus, President. The earnings release and related SEC filings are available on our Investor Relations section of our website and a replay of this webcast will be available later today. I need to remind everyone that there may be forward-looking statements on the call today. Statements would include words like expect, believe, anticipate, plan, intend, target or words with similar meaning and are based on our beliefs and expectations and are subject to certain risks and uncertainties that may cause actual results to differ materially from our forward-looking statement about those results. These risks are detailed in our various filings with the SEC such as the most recent Form 10-K and 10-Q as well as news releases and other communications. We do not undertake to update or revise any forward-looking statements which speak only as of the time they are made. As we saw in our earnings release, we delivered on our 2016 guidance. Our sales team entered the top end of our guidance range, while our earnings were at the lower end. While we were encouraged to see a better than expected response to our holiday promotions, the overall product mix compressed our gross profit margin also somewhat negatively impacting our results. In late November, we announced to our store managers that their base salaries would be increased by almost 40% on December 1st to comply with then expected FLSA minimum salaries. While that requirement was delayed shortly after our announcement we followed through with what we told our managers.…

Thank you, Shannon. Our fourth quarter consolidated sales totaling $24.1 million decreased 0.6% or 142,000 from last year's fourth quarter sales. Our Retail and International Leathercraft segments reported 0.4% and 13% sales increase respectively, while our wholesale segment reported sales decline of 4%. Retail Leathercraft continued to be our largest segment contributing 66% of our total sales. Wholesale Leathercraft contributed 30% of our total sales with International Leathercraft contributing the remaining 4%. The sales increase in the retail segment consisted of a 1% increase in same store sales, and e-store sales growth of 412,000 from the four stores that Shannon just mentioned. The decline in the wholesale segment was the result of a 2% same store sales loss and the impact of Harrisburg that temporarily closed in the second quarter of 2016. The increase in the International Leathercraft segment was the result of an overall improvement in our international customer base, but this is somewhat needed about the UK pound sterling exchange rate, which dampened our sales increase. Foreign currency exchange rate affects us in two ways. One, the comparison of the current results at the current exchange rate to last year's result as the exchange rate in affect at that time. And two, the impact of weaker currencies and our foreign markets against the U.S. dollar which causes our products to be more expensive which can result in our foreign customers purchasing less. Consolidated gross profit margin for the quarter was 60.2% decreasing from 61.2% in last year's fourth quarter. As Shannon mentioned, we had a better than expected response from holiday promotions, which drove our sales, but the overall product mix negatively impacted our gross profit. As a reminder, there are generally two things that affect margins. The mix of retail sales to wholesale sales and the ratio…

Thanks Tina. Looking into 2017, we are estimating the top line to grow to the $84 million to $85 million range. The current retail environment continues to be a challenging one, but we are cautiously optimistic about the initiatives we have in place and that we will be seeing some benefits for our top line this year. Overall from an OpEx and earnings perspective, we believe the 2017 will be a year of investment with a new district restructuring as well as the effect of the FLSA wage increase. We will be actively monitoring the success of these programs and our other initiatives to ensure an appropriate ROI. Although these initiatives may take time to produce quantitative result to our bottom line. Ultimately, we believe this investment is laying the foundation for growth and expected our earnings will be negatively impacted in 2017, but will show a return to our bottom line beginning in 2018 and beyond. That said, for 2017, we expect our EPS to be in the range of $0.56 to $0.58. We plan to open or reopen at least four new stores this year in the U.S. As already mentioned, one has already - we have already reopened the store in Harrisburg, Pennsylvania in late January. Regarding on 2017 capital expenditures, we're expecting CapEx to be approximately $1.7 million to $1.9 million to cover our new store openings, to roll out of our district manager program and the infrastructure to support that program and some maintenance CapEx for our home office. Last thing before we go to questions, I want to thank all of our great associates for their support this year and for the progress we have made in 2016. I look forward to meeting more of you in the future as I continue to make store visits one of my personal priorities as CEO. Lastly, our Annual Meeting of Stockholders has scheduled for June 6th, at 11 A.M. at our corporate offices in Fort Worth. We would welcome the opportunity to meet you, so please consider yourself personally invited. That concludes our prepared remarks. We appreciate your time today. And we’ll be happy to answer whatever questions you may have. Operator, we are now ready to take questions.

[Operator Instructions] Our first question comes from the line of Mike Mork with Mork Capital Management. Your line is open.

Thank you. I'm just curious, lot of retailers been hurt by that so called Amazon affect were people going to see something and they buy it online. Does that affect you at all?

No. Hi, this is Mark, how are you. Not really, I mean, we're such a specialty retailer that the majority you know of all of our customers they want a real touch and feel the leather and the products and learn everything that has to do with that experience. So we haven't had any real effect with that. We've explored marketing some of our products through these marketplaces. And that's a possibility that we may do so down the road some. But you know as a general rule, we haven't really had that effect and really won't like most specialty retailers don't. They - we're very fortunate that we're in that type of industry that our customers really want that hands on affect and they want that experience to visiting our stores and the training and answering the questions, so we’re very fortunate that way.

Okay, that’s reassuring. Then also can you just give us this 40% increase in details, what it's been, what it's going to and we’ve done competitive as far as getting some good managers et cetera?

So, our manager compensation program prior to December 1st was in the U.S. was set at $36,000 base salary, and a 25% bonus - 25% of the operating profit of the store that they manage. So some managers that do very well, making low six figures, those that are struggling or making $36,000. So what we did was if you follow the news, they rolled out a basically $47,500 was going to be the minimum of salary - base salary in order to be continued to be an employee. What we did was we increased our salaries for our managers’ base salary of $50,000, so we're slightly ahead of what the minimum was there. And again we - I think we announced to our store managers that we were, the pay change is going to into effect on December 1st. I think we announced that like November, I want to say November 20th and then the news came out on 22nd that they had - the judge has issued an injunction stay on that rule. So it hasn't gone into effect yet, but we had already told our managers that’s what we were doing. We feel like with the $50,000 salary that makes us - makes our store manager positions much more marketable and much more attractive that bottom line sounds a lot better than a $36,000 base. That we did tweak our bonus program just a little bit, it’s we're now paying 20% after a $25,000 floor, but there's no capital on that. So again and that’s what we tell all our managers is you can't max out on bonus, it’s strictly based on how much profit the stores can generate. So we're at a $50,000 base which is $36,000 now.

Okay that’s sounds good. And just lastly, three units a year, can you update somehow it seems like you're still profitable and it looks like going to be restructured here, could you have a five, six stores a year, what would stop you from going faster?

Yes, we could, you know we set out the minimum of three. It all comes down to people. And we're hoping bottom line is yes, we could open more stores, if we've got qualified manager trainees that can manage the stores, because that 90% of the battle when it comes to store success and store profitability. So with the discrete manager program now and having oversight closer proximity and more support, we're really hoping that we can train and with our new salary structure, we're hoping that that we can increase the number of manager trainees that we've got in a system, so that yes we could open more stores. But we think three stores as easily manageable, could we open six or eight yeah with the right people absolutely. And if we see district manager program really working like we expect that it will, then you will see suggest that as we go on.

That’s sounds great. Well, thank you very much.

Thanks Mike.

Thank you. [Operator Instructions] And I'm showing no further questions at this time. I'd like to turn the call back to Ms. Greene for closing remarks.

Thank you. Thanks again for participating in our 2016 earnings conference call today. We look forward to speaking with you again next quarter. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.