Good morning, ladies and gentlemen, and welcome to the Tandy Leather Factory First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms. Tina Castillo, Chief Financial Officer. Ma’am, you may begin

Great. Thanks, Bridget. Good morning, and welcome to Tandy Leather’s First Quarter 2018 Earnings Conference Call. We will be discussing this morning our first quarter 2018 results as well as our plans and expectations for the rest of 2018. Shannon Greene, who normally starts these calls, is traveling today and is in Toronto. So it will just be me as well as Mark Angus, our President. Before we get started, our 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. 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 statements about those results. These risks are detailed in our various filings with the SEC, such as our most recent Form 10-K and 10-Q as well as in our 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 you may have seen in our earnings release, our results for the first quarter were positive with improvements to both the top line and bottom line. We were pleased with the results as it reinforces that our key priorities to drive sustainable growth in traffic and sales are working. In our last earnings call a few months ago, we outlined some of the key priorities as part of our overall strategic initiatives that we’ve been developing to guide us to our 2020 financial targets of reaching $90 million in…

[Operator Instructions] Our first question comes from the line of George Kelly, a Private Investor.

Hi, guys. Thanks for taking my questions. So a few for you. First of all, wondering about leather pricing and hide pricing, the raw material that you’re buying? And how is the price, if you were to compare it with this time last year? How has that impacted your sale – your revenue growth? Is – have you seen – you mentioned that your average ticket is up slightly. If you were to sort of make same-for-same leather pricing with last year, would it look different?

Hi George, this is Mark. It’s basically just been flat. The prices are very stable and really holding. Really the change that we referred to is really just the mix of the particular products that people bought, and so we really see it just really holding really for the rest of this year as being relatively stable.

Okay, got you. And then second question on the cash balance. Wondering – you bought back a little stock in the quarter. Are there other uses – major uses that you’re considering? Or how do you sort of rank the preferred uses for your cash?

All right. George, right now, about half of that cash balance is overseas. And we are continuing to monitor foreign currency exchange rates in opportune times to bring it back. So a lot of that cash really isn’t here in the U.S. And as you know, with that stock buyback, we are purchasing that through our line of credit. And so one thing we are evaluating is do we bring that cash back and pay down that line and we consider as well dividends and other ways to return to our stockholders. So that is always a topic of discussion in our board meetings and one that our board takes very, very seriously. And so right now, again, we look at the foreign cash flow bringing us back when rates are better and evaluating our overall line of credit with, of course, the stock buyback.

Got you. Okay. And then another question on – this one on advertising. I believe that you’ve started to shift away from some of your catalog spend. What – it sounds that your sales growth trends have improved, especially here recently in April. So does that give you confidence to continue shifting away from catalog? Or have you not started that yet? Anything there? And also, your overall sort of social media. It seems like you are adding more content on Facebook and other platforms. What’s the ROI with that? How pleased or displeased have you been with your social media advertising?

Well, as for the advertising part of it, we – all we’ve basically done is we kind of changed our model a little bit the first of this year, and we do that every year. We review the performance and who are mailing and we really focused a little bit more on our business type customers. And so we’ve kind of done regular sales pieces monthly now, directly geared to that group. But overall, we basically just – the classifications of our customers, we tweaked a little at the end of last year. And so we really haven’t changed that much in our advertising direction. It’s basically, we’re just utilizing things more efficiently, I believe. So it’s working very well. And we see a lot of positive response from everyone on what we’re doing. And as for the social media part of it, we basically – yes, we put in a lot more effort into really doing what our customers have asked for, which is more how to content on those platforms. And again, it’s kind of new somewhat to us. But we continue to work and learn and continue to grow it. So hopefully, we will see some – we have not focused on really ROI on the social media. It’s really been just trying to bridge the gap between more regular advertising program and how we contact and stay in touch with our customers and we see it growing continuously every month. So we’ll continue that focus, and we’re looking at different ways to get an ROI on those platforms. And hopefully, later in the year, we’ll have a little more insight into that.

Okay. Okay. And then last question from me. What is – what do you expect for full year CapEx? And can you break that down between maintenance and the new stores that you’ve planned?

So we do expect our full year CapEx to be a little lower than what it’s been. It has been a little bit above $1 million, $1.3 million the last couple of years. So we do think it’s going to be a little bit lower in 2018. I would say from a growth CapEx, we’ve only got two or three new stores that are opening. And generally a new store, we don’t spend more than $100,000, $150,000 for leasehold improvements. And then the rest would be maintenance and that’s typically just computer upgrades, just the IT systems to support the stores. So that’s primarily where our maintenance Capex is for, just supporting the stores and their IT needs.

That’s it. Thank you.

[Operator Instructions] Our next question is from [indiscernible]. He’s a private investor.

Hi guys and congrats on a quarter and thanks for taking my questions. First question is on the district manager program. In August 2017, I think you guys had about 12 to 15 spots filled and the same in March of 2018. So can you just talk about like the status on that? And are you starting to see results?

We do think we’re seeing results. We think that we’re seeing an improvement in just some of the softer stuff, just personal, training, product development and this takes time. When we first implemented the program, we knew that it was going to take at least 18 months to really start to gain traction. So we do believe that this program has been really beneficial and, again, that runway was with an 18 month time line. We are constantly refining and reviewing and looking at the DM program, evaluating is 15 districts the right number, should it be something – perhaps something smaller? Are there ways that we can improve that return on investment? I know it’s been painful and 2017 CapEx spend continues to impact the comps. But we do believe that this program is really needed just because we are aspeciality retail and leathercrafting isn’t something that the normal person knows about. And so it really takes us – it takes a lot of time and effort to develop a customer. But the whole goal for us is not some fad. We’re looking at loyal lifetime customers. And we want to bring that person in and we want to spend the time that’s necessary to really ignite that interest and inspire them to create projects. And it starts from maybe a bracelet and then it goes into something a little more complicated like a belt. Then it might go into something, supercool wallets and so on and so forth and again, that just takes time and it takes patience. And we have to invest in that training for our folks and our district managers are really the ones who lead that effort.

Okay. Thank you. Another question on the same-store sales decline. Do you think that’s representative of a secular trend? Or like why is that the case in that revenue is really being driven by store expansion rather than the combination of the two?

That’s a great question. I mean, our same-store sales, it has been declining and it’s largely in part really to that loss in that business customer. Our retail has been phenomenal. It has shown great growth over the last few years. It’s just the business customers and as Mark talked about our advertising program and how we’re doing more targeted marketing, our district managers are also tasked with getting those business customers to come back into the store and if they can’t come back to the store, then they go out and visit them and help them to support their initiatives. So we are working on turning that same-store sales decline around in April, we reported that we had a 2.8% improvement and we were happy to see that our same-store sales in the U.S., there was not a decline. It was relatively flat. So we really do think that the outlook for 2018 remains positive. Our guidance for revenue is in the range of 82 to 84. And so we do expect that the same-store sales will either be flat or improved.

Okay. And then last question on the higher ticket items. Have you historically seen that adding higher ticket items have increased the average ticket size? Like what’s the incentive for customers to necessarily purchase it if it’s available?

I think what we mean with our higher ticket is that we are introducing new products that help drive that ticket and those new products, we hope, will also have them purchase other products. So if you purchase a burnishing machine, you may purchase additional leather so that you can use it or if you’re buying a burnishing machine, you may need the ancillary parts. And so the whole goal is let’s provide additional products, additional ways for them to create projects that they can source just from us.

Okay. And last question on that. Have you seen any change in the – over the last couple of months? I know there are like leather products available? But obviously, in the past, you talked about how it’s not as much of a threat. Has that changed?

No. No, it hasn’t. Mark is shaking his head, no.

No. It really hasn’t. We try to work. We are the leader in this industry, and we work really, really hard to do exclusive products and we continually introduce new and innovative products and instruct people on how to use it. And we really don’t see that.

Alright, thank you.

And I’m not showing any further questions. I will now turn the call over to Ms. Castillo for any closing remarks.

Well, we appreciate your time today and your interest. And we appreciate you participating. We look forward to speaking with you either at our Annual Stockholders' Meeting or next quarter. Have a great day.

Ladies and gentlemen, this does conclude the program. You may now disconnect. Everyone, have a great day.