Tandy Leather Factory, Inc. (TLF) Q4 2022 Earnings Report, Transcript and Summary

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, and I will be co-moderating the discussion today. Our CEO, Janet Carr, will give just a very brief overview of the quarter, and then we will devote the conference to investors' questions and discussion. [Operator Instructions] With that, let's get started. 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. And now here's Janet Carr.

Thanks, Dan. So we are not going to be doing a PowerPoint presentation getting through a whole year post restatement. We feel like you have the big picture now. And if you don't, we are happy to discuss. But we're just going to really answer questions and have a discussion today. So just a quick overview of our 2022 results. Revenues came in at $80.3 million, down 2.8% (sic) [ 3% ] from 2021. Our operating income was $1.4 million and net income $1.2 million. Gross margin -- gross profit came in about -- 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. And 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 headwinds. So that's all I have.

Questions? [Operator Instructions]

This is Joe Koster, Sorfis Investments. Just wanted to know if you could talk a little bit more about kind of the store base now and if you feel you've sort of got it to the size and the number of profitable stores that you're comfortable with?

Yes, great question. Ultimately, we would love to see our store base grow, but with our focus on profitability and four-wall cash as the key metric of store profitability, we've been really disciplined about closing stores when they don't appear to have a trend toward four-wall cash positive. And 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 if we think those represent opportunity. But 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 be negative. So especially right now when wages have been increasing and rents have been increasing, we've been very focused on this. But to answer your question, I think there can be more, but there won't be no more unless we can do it profitably.

Thanks. And I'll just ask one more if nobody else is jumping in. Sort of the historical margins that you said are your eventual goal to get back to has -- obviously, we -- 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 time frame on when you think those could potentially be achievable?

Are you talking about operating margins?

Yes, yes, correct.

Yes. We are working our way toward that. There have been a lot of sort of environmental factors that have been challenging, as you know. I don't need to reiterate all those things. So we're not setting a date for this, but we plan to make significant progress in 2023. And 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 time lines but again, we're a bit bound by the overall economic environment as well as we've seen in 2022. And the goal here is to get to strong profitability, strong positive cash flow even if our sales are to decline.

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

That's a reasonable ballpark estimate of what the real estate here in Fort Worth is worth. Other questions, comments? It's going to be the world's shortest call.

Maybe one question here. I'm [ Nir ], I'm a private investor. Can you walk us through the thought process of buying your own stock? Why at this stage? And clearly, if you're buying it, I imagine it's the same value, which personally, I'm not seeing it reflected in the margin and in the operations. So can you maybe tie that a little bit and just walk us through the thought process with buying equity as opposed to maybe increasing stores or other uses.

Yes. 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. There has been -- it's been a transformation to use kind of a worn-out cliche for the last 4 years. But 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. So you're not seeing the returns in terms of operating margin today. But 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 Joe Koster mentioned, have a $15 million real estate value of our property here, and we have a very strong balance sheet, with no debt and a strong asset base. So I feel like -- I think we all feel like at under $5 a share, Tandy's great value.

I guess I'll ask another one if no one if no one is asking. So to what extent do you feel -- how should I phrase it, that your destiny is in your own hands [ related to ] environment and/or how much competition if you have and from where? So where -- I mean, clearly, you're retail, and you can innovate here and there, but it's extremely competitive. So how do you see it? How do you think about that environment that you're operating in?

It's a great question. 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're on the ocean, and you're going up and down with the waves. But 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 100 years or so. And in that regard, our ability to target those customers, meet their needs, create the distribution model, so we are where they are, and we're selling to them in the way they want to buy. I think all of those things are in our control. And it's really a question of how we balance the -- like every company, right, how we balance the short term with the long term, how we balance developing a model that delivers acceptable short-term profit and cash, honestly, and how we can still invest to drive that long-term growth. So I don't know if that's a satisfactory answer, but I'm not going to say we're entirely at the whim of -- we're not a commodity. We're not entirely at the whim of the economic environment, though, in the short run, I'd say that does have an impact. 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. But we -- unless 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. 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, blah is not that appealing to any of us. So give us some feedback, if you'd like to see this to unfold in a different way. But as always, we're here and happy to chat and looking forward to talking to you again in about 6 weeks of our Q1. Thanks, everyone.

Thank you, everyone.

Bye.