TANDY LEATHER FACTORY INC

Previous wording

Currently, the Company operates a total of 100 retail stores. There are 90 stores in the United States (“U.S,”), nine stores in Canada and one store in Spain.

Current wording

Currently, the Company operates a total of 101 retail stores. There are 91 stores in the United States (“U.S,”), nine stores in Canada and one store in Spain.

Previous wording

Tandy Leather has been introducing people to leatherworking for over 100 years. Our stores have been and continue to be our competitive advantage: where our consumers learn the craft in classes, open table , and from the expertise of our store staff, where they can touch, feel and test the product, and where they can connect and commune with others passionate about leather. Our websites provide inspiration, detailed product descriptions and specifications, educational information and videos, and a convenient place to also purchase products – especially for those who are far from our retail stores, including a growing international customer base. For many of our retail and web customers, leatherworking evolves from a passion to a trade. Our Commercial Division is tailored to the needs of those customers who build businesses around leather. With dedicated direct account representatives, a direct-from-our-warehouse shipping model, bulk and volume-based competitive pricing, customized product development, and production and pre-production services, we are building long-term, strategic relationships with our largest customers.

Current wording

Tandy Leather has been introducing people to leatherworking for over 100 years. Our stores have been and continue to be our competitive advantage: where our customers learn the craft in classes, open table , and from the expertise of our store staff, where they can touch, feel and test the product, and where they can connect and commune with others passionate about leather. Our websites provide inspiration, detailed product descriptions and specifications, educational information and videos, and a convenient place to also purchase products – especially for those who are far from our retail stores, including a growing international customer base. For many of our retail and web customers, leatherworking evolves from a passion to a trade. Our Commercial Division is tailored to the needs of those customers who build businesses around leather. With dedicated direct account representatives, a direct-from-our-warehouse shipping model, bulk and volume-based competitive pricing, customized product development, and production and pre-production services, we are building long-term, strategic relationships with our largest customers.

Previous wording

In 2019, with the arrival of a new management team, we began the process of assessing and reinvigorating the business. We focused in three broad strategic initiative areas: 1) improving our brand proposition, 2) rebuilding our foundation: the talent, processes, tools and systems needed to modernize and efficiently operate the business, and 3) creating a vision and road map for long-term growth. We had significant achievements in all of these areas including significantly improving the product quality, breadth of assortment and value, dramatically improving the website and web operations, rebuilding the team, people policies and culture, and replacing all of the key systems, among many other accomplishments.

Current wording

In 2019, we began the process of assessing and reinvigorating the business. We focused in three broad strategic initiative areas: 1) improving our brand proposition, 2) rebuilding our foundation: the talent, processes, tools and systems needed to modernize and efficiently operate the business, and 3) creating a vision and road map for long-term growth. We had significant achievements in all of these areas including significantly improving the product quality, breadth of assortment and value, dramatically improving the website and web operations, rebuilding the team, people policies and culture, and replacing all of the key systems, among many other accomplishments.

Previous wording

We made this steady progress to transform and reinvigorate our business even in the face of two very significant obstacles: a financial restatement and COVID-19. With those obstacles behind us, we have been focused on improving our financial sustainability and profitability. In the short-term, we are managing operating expenses and gross margin to deliver free operating cash and operating income even in the face of possible continued economic headwinds. We will also continue to selectively invest in profitable sales growth where it makes sense, but rebuilding a durable, profitable business model is the highest priority.

Current wording

We have made steady progress to transform and reinvigorate our business even in the face of two very significant obstacles and have been focused on improving our financial sustainability and profitability. In the short-term, we are managing operating expenses and gross margin to deliver free operating cash and operating income even in the face of possible continued economic headwinds. We will also continue to selectively invest in profitable sales growth where it makes sense, but rebuilding a durable, profitable business model is the highest priority.

Previous wording

Consolidated net sales for the quarter ended September 30, 2024 decreased $0.2 million, or 1.1%, compared to the corresponding prior year period. We believe the decrease in sales was due in part to temporary store closures related to store relocation and weather including Hurricanes Beryl, Debby, Francine and Helene, and ongoing weak consumer demand compared to a year ago resulting from uncertainty related to global political, economic and other uncontrollable factors.

Current wording

Consolidated net sales for the quarter ended March 31, 2025 decreased $0.2 million, or 1.2%, compared to the corresponding prior year period. We believe the decrease in sales was due in small part to temporary store closures related to store relocation and ongoing weak consumer demand compared to a year ago resulting from uncertainty related to global political, economic and other uncontrollable factors.

Previous wording

Gross profit for the quarter decreased by $0.9 million, or 8.4%, compared to the same period in 2023, and our gross margin percentage for the quarter ended September 30, 2024, decreased year-over-year by 460 basis points due primarily to timing of capitalization of our inventoriable costs, and greater promotional activity this year compared to same period last year, to help overcome decreased consumer discretionary spend.

Current wording

Gross profit for the quarter decreased by $0.2 million, or 1.8%, compared to the same period in 2024. While gross margin percentage for the quarter ended March 31, 2025, remains practically the same year-over-year, the slight decrease of 40 basis points due to increased promotional activity in the first quarter of both years.

Previous wording

Operating expenses for the quarter increased by $0.2 million or 2.3% compared to the corresponding prior year period, primarily as a result of an increase in employment costs of $0.6 million due to higher wages, in particular for retail and other hourly employees, partially offset by a decrease in bonus accrual of $0.3 million and a decrease of $0.1 million in miscellaneous operating expenses including travel, repairs, and insurance.

Current wording

Operating expenses for the quarter increased by $0.2 million or 1.8% compared to the corresponding prior year period, primarily as a result of an increase in employment costs of $0.3 million due to the combination of higher insurance costs, merit increases, and some key personnel hired in the second half of 2024, an increase in occupancy of $0.1 million mainly attributed to rental of our corporate headquarters; partially offset by a decrease in professional services of $0.1 million and a decrease in depreciation expense of $0.1 million due to the disposal of our owned corporate headquarters.

Previous wording

Our effective tax rate for the three months ended September 30, 2024 and September 30, 2023 was 27.7% and 24.0% respectively. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, and expenses that are nondeductible for tax purposes, and the estimates in our valuation allowance associated with our deferred tax assets.

Current wording

Our effective tax rate for the three months ended March 31, 2025 and March 31, 2024 was 24.8% and 25.7% respectively. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, expenses that are non-deductible for tax purposes, and the estimates in our valuation allowance associated with our deferred tax assets.

Previous wording

We require cash principally for day-to-day operations, to purchase inventory and to finance capital investments. We expect to fund our operating and liquidity needs primarily from a combination of current cash balances and cash generated from operating activities. Any excess cash will be invested as determined by our Board of Directors in accordance with its approved investment policy. Our cash balances as of September 30, 2024 totaled $10.1 million.

Current wording

We require cash principally for day-to-day operations, to purchase inventory and to finance capital investments. We expect to fund our operating and liquidity needs primarily from a combination of current cash balances and cash generated from operating activities. Any excess cash will be invested as determined by our Board of Directors in accordance with its approved investment policy. Our cash balances as of March 31, 2025 totaled $23.6 million.

Previous wording

On November 2, 2023, the Company renewed the promissory note under its credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. through October 31, 2024. Under the Credit Agreement, the bank will provide the Company a credit facility of up to $5,000,000 on standard terms and conditions, including affirmative and negative covenants set forth in the Credit Agreement. As security for the credit facility, the Company has pledged as collateral certain of its assets, including the Company’s cash in deposit accounts, inventory and equipment. The interest rate is based on CME term SOFR + 210 basis points and the maturity is 1 year. As of the date of this filing, no funds had been borrowed under this facility, and we are in compliance with all covenants.

Current wording

On October 30, 2024, the Company renewed the promissory note under its credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. through October 31, 2025. Under the Credit Agreement, the bank will provide the Company a credit facility of up to $5,000,000 on standard terms and conditions, including affirmative and negative covenants set forth in the Credit Agreement. As security for the credit facility, the Company has pledged as collateral certain of its assets, including the Company’s cash in deposit accounts, inventory and equipment. The interest rate is based on CME term SOFR + 210 basis points and the maturity is 1 year. As of the date of this filing, no funds had been borrowed under this facility.

Previous wording

For the nine months ended September 30, 2023, cash from operations generated $1.2 million driven by a net income of $1.7 million, non-cash expense of $4.1 million, including depreciation, amortization, and stock-based compensation, accounts receivable of $0.1 million, prepaid expense of $0.1 million, offset by a reduction in lease liability payments of $2.7 million, a reduction in accounts payable of $1.7 million, and an increase in inventory of $0.4 million. We invested $0.3 million in capital expenditures primarily related to system modifications and improvements. The activities above, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $0.6 million.

Current wording

For the three months ended March 31, 2025, cash used in operations generated $0.5 million driven by a net income from operations of $0.3 million , non-cash expense of $1.4 million, including depreciation, amortization, and stock-based compensation, a decrease in inventory of $1.2 million, a decrease in prepaid expenses of $0.2 million; partially offset by a reduction in lease liability payments of $1.4 million, a decrease in accrued expenses of $0.9 million, an increase in other assets of $0.2 million, and a decrease in accounts payable of $0.1 million. Cash provided from our investing activities was $23.3 million, which included net proceeds from sale of our corporate headquarters of $24.9 million and purchase of assets for our new corporate facility of $1.3 million. We paid dividends in the amount of $12.7 million. The above activities, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $10.3 million.

Previous wording

For the nine months ended September 30, 2024, cash from operations generated $0.1 million driven by a net income of $0.5 million, non-cash expense of $4.1 million, including depreciation, amortization, and stock-based compensation, a decrease in deferred income taxes of $0.2 million, partially offset by a reduction in lease liability payments of $2.7 million, an increase in income tax payments of $1.0 million, decrease in accrued expense and other liabilities of $0.6 million, an increase in prepaid expense of $0.3 million, and an increase in inventory of $0.1 million. We invested $2.3 million in capital expenditure primarily related to replacing a new roof at our corporate headquarters and other new capital investments due to new store openings and store relocations. The activities above, in addition to the effect of exchange rate changes, resulted in a net decrease in cash of $2.1 million.

Current wording

For the three months ended March 31, 2024, cash from operations generated $1.1 million driven by a net income of $0.5 million, non-cash expense of $1.4 million, including depreciation, amortization, and stock-based compensation, a net reduction in inventory of $1.2 million and a decrease in prepaid expense of $0.1 million, partially offset by a reduction to working capital including a net $1.1 million decrease in accrued expense and other liabilities, a reduction in lease liability payments of $0.9 million, and a decrease in accounts payable trade of $0.1 million. We invested $1.2 million in capital expenditure primarily related to replacing a new roof at our corporate headquarters and other new capital investments due to new store openings and store relocations. The activities above, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $0.2 million