TANDY LEATHER FACTORY INC

Previous wording

Currently, the Company operates a total of 101 retail stores. There are 92 stores in the United States (“U.S,”), eight stores in Canada and one store in Spain. As of June 30, 2026, the Company had temporarily closed one of its Canadian stores for relocation and we anticipate to open this store in Q4 2026.

Current wording

Currently, the Company operates a total of 102 retail stores. There are 93 stores in the United States (“U.S,”), eight stores in Canada and one store in Spain. As of September 30, 2026, the Company had temporarily closed one of its Canadian stores for relocation and we anticipate to open this store in Q4 2026.

Previous wording

Gross profit for the quarter increased by $1.1 million, or 10.6%, compared to the same period in 2025. Gross margin percentage for the quarter ended June 30, 2026 was 530 basis points better than last year, primarily driven by pricing changes implemented; offset by marginal discounts offered for the period compared to prior year discount offering. The Company’s estimates of overhead allocation and the timing of inventory receipts may also have a temporary impact on gross margin percentage fluctuations from quarter to quarter.

Current wording

Gross profit for the quarter increased by $1.4 million, or 13.6%, compared to the same period in 2025. Gross margin percentage for the quarter ended September 30, 2026 increased 350 basis points compared to the prior-year quarter, primarily driven by sales growth, pricing changes, and tariff refunds received in the quarter which represented about 270 basis points of the 350 basis points of the margin improvement. The Company’s estimates of overhead allocation and the timing of inventory receipts may also have a temporary impact on gross margin percentage fluctuations from quarter to quarter.

Previous wording

Operating expenses for the quarter increased by $0.6 million or 6.1% compared to the corresponding prior year period, primarily as a result of an increase in retail bonus paid compared to prior year of $0.1 million, an increase in selling expenses of $0.2 million, an increase in software cost of $0.1 million, an increase of legal and audit fees of $0.1 million, an increase in depreciation expense of $0.1 million, an increase of $0.1 million in loss on disposed assets; offset by a reduction in utilities and repairs of $0.1 million.

Current wording

Operating expenses for the quarter increased by $0.1 million or 1.4% compared to the corresponding prior year period, primarily as a result of an increase in employee benefits compared to prior year of $0.1 million, an increase in salaries of $0.1 million, an increase in selling expenses of $0.1 million, an increase of depreciation of $0.1 million; offset by a reduction in property tax of $0.1 million, and a reduction of rent of $0.2 million.

Previous wording

Our effective income tax rate for the three months ended June 30, 2026 and June 30, 2025 was 34.2% and (10.8%), 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 any change in estimates in our valuation allowance associated with our deferred tax assets.

Current wording

Our effective income tax rate for the three months ended September 30, 2026 and September 30, 2025 was 17.7% and 26.2%, 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 any change in estimates in our valuation allowance associated with our deferred tax assets.

Previous wording

Consolidated net sales for the quarter ended June 30, 2026 increased by $0.3 million or a 1.5% increase compared to the same period in the prior year period. We believe the increase was mainly due to our sales campaign and improved allocation of the correct product mix in our stores during those sales periods. We also saw improvement in our non-traditional sales such as classes and other community engagements.

Current wording

Consolidated net sales for the nine months ended September 30, 2026 increased $2.1 million, or 4.0%, compared to the corresponding prior year period. We believe the increase was mainly due to our sales campaign and improved allocation of the correct product mix in our stores during those sales periods. The improved sales is also due in part to closure of our distribution operations for at least six weeks during the third quarter last year due to the relocation of our corporate offices. We also saw improvement in our non-traditional sales such as classes and other community engagements and Web sales.

Previous wording

Gross profit increased by $2.4 million, or 11.3%, compared to the same period in 2025, and our gross margin percentage for the six months ended June 30, 2026, increased year over year by 500 basis points primarily driven by pricing changes; offset by marginal discounts for the period compared to prior year. The Company’s estimates of overhead allocation and the timing of inventory receipts may also have a temporary impact on gross margin percentage fluctuations from quarter to quarter.

Current wording

Gross profit increased by $3.8 million, or 12.0%, compared to the same period in 2025, and our gross margin percentage for the nine months ended September 30, 2026, increased year over year by 450 basis points, of which approximately 100 basis points is due to tariff refunds received in the third quarter of 2026, which we do not expect to recur. The margin improvement for the nine months ending September 30, 2026 is primarily driven by pricing changes, slightly offset by promotional discounts for the same period compared to prior year. The Company’s estimates of overhead allocation and the timing of inventory receipts may also have a temporary impact on gross margin percentage fluctuations from quarter to quarter.

Previous wording

Operating expenses increased $1.8 million or 8.7% compared to the corresponding prior year period, primarily as a result of an increase in employment cost of 0.9 million, occupancy costs by $0.6 million, an increase in credit card fees of $0.1 million, an increase in depreciation of $0.2 million, an increase of $0.1 million in loss on disposed assets; partially offset by a decrease in freight to customer of $0.1 million.

Current wording

Operating expenses increased $1.9 million or 6.2% compared to the corresponding prior year period, primarily as a result of an increase in employment cost of $0.8 million, occupancy costs by $0.6 million, an increase in depreciation of $0.2 million, an increase in credit card fees of $0.2 million, an increase of $0.1 million in software expense, an increase in legal expense of $0.1 million; partially offset by a decrease in freight to customer of $0.1 million.

Previous wording

Our effective income tax rate for the six months ended June 30, 2026 and June 30, 2025 was 36.3% and 25.2% respectively and are primarily due to the recognition of tax benefits on the sales of our corporate property, partially offset by forecasted income taxes loss projected due to our 2025 operation and certain foreign and state jurisdictions obligation in which we operate. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, expenses that are nondeductible for tax purposes, and the change in our valuation allowance associated with our deferred tax assets.

Current wording

Our effective income tax rate for the nine months ended September 30, 2026 and September 30, 2025 was 29.5% and 25.1% respectively and are primarily due to improvement in our projected taxable income in 2026 and the recognition of tax benefits on the sales of our corporate property in 2025, partially offset by forecasted income taxes loss projected due to our 2025 operation and certain foreign and state jurisdictions obligation in which we operate. Our effective tax rate differs from the federal statutory rate primarily due to U.S. state income tax expense, expenses that are nondeductible for tax purposes, and the change 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 June 30, 2026, totaled $6.4 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 September 30, 2026, totaled $5.7 million.

Previous wording

For the six months ended June 30, 2026, cash used in operations was $2.3 million, driven by net income from operations of $0.6 million, non-cash expense of $3.6 million, including depreciation, amortization, and stock-based compensation, an increase in inventory of $4.0 million, a decrease in accrued expenses of $1.0 million, a decrease in operating lease liabilities of $2.5 million; offset by an increase in account payable of $0.9 million and decrease in prepaid expenses of $0.1 million. Cash used in investing activities was $1.0 million mainly for new store operations which includes purchases of property and equipment. Cash used in financing activities was $6.2 million, primarily for dividend payments and withheld shares used as taxes at vesting for the employees. These activities, together with the effect of exchange rate changes of $0.1 million, resulted in a net decrease in cash of $9.7 million.

Current wording

For the nine months ended September 30, 2026, cash used in operations was $2.8 million, driven by net income from operations of $1.1 million, non-cash expense of $5.1 million, including depreciation, amortization, and stock-based compensation; offset by an increase in inventory of $4.5 million, a decrease in operating lease liabilities of $3.7 million, a decrease in accrued expenses of $0.3 million, an increase in prepaid expenses of $0.2 million, an increase in tax payments of $0.2 million, and a decrease in accounts payable trade of $0.1 million. Cash used in investing activities was $1.4 million mainly for purchases of property and equipment for new stores and investment in software for our new loyalty program. Cash used in financing activities was $6.2 million, primarily for dividend payments and withheld shares used as taxes at vesting for the employees. These activities, together with the effect of exchange rate changes of less than $0.1 million, resulted in a net decrease in cash of $10.4 million.

Previous wording

For the six months ended June 30, 2025, cash used in operations was $4.5 million driven by a net income from operations of $0.3 million, offset by a reduction in lease liability payment of $2.4 million, an decrease in trade accounts payables of $1.0 million, an decrease in accrued liabilities of $0.9 million, an increase in inventory of $0.3 million, and an increase in other assets of $0.2 million. Cash provided by investing activities was $20.2 million, which included net proceeds from sale of our corporate headquarters of $24.9 million offset by the purchase of assets for our new corporate facility of $4.7 million. We paid dividends in the amount of $12.8 million. The above activities, in addition to the effect of exchange rate changes, resulted in a net increase in cash of $3.1 million.

Current wording

For the nine months ended September 30, 2025, cash used in operations was $5.5 million, driven by a net loss from operations of $0.4 million, non-cash expense of $0.9 million, including depreciation, amortization, and stock-based compensation, an increase in inventory of $0.2 million, an increase in prepaid expenses of $0.2 million, a decrease in accounts payable of $0.8 million, a reduction in accrued expense and other liabilities of $0.9 million, an increase in other assets of $0.2 million, and a decrease in operating lease liabilities of $3.7 million. Cash provided by investing activities was $18.3 million, which included net proceeds from the sale of our corporate headquarters of $24.9 million, partially offset by purchases of property and equipment of $6.6 million. Cash used in financing activities was $14.2 million, primarily for dividend payments. These activities, together with the effect of exchange rate changes of $0.2 million, resulted in a net decrease in cash of $1.3 million.