Tandy Leather Factory(TLF) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial items for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (amounts in thousands) | Item | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------------- | :------------ | :---------------- | :--------- | :--------- | | ASSETS | | | | | | Cash and cash equivalents | $16,419 | $13,271 | $3,148 | 23.7% | | Total current assets | $54,469 | $50,536 | $3,933 | 7.8% | | Property and equipment, net | $9,404 | $12,335 | $(2,931) | -23.8% | | Total assets | $76,542 | $74,924 | $1,618 | 2.2% | | LIABILITIES & EQUITY | | | | | | Total current liabilities | $11,141 | $9,886 | $1,255 | 12.7% | | Total stockholders' equity | $57,225 | $57,153 | $72 | 0.1% | | Total liabilities and stockholders' equity | $76,542 | $74,924 | $1,618 | 2.2% | Condensed Consolidated Statements of Operations and Comprehensive Income Condensed Consolidated Statements of Operations and Comprehensive Income (amounts in thousands, except per share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $17,773 | $17,286 | $36,809 | $36,561 | | Gross profit | $10,573 | $10,018 | $21,291 | $20,938 | | Income from operations | $66 | $63 | $328 | $712 | | Gain on disposal of headquarter | $- | $- | $17,676 | $- | | Net income (loss) | $(199) | $101 | $12,477 | $626 | | Basic EPS | $(0.02) | $0.01 | $0.06 | $0.07 | | Diluted EPS | $(0.02) | $0.01 | $0.06 | $0.07 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (amounts in thousands) for the Six Months Ended June 30 | Cash Flow Activity | 2025 | 2024 | | :-------------------------------------- | :----- | :----- | | Net cash (used in) provided by operating activities | $(4,501) | $572 | | Net cash provided by (used in) investing activities | $20,240 | $(1,428) | | Net cash used in financing activities | $(12,921) | $(1) | | Net increase (decrease) in cash and cash equivalents | $3,148 | $(628) | | Cash and cash equivalents, end of period | $16,419 | $11,531 | Condensed Consolidated Statements of Stockholders' Equity - Total stockholders' equity increased slightly from $57,153 thousand at December 31, 2024, to $57,225 thousand at June 30, 2025. This was influenced by net income of $12,676 thousand (for the period ending March 31, 2025) and $118 thousand in stock-based compensation expense, offset by $12,745 thousand in dividends paid and a net loss of $199 thousand (for the period ending June 30, 2025)[14] NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION AND CERTAIN SIGNIFICANT ACCOUNTING POLICIES - Tandy Leather Factory, Inc. is a specialty retailer of leather and leathercraft-related items, founded in 1919. The company differentiates itself through high brand awareness, strong brand equity, a network of retail stores (101 globally as of June 30, 2025, with 91 in the U.S., 9 in Canada, and 1 in Spain), and a 100-year heritage[17][18][20] - Revenue is recognized when control of merchandise is transferred to the customer, primarily through company-owned stores, global websites, and a commercial division. Sales tax is excluded from net sales, while shipping charges to customers are included[19][26] - Inventory is valued at the lower of FIFO cost or net realizable value, with regular reviews for damaged goods, slow-moving items, and pricing adjustments. The majority of inventory purchases are in U.S. dollars to limit foreign currency exposure[35][36][38] Inventory Composition (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Finished goods held for sale | $32,476 | $31,022 | | Raw materials and work in process | $1,125 | $1,819 | | Inventory in transit | $2,598 | $2,715 | | TOTAL | $36,199 | $35,556 | - The Company leases real estate for its offices, distribution center, and retail stores. Right-of-use (ROU) assets and lease liabilities are recognized at commencement, based on the present value of lease payments. Short-term leases (12 months or less) are not recorded on the balance sheet[40][41] - Long-lived assets, including ROU lease assets and property and equipment, are evaluated quarterly for impairment based on estimated undiscounted future net cash flows, primarily at the individual store level[45] - The Company's principal financial instruments include T-Bills (Level 1 fair value hierarchy) and accounts receivable/payable (Level 3 fair value hierarchy). Carrying values approximated fair values as of June 30, 2025, and December 31, 2024[47] - Income taxes are estimated for each jurisdiction, assessing current tax exposure and temporary differences. Deferred tax assets are evaluated for recoverability, and a valuation allowance is recorded if realization is not more-likely-than-not. Uncertain tax positions are recognized when it is more-likely-than-not that the position will be sustained[48][51] - Stock-based compensation primarily relates to Restricted Stock Unit (RSU) awards. Compensation expense for service-based awards is recognized straight-line over the service period, while performance-based awards are recognized when achievement of conditions is probable[54][55] 2. NOTES PAYABLE AND LONG-TERM DEBT - The Company has a credit facility of up to $5.0 million with JPMorgan Chase Bank, N.A., renewed through October 31, 2025. The interest rate is CME term SOFR + 210 basis points. No funds have been borrowed under this facility as of the filing date, and the Company is in compliance with all covenants[60][61] 3. INCOME TAX Effective Income Tax Rates | Period | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Three Months Ended | (10.8%) | 25.2% | | Six Months Ended | 32.7% | 27.0% | - The effective tax rate for the three months ended June 30, 2025, was (10.8%), primarily due to tax benefits from the sale of corporate property, partially offset by forecasted income tax losses from 2025 operations and foreign/state obligations. For the six months ended June 30, 2025, the rate was 32.7%[62] 4. STOCK-BASED COMPENSATION - The Company operates under the 2023 Incentive Stock Plan, which reserved 800,000 shares for equity awards. In February 2025, 100,000 RSUs were granted to the new CEO, Johan Hedberg, vesting in February 2026, and 900,000 performance-based RSUs were granted, contingent on achieving certain targets. Stockholders approved an additional 900,000 shares for these performance-based grants in June 2025[64] RSU Activity (in thousands, except share price) | Item | Shares | Weighted Average Share Price | | :-------------------- | :----- | :--------------------------- | | Balance, January 1, 2025 | 409 | $4.32 | | Granted | 1,018 | $4.58 | | Forfeited | (355) | $4.32 | | Vested | (19) | $4.39 | | Balance, June 30, 2025 | 1,053 | $3.96 | Unrecognized Compensation Cost for Non-Vested RSUs (in thousands) | Year | Unrecognized Expense | | :--- | :------------------- | | 2025 | $252 | | 2026 | $172 | | 2027 | $36 | | 2028 | $17 | | 2029 | $6 | | Total | $483 | 5. EARNINGS PER SHARE Net Income (Loss) Per Common Share (in thousands, except share data) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(199) | $101 | $12,477 | $626 | | Basic weighted-average common shares outstanding | 8,494,546 | 8,415,795 | 8,497,857 | 8,406,156 | | Diluted weighted-average common shares outstanding | 8,494,546 | 8,505,068 | 8,497,857 | 8,467,156 | | Basic earnings (loss) per share | $(0.02) | $0.01 | $0.06 | $0.07 | | Diluted earnings (loss) per share | $(0.02) | $0.01 | $0.06 | $0.07 | 6. COMMITMENTS AND CONTINGENCIES - The Company is periodically involved in litigation but does not expect any pending matters to have a material impact on its financial position or operating results[70] 7. SHARE REPURCHASE PROGRAM AND SHARE REPURCHASES - The Board of Directors approved a renewal of the stock repurchase plan on September 17, 2024, authorizing the repurchase of up to $5.0 million of common stock until September 30, 2026. As of June 30, 2025, the full $5.0 million remained available under this new program[72] 8. SALES OF CORPORATE HEADQUARTERS & NEW CEO EMPLOYMENT - On January 22, 2025, the Company finalized the sale of its corporate headquarters and distribution facilities for net proceeds of $24.9 million, resulting in a gain of $17.7 million. This gain is recorded in 'Other income' on the consolidated statements of operations[74] Sales and Disposal of Headquarter (in thousands) | Item | Amount | | :------------------------ | :----- | | Net Proceeds | $24,897 | | NBV of Headquarter Assets | $7,221 | | Net Gain | $17,676 | - The Company signed a 10-year lease for new corporate headquarters and distribution facilities in Benbrook, Texas, effective September 1, 2025. Johan Hedberg was hired as the new CEO on January 6, 2025, succeeding Janet Carr[75][76] 9. SUBSEQUENT EVENTS - On June 17, 2025, the Company agreed to purchase 430,897 shares from former CEO Janet Carr at $3.00 per share, totaling $1,292,691. This transaction was completed on July 18, 2025, and is not reflected in the June 30, 2025 balance sheet[77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance drivers, strategic initiatives, and liquidity. It covers the business strategy, detailed results for the three and six months ended June 30, 2025 and 2024, and an analysis of capital resources and cash flows The Business and Strategy - Tandy Leather Factory, Inc. is a leading specialty retailer of leather and leathercraft items, operating 101 retail stores (91 U.S., 9 Canada, 1 Spain) and global websites. The company's strategy focuses on improving financial sustainability and profitability by managing operating expenses and gross margin, while selectively investing in profitable sales growth[78][82][84] - Key competitive advantages include high brand awareness, strong brand loyalty, a network of retail stores offering customer service and community hubs, and a 100-year heritage. The Commercial Division caters to businesses with dedicated representatives, bulk pricing, and production services[80][83] - The Company sold its corporate headquarters and distribution facilities in Fort Worth, Texas, on January 22, 2025, for $26.5 million (gross sale), and subsequently signed a 10-year lease for new facilities in Benbrook, Texas, effective September 1, 2025. Johan Hedberg was appointed CEO on January 6, 2025[85][86] Results of Operations Three Months Ended June 30, 2025 and 2024 Financial Performance (Three Months Ended June 30, in thousands) | Item | 2025 | 2024 | $ Change | % Change | | :-------------------- | :----- | :----- | :------- | :------- | | Net Sales | $17,773 | $17,286 | $487 | 2.8% | | Gross Profit | $10,573 | $10,018 | $555 | 5.5% | | Gross Margin Percentage | 59.5% | 58.0% | 1.5% | | | Operating Expenses | $10,507 | $9,955 | $552 | 5.5% | | Income from Operations | $66 | $63 | $3 | 4.8% | - Net sales increased by $0.5 million (2.8%) due to successful sales campaigns. Gross profit rose by $0.6 million (5.5%), with gross margin improving by 150 basis points, driven by inventory cost adjustments and pricing changes to balance tariffs[89][90] - Operating expenses increased by $0.6 million (5.5%), primarily due to a $0.4 million increase in occupancy costs (rent for previously owned corporate offices), a $0.3 million increase in salaries (due to key management hires and relocation costs), partially offset by a $0.1 million decrease in contract labor[91] - The effective income tax rate for the three months ended June 30, 2025, was (10.8%), compared to 25.2% in the prior year, mainly due to tax benefits from the corporate property sale, offset by forecasted operational losses and foreign/state tax obligations[92] Six Months Ended June 30, 2025 and 2024 Financial Performance (Six Months Ended June 30, in thousands) | Item | 2025 | 2024 | $ Change | % Change | | :-------------------- | :----- | :----- | :------- | :------- | | Net Sales | $36,809 | $36,561 | $248 | 0.7% | | Gross Profit | $21,291 | $20,938 | $353 | 1.7% | | Gross Margin Percentage | 57.8% | 57.3% | 0.5% | | | Operating Expenses | $20,963 | $20,226 | $737 | 3.6% | | Income from Operations | $328 | $712 | $(384) | -53.9% | - Consolidated net sales increased by $0.2 million (0.7%) for the six months, driven by increased sales campaigns in Q2, partially offset by global political and economic uncertainties. The store footprint decreased from 103 stores in June 2024 to 101 stores in June 2025[94][95] - Gross profit increased by $0.4 million (1.7%), with gross margin percentage improving by 50 basis points year-over-year. Operating expenses rose by $0.7 million (3.6%), mainly due to a $0.5 million increase in occupancy costs and a $0.4 million increase in salaries, partially offset by a $0.2 million decrease in depreciation due to the corporate office sale[96][97] - The effective income tax rate for the six months ended June 30, 2025, was 25.2%, compared to 27.0% in the prior year, primarily due to tax benefits from the corporate property sale, offset by forecasted operational losses and foreign/state tax obligations[98] Capital Resources, Liquidity and Financial Condition - The Company's cash balance as of June 30, 2025, was $16.4 million. Operating and liquidity needs are expected to be funded by current cash balances and cash generated from operating activities. The $5.0 million credit facility with JPMorgan Chase Bank, N.A., remains undrawn[99][100] - The Board renewed the stock repurchase plan on September 17, 2024, authorizing up to $5.0 million in common stock repurchases until September 30, 2026. As of June 30, 2025, the entire $5.0 million remained available[102] Cash Flow Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | | :-------------------------------------- | :----- | :----- | | Net cash (used in) provided by operating activities | $(4,501) | $572 | | Net cash provided by (used in) investing activities | $20,240 | $(1,428) | | Net cash used in financing activities | $(12,921) | $(1) | | Net increase (decrease) in cash and cash equivalents | $3,148 | $(628) | - For the six months ended June 30, 2025, cash used in operations was $4.5 million, while cash provided by investing activities was $20.2 million, primarily from the $24.9 million net proceeds of the headquarters sale, offset by $4.7 million in asset purchases for the new facility. Cash used in financing activities was $12.9 million, including $12.8 million in dividends paid[104] Item 4. Controls and Procedures Management, with the participation of the CEO, evaluated the effectiveness of the Company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of June 30, 2025. There were no material changes in internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2025[106] - There were no changes in internal control over financial reporting during the fiscal quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[107] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the information regarding legal proceedings from Note 6 to the Consolidated Financial Statements, indicating no material impact is expected from current litigation - The Company is periodically involved in litigation that arises in the ordinary course of business, but no matters are pending that are expected to have a material impact on its financial position or operating results[70][108] Item 1A. Risk Factors This section highlights additional risk factors beyond those in the annual report, specifically focusing on the potential negative impacts of recent changes to U.S. tariff rates and increased expenses from renting new headquarters facilities - New risk factors include potential negative impacts from increased U.S. tariff rates, particularly on products imported from China and Brazil, which could raise costs, force price increases, and reduce sales. Retaliatory tariffs on intercompany sales to Canadian stores are also a concern[109] - Increased expenses from renting new headquarters and flagship store facilities (expected to exceed $1.5 million annually starting in 2026) pose a risk if the Company cannot generate additional sales and profits to offset these costs[110] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on purchases of equity securities by the issuer, indicating no shares were purchased under publicly announced plans or programs during the quarter ended June 30, 2025, with $5.0 million remaining available for repurchase Purchases of Equity Securities by the Issuer (Quarter Ended June 30, 2025) | Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Maximum value of shares that may yet be purchased under the plans or programs | | :----------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :---------------------------------------------------------------- | | April 1 – April 30, 2025 | — | — | — | $5,000,000 | | May 1 – May 31, 2025 | — | — | — | $5,000,000 | | June 1 – June 30, 2025 | — | — | — | $5,000,000 | | Total | — | — | — | | Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, stock plans, employment agreements, and certifications, many of which are incorporated by reference from previous SEC filings - The exhibits include the Certificate of Incorporation, Bylaws, various stock plans (2013 Restricted Stock Plan, 2023 Incentive Stock Plan), employment agreements (e.g., with Janet Carr and Johan Hedberg), and certifications (13a-14(a) and 18 U.S.C. Section 1350)[115][116] SIGNATURES This section confirms the official signing and submission of the Form 10-Q report by the registrant's authorized officer - The report was signed on August 11, 2025, by Johan Hedberg, Chief Executive Officer (principal executive officer and principal financial officer) of Tandy Leather Factory, Inc[120]