Tandy Leather Factory (TLF) 8-K Results of Operations and Financial Condition

FOR IMMEDIATE RELEASEAugust 2, 2017

TANDY LEATHER FACTORY REPORTS  2^nd QUARTER FINANCIAL RESULTS

Investments in New Stores and District Manager Program Impacting Results

FORT WORTH, TEXAS – Tandy Leather Factory, Inc. (NASDAQ: TLF) today reported financial results for the second quarter of 2017.  Consolidated net income for the quarter ended June 30, 2017 was $1.0 million compared to $1.8 million for the second quarter of 2016.  Fully diluted earnings per share for the quarter were $0.11, compared to $0.19 in last year’s second quarter.  Total sales for the quarter ended June 30, 2017 were $19.3 million, down 1% from $19.5 million in the second quarter last year.

Consolidated sales for the six months ended June 30, 2017 were $39.4 million, down 2% from 2016’s first half sales of $40.2 million.  Consolidated net income for the first half of 2017 equaled $2.3 million or $0.24 per fully-diluted share versus $3.3 million or $0.35 per fully-diluted share in the comparable period last year.

Sales from the North America segment, consisting of all stores in the US and Canada, decreased $132,000 in the second quarter, down 0.7% from last year's second quarter sales.  For the first six months of 2017, North America’s sales decreased $639,000 or 1.7% from the first six months of 2016.  International, consisting of four stores outside of North America, added sales of $853,000 for the quarter compared to last year’s second quarter sales of $964,000. For the first half of 2017, International Leathercraft’s sales, totaling $1.8 million, were down 7%, or $125,000, over the same period last year.

Consolidated gross profit margin for the current quarter was 66.9%, compared to 66.1% for the second quarter of 2016.  For the first half of 2017, consolidated gross profit margin was 63.9%, improving from last year's gross profit margin of 63.6%.  Consolidated operating expenses increased approximately 11.8% or $1,183,000 for the quarter and 7% or $1,442,000 for the year, compared to the same periods in 2016.   Significant increases in operating expenses relate to personnel and occupancy costs for the six new stores that have opened since the second quarter last year, as well as personnel and travel costs related to the new district manager program that began in early 2017.

Shannon L. Greene, Chief Executive Officer, commented, “While we delivered solid year over year gross margin improvement, our results this quarter and year to date also reflect the investments we are making in our new stores and our district manager program.  In addition, our International segment underperformed, both in top line and bottom line performance.   However, we were pleased to see some positive momentum as the number of sales transactions have steadily improved in both our North America and International segments.  We continue to make progress on our operational and strategic priorities, which will continue to put pressure on short term results, but we’re confident that they are providing the platform for us to remain competitive in this evolving retail landscape and for driving sustainable growth in traffic and sales.”

Tina Castillo, Chief Financial Officer added, “While our results this quarter were lower than comparable, our expectations for 2017 have not changed.  We continue to believe that the top line trend will improve in the second half of 2017 as our new stores and new product roll-outs support sales growth.  Further, we will continue to protect our gross margins and manage our expenses with financial discipline to ensure an acceptable return on investment.”

Tandy Leather Factory, Inc., (http://www.tandyleather.com), headquartered in Fort Worth, Texas, is a specialty retailer of a broad product line including leather, leatherworking tools, buckles and adornments for belts, leather dyes and finishes, saddle and tack hardware, and do-it-yourself kits. The Company distributes its products through its 115 North American stores located in 42 US states and 7 Canadian provinces, and four International stores located in the United Kingdom, Australia, and Spain.  Its common stock trades on the Nasdaq with the symbol "TLF".  To be included on Tandy Leather Factory’s email distribution list, go to http://www.b2i.us/irpass.asp?BzID=1625&to=ea&s=0.

Contact:	Tina Castillo, Tandy Leather Factory, Inc.	(817) 872-3200 or tcastillo@tandyleather.com
	Mark Gilbert, Magellan Fin, LLC	(317) 867-2839 or MGilbert@MagellanFin.com

This news release may contain statements regarding future events, occurrences, circumstances, activities, performance, outcomes and results that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Actual results and events may differ from those projected as a result of certain risks and uncertainties. These risks and uncertainties include but are not limited to: changes in general economic conditions, negative trends in general consumer-spending levels, failure to realize the anticipated benefits of opening retail stores; availability of hides and leathers and resultant price fluctuations; change in customer preferences for our product, and other factors disclosed in our filings with the Securities and Exchange Commission.  These forward-looking statements are made only as of the date hereof, and except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Selected financial data:

	Quarter Ended 6/30/17					Quarter Ended 6/30/16
	Net Sales		Income from Operations			Net Sales		Income from Operations
North America*	$	18,427,425	$	1,814,887		$	18,558,938	$	2,714,312
International		853,345		(159,450	)		963,967		124,579
Total Operations	$	19,280,770	$	1,655,437		$	19,522,905	$	2,838,891

	Six Months Ended 6/30/17					Six Months Ended 6/30/16
	Net Sales		Income from Operations			Net Sales		Income from Operations
North America*	$	37,659,139	$	3,626,450		$	38,298,429	$	5,055,521
International		1,771,476		(233,522	)		1,896,703		146,160
Total Operations	$	39,430,615	$	3,392,928		$	40,195,132	$	5,201,681

North America*	Quarter Ended 6/30/17				Quarter Ended 6/30/16
	# of stores		Net Sales		# of stores		Net Sales
Same stores		108	$	17,861,074		108	$	18,485,428
New stores		6		447,059		-		-
Temp closed store		1		119,292		1		73,510
Total Sales – North America		115	$	18,427,425		109	$	18,558,938

North America*	Six Months Ended 6/30/17				Six Months Ended 6/30/16
	# of stores		Net Sales		# of stores		Net Sales
Same stores		107	$	36,501,344		107	$	37,401,837
New stores		7		952,325		1		338,774
Closed/temp close stores		3		205,470		3		557,818
Total Sales – North America		115	$	37,659,139		109	$	38,298,429

International – there were no new stores or closed stores for the three and six-months ended June 30, 2017 and 2016, so total sales are equal to same store sales.

*We operate in two segments:  North America and International.  Prior to January 1, 2017, we operated in three segments:  Wholesale, Retail and International.  To better reflect how management analyzes the business and allocates resources, we combined Wholesale and Retail into North America effective January 1, 2017, while International remains the same. All prior year data discussed throughout this press release has been restated to conform to the new reporting segment structure.  There is no change to our consolidated financial position or results.

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TANDY LEATHER FACTORY, INC.

CONSOLIDATED BALANCE SHEETS

	6/30/17 (unaudited)			12/31/16 (audited)
ASSETS
CURRENT ASSETS:
Cash	$	14,841,370		$	16,862,304
Accounts receivable-trade, net of allowance for doubtful accounts
of $16,209 and $2,404 in 2017 and 2016, respectively		497,317			560,984
Inventory		37,327,488			33,177,539
Prepaid income taxes		455,423			964,323
Prepaid expenses		1,478,762			1,608,860
Other current assets		140,488			140,232
Total current assets		54,740,848			53,314,242
PROPERTY AND EQUIPMENT, at cost		26,585,838			25,536,352
Less accumulated depreciation and amortization		(10,831,122	)		(9,884,559	)
		15,754,716			15,651,793
DEFERRED INCOME TAXES		404,615			375,236
GOODWILL		959,797			956,201
OTHER INTANGIBLES, net of accumulated amortization of
$709,000 and $708,000 in 2017 and 2016, respectively		19,954			20,840
OTHER ASSETS		363,529			334,408
	$	72,243,459		$	70,652,720
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable-trade	$	1,484,043		$	1,621,884
Accrued expenses and other liabilities		4,471,813			5,937,187
Current maturities of capital lease obligation		72,686			72,686
Current maturities of long-term debt		1,535,778			614,311
Total current liabilities		7,564,320			8,246,068
DEFERRED INCOME TAXES		1,838,066			1,956,032
LONG-TERM DEBT, net of current maturities		5,835,952			6,757,419
CAPITAL LEASE OBLIGATION, net of current maturities		-			-
COMMITMENTS AND CONTINGENCIES		-			-
STOCKHOLDERS' EQUITY:
Preferred stock, $0.10 par value; 20,000,000 shares
authorized, none issued or outstanding		-			-
Common stock, $0.0024 par value; 25,000,000 shares
authorized, 11,313,692 and 11,235,992 shares issued at 2017 and 2016,
9,270,862 and 9,193,162 outstanding at 2017 and 2016, respectively		27,153			26,966
Paid-in capital		6,762,832			6,368,455
Retained earnings		61,728,490			59,469,493
Treasury stock at cost (2,042,830 shares at 2017 and 2016)		(10,278,584	)		(10,278,584	)
Accumulated other comprehensive income		(1,234,770	)		(1,893,129	)
Total stockholders' equity		57,005,121			53,693,201
	$	72,243,459		$	70,652,720

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TANDY LEATHER FACTORY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30,

	THREE MONTHS						SIX MONTHS
	2017			2016			2017			2016
NET SALES	$	19,280,770		$	19,522,905		$	39,430,615		$	40,195,132
COST OF SALES		6,385,236			6,627,115			14,249,036			14,646,596
Gross profit		12,895,534			12,895,790			25,181,579			25,548,536
OPERATING EXPENSES		11,240,097			10,056,899			21,788,651			20,346,855
INCOME FROM OPERATIONS		1,655,437			2,838,891			3,392,928			5,201,681
OTHER INCOME (EXPENSE):
Interest expense		(53,680	)		(42,027	)		(90,024	)		(65,456	)
Other, net		17,012			23,434			19,663			23,395
Total other income (expense)		(36,668	)		(18,593	)		(70,361	)		(42,061	)
INCOME BEFORE INCOME TAXES		1,618,769			2,820,298			3,322,567			5,159,620
PROVISION FOR INCOME TAXES		591,037			999,383			1,063,570			1,817,708
NET INCOME	$	1,027,732		$	1,820,915		$	2,258,997		$	3,341,912
NET INCOME PER COMMON SHARE:
Basic	$	0.11		$	0.19		$	0.24		$	0.35
Diluted	$	0.11		$	0.19		$	0.24		$	0.35
Weighted Average Number of Shares Outstanding:
Basic		9,225,960			9,209,446			9,212,846			9,418,645
Diluted		9,229,129			9,227,941			9,225,474			9,437,620

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TANDY LEATHER FACTORY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30,

	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	2,258,997		$	3,341,912
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		929,408			831,793
Loss / (gain) on disposal or abandonment of assets		515			(6,560	)
Non-cash stock-based compensation		171,160			113,302
Deferred income taxes		(147,345	)		(4,676	)
Foreign currency translation		627,609			256,309
Net changes in assets and liabilities:
Accounts receivable-trade, net		63,667			1,382
Inventory		(4,149,949	)		(2,720,056	)
Prepaid expenses		130,098			(108,971	)
Other current assets		(256	)		(62,788	)
Accounts payable-trade		(137,841	)		(589,863	)
Accrued expenses and other liabilities		(1,465,374	)		(1,066,056	)
Income taxes payable		508,900			(216,328	)
Total adjustments		(3,469,408	)		(3,572,572	)
Net cash used in operating activities		(1,210,411	)		(230,600	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,004,906	)		(898,007	)
Proceeds from sale of assets		100			26,703
(Increase) decrease in other assets		(29,121	)		352
Net cash used in investing activities		(1,033,927	)		(870,952	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long term debt		-			3,660,505
Payments on capital lease obligations		-			(6,710	)
Repurchase of common stock (treasury stock)		-			(3,675,654	)
Proceeds from exercise of stock options		223,404			-
Net cash provided by (used in) financing activities		223,404			(21,859	)
NET DECREASE IN CASH		(2,020,934	)		(1,123,411	)
CASH, beginning of period		16,862,304			10,962,615
CASH, end of period	$	14,841,370		$	9,839,204
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period	$	90,024		$	65,456
Income tax paid during the period, net of (refunds)	$	554,670		$	2,034,036

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