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Tandy Leather Factory has
a well-defined growth plan and is achieving stronger financial results because they are
executing according to plan
Consumer Cyclical
Apparel/Accessories
(TLF-AMEX)
Tandy Leather Factory, Inc.
3847 East Loop 820 South
Fort Worth, TX 76119
Phone: 817-496-4414
Shannon L. Greene
CFO and Treasurer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
May 18, 2006
BIO:
Shannon L. Greene has served as Chief Financial Officer and Treasurer of the
Company since May 2000. She was appointed to serve on the Board of Directors in January
2001. Ms. Greene served as the Company’s Controller and Assistant Controller since
September 1997. Ms. Greene received a Bachelor of Accountancy from New Mexico State University
in 1987 and was licensed as a Certified Public Accountant (CPA) in 1991. Her professional
affiliations include the American Institute of Certified Public Accountants, the Texas
Society of Certified Public Accountants and its Fort Worth chapter, the Fort Worth
Association of Financial Professionals, Financial Executives International, and the
National Investor Relations Institute.
Company Profile:
Tandy Leather Factory, Inc. ("TLF"), founded in 1980, is the world’s
largest retailer and wholesale distributor of leather and leathercraft-related items. Its
product lines consist of leather, leatherworking tools, buckles and adornments for belts,
leather dyes and finishes, saddle and tack hardware, do-it-yourself craft kits, suede
lace, and instructional materials specifically dedicated to the art of leathercraft. Its
North American distribution network consists of 29 Leather Factory stores, targeting the
wholesale customer, and 58 Tandy Leather stores, focusing on the retail market. It also
sells products via mail/telephone/Website orders.
Tandy Leather Factory frequently introduces new products either through its own
manufacturing capability or by purchasing from vendors. The Company holds a substantial
number of copyrights for its designs, which have been incorporated throughout its product
line. There are 2,700 items in the current product line, which are sold to hobbyists,
retailers, wholesalers, and manufacturers.
Tandy Leather Factory welcomes anyone with an interest in leather and leathercraft,
whether it's a hobby or a way-of-life, to think of Tandy Leather Factory as "your
one-stop source" for leather and supplies. The Company offers its customers 100%
satisfaction, the lowest possible prices on every item, plus wholesale and manufacturing
options, the broadest leather and leathercraft line found anywhere and orders that
generally ship within 24-48 hours.
CEOCFO: Ms. Greene, in 2005 you changed your name to Tandy
Leather Factory; what is the significance for the company?
Ms. Greene: “Adding Tandy to our name seemed logical for
several reasons. Primarily, it capitalizes on the name recognition of Tandy. Tandy Leather
has been the premier name in our industry for more than 50 years. Anyone associated
with leathercraft will have some connection to Tandy Leather. Unfortunately, we
couldn’t say that about The Leather Factory. The other reason for changing the name
was because the new name better reflects what our company has become in the last several
years. The Leather Factory is primarily a wholesale distributor. Tandy Leather is a retail
store chain. Combing the two names brings together the best of both worlds and that
is exactly what we have done with the company. An added benefit, I think, is that we are
getting little more attention from Wall Street. Ultimately, we have to produce financially
in order to Wall Street to be interested, but I think the name has caused them to at least
take a look at us.”
CEOCFO: Your stock price has certainly had a nice turn over
the past year.
Ms. Greene: “It certainly has.”
CEOCFO: In March, you reported a 15% increase in sales and
you’ve been steadily having increases; could you explain why?
Ms. Greene: “Our improved results are a combination of
both operations: Wholesale Leathercraft, which consists of the wholesale centers and
our National Account sales group, and Retail Leathercraft, which consists of the Tandy
Leather retail store chain. The Tandy Leather stores we operate in the retail division are
the main driver of our sales growth and the improvement of our financial results. However,
we believe that, as the increase in awareness of the craft occurs as a result of the
expanding retail footprint of Tandy Leather, it is benefiting our Wholesale Leathercraft
operation as well. Therefore, both operations are reporting nice gains and we’ve been
very pleased with that.”
CEOCFO: What do you do as a company to increase awareness and
how else are people finding out about Tandy Leather Factory?
Ms. Greene: “We believe advertising is critical to our
success. Our primary advertising method is targeted direct mail. As we prepare to move
into new market, we pre-announce those store openings to our existing customers as well as
the local market. As a result, we benefit from word of mouth and sometimes, that is the
best advertising one can get. There are many people out there who used to be Tandy Leather
customers, but quit doing leathercraft simply because they couldn’t find a supplier.
When Tandy, under previous ownership, closed its retail stores in the late 1990’s,
many customers were left with no direction on where to purchase supplies. Further,
The Leather Factory was not known well enough to pick up that business. Now, as Tandy
Leather is expanding its retail footprint in the market, people who were customers before
are customers again. And that takes us back around to Tandy’s name recognition. As
far as awareness goes, I don’t believe that leathercraft is a craft that
self-perpetuates itself. We have to invest the time and energy to share the craft with
others. In most cases, our store managers are leathercrafters themselves, which aids in
the education process of customers. We teach classes, from beginners to advanced, in all
of our stores at least one night a week and on Saturday. We also attend various trade
shows throughout the year.”
CEOCFO: What are the demographics of your customers and how
do you go beyond to increase interest?
Ms. Greene: “The typical customer is probably a 50 year
old male – a hobbyist who does leatherwork for the sheer pleasure of it or to sell or
give away as gifts. However, leathercraft appeals to both men and women, young and old. We
work with various youth programs - Boy Scouts, YMCAs, 4-H groups, etc. - to expose
children to leathercraft. The strategy there is that the more children we can expose to
the craft, the greater our chances are that they will develop into long-term customers as
they get older.”
CEOCFO: You are continuing to rollout new stores; please tell
us about that?
Ms. Greene: “The Tandy Leather store rollout is pretty
simple and straightforward. We select markets based on historical market data from the
original Tandy stores and an analysis of our own customer data. We generally locate in
populated areas of 300,000 or more. From the time we select a location and sign a lease,
we can generally be open in 30 days. We look for 1,500-2,000 square feet in older,
well-established strip shopping centers and are currently paying approximately $11 per
square foot for rent. That type of space is not what most retailers are looking for right
now so we are fairly successful in our negotiations with landlords to get the price we
want. We put $50,000 of inventory in the store; spend about $15,000 on computer equipment
and a store sign, and another $7,000 or so, on store set-up such as pegboard and peghooks,
tool racks, tables, displays, etc. Right now, it’s taking 6-9 months for a new store
to reach profitability. Given the small investment required to open a store, the return on
investment occurs fairly quickly.”
CEOCFO: Are you still building your stores around the
qualified manager or are you now training managers to go into the areas that you would
like?
Ms. Greene: “Both. We still get calls from former Tandy
managers who express an interest in running a store again. Assuming he or she was
successful the first time and someone we want to hire, we would consider opening a store
in the area requested, assuming it fits the general geographic model. We also have a
strong training program, with about 15 trainees currently in the system. In order to
continue the store rollout for the next several years, we must have a steady stream of
trainees coming through the system. We believe that managers are absolutely crucial to the
success of the stores so we invest a lot of time and energy to ensure that they have the
skills necessary to perform well. As long as we keep a sufficient backlog of trainees in
our system, we should be well positioned to continue to rollout stores at the pace we are
currently on.”
CEOCFO: Are people starting to use you website more to place
orders, or it still just an adjunct?
Ms. Greene: “I think that it will always be just an
additional sales vehicle, but much to our surprise, it continues to grow. If you and I
were having this conversation several years ago, I would have told you that I expected our
internet business to diminish as we added more bricks and mortar. In actuality, however,
it has done the exact opposite. We continue to add new email addresses to our database. We
run web specials every week, specifically directed at those online customers, in order to
continue the growth of that channel of our business. At this point, 8-10% of our total
revenue is internet-driven – not a huge part of our business, but surprisingly, it
continues to grow.”
CEOCFO: Do you get much business outside of the United States
and Canada?
Ms. Greene: “Our exports make up 5-8% of our total
business. Truthfully, we are not working very hard to develop that business, although we
do have some international customers and we do what we can to take care of them. We do not
aggressively market our products internationally yet; we are more focused on the domestic
expansion for now. However, when we get close to the end of our store rollout
domestically, I fully expect we will get more aggressive about developing an international
presence.”
CEOCFO: Is there a timetable on that?
Ms. Greene: “As you know, our plan is to open a total of
100-120 Tandy Leather retail stores domestically at a pace of 12 stores per year. As of
April, we are operating 58 retail stores. We have already opened eight stores so far this
year, so we have 4 more to open before year-end. That means we have 3-5 years of domestic
store openings to reach our store count. As we get closer to the end of that timeframe, I
would expect that we will get more serious about working on the international
business.”
CEOCFO: Are there any new products or methods that you could
talk about in the leather industry?
Ms. Greene: “Generally speaking, the leather industry is
what it is – and has been for years. In terms of methods, two of the more popular
ways to tan leather: chrome tanning and vegetable tanning. Both processes have been
around for a while and I don’t see anything changing. As far as trends or fads,
leathercraft is not generally associated. However, we do have several new products that
seem to be well accepted: (1) We recently introduced a line of motorcycle/biker items that
is doing fairly well. (2) We sell a line of crystal rivets – rhinestones, if you
will. They’re going on everything – purses, women’s belts, horse tack,
clothing, etc. We offer 25 colors in three sizes.”
CEOCFO: Do you follow the various industries and their
fashion trends or do you wait for your customers to lead you?
Ms. Greene: “We do watch the various industries and
fashion trends, in hopes of capitalizing on what’s popular. However, that certainly
doesn’t drive our business. Our VP of Merchandising specializes in product
development. He walks a lot of trade shows and retail stores to find out what’s
popular and what’s selling. We sell indirectly to some apparel manufacturers, but we
are not in New York or Milan watching what is coming down the runways. We do subscribe to
various magazines to get an idea of what people are looking for. If we see something that
fits in with our product line, such as the crystal rivets, we will add it temporarily in
an attempt to capitalize on the trend. Generally speaking, however, our business is very
traditional, old-fashioned. We certainly don’t make our money by chasing fads.”
CEOCFO: How much of what you sell is in the kits verses how
much outside of the kits and do you see that changing?
Ms. Greene: “We have about 12 or 13 different product
categories – leather, buckles, tools & hardware, kits, stamping tools, etc.
Leather sales is about 35% of our business – it’s what gets people in the door.
The do-it-yourself kits are about 8-10% of our business. The sales mix is fairly
consistent year over year.”
CEOCFO: Is there much fluctuation in terms of the price of
leather and if so, can you pass that on?
Ms. Greene: “Leather is a commodity so when prices go up
for us, they go up for everyone. That enables us to pass increases on to customers in
order to maintain our margins. Overall, the leather that we buy is not really volatile
from a pricing standpoint. We watch the hide reports continuously in an attempt to
anticipate what might happen with pricing, but we don’t participant in any type of
hedging activity.”
CEOCFO: Is your manufacturing facility in Texas?
Ms. Greene: “Yes, it’s located in Fort Worth on the
same property as our corporate offices. The factory produces some of the do-it-yourself
kits we sell and cuts suede lace and belt blanks. It also performs some repackaging on an
as-needed basis.”
CEOCFO: Your financial situation continues to be good; could
you tell us a little about that?
Ms. Greene: “I’m pleased with our financial
position. We have been fortunate to report nice sales gains for the last several months.
We started announcing monthly sales in October of 2005 and reported sales gains for
January, February and March of 12%, 13%, and 15%, respectively. Our balance sheet looks
good with our cash balance increasing and no debt. We ended 2005 with a little over $3
million in cash and that figure will be higher at the end of 1st quarter 2006.
Inventory is a significant part of our balance sheet and we manage it on a continual
basis. We work hard to have the right products in sufficient quantities to maintain the
sales. At the same time, if we have too much inventory, we tie up cash unnecessarily. So,
it’s a balancing act. I do expect our inventory to continue to trend up slowly as we
continue to open new stores.”
CEOCFO: In closing, address potential investors; why is now a
good time to be looking at Tandy Leather Factory?
Ms. Greene: “We have a very specific game plan. In late
2001, we announced what that plan was and our execution strategy. We have five years of
success under our belt, which I hope indicates to potential investors that we know what we
are doing and that what we are doing works. Based on the success of our Tandy retail
stores, I think the potential for increased value is there for the company and our
stockholders. I can only hope that the stockholders and Wall Street see it the same
way.”
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