TLF - Tandy Leather Factory

[sbalsam]

Yeah, I agree that we can expect to see some sort of announcement out of the company in the near future. Janet, if you're reading this please, if nothing else, give us the YE 2019 cash balance in the next 8-K.

 

Given that we're now three Qs behind on the financials, this is a high uncertainty situation. The uncertainty though, is offset by the low valuation and management and board being heavily incentivized to make this work. The two largest risks here are (a) the business results fall off a cliff (b) the financials restatements drag out for an extended period of time and drain the company's cash hoard

 

Cash and Treasuries were $22.6M at September 30 with no outstanding debt. (The Company paid off its $9M of debt in Q1.) Looking over the operating cash flow over the last three years, Q4 has seen positive CFO of about $7M in 2018 (largely, inventories coming down), and $6M in each of 2017 and 2016 (split between operating profit and inventories being sold down). And Q1 over the last three years has not seen  a reversal with small amounts of CFO in 2019 and 2018 and just under break-even in 2017.

 

If that pattern held firm in Q4 2019, TLF has more than half its market cap in cash and would be trading at a 20%+ FCF yield on Enterprise Value. With major shareholders managing the company, I think that puts shareholders in a very good spot.

 

Steve 

[Foreign Tuffett]

Yeah, I agree that we can expect to see some sort of announcement out of the company in the near future. Janet, if you're reading this please, if nothing else, give us the YE 2019 cash balance in the next 8-K.

 

Given that we're now three Qs behind on the financials, this is a high uncertainty situation. The uncertainty though, is offset by the low valuation and management and board being heavily incentivized to make this work. The two largest risks here are (a) the business results fall off a cliff (b) the financials restatements drag out for an extended period of time and drain the company's cash hoard

 

Cash and Treasuries were $22.6M at September 30 with no outstanding debt. (The Company paid off its $9M of debt in Q1.) Looking over the operating cash flow over the last three years, Q4 has seen positive CFO of about $7M in 2018 (largely, inventories coming down), and $6M in each of 2017 and 2016 (split between operating profit and inventories being sold down). And Q1 over the last three years has not seen  a reversal with small amounts of CFO in 2019 and 2018 and just under break-even in 2017.

 

If that pattern held firm in Q4 2019, TLF has more than half its market cap in cash and would be trading at a 20%+ FCF yield on Enterprise Value. With major shareholders managing the company, I think that puts shareholders in a very good spot.

 

Steve

 

Yeah, that it basically the thesis (as I see it) in a nutshell: Management and board have lots of skin in the game and TLF is, for identifiable reasons (very small, illiquid, not current on financials) that have little to do with the health of the actual business, trading at a very low valuation.

[AlanS]

I was expecting Tandy to file its missing financial reports within the stipulated 18 Feb 2020 time frame. However, this is taking way longer than it should. The last practicable date is 10 Aug 2020. However, this is subject to approvals.

 

What are your thoughts on this delay ?

 

https://s3.amazonaws.com/sec.irpass.cc/1625/0001140361-20-003783.pdf\

 

"The Company is taking definitive steps to file the Forms 10-Q as soon as practicable. However, there can be no assurance that the Panel will grant the Company’s request for continued listing pending the hearing or grant any extension of time to comply with the Rule. Furthermore, there can be no assurance that the Company will be able to regain compliance with the Rule within any extension of time that may be granted to the Company by the Panel."

 

 

[jfan]

I wonder if their goal is to go dark and eventually private or the other possibility is that the previous managerial incompetence was greater than expected.

[Foreign Tuffett]

Wild TLF price action (on no news) over the past three trading sessions.

[Foreign Tuffett]

Wild TLF price action (on no news) over the past three trading sessions.

 

OK, so apparently whoever bid this way up on huge volume was not in possession of non public info. I'm sure they aren't feeling too great about that trade right now.....

[writser]

Yeah, strange price action. I bought a tiny bit more.

 

It's maybe a bit controversial but I think I they can start selling human hides (mostly low quality though) in a few weeks. Good hedge if things go south. The market has not priced this in yet.

[Castanza]

Yeah, strange price action. I bought a tiny bit more.

 

It's maybe a bit controversial but I think I they can start selling human hides (mostly low quality though) in a few weeks. Good hedge if things go south. The market has not priced this in yet.

 

Jeffery is that you?  ;D

[Foreign Tuffett]

Yeah, strange price action. I bought a tiny bit more.

 

It's maybe a bit controversial but I think I they can start selling human hides (mostly low quality though) in a few weeks. Good hedge if things go south. The market has not priced this in yet.

 

Yeah, I was a seller on the "mystery bid", but attempted to be a buyer this morning when the stock was just over $4. One of several orders that didn't fill today [sigh]

[Foreign Tuffett]

Just received an email from Tandy:

 

"While most of our stores nationwide plan to remain open at this time, some store locations may be temporarily closing in the days ahead to help ensure the safety and health of both customers and our sales associates."

[AlanS]

Just received an email from Tandy:

 

"While most of our stores nationwide plan to remain open at this time, some store locations may be temporarily closing in the days ahead to help ensure the safety and health of both customers and our sales associates."

 

I dont suppose they had any information on their delayed financials ? Maybe going dark is a real possibility for the company.

[porcupine]

Just received an email from Tandy:

 

"While most of our stores nationwide plan to remain open at this time, some store locations may be temporarily closing in the days ahead to help ensure the safety and health of both customers and our sales associates."

 

I dont suppose they had any information on their delayed financials ? Maybe going dark is a real possibility for the company.

 

This was a client service email rather than an IR email. They should delist IMO.

[writser]

Any thoughts about Tandy in the current environment? All their stores are now closed. No clue how long that situation persists. On top of that there are still no financials. And they stopped buying back shares a while ago .. Quite the dumpster fire.

 

On the other hand, internet sales are probably doing great and they were in excellent financial shape at the start of this crisis, with $22.6m cash as of September 30, 2019. Q4 they probably generated some cash too. I think one key issue is cash burn. I'm having a hard time judging how much cash they are burning due to Covid-19 and how long that will last. I reached out to the company and they said they would come up with a press release soon. So many questions .. Did they apply for a PPP loan? Do they expect to profit from CARES tax provisions? Are they still paying all their rent? What is the status of the accounting restatements and why is it taking so long? What was Q1 revenue / profitability?

 

Currently it's a bit of a black box to me. Still bagholding a few shares.

[valuedontlie]

Hard to tell how much revenue comes from online sales... If significant, it could be going gangbusters right now...

 

My experience is limited but my partner and I operate 2 small e-commerce businesses >$1m in sales apiece and each are up 100-200% YoY over the past 2 months... One is textile and the other is home decor (i.e. consumer goods)

 

The last 10-K doesn't talk much of online/ecommerce business.. If entirely retail/wholesale then I'd imagine business is pretty challenging at the moment, no?

[Foreign Tuffett]

Any thoughts about Tandy in the current environment? All their stores are now closed. No clue how long that situation persists. On top of that there are still no financials. And they stopped buying back shares a while ago .. Quite the dumpster fire.

 

On the other hand, internet sales are probably doing great and they were in excellent financial shape at the start of this crisis, with $22.6m cash as of September 30, 2019. Q4 they probably generated some cash too. I think one key issue is cash burn. I'm having a hard time judging how much cash they are burning due to Covid-19 and how long that will last. I reached out to the company and they said they would come up with a press release soon. So many questions .. Did they apply for a PPP loan? Do they expect to profit from CARES tax provisions? Are they still paying all their rent? What is the status of the accounting restatements and why is it taking so long? What was Q1 revenue / profitability?

 

Currently it's a bit of a black box to me. Still bagholding a few shares.

 

Yeah, definitely a black box quality to TLF given the lack of financials since Q1 2019 and the lack of any substantive communication since last October. I really wish management would at least update investors each quarter on how much cash the company has. I continue to believe that management and the board is very incentivized to make this work, so the lack of communication bothers me somewhat less than it otherwise would.

 

I agree it's basically impossible to accurately gauge what cash burn looks like right now, but I think it's probably manageable. My best guess is that they furloughed most store employees when they closed the stores on March 20th. Like most retailers, they probably didn't pay rent for any of their stores in April. They own their flagship store/HQ/distribution center property outright. Last but not least, they were already moving to an inside sales model for B2B accounts.

 

They have been sending out emails about website specials nearly every business day, so they are definitely trying to push internet sales. There is a "Orders may be delayed due to high demand" notice at the top of their website, so I'm hoping that's a sign that online sales have been strong.

 

I've traded around this position quite a bit, but still own it.

 

 

 

[misterkrusty]

"dumpster fire"?  methinks writser doth protest to harshly.  restatements always take an agonizing amount of time.  current mgmt is not at fault. 

 

if I were into making stuff out of leather and I wasn't an essential worker, I'd be doing a ton of that while stuck at home.  online sales have likely gone way up

[mjohn707]

"dumpster fire"?  methinks writser doth protest to harshly.  restatements always take an agonizing amount of time.  current mgmt is not at fault. 

 

if I were into making stuff out of leather and I wasn't an essential worker, I'd be doing a ton of that while stuck at home.  online sales have likely gone way up

 

I’m sure he meant it in the positive sense, I’m pretty sure there were lots of Dutch Americans that made millions in the canister business, and I’m pretty sure that’s what he was referring to, hot money to be made, like in the canister business

[writser]

Yes, I meant dumpster fire in a very positive sense :) .

 

"dumpster fire"?  methinks writser doth protest to harshly.  restatements always take an agonizing amount of time.  current mgmt is not at fault.

 

It was probably the wrong term to use. Stores closed due to Corona, accounting restatements, I'm totally fine with all of that. But I do think it is a bit strange that there is a total lack of information since October 2019 .. I guess I was expecting a little bit more, especially given that Jeff Gramm is involved. Surely it's not impossible to issue a press release with preliminary Q4 sales info and/or an estimated cash balance? Or a press release stating that you CLOSED ALL YOUR STORES?

 

FWIW I am not expecting too much from online. If you sift through their transcripts and filings you don't exactly get the feeling that they are generating a lot of revenue online and I doubt they scaled that business up a few orders of magnitude in a few months. I mean, I hope I'm wrong - could be possible, but I am certainly not banking on it.

 

Since the start of the year market cap is down ~$13m. OpEx was ~$40m the past few years. Anybody up for a guess what OpEx is with all stores closed? It's something I'm very uncomfortable with guessing. My totally uninformed guess: $5m / quarter? Would love a more informed opinion.

[writser]

https://www.sec.gov/Archives/edgar/data/909724/000114036120010971/form8k.htm

 

The Company is continuing its work on the Restatement Process and expects to complete this process and file its restated financial information and the Delinquent Filings on or before August 10, 2020.

 

On May 1, 2020, Danette Click resigned as Interim Chief Financial Officer of the Company, effective immediately.  Ms. Click’s resignation was not the result of any dispute or disagreement with the Company relating to the Company’s operations, policies or practices.

 

Also on May 1, 2020, the Company appointed Michael Galvan to the position of Interim Chief Financial Officer of the Company, effective May 4, 2020.  Mr. Galvan, 51, brings over 25 years of finance and accounting experience to the Company, including executive leadership roles serving as Interim Chief Financial Officer, Chief Accounting Officer and Treasurer for a variety of publicly-traded companies.

 

Mr. Galvan will be paid for his services pursuant to an agreement between the Company and The CFO Suite, LLC, at a rate of $48,000 per month.  In addition, he may be eligible to receive discretionary bonuses for his services, as may be approved by the Compensation Committee of the Company’s Board of Directors.

 

Again, no business update whatsoever.

[Foreign Tuffett]

I would describe TLF's communication to shareholders as "abysmal", but it doesn't even rise to that level.

 

CFO change means the odds they get their financials filed soon enough to avoid being delisted are now lower.

 

Agree that online sales have, historically, probably not been a very material contributor.

 

I doubt anyone outside the company knows what opex looks like right now. I have a weekly cash burn # plugged in to my model, but it's no more than a guess. To state the obvious, the longer all the stores are closed the worse the situation becomes.

 

 

[misterkrusty]

I agree, except that maybe the former CFO was part of the reason the restatement has taken so long and the new guy will do a better job.  just a guess.

[KJP]

https://www.globenewswire.com/news-release/2020/05/18/2034945/0/en/Tandy-Leather-Announces-2020-Annual-Meeting-of-Stockholders-on-June-2-2020.html

 

As of April 30, cash down to $17 million, so about $5 million less than 9/30/19.  It is now May 18, but they can still only report a "preliminary" sales number for Q1 2020.

[Foreign Tuffett]

My thoughts, copied-and-pasted from my notes so probably full of typos and very colloquial:

 

Company has finally provided an update. I consider the news mostly bad. 2019 sales were down by almost exactly 10% Y/Y. This is worse than I expected. Only 4 or 5 out of 120 stores were closed in 2019, so SSS must have been weak. This implies that the "Everyday Low Price" strategy did not work very well which, in turn, would explain scuttlebutt that at least one store was told to take down all their "Everyday Low Price" signage. Revenue was actually up Y/Y by ~2.44% in Q1 2019 on new sewing machine launch, so SSS trends in the last 3 Qs of the year may have been brutal.

 

My best estimate (which probably isn't that great) is that the company was just over break even in 2019. Cash balance was flat to slightly down from 3/31/19 to 3/31/20, which gives me a little confidence that my break even-ish est isn't too far off the mark.

 

Finally, sales in April were down ~60% Y/Y. Not super terrible given that all the stores were closed, but I would question what the gross margin on those sales looks like as many of the sales may be people taking advantage of what looks like aggressively low pricing on their daily emails.

 

They are "permanently closing" another 8 stores. Y/Y revenue was down 17.8% in Q1 2020, which suggests that the weak SSS trends of the last three Qs of 2019 carried over to 2020. Probably explains the decision to pull the plug on an additional tranche of stores.

 

 

[writser]

I more or less agree. The 10% drop in sales y/y is probably the biggest unpleasant surprise in the press release. Nobody is blaming a retailer for 2020 being terrible but sad to see that 2019 was very disappointing as well. Sure, there are lots of explanations given. Maybe they make sense. But I doubt that same-store sales were up in 2019 ..

 

Anyway, a few optimistic notes:

 

My best estimate (which probably isn't that great) is that the company was just over break even in 2019. Cash balance was flat to slightly down from 3/31/19 to 3/31/20, which gives me a little confidence that my break even-ish est isn't too far off the mark.

 

The cash balance given is as of April, 30, right? I'd assume that the first four months of 2020 they burned quite a bit of cash so I expect the company to have been cashflow-positive in 2019 (that might have been inventory management, but still) ..

 

And second, $2m+ in online sales in April is pretty decent for a store that hardly had an online presence before this crisis. And May sales are so far only 40% down y/y. Even more impressive. I know, low margins, Memorial day sale, yada yada. But still, if they manage to close some stores and ramp up their online presence - could work out.

 

Don't get me wrong, I only have a very tiny (<1%) position and I'm very close to throwing in the towel. I'm just such a sucker for conservative balance sheets. 50%+ of the market cap in cash, lots of unencumbered real estate, no debt. Compare that to any other retailer .. The question I find hard to answer is: how quick will that cash disappear? In that respect, I found this statement a bit worrying:

Because the Company’s ability to raise capital remains limited by the ongoing accounting restatements, Tandy Leather is taking every precaution to ensure the Company survives the pandemic while protecting long-term value for shareholders

The accounting restatement is still on track to be completed in August, according to the company. Are they afraid they are running out of cash that quickly?

[Nelg]

 

Don't get me wrong, I only have a very tiny (<1%) position and I'm very close to throwing in the towel. I'm just such a sucker for conservative balance sheets. 50%+ of the market cap in cash, lots of unencumbered real estate, no debt. Compare that to any other retailer .. The question I find hard to answer is: how quick will that cash disappear? In that respect, I found this statement a bit worrying:

Because the Company’s ability to raise capital remains limited by the ongoing accounting restatements, Tandy Leather is taking every precaution to ensure the Company survives the pandemic while protecting long-term value for shareholders

The accounting restatement is still on track to be completed in August, according to the company. Are they afraid they are running out of cash that quickly?

 

Just pure speculation on my side, but I think that may be referring to the $6m working capital line of credit described here: https://www.sec.gov/Archives/edgar/data/909724/000090972419000020/form8-k.htm

 

In this type of situation I don't think it would be unusual for the lender to cap the availability, as the terms state the "Borrower agrees to provide Lender with such financial statements and other related information at such frequencies and in such detail as Lender may reasonably request."