Earnings Call Transcript - TLF Q4 2022

Daniel Ross, General Counsel and Corporate Secretary

Thank you for joining us for a discussion of Tandy's Q4 and Full Year 2022 Financial Results. I'm Dan Ross, General Counsel and Corporate Secretary for Tandy, and I will be co-moderating the discussion today. Our CEO, Janet Carr, will give just a very brief overview of the quarter, and then we will devote the conference to investors' questions and discussion. Today's presentation will include statements other than historical results that constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, each as amended. These statements reflect our expectations or estimates based on the information we have today, but are not guarantees or predictions of future performance. They involve known and unknown risks, uncertainties and other factors, many of which are beyond our control and which may cause actual results to differ materially from the statements contained in this presentation. You are cautioned not to put undue reliance on these forward-looking statements. The company assumes no obligation to update or otherwise revise these forward-looking statements, except as required by law. And now here's Janet Carr.

Janet Carr, CEO

Thanks, Dan. So we are not going to be doing a PowerPoint presentation getting through a whole year post-restatement. We feel like you have the big picture now. And if you don't, we are happy to discuss. But we're just going to really answer questions and have a discussion today. So just a quick overview of our 2022 results. Revenues came in at $80.3 million, down 3% from 2021. Our operating income was $1.4 million and net income $1.2 million. Gross profit declined 1.1%, but gross margin rate was up 100 basis points. Adjusted EBITDA, which we've been discussing, was $4 million. We repurchased about 360,000 shares of stock for a total of $1.8 million in 2022. We are expecting the current macroeconomic challenges that we saw throughout 2022 to likely continue. And as we discussed in our last call and the last couple of calls, we're really looking at rebuilding our sustainable profitability, building a business foundation for future growth, but really focusing on growing profits and cash over the next couple of years, especially in the face of potential economic headwinds. So that's all I have. Questions?

Joe Koster, Analyst

This is Joe Koster, Sorfis Investments. Just wanted to know if you could talk a little bit more about kind of the store base now and if you feel you've sort of got it to the size and the number of profitable stores that you're comfortable with?

Janet Carr, CEO

Yes, great question. Ultimately, we would love to see our store base grow, but with our focus on profitability and four-wall cash as the key metric of store profitability, we've been really disciplined about closing stores when they don't appear to have a trend toward four-wall cash positive. And we would very much like to have a greater number of profitable stores, four-wall cash positive stores, and that's because we consider the retail store to be our competitive advantage. There are lots of geographies that we are not really accessing with a retail store and if we think those represent opportunity. But again, in a period of time when we're trying to be focused on profit, we really can't afford to have these continuing to be negative. So especially right now when wages have been increasing and rents have been increasing, we've been very focused on this. But to answer your question, I think there can be more, but there won't be any more unless we can do it profitably.

Joe Koster, Analyst

Thanks. I'll just ask one more question if nobody else is jumping in. Regarding the historical margins that you mentioned are your ultimate goal to return to, are we currently in a phase of just managing the environment with the hope of getting there eventually? Or do you have a specific timeframe in mind for when you believe those margins could realistically be achieved?

Janet Carr, CEO

Are you talking about operating margins?

Joe Koster, Analyst

Yes, yes, correct.

Janet Carr, CEO

Yes. We are working our way toward that. There have been a lot of sort of environmental factors that have been challenging, as you know. I don't need to reiterate all those things. So we're not setting a date for this, but we plan to make significant progress in 2023. And I would prefer to say you can be the judge of what that progress looks like as the quarters unfold this year. We have some rough internal timelines but again, we're a bit bound by the overall economic environment as well as we've seen in 2022. And the goal here is to get to strong profitability, strong positive cash flow even if our sales are to decline.

Joe Koster, Analyst

Thank you. And I have one final one if no one else is jumping in. I think in the call last summer or last year, I can't remember if it was you or maybe Jeff had jumped in and mentioned sort of the after-tax value of the real estate was probably somewhere in the $15 million range. Has anything changed on that front? Or is that sort of still a ballpark estimate for what you guys think?

Janet Carr, CEO

That's a reasonable ballpark estimate of what the real estate here in Fort Worth is worth. Other questions, comments? It's going to be the world's shortest call.

Unknown Shareholder, Shareholder

Can you explain the reasoning behind buying your own stock at this stage? If you're purchasing it, I assume the value is the same, but I'm not seeing that reflected in the margins or operations. Could you elaborate on this thought process regarding equity purchases versus increasing store numbers or other uses?

Janet Carr, CEO

Yes, that's a good question. We believe that our shares are undervalued, which is why we have been purchasing them whenever possible, usually in large quantities. We consider this to be a great value because we are in the midst of significant changes aimed at establishing a solid foundation for future profitable growth. Over the past four years, we have been undergoing a transformation in our systems, accounting, leadership, and processes to run the business more like a professional retail operation. While we are not seeing the benefits in operating margins at this moment, we are confident in our progress and believe our shares remain undervalued at the prices for which we have been buying them. Additionally, as mentioned by Joe Koster, our balance sheet is strong, with a $15 million real estate value and no debt, which further supports our view that Tandy is a great value at under $5 a share.

Unknown Shareholder, Shareholder

I guess I'll ask another question if no one else is. To what extent do you believe your future is determined by your own actions in relation to the environment and the competition you face? Clearly, you're in retail and can innovate to some degree, but it's highly competitive. How do you view the environment you are operating in?

Janet Carr, CEO

It's a great question. I believe a lot of our future is truly in our own hands. The current environment is characterized by short-term fluctuations, similar to being on the ocean and riding the waves. However, I see strong long-term prospects for Tandy. There are numerous opportunities for growth, and we have identified favorable secular trends in crafting and leather crafting. We are also seeing significant interest from a younger customer demographic that approaches leather crafting differently from our traditional customer base of the past century. Our ability to engage these new customers, meet their needs, and create a distribution model that aligns with how they prefer to purchase is within our control. The challenge lies in balancing the short-term with the long-term, ensuring we can generate acceptable short-term profits and cash flow while also investing in that long-term growth. I hope this provides clarity, as I want to emphasize that we are not completely reliant on external factors; we're not just a commodity. While the economic environment does influence us, especially in the short term, we have control over our direction. Are there any other questions, comments, or concerns? If not, I think we may have set a record for the shortest call. If you’d like to connect with me or Dan individually, we’re always available for a conversation. We also welcome any suggestions on how to improve the format of our discussions. We all prefer a more interactive dialogue instead of a scripted presentation, so please share your feedback if you have ideas on how to change this format. As always, we’re here and look forward to chatting with you again in about six weeks for our Q1 update. Thank you, everyone.

Daniel Ross, General Counsel and Corporate Secretary

Thank you, everyone.

Janet Carr, CEO

Bye.