Good day ladies and gentleman and thank you for standing by. And welcome to the Tandy Leather Factory’s First Quarter 2013 Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. (Operator Instruction) As a reminder, today's conference might be recorded. Now it's my pleasure to turn the floor over to Shannon Greene. Please go ahead.
Thank you. Good afternoon everyone and thank you for joining us for our first quarter 2013 earnings conference call. I am Shannon Greene, Chief Financial Officer of Tandy Leather Factory. Joining me on today’s call is Jon Thompson, our Chief Executive Officer, and Mark Angus, our Senior Vice President.
Before we get started, I’d call your attention to the fact that these conversations will contain forward -looking statements to the extent we speak today of any future events or make other forward -looking statements. You are reminded that the inherent uncertainties of looking into the future, that there are risks at Tandy Leather Factory that could prevent these events from occurring in the manner foreseen. Please see our Form 10-K for 2012 for a discussion of some of these risks. Copies of these documents are available through the SEC’s EDGAR system and from our Investor Relations office.
Also statements made today by us as management of Tandy Leather Factory are made as of this moment and we disclaim any duty to the update of those statements.
We are generally pleased with the first quarter having achieved a strong sales gain and solid earnings, although earnings didn’t increase over last year’s first quarter. Gross margins, is holding fairly steady at 62%, down only 0.5% from the first quarter last year. Operating expenses while up $500,000 compared to last year's first quarter are trending below sales growth.
As mentioned in the press release, $300,000 of the $500,000 increase is in advertising and marketing expenses, which we consider a good investment as it has a direct impact on our sales. Total cash is still about $7 million, even though we paid out almost $2 million and still manage our bonuses during the first quarter.
Now, for the numbers from today’s press release. First quarter consolidated sales increased 6% over 2102 first quarter sales. The current quarter sales totaled $19.2 million compared to last year’s first quarter sales of $18.2 million. Also Leathercraft posted a 6% sales decrease reporting sales of $6.7 million this quarter, compared to $7.1 million in last year's first quarter. The same store posted a 2% sales gain. The National Account group posted a 65% sales decline. While that percentage sounds dramatic, keep in mind that this decline in sales to our National Account customers is somewhat intentional as we eliminated certain products that were not producing an acceptable gross profit margin for us. These sales have dropped steadily over the last five years or so, and in 2012, were just over $1.5 million, so not a significant part of our business.
Retail Leathercraft division reported a 12% increase, reporting sales of $11.6 million this quarter, versus $10.3 million in the same quarter last year. The same stores posted an 11% sales gain and one new store added sales of $120,000 this quarter.
International Leathercraft posted a 28% sales increase, recording sales of $948,000 this quarter, compared to $742,000 in the first quarter of 2012. All three stores are now considered same stores this year as they have all been opened at least one full year now.
Consolidated gross profit margins for this quarter was 62%, a slight decrease from last year’s first quarter profit margins of 62.5%. Also, Leathercraft’s gross profit margin declined from 63.3% last year to 61.9% this year. Retail Leathercraft’s gross profit margin remains steady at 62%. International Leathercraft’s gross profit margin improved from 62.5% last year to 63.7% this year.
Consolidated operating expenses were $9.3 million or 48.4% of sales in the current quarter, compared to $8.8 million, or 48.5% of sales last year. Also, Leathercraft reported operating expenses totaling 46.8% of its sales, slightly higher than last year’s percentage of 46.1%. Retail Leathercraft reported operating expenses totaling 48.8% of its sales, the same as last year. International Leathercraft reported operating expenses totaling 48.4% of its sales, virtually the same as last year's percentage of 48.5%. As mentioned previously, advertising and marketing expenses were the primary contributor to the consolidated operating expense increase this quarter.
Consolidated operating expenses increased $500,000 in the first quarter, in addition to advertising and marketing expenses, employee compensation was up $170,000. Income from operations was $2.62 million for the quarter, up 3% compared to operating income of $2.55 million in the first quarter of 2012.
Looking at our balance sheet at March 31, 2013, compared to year-end 2012, total assets increased by $600,000, while current assets decreased by $100,000. Cash declined $541,000 in the first quarter to $7.2 million. $1.8 million was paid out in store manager bonuses in March.
Accounts receivable increased $112,000, while inventory decreased $500,000. Current liabilities decreased $764,000 due primarily to the decrease in accrued expenses of $1.4 million compared to year-end 2012. Once again, that decrease is due to the payment of the store manager bonuses during the quarter.
Our bank debt consist of one term note on our building, a current balance of $2.8 million and we are paying the debt down in accordance with the terms of the note. We paid an extra $300,000 on the balance at the end of April without incurring a pre-payment penalty. We will have that opportunity each April and intend to take advantage of it in order to reduce the balance out as quickly as possible.
Our current ratio is 5.0, EBITDA for the first quarter of 2013 was $3.1 million, trailing 12 months of EBITDA was $10.3 million. There are two Tandy Leather stores with operating losses as of the end of March totaling only $2000, a significant improvement over prior quarters. The Australia and Spain stores are not profitable; their combined loss totaled $ 49,000 as of the end of March. [All of] [ph] the leather factory stores are profitable as of March 31 as is the UK store.
To summarize, we are generally pleased with the performance in the first quarter and have gotten off to a solid start in the second quarter as indicated in our press release last week announcing a 23% sales gain in April.
We intend to open one to two stores in the U.S. this year. However, as we have made mention of in the past several conference calls, we are focusing greater attention on expanding the size of our existing stores by moving them into new locations. We want to get away from the 1500 to 2000 square foot space and get into the 5000 square foot space or larger depending on the local market. We've been working on this for the last several years as leases expire and based on our sales trends, we believe the strategy is working. Our customers seem to like the look and feel of the larger stores and certainly like the additional inventory that is available in them.
That concludes our prepared remarks for today. Operator we are now ready to take questions.
(Operator Instructions) And our first question will come from the line of Steve Shaw with Sidoti & Company. Please go ahead, your line is now open.
Steve Shaw - Sidoti & Company
The decline in wholesale sales, was that all the National Accounts?
Yes, the stores actually had a 1.6% (inaudible) gain, National Account was down 423,000 if I remember correctly. Yes, slow wind down of that should probably - we should be out of that by the end of the year I think.
Steve Shaw - Sidoti & Company
And then the gross margin contraction, was that made up of pretty much the wholesale decline? Or was there a sales mix involved in there at all?
Generally seeking gross profit margin is affected by the mix of the products sold. The leather that we sell carries the lowest gross profit margins relative to the tools and buckles and all of that, which carries a much higher margin. So the slight decline in wholesale Leathercraft’s gross profit margin is certainly a – it’s product mix. If we sell other out the door in a quarter versus the prior or the matching quarter year before it pulls margin down a little bit, and with all the additional leather being carried in the stores that certainly [happened] [ph] a little bit.
Steve Shaw - Sidoti & Company
The one store that you opened in the first quarter, did you guys say where that was?
We haven’t - first quarter of 2013, we haven’t opened one in 2013 yet.
Steve Shaw - Sidoti & Company
I’m sorry. So the two, unprofitable stores are the international, there was no unprofitable domestic stores?
No, there are two domestic, two Tandy stores, but their total operating loss between the two of them for the first quarter was only $2000. So if you remember for prior quarters that’s quite a significant improvement.
Steve Shaw - Sidoti & Company
The Australia store is very close to breakeven, I’ll be really surprised if he doesn’t hit it in the second quarter; Spain we still have some work to do but it’s getting there. (Inaudible) factory stores are profitable and the UK stores have been profitable for a while.
Thank you sir. (Operator Instructions) And Ms. Greene I'm showing no additional questioners on the phone queue. I’d like to turn the program back over to you for any additional or closing remarks.
Thank you. I appreciate your time today. I would also like to remind everyone about our 2013 Annual Meeting of Stockholders to be held on June 6 here in Fort Worth. Please consider yourselves invited. We are going to hold the meeting in our new flagship store which opens here in a couple of weeks. It's definitely worth seeing even if the stockholders meeting isn’t of particular interest to you. So I encourage you to attend if you can. On behalf of Jon Thompson, and Mark Angus, and the entire company, thank you for your participation in today's call. Have a good afternoon.
Thank you ma’am. And again ladies and gentlemen, this does conclude today’s conference. Thank you for your participation and have a wonderful day.
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