DGSE Companies' (DGSE) CEO Matthew Peakes on Q1 2016 Results - Earnings Call Transcript

| About: DGSE Companies, (DGSE)

DGSE Companies, Inc. (NYSEMKT:DGSE)

Q1 2016 Earnings Conference Call

May 16, 2016 4:30 PM ET

Executives

Matthew Peakes – Chairman and CEO

Nabil Lopez – Chief Financial Officer

Analysts

Operator

Greetings and welcome to the DGSE Companies Incorporated first quarter 2016 conference call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Matthew Peakes, Chief Executive Officer and Chairman of the Board. Thank you, Mr. Peakes. You may begin.

Matthew Peakes

Thank you. Good afternoon and thanks to everybody on the call for joining us today to review our first quarter 2016 financial results. The call today will be hosted by myself and Mr. Nabil Lopez, the company’s Chief Financial Officer. Following our prepared remarks, there will be a formal Q&A open to everybody on the call.

Before we get started, I'm going to review the Safe Harbor statement. Some of the information discussed in this call, particularly our revenue, operational targets and our forward-looking business plans is based on information as of today, May 16, 2016 and contains forward-looking statements that involve risk and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosures in the earnings press release we issued today, as well as DGSE’s SEC filings.

Let's go over the agenda for today's call. First, I'll give a brief summary of the first quarter 2016. Second, Nabil Lopez, our CFO will go over the financial results for the first quarter. I’ll give a few closing remarks. And then Nabil and I will be glad to take your questions.

It was a challenging environment for us in the first quarter. And today we announced first quarter sales of $11.8 million, a crease of 8.5% year over year. Although total sales were down, per store sales actually saw an increase because we had two fewer stores than last year.

Additionally gross margin increased this quarter compared to first quarter last year. The price of precious metals continues to have a significant negative impact on our scrap business. The gold market experienced a steady decline in the price per ounce in 2015 but saw a nice bump in the first quarter of 2016. The demand for physical gold increased during the last half of 2015 and this trend continued into the first quarter of 2016.

Our jewelry revenue, which includes fine watches, increased slightly compared to last year. We believe that growing the jewelry business and closely managing our expenses provides the best avenue to offset the slowdown in the scrap business. We're still negotiating the definitive purchase agreements with Elemetal and NTR. Once we've completed this process, the agreements will be included in the proxy statement for the 2016 annual meeting so that shareholders can cast their vote on the debt to equity exchange.

With that, I will now turn the call over to Nabil for a more detailed look at first quarter 2016 financial results. Nabil?

Nabil Lopez

Thanks, Matthew. And welcome to everyone on the call today.

For the quarter ended March 31, 2016 revenues from continuing operations were $11.8 million, an 8.5% decrease compared to $12.9 million in the quarter ended March 31, 2015, as bullion and scrap sells trended downward, while DGSE’s jewelry sales saw a slight increase as compared to the prior year. The decrease in the scrap sales is consistent with industry wide trends. In addition, the decrease in revenues as compared to the prior year quarter is due to the closing of two stores.

Gross profit from continuing operations for the quarter decreased slightly by $180,000 from $2.3 million to $2.1 million. Gross profit as a percentage of revenue increased from 18.1% to 18.3%, up by 20 basis points. The overall gross profit decrease was driven by lower sales in our bullion and scrap categories.

Selling, general and administrative expenses for continuing operations decreased $262,000 or 9% in the quarter ended March 31, 2016 to $2.6 million compared to approximately $2.9 million in the prior year quarter. The decrease was achieved by continued cost reductions across the organization.

Depreciation and amortization decreased by 29.1% to $100,000 compared to $141,000 for the same period in the prior year. This decrease was due to a one-time write-off of assets formerly utilized in two stores closed during fiscal 2015.

The loss from continuing operations for the first quarter was $670,000 or $0.06 per share compared to a loss from continuing operations of $774,000 or $0.07 per share in the year ago quarter. The company reported a net loss in the first quarter of approximately $690,000 or $0.06 per diluted share, compared to a net loss of approximately $798,000 or $0.07 per share in the prior year quarter.

At March 31, 2016, DGSE had cash and cash equivalents of $1.5 million compared to $1.8 million at December 31 2015 Stock holders’ equity decreased 17.4% to $3.2 million at March 31, 2016 compared to $3.9 million at December 31, 2015.

At March 31, 2016 and December 31, 2015, the outstanding balance on the company's credit facility with NTR Metals LLC was $2.3 million.

And now I’ll turn it back over to Matthew for some additional comments.

Matthew Peakes

Thanks, Nabil. While we are now pleased with our first quarter results, we are working on initiatives to bring the business to profitability in a very difficult environment for our industry. A couple of the more noteworthy initiatives are: in April of this year, we partnered with Wells Fargo to offer our customers a revolving credit program to buy our merchandise. While the program has only been operational for about a month, we are pleased with the results thus far. And construction has begun on our new flagship store in the heart of Dallas which will allow us to consolidate at least three stores and save on our monthly rent expense.

In terms of retail square footage, this store will be larger than any store we have today, including our current flagship store located on Reeder Road in Dallas. We expect to move into the store this summer.

This concludes our prepared remarks and we would now like to open the call to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] First question comes from Dr. Alice Smith [ph], private investor. Please go ahead.

Unidentified Analyst

Hello Mr. Peakes. You have not made any comment on the May 12 deadline with the American Stock Exchange for a plan to comply with the listing requirements. That date has come and gone. Can you give us a little color on where you are with that?

Matthew Peakes

Yes sir. Thank you for the question. We have submitted a plan to the NYSE markets regulation department and it is under review. And that's all I can really say about that. The plan has been submitted.

End of Q&A

Operator

[Operator Instructions] I see that there are no further questions at this time. I would like to turn the floor back over to Matthew Peakes for closing comments.

Matthew Peakes

Thank you everybody very much for joining us today. We look forward to giving you an update during our next call which will be mid-August when we'll be discussing our second quarter results. This concludes our first quarter 2016 conference call.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time.

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