Cover Story
CEOCFO Current Issue
Cover Story Archives
Private Equity Review
CEOCFO Interview Index
Future Features
Analyst Interviews
Corporate
Financials
Contact
& Ordering |
This is a printer friendly page!
The Leather Factory
continues to successfully expand and grow its business because management understands that
promotion of the craft depends on the education of customers and finding experienced
managers who understand leathercrafting to run their stores
Consumer Cyclical
Apparel/Accessories
(TLF-AMEX)
The Leather Factory, Inc.
3847 East Loop 830 South
Forth Worth, TX 76119
Phone: 817-496-4414
Shannon L. Greene
Chief Financial Officer
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
April 21, 2005
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. Prior to May 2000, Ms. Greene served as the Company’s Controller
and Assistant Controller since September 1997. From January 1996 until she joined
TLF, she served as CFO/Controller for a venture capital group specializing in the computer
industry in Dallas, Texas. From 1987 to 1995, she worked in public accounting. Ms.
Greene received the 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, and the National Investor Relations Institute.
Company Profile:
The 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 30 Leather Factory stores,
targeting the wholesale customer, and 44 Tandy Leather stores, focusing on the retail
market. It also sells products via mail/telephone/Website orders.
The 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. The Company extends an invitation
for retailers, including craft stores, western stores, hardware stores and general
merchandise stores, to become a Leather Factory or Tandy Leather Authorized Sales Center.
The Leather Factory welcomes anyone with an interest in leather and leathercraft, whether
it's a hobby or a way-of-life, to think of The Leather Factory and Tandy Leather Company
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.
CEOCFOinterviews: Ms. Greene, 2004 was a record year for The
Leather Factory. What has contributed to your success?
Ms. Greene: “We have two primary operations –
Wholesale Leathercraft and Retail Leathercraft. The Wholesale Leathercraft division
operates as The Leather Factory. The Retail Leathercraft division operates as Tandy
Leather Company. 2004 was our third year of what we think is a fairly aggressive expansion
program with our Tandy Leather retail store chain, as we had 42 stores as of the end of
the year. The expansion program, which is based on opening an average of twelve stores per
year, is going very well, producing solid sales gains. As a result, our consolidated
revenues and operating income levels are setting new records each year. The Wholesale
Leathercraft division, while not growing as rapidly, is generally a consistent contributor
to our recorded sales gains. For the most part, we were pleased with our performance
in 2004, although there were some disappointments."
CEOCFOinterviews: You
said most of your divisions did well, will you tell us about the different areas?
Ms. Greene: “The Retail Leathercraft division operates
the Tandy Leather retail stores. Due to the growing number of stores, its sales and
profits improved significantly over the previous years. The Wholesale Leathercraft
division has two operating channels: the wholesale distribution centers that operate
as The Leather Factory and what we refer to as our National Account group. The National
Account group sells product to the national craft chains. The distribution centers did
very well in 2004, exceeding our internal expectations with regard to sales gains. The
National Account group did not do so well. In fact, the sales loss for this group
basically offset the gains at the distribution centers. We don’t expect our sales to
our national accounts to improve much in the future. However, if there is a silver lining
in that situation, I would say that sales to our national account customers is becoming
less important to our total operation and is not pivotal to the success of our company
like it once was. That is because we believe our success in the future is based on the
success of our retail stores and distribution centers.”
CEOCFOinterviews: Do you
find that people in their shopping are going more towards specialized stores?
Ms. Greene: “I’d like to think so, but I also think
it depends on the customer. Some people prefer individual attention and service and are
willing to pay a little more to get it. Others want the lowest price possible and
don’t need the extra service to go along with it. We focus on a very specific market
– a well-defined niche. We’ve all heard the saying about knowing a little about
a lot of things or knowing a lot about a few things. We choose to know a lot about a few
things – or more specifically, one thing – leathercraft. This is why we staff
our stores with experienced, knowledgeable managers and sales staff. They can really help
their customers develop leathercraft skills and techniques, whereas you are probably not
going to get that kind of help in the big superstores. It’s difficult to be an expert
in all of the crafts.”
CEOCFOinterviews: You
have opened many stores over the last year; would you tell me what you have opened and
what you are looking to open?
Ms. Greene: “As of the end of 2004, we had opened a
total of 42 Tandy Leather retail stores – 38 in the United States and four in Canada.
Six stores were part of four acquisitions we completed during the year. The other 36
stores were created from the ground up, so to speak. We have opened 2 more stores so far
in 2005 - one in Van Nuys, California, and the other in Phoenix, Arizona. Our plans for
2005 are to open 6 to 8 stores. As I mentioned earlier, our expansion plans call for an
average of twelve new stores per year. At the end of 2004, the third year of our
expansion, we had 42 stores opened. So, if we only open six stores in 2005, we’ll be
at 48 at the end of the year and that keeps us on pace for the dozen stores per
year.”
CEOCFOinterviews: How do
you decide where to go?
Ms. Greene: “We consider two main criteria: (1) the
customer base in a particular area and (2) the availability of a qualified store manager.
For example, we opened the Van Nuys store last month because we believe that area of California
has the customers to support another store there. Also, the gentleman managing the store
had contacted us several months ago indicating his interest in managing a store if we ever
decided to located one there. He has more than twenty years of management experience. We
believe that our managers are instrumental in the success of the stores. So where we
choose to locate depends on where we have qualified manager candidates available or if we
have managers that are will to relocate to that area.”
CEOCFOinterviews: How
much customization is there from one store to the next?
Ms. Greene: “For the most part, the retail stores are
going to be fairly consistent. Most of the stores are approximately the same size and the
product lines are the same in every store. The timeline for getting a store ready for
business is fairly short. From the time we sign a lease for the space, assuming the
landlord doesn’t have any major work to do, we can be ready to open in three to four
weeks. We have one person on staff whose primary responsibility is the set up of each
store. Since the same person oversees the set up, it makes sense that the layout of each
store would be pretty consistent.”
CEOCFOinterviews: Are
there changing trends in leather craft?
Ms. Greene: “Sure, but it’s subtle. Leathercraft is
an old-fashioned, traditional craft. We offer several products that have been in our line
for 25 years and they’re still very popular. However, there are occasionally new
items added to our product line that are more of a fad. For instance, crystal rivets are a
new item in our line right now and we’re having a hard time keeping them in stock.
People are decorating belts and purses, horse tack, jewelry items, etc. with them. Items
like this come and go, but traditional leather craft has been the same for a long
time.”
CEOCFOinterviews: That
should make the business easy to run!
Ms. Greene: “Yes, it does. We add and remove items from
our line every year to keep a fresh look to the line. But the items added in one year were
probably taken out of the line several years prior. We don’t have to spend a lot of
time learning how to sell new and temporary items. That enables us to maintain a solid
knowledge base of our entire product line and our customers appreciate that.”
CEOCFOinterviews: Is
there much fluctuation in the price of leather and can you pass that on?
Ms. Greene: “Leather is a commodity. Price fluctuations
are the result of supply and demand, as well as perception in the market. In the last
several years, leather prices have increased some. When prices go up for us, they go up
for everybody. We manage that as best as we can, but as the price of leather goes up, so
does the price of our products to our customers.”
CEOCFOinterviews: How
are you attracting new customers?
Ms. Greene: “In order for this industry to grow, we must
be committed to the education and development of both existing and potential customers. We
start with youth programs – scouting, YMCA, home-schoolers, art departments in the
schools, summer camps, etc. We teach leathercraft classes in our stores several nights per
week and on Saturdays. If those of us in the industry don’t promote the craft and
develop new leathercrafters, the craft won’t continue. It’s a very teachable
craft – something a grandfather would pass on to his grandchildren. Tandy Leather, in
particular, has always been known for its commitment to the education and expansion of the
craft to new customers. The fact that most of our store managers are leathercrafters
themselves is not coincidental on our part.”
CEOCFOinterviews: Does
your customer base consist of more males or females?
Ms. Greene: “It’s probably a 60/40 split between
men and women – men being the 60%. I’ve seen some beautiful saddles made by very
talented men. And we have some impressive leather artwork displayed in our leathercraft
gallery that was made by a female artist. Girls like making bracelets and bookmarks as
much as boys like making holsters and key fobs. Leathercraft appeals to a variety of
people.”
CEOCFOinterviews: How
much of what you sell is pre-packaged in a kit and how much is the loose items?
Ms. Greene: “We have quite a few do-it-yourself kits in
our line and are adding to it all the time. Sales of these kits make up approximately 8%
of our total sales. It’s a great way to get started in the craft. Kids love them
because everything they need is in one bag and there isn’t a lot of left over
supplies left over. The Tandy Leather stores sell a lot more kits than the Leather Factory
centers because Tandy markets so much to individuals. Leather Factory generally
sells the kits in bulk to summer camps.”
CEOCFOinterviews: Do you
have much traffic on your website?
Ms. Greene: “Our website generates approximately 8-10%
of our total sales and we hope that will continue to increase. However, I don’t
expect that our internet business will ever be a significant part of our business. Our
email database is growing every day and we have special promotions for our internet
customers. But, I don’t think the internet will ever replace the personal customer
service that our customers expect when they walk into our stores.”
CEOCFOinterviews: What
are the challenges ahead?
Ms. Greene: “We believe we are in solidly positioned in
the market and will continue to grow. We’re in good shape financially. For the first
time in the history of the company, we recently paid off our bank debt. That is impressive
anytime. However, what’s even more incredible is that we did that at the same time we
opened 44 new stores, including 7 small acquisitions. It’s nice to see the cash in
the bank increasing. The biggest challenges over the next year will be continuing to work
on our gross profit and operating margins. As consumers, we’re all experiencing the
impact of rising gasoline prices and that effects our company in various ways – from
freight costs and fuel surcharges to the cost of plastic bags. We sell metal tools,
conchos, rivets, etc. and metal prices have been on the rise over the last year as well.
So we will continue to work very hard to keep our margins in line. We were more successful
in 2004 than we expected in this area and so far in 2005, we’re on track for some
margin improvement. We are doing a good job of purchasing product from a variety of
suppliers and that helps keep prices down. Our operating margins should be better so
we’ll continue to hammer on expenses. We have had solid earnings growth, but we
believe we can do better.
Overall, business is good. We will continue to work
through the issues with our National Accounts group and hopefully strengthen those
relationships. We will continue with the expansion of our retail store chain. Our plans
are to grow to 100 or so stores. We have 44 stores right now and believe there is still
good potential for the additional locations. I see few challenges in our expansion plan as
the stores are inexpensive to set up and relatively inexpensive to operate. The key will
be maintaining an adequate queue of qualified store managers. As long as we can do that,
we should be in good shape to move forward.”
CEOCFOinterviews: Why
should potential investors be looking at The Leather Factory now?
Ms. Greene: “We are a conservative business and
old-fashioned in many ways. The stores generate cash, and now that our bank debt is paid
off, that cash is going to build. We expect our sales and earnings to continue to grow.
This is not a “get rich quick” stock. I tell potential investors that if the
expectation is to turn stock quickly for a profit, we’re not for you. We believe as a
company that we have great potential. We want to continue to increase shareholder value.
We are a small public company. Our trading volume is not great. We’re in this long
term and most of our stockholders are too.”
CEOCFOinterviews:
Long-term with a company that has no debt and has cash coming in sounds good to me and a
fine note on which to end this interview.
Ms. Greene: “Well said. The day we paid off the bank
debt was a day I’ll never forget. When I began working for The Leather Factory, we
were struggling to find someone to refinance the debt we had. I can tell you it was very
tense and stressful around here. I decided then that if I had anything to do with it, we
were never going to be in that position again. I’m proud to say that since 1997,
we’ve paid off all bank debt, made several crucial acquisitions including that of
Tandy Leather Company in 2000, and opened 44 retail stores. Now we get to worry about what
to do with all the cash we’re putting in the bank. What a nice problem to have!”
disclaimers
Any reproduction or further distribution of this
article without the express written consent of CEOCFOinterviews.com is prohibited.
|
