Shannon L. Greene – Chief Financial Officer and Treasure Jon W. Thompson – Chief Executive Officer Mark J. Angus – Senior Vice President.

Good day, ladies and gentlemen and welcome to Tandy Leather Factory’s Second Quarter 2014 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 be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now hand the conference over to Shannon Greene, Chief financial Officer. Please go ahead..

Thank you. Good morning and thank you for joining us for our second quarter 2014 earnings conference call. I am Shannon Greene, Chief Financial Officer of Tandy Leather Factory and I'm joined by Jon Thompson, our Chief Executive Officer and Mark Angus, our Senior Vice President.

Before we get started, I will 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 of the inherent uncertainties of looking into the future that there are risks to Tandy Leather Factory that could prevent these events from occurring in the manner foreseen. Please see our Form 10-K for 2013 and subsequent forms 10-Q for a discussion of some of these risks.

Copies of these documents are available to 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 those statements.

We performed fairly well in the second quarter achieving a 4% sales increase and an 8% earnings increase compared to the second quarter of 2013. Gross profit margin for the quarter was 64.9% and operating income increased by 13%. We ended the quarter with $7.4 million in cash and $36 million in inventory.

Total assets as June 30, increased $6.3 million from year end 2013 to $62.7 million. Now for the numbers from todays press release. Our second quarter consolidated sales increased to 4%, current quarter sales were $19.7 million compared to last year’s second quarter sales of $19 million.

Wholesale Leathercraft sales were $6.5 million this quarter, down 4% from $6.7 million in the second quarter of last year. Same stores posted a 2% sales increase reporting sales of $6.4 million compared to $6.3 million in the second quarter of 2013.

Our national account group posted a 99% sales decrease reporting sales of $6,000 compared to $380,000 last year. As we've mentioned numerous times, we intentionally raised selling prices or deleted many of the products that our national account customers were buying, because of unsatisfactory gross profit margins on those items.

As a result, April was the last month of sales to those customers. Our Retail Leathercraft division reported sales of $12.2 million a 9% increase over last year’s second quarter sales of $11.2 million. The same stores posted 7% increase and the four new stores opened after October last year added quarterly sales of $390,000.

Our International Leathercraft segment which consists of three stores located outside of North America, reported sales of $1.04 million for the quarter compared to $1 million in last year’s second quarter a gain of 4%. All three stores have been opened from more than a year so the same store sales gain is also 4%.

Consolidated gross profit margin for the quarter was 64.9% increasing from last year’s second quarter margin of 62.8%. Wholesale Leathercraft’s gross profit margin was 73.9% compared to 69.1% in the second quarter of 2013. Retail Leathercraft’s gross profit margin was 59.9% compared to 59.3% in last year’s second quarter.

International Leathercraft’s gross profit margin for the second quarter was 66.8% up from 60% last year. Consolidated operating expenses were $10.1 million or 51.4% of sales in the current quarter, compared to $9.6 million or 50.5% of sales last year an increase of $549,000 or 6%.

Wholesale Leathercraft’s reported operating expenses totalling 56.8% of its sales versus 56% last year. Retail Leathercraft reported operating expenses totaling 48.2% of its sales compared to 47.1% last year. International Leathercraft’s operating expenses for the quarter were 55.2% of its sales compared to 51.5% last year.

Income from operations was $2.7 million for the quarter, up 13% or $310,000 compared to the second quarter of 2013’s operating income of $2.3 million. On a year-to-date basis consolidated sales increased 3%, 2014 sales were $39.5 million compared to 2013 sales of $38.2 million.

Wholesale Leathercraft’s sales were $13.3 million this year down a $177,000 or 1.3% from last year’s sales of $13.5 million.

The increase is the result of a 1.1% same store sales gain with sales this year of $12.9 million compared to $12.8 million last year offset by a 48% sales decline for national account for sales this year of $349,000 versus $666,000 in 2013.

Our Retail Leathercraft’s division reported sales of $24.2 million a 6% gain over last year’s sales of $22.8 million. Sales from the four new stores were $736,000 so far this year. The 76 comparable stores posted sales of $23.4 million, an increase of 4% compared to last year sales of $22.5 million.

Our International Leathercraft segment reported sales of $2.1 million so far this year compared to $2 million last year an improvement of 8%. Consolidated gross profit margins for the year was 64.5% an increase from 2013’s gross profit margin of 62.4%, wholesale Leathercraft’s gross profit margin was 70.1% this year, increasing from 65.5% last year.

Retail Leathercraft’s gross profit margin improved from 60.7% last year to 61.3% this year. And, International Leathercraft’s gross profit margin increased from 61.8% last year to 65.9% this year.

Consolidated operating expenses increased $988,000 or 5.2% to $19.9 million or 50.3% of sales in the current year compared to $18.9 million or 49.4% of sales last year. Wholesale Leathercraft reported operating expenses totaling 51.4% of its sales the same as last year.

Retail Leathercraft reported operating expenses totaling 49.3% of its sales currently versus 48% of sales last year. International Leathercraft reported operating expenses totaling 54.3% of its sales this year, compared to 52.7% last year.

On a consolidated basis, the most significant operating expense increases were employee comp, travel, depreciation, advertising and marketing and store rent. Income from operations was $5.6 million up [$666,000] or 13% compared to 2013.

Looking at our balance sheet, June 30, 2014 compared to December 31, 2013 total assets are up by $6.3 million, and current assets are up by approximately $6.1 million. Cash decreased $3.7 million to $7.4 million at the end of June. Inventory increased $9.7 million.

Current liabilities increased $5.6 million due to the dividend payable of $2.5 million, which will be paid tomorrow and the increase in short-term debt of $2.2 million, which is the draw on our line of credit. Our current ratio is 3.4; EBITDA for the first half of 2014 is $6.3 million.

There are two Tandy stores with operating losses as of the end of June totaling $38,000 all of our leather factory stores are profitable as of June 30. A couple of more things before we go to questions. There are several things that caused the increase in inventory.

First, the new product that we rolled out in our annual catalog in October normally arrived in the third quarter. This year a significant portion of that new product arrived in the second quarter. In addition, we consider ourselves as an opportunity buyer when it comes to leather.

That means, we are willing to make extra purchases of leather when it’s available and when the prices rise. We've talked about these types of purchases numerous times on these calls, it is nothing new. A year or two ago, we were signing these deals fairly consistently, then they seem to dry up in the half of the last year until now.

As a reminder, these opportunity buys are in leathers that we normally stock that are part of our regular line. Lastly leather has an almost indefinite shelf life, the buying large quantities just mean we have good availability for a longer period of time, it doesn’t go bad.

Regarding store opening in 2014, we've opened one store in the first quarter in Round Rock, Texas which is north of Austin; we are currently working on one to two more expecting to get them open in the fourth quarter. As I'm sure you know, our Board approved $0.25 one time dividend in June, stockholders will be paid tomorrow.

We have Jon on our line of credit to cover the dividend and pay for some of the additional inventory. We should begin to repay the debt in the fourth quarter based on historical cash generation.

To summarize, our sales are slightly behind our internal projections through the first half of the year, but with the strength in our gross profit margin we are on track with earnings. I think most if not all retailer would tell you that it’s a very tough environment right now and it feels like we are fighting for every sale.

Our wholesale customer continue to struggle, so we are selling a lot more retail customers than wholesale and business customers which supports our strongest profit margin, but the ticket average is in a tie. We will continue to do what we can do to drive sales with acceptable margins of course. That concludes our prepared remarks.

Operator, we are now ready to take question. .

(Operator Instructions) We do have a question from the line of [indiscernible]..

Hi, yes I just had a question.

You are going to open two to three stores this year, do you have any preliminary estimate on your store openings next year, and that also for somebody who is not that familiar with your company, when you get these really good buys on leather, could you give me an idea of what you normally pay for leather and what is profitable so you decide to load up on it?.

Right now we probably continue trying to open two to three stores a year. As part of price on leather, it varies, we know what the market is around the world since it’s a commodity, so we know what the value is and really cant give you an exact price.

It’s just the normally I mean for instance a lot of times we might save 50% to 70% on tannery prices, so it’s a well worth or trying to buy it..

Well thanks. That’s very helpful..

Welcome..

Thank you. (Operator Instruction) and I see no further questions in the queue at this time..

Very good. On behalf of Jon Thompson, Mark Angus and myself thank you for your participation in today's call. Have a good day..

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone have a good day..