Good morning, everyone. Thank you for joining us for a discussion of Tandy's Fourth Quarter 2023 Financial Results. I'm Dan Ross, General Counsel and Corporate Secretary for Tandy, and I will be moderating the discussion today.

Our CEO, Janet Carr, will give just a brief overview of the quarter, and then we will devote the conference to investors’ questions and discussion. If you wish to ask a question or make a comment, please press the smiley face on the reactions button, which is located at the bottom of your Zoom screen, and then select raise hand.

Janet will recognize the questioners and ask you to unmute your line. You'll need to ask your questions out loud yourself through your computer or phone audio. Please be sure to state your name and if applicable, your company when you begin your question. I will not be reading questions or comments directly from the chat. With that, let's get started.

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 is Janet Carr..

Thank you, Dan. I want to start today by revisiting the outlook for 2023 that we shared with you at the end of 2022. With some economic signals flashing red, we wanted to position Tandy to weather a challenging consumer demand environment. We focused on growing profit and cash and took a conservative position on investments to drive sales growth.

This meant managing both cost of sales and operating expenses, managing CapEx and continuing to optimize the retail fleet, seeking better renewals, moving to lower rent locations, closing stores with negative cash and/or a long-term trend of declining demand.

And while our focus was not primarily on sales growth, we did continue to invest in building the foundation of the business. This is what we said we were going to do, and it's what we did do. The results in snapshot speak for themselves. Sales were down about 5%, which we'll talk about in a minute.

But gross margin rate was up, and that, combined with a significant decline in operating expenses, delivered $4.4 million in operating income, up $3 million over last year. Adjusted EBITDA, a non-GAAP metric which we're showing here to provide additional insight, was $6.5 million, up $2.5 million over last year. Turning to the balance sheet.

Cash was up $4 million, over $4 million to $12.2 million. Inventory was essentially flat to last year, and we continued to have no debt. Turning to sales, at $76.2 million, sales were down 5.1% over 2022, driven by continued weak consumer demand.

We had six stores with sales in '22 that closed in '22 or '23, representing about $1.4 million or 170 basis points of the sales decline. We do have some new stores as well. We opened our store in Queens, New York in July of 2023, and while sales are continuing to ramp up, it's off to a very good start.

We also have leases signed on two more stores, store 188 in Margate, Florida near Fort Lauderdale, which should recoup sales lost from closing our store in Miami, expected to open any day, and store 189 in Richmond, Virginia, a strong market for us where we closed a store with an unfavorable lease during COVID.

This store should open sometime in late April, early May. Our new store in Queens, New York, is a test of a new model of store for us. It has a smaller footprint and therefore allows us to have smaller lower rents. It has better merchandising of leather. It's hanging. It's visible. You can touch and feel it.

You can see in the photo in the upper right there. Our workshop and class area are at the center of the store with an emphasis on classes and makers activities.

And it's a full-service model, both necessitated by the smaller footprint and less self-serve merchandising, but also to leverage our competitive advantage, which is the expert service that customers get in our retail stores. We're using a variation on this model for new locations, both new markets and store moves going forward.

2023 gross profit dollars were down 2.9% to $45.2 million with 130 basis point improvement in gross margin rate. Rate improvement came from reduction in freight and warehouse overhead, better full price selling, some product and channel mix shifts and other adjustments.

Better gross margin rate combined with a 9.7% decline in operating expenses over last year, drove a $3 million increase in operating income to $4.4 million. While we weren't happy with the decline in sales as we said at the start of this year, we had a plan to deliver earnings and cash growth even in the face of declining sales. And we did that.

With our Queen store and two more new stores underway, we're also taking steps to grow profitable sales in thoughtful locations with attractive economics. We talked about our key principles for the last couple of years, and these continue to be what guide us.

From a financial perspective, number one, disciplined capital allocation, meaning capital investments to be funded from operations. Number two, conservative balance sheet, cautious about leverage.

And three, a focus on long-term shareholder value with consideration for all mechanisms for increasing value without impairing the long-term prospects for the business. And we said from an operating perspective that we're focused on the consumer proposition, quality, value, consistency, and service.

Secondly, we're building an operating model, the talent systems and processes that can support the business for many years to come. And three, but that can also remain flexible and nimble, that we can both scale and allow us to respond to changing market conditions quickly. Looking forward to 2024, we will continue to focus on profitability and cash.

We're going to grow sales with a focus on retail, new stores targeting an additional three to five stores. Our stores continue to be our competitive advantage with low buildout and relatively low operating costs. It's a good source of positive cash flow.

And with our new full-service model, we're going to continue to invest in our competitive advantage. Experts who teach, serve, inspire, and engage their broad local communities in leather crafting. And as previously announced, we're exploring a sale of our Fort Worth property.

The rationale, we seem to have -- we have, not seem to have, we do have a lot more square footage and undeveloped acreage here than we need. Someone else could potentially get a lot more value out of this property than we do.

And we have some unique benefits here, such as our I-20 [ph] footage, which you can see right behind me, significant power, and again, someone may find that a lot more valuable than it is to Tandy. The market has also appreciated fairly significantly in recent years.

And we've modeled scenarios where we sell this property and buy or lease something that more specifically fits our needs and potentially releases excess cash if we get the right price. The Board would certainly consider all options in deploying any excess cash, including potentially returning some to shareholders.

And while interest has been strong, any move would be a very significant disruption to the business, so we are proceeding accordingly. And now moving to questions and discussion, I see that Isaac has a question.

Do you want to go ahead and unmute and ask your question?.

Yeah. Hi. Thanks. First, congratulations on what seems like a pretty good quarter, all things considered. And I had a couple of hopefully quick questions.

First one is how far along do you think you are in the process of optimizing the retail fleet? Did you say you're mostly there, or do you have substantially more to go?.

It's an ongoing process. We are aggressive about taking care of any cash flow negative stores. And we also have quite a few leases coming up over the next about 18 months. There are about 38 that are expiring and up for renewal. And that is typically the time that we really take a hard look at those locations. So, there's a lot to come..

Okay. Thanks. That's helpful. And my other question is just about why you are showing such a low level of interest income on your cash balances. I mean, I think you averaged about something close to $10 million last year, but I don't see much interest income..

We invested in risk-free securities with our cash and the cash does reach a low point in Q3. So, we did not maintain a $10 million balance throughout the entire year. And I'm going to say interest income on cash was in the neighborhood of about $90,000 last year. And it should be as our balances grow better going forward.

We began our T-Bill investment program in around June of last year..

Okay. All right. Thanks. I think that's it for me. Thanks..

Great. Thanks, Isaac.

Joe?.

Hey, Janet..

Hi..

Just first of all, congrats. I know it was a lot of work these last few years getting the cost basis kind of on a more sustainable level. And so, now that you're kind of there, I congratulate you first on that..

Thank you..

Then the only question on my end that wasn't answered was kind of on the future other revenue avenues. I know maybe a few years ago, you had talked about maybe there were some adjacent areas.

So, with the new store model, is that kind of our focus for the foreseeable future or there's still other potential things?.

I think there are potential other things that are down the road, but in the next couple of years, we're really going to be focused on our core business and growing sales within our existing stores and finding the right number of total stores for our fleet.

I think definitely as we've indicated with an additional three to five stores this year, there's more opportunity in the core..

That's all for me..

Thank you.

Isaac, did you have another question?.

Yeah. I just had a quick follow-up. I think I heard you say that interest in the sale of your headquarters has been strong.

Could you just confirm that I heard that correctly?.

Yes..

Okay. All right. Thanks..

Yeah. You're welcome.

Any other questions or comments?.

End of Q&A:.

I don't think we get the -- I don't think this call gets the record for the absolute shortest call that we've done, but it's close. It's going to be close. As always, if you have any questions and want to reach out to Dan or me directly, we're happy to chat. And if there is nothing else, last call. All right. Thank you, everyone..

Thank you, everyone. This concludes the call..