Home About Samples Contact   Latest Archives Sleepers Updates Tandy Leather Factory, Inc. (amex: TLF) TLF Lowers FY07 Guidance as Leather Loses its Luster (+16.1%) SLEEPER UPDATE - March 1, 2007 The tone of our previous updates on Tandy Leather Factory, Inc. (amex: TLF) have been "nervous" at best. Monthly sales figures have barely tracked towards the company's fiscal 2006 guidance and today TLF has been forced to lower its FY07 outlook. When we first highlighted TLF on October 9, 2006 in our piece entitled, "Leather Retailer 'Boot-Strapping' Expansion and Growth" the company had been reporting double-digit sales growth and planned to augment sales growth with new store openings. Now it seems same-store sales growth has come to a screeching halt and the only growth ahead in 2007 might be from new store openings. TLF recently confirmed that it was on track to hit its FY06 revenue guidance of $55-56 million and EPS guidance of $0.43-0.44 per diluted share. At the end of December, the company had reported $55.2 million in year-to-date sales, representing an +8.8% revenue growth rate over FY05. EPS at the projected $0.43 per diluted share would represent +26.5% earnings growth. Today, the company reported February sales growth of only 1%, the same as January's year-over-year sales growth. On top of that disappointing news, TLF lowered its FY07 revenue guidance to $59-61 million (down from $60-62 million) and dropped its FY07 EPS guidance to 53-56c per diluted share (down from 54-57c). This new guidance sets the stage for less than +9% revenue growth and +23% earnings growth in 2007. Those numbers aren't bad, just "lackluster." The real problem we have is that the majority of growth seems to only be derived from the 12 new stores planned for 2007, not to mention how these new openings might impact margins and make the earnings outlook tough to top. As the news hit the wire, TLF shares quickly declined over -6%, and as much as we hate to admit it, TLF may be fairly valued at the current $7.50 stock price. The forward looking P/E ratio is now at 14.2 versus the trailing 14.7 P/E at the time of our initial report. And, that was when we were looking at strong double-digit growth rates, partially from same-store sales. Even the CEO expressed his disappointment in today's release stating, "Our February sales results are frustrating. We're doing all the right things, but we don't seem to be turning those efforts into sales." CONCLUSION: Uh-oh, Code-Blue We really like this humble, old-fashioned company, but we just don't see the catalysts we saw back in October. Of course, if the stock gets really cheap and the metrics change, we might revisit TLF, but for now, we are issuing a "Code-Blue Alert" for TLF as of the $7.50 closing price on Thursday, March 1, 2007 for an +16.1% gain. Copyright © 1999-2007 Knobias, Inc. 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