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Tandy Brands Reports Fiscal 2013 Second Quarter Earnings Results and Provides Update on Current Events

Tandy Brands Reports Fiscal 2013 Second Quarter Earnings Results and Provides Update on Current Events    *Announces second quarter fiscal 2013 results   *Receives waiver from senior lender for covenant violation   *Signs non-binding term sheet for new credit facility  DALLAS, April 17, 2013 (GLOBE NEWSWIRE) -- Tandy Brands Accessories, Inc. (Nasdaq:TBAC) today reported financial results for its fiscal second quarter and six-month periods ended December 31, 2012 and provided an update on current events.  Second Quarter Results  Net sales for the second quarter were up $2.5 million to $47.9 million over the prior year second quarter. Gifts segment net sales increased by $3.8 million to $26.5 million due to increased holiday 2012 shipments of licensed products such as totes®, Eddie Bauer®, and Sharper Image®. Net sales in the accessories segment were $21.4 million for the second quarter, a decline of $1.3 million from fiscal 2012. The decline reported in the accessories segment net sales was a result of lower sales of exited product categories in the current year, partially offset by new belts and small leather goods sales under the Eddie Bauer® license.  "Although we met our gross shipment plan in our gifts segment and reported 17% net sales growth during the quarter, our net sales were lower than expectations due to higher than expected returns of unsold inventory and unplanned promotional activity by some of our retail partners, which drove higher than expected sales concessions," said Rod McGeachy, President and Chief Executive Officer of Tandy Brands. "Meanwhile, our accessories segment ongoing sales met our expectations at virtually flat to last year considering the lower sales of exited product categories."  Second quarter fiscal 2013 gross margin as a percentage of net sales was 14.0 percent, which includes a $6.7 million non-cash inventory write-down to accelerate liquidation of returned gift inventories and products exited in connection with the Company's previously announced restructuring plan. The Company does not expect any additional material inventory write-offs in connection with the restructuring plan in fiscal 2013.  Excluding the impact of the $6.7 million inventory write-down in the current year quarter, gross margin as a percentage of net sales was 27.9 percent, compared to 32.3 percent in the second quarter of fiscal 2012. Accessories segment gross margin, excluding the impact of the inventory write-down, was 31.8 percent, compared to 33.8 percentin the comparable prior year period. This decline was due to lower sales of previously written-down inventory and higher sales concessions to introduce new products. Gifts segment gross margin, excluding the impact of the inventory write-down, was 24.9 percent, compared to 30.8 percentin the comparable prior year period.This decline was due to higher sales concessions, higher holiday season returns and higher in-bound freight.  "We expect future margins to improve over second quarter fiscal 2013 percentages in both of our segments as a result of several initiatives under way.We are changing freight providers and we are receiving lower rates on same-sized containers.We do not expect to anniversary a $0.6 million investment in retail space which reduced our net sales and gross margins in the accessories segment this period.Finally, our restructuring initiatives are expected to improve gifts segment margins by reducing our exposure to sales concessions and outsourcing our gifts distribution center to reduce both our variable and fixed expenses," said McGeachy.  Total selling, general and administrative (SG&A) expense for the fiscal 2013 second quarter was 3 percent higher than in the prior year period on higher sales volume.  For the second quarter, the Company reported a net loss of $5.6 million, or ($0.79) per diluted share, compared to net income of $2.7 million, or $0.39 per diluted share, in the prior year period. Adjusted net income, which excludes certain one-time items such as inventory write-downs, investments in new licenses and severances, was $1.8 million compared to adjusted net income of $3.0 million in the prior year second quarter.  Six-Month Results  Net sales for the six-month period ended December 31, 2012 were $73.8 million compared to net sales of $72.2 million reported in the prior-year period.An increase in net sales of the gifts segment to $32.4 million, up from $27.9 million was due to strong second quarter sales.Net sales for the accessories segment declined by six percent to $41.4 million due to a $0.6 million investment in retail space and lower sales of exited product categories in the current year.  Gross margin as a percentage of net sales was 20.2 percent in the first half of fiscal 2013.Excluding the inventory write-down during the current year quarter, gross margin was 29.2 percent, compared to 33.0 percent in the first half of fiscal 2012.The decline was primarily due to higher freight costs, sales concessions, returns of unsold inventories, and a higher mix towards customer-direct shipments in the gifts segment, and lower sales of previously written-down inventory inthe accessories segment.  Total SG&A expense for the six-month period increased $0.1 millionto $20.1 million on higher variable selling costs which were partially offset by decreases in compensation costs.  For the six-month period ended December 31, 2012, the Company reported a net loss of $6.9 million, or ($0.97) per diluted share, compared to net income of $1.7 million, or $0.23 per diluted share in the prior year period. Adjusted net income decreased $1.5 million to $0.7 million compared to adjusted net income of $2.2 million in the prior year period.  Financial Position  Working capital declined to $14.7 million at December 31, 2012 from $20.7 million at June 30, 2012 primarily due to the $6.7 million inventory write-down.Receivables declined to $7.1 million from $16.4 million at December 31, 2011 primarily due to an accelerated payment arrangement with the Company's second largest customer which provided approximately $11.7 million of cash in the current year second quarter.Inventories net of reserves were $29.7 million at December 31, 2012.Inventories, excluding the $6.7 million write-down, were $36.4 million compared to $32.7 million in the prior year period due to carrying inventories for new accessories programs with spring deliveries and higher levels of unsold gift products.  Current liabilities were $3.2 million lower than in the prior year.This decline was driven by a $4.6 million pay-down on the credit facility ($10.7 million at December 31, 2012) due to the accelerated customer payment arrangement, offset by $1.8 million in higher accounts payable for inventories with spring deliveries.  At December 31, 2012, the Company had $848,000 net borrowing availability, or $3.5 million excluding the minimum excess availability requirement of $2.7 million.As of April 15, 2013, the Company had $339,000 in net borrowing availability, or $2.4 million excluding the amended minimum excess availability requirement of $2.1 million, and $11.3 million in outstanding borrowings under its senior credit facility.  Receives Waiver from Senior Lender  On April 11, 2013, the Company obtained a waiver from its senior lender which waived the previously announced violation of the fixed charge coverage covenant under its credit facility and amended certain terms of the credit facility.  "Our current lender has continued supporting our operations while we have been in violation of the monthly trailing twelve month fixed charge coverage profitability covenant," said McGeachy."We have continued to ship goods to our retailers without any service interruption and our suppliers have continued to be supportive while we execute our liquidity enhancement plans."  Signs Non-binding Term Sheet  The Company announced it signed a non-binding term sheet with a lender who could replace the Company's current lender on or before May 31, 2013.If executed, terms under the proposed credit facility would improve liquidity against the Company's current assets through:    oHigher advance rates on inventories   oHigher advance rates on accounts receivables   oReduction of minimum excess availability   oAdvances against held for sale idle real estate in Yoakum, Texas   oAdvances against Gift segment holiday order book  "We are several weeks into the diligence process with a credible lender and, although there can be no guarantees with respect to definitive documentation, anticipate announcing a new credit facility by the end of May at the latest," said McGeachy.  The non-binding term sheet contains customary pre-close requirements with respect to diligence investigations and any new credit facility is expected to contain customary post-close covenants.Borrowings under the proposed credit facility are expected to bear interest in the LIBOR plus 8.5% to LIBOR plus 11.3% range (or 9.3% to 12.0%) over a 24 month period.  "We expected the new facility would be more expensive than our previous facility.However, it is important to us to balance the capital cost with potential dilution to our shareholders," said McGeachy."The current term sheet contains no dilutive features and we believe this new facility will provide us the liquidity we need to execute our recently announced restructuring initiatives."  Outlook  "Through the execution of our recently announced restructuring plans, we are reducing our cost structure by $6 million to $7 million, reducing the risk associated with our gifts business and focusing on our most profitable core brands and customers," commented McGeachy."We believe the execution of these initiatives will allow us to strengthen our competitive position and significantly improve profitability in fiscal 2014."  About Tandy Brands  Tandy Brands is a leading designer and marketer of branded men's, women's and children's accessories, including belts, gifts, small leather goods and bags. Merchandise is marketed under various national as well as private brand names through all major retail distribution channels.  Safe Harbor Language  Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company has based these forward-looking statements on its current expectations about future events, estimates and projections about the industry in which it operates. Forward-looking statements are not guarantees of future performance. Actual results may differ materially from those suggested by these forward-looking statements as a result of a number of known and unknown risks and uncertainties that are difficult to predict, including, without limitation, our ability to successfully complete our proposed new credit facility, our ability to secure additional or alternative capital, our ability to successfully implement certain restructuring initiatives, general economic and business conditions, competition in the accessories and gifts markets, acceptance of the Company's product offerings and designs, continued good relationships with our suppliers, issues relating to distribution, the termination or non-renewal of any material licenses, the Company's ability to maintain proper inventory levels, and a significant decrease in business from or loss of any major customers or programs. Those and other risks are more fully described in the Company's filings with the Securities and Exchange Commission. The forward-looking statements included in this release are made only as of the date hereof. Except as required under federal securities laws and the rules and regulations of the United States Securities and Exchange Commission, the Company does not undertake, and specifically declines, any obligation to update any of these statements or to publicly announce the results of any revisions to any forward-looking statements after the distribution of this release, whether as a result of new information, future events, changes in assumptions, or otherwise.   Tandy Brands Accessories, Inc. And Subsidiaries Unaudited Consolidated Statements Of Operations (in thousands except per share amounts)                                                                                                                                                                        Three Months Ended   Six Months Ended                                     December 31          December 31                                     2012       2011      2012       2011 Net sales                            $47,914  $45,434 $73,785  $72,177 Cost of goods sold                   34,530    30,774   52,222    48,385 Inventory write-down                 6,694     --       6,694     --                                     41,224    30,774   58,916    48,385 Gross margin                         6,690     14,660   14,869    23,792 Selling, general and administrative  11,261    10,909   20,115    20,029 expenses Depreciation and amortization        485       567      968       1,150 Total operating expenses             11,746    11,476   21,083    21,179 Operating (loss) income              (5,056)   3,184    (6,214)   2,613 Interest expense                     (479)     (382)    (771)     (749) Other (expense) income               (31)      27       5         (11) (Loss) income before income taxes   (5,566)   2,829    (6,980)   1,853 Income tax expense (benefit)         60        103      (69)      202 Net (loss) income                    $(5,626) $2,726  $(6,911) $1,651 Other comprehensive (loss) income:                                 Currency translation adjustments     (51)       25        178        (379) Total comprehensive (loss) income    (5,677)    2,751     (6,733)    1,272 (Loss) income per share:                                           Basic                                (0.79)     0.39      (0.97)     0.23 Diluted                              (0.79)     0.39      (0.97)     0.23 Weighted average common shares                                     outstanding: Basic                                7,130      7,064     7,132      7,072 Diluted                              7,130      7,076     7,132      7,087                                                                    Tandy Brands Accessories, Inc. And Subsidiaries Unaudited Consolidated Balance Sheets (in thousands)                                                                                                              December 31 June 30   December 31                                             2012        2012      2011 Assets                                                            Current assets:                                                   Cash and cash equivalents                    $606      $217    $994 Accounts receivable, net                     7,098      7,042    16,352 Inventories, net                             29,706     28,743   32,715 Inventory deposits                           298        7,107    281 Other current assets                         2,794      2,824    3,711 Total current assets                         40,502     45,933   54,053 Property and equipment, net                  5,240      5,474    5,954 Other assets:                                                     Intangibles                                  3,757      4,115    4,519 Other assets                                 849        934      937 Total other assets                           4,606      5,049    5,456                                             $50,348   $56,456 $65,463 Liabilities And Stockholders' Equity                              Current liabilities:                                              Accounts payable                             $11,807   $10,548 $9,997 Accrued compensation                         982        1,309    1,448 Accrued expenses                             2,329      1,584    2,268 Credit facility                              10,687     11,810   15,290 Total current liabilities                    25,805     25,251   29,003 Other liabilities                            4,310      4,290    4,257 Stockholders' equity:                                             Preferred stock, $1.00 par value, 1,000      --         --       -- shares authorized, none issued Common stock, $1.00 par value, 10,000 shares                      authorized, 7,130 shares, 7,102 shares and 7,067 shares issued and     7,130      7,102    7,067 outstanding, respectively Additional paid-in capital                   34,152     34,129   34,129 Accumulated deficit                          (22,881)   (15,970) (10,667) Other comprehensive income                   1,832      1,654    1,674 Total stockholders' equity                   20,233     26,915   32,203                                             $50,348   $56,456 $65,463                                                                   Tandy Brands Accessories, Inc. And Subsidiaries Unaudited Consolidated Statements Of Cash Flows (in thousands)                                                                                                                                                                                                     Six Months Ended                                                           December 31                                                           2012       2011 Cash flows provided by operating activities:                          Net (loss) income                                          $(6,911) $1,651 Adjustments to reconcile net (loss) income to net                     cash provided by operating activities:                                Inventory write-down                                       6,694     -- Deferred income taxes                                      (22)      71 Doubtful accounts receivable provision                     176       17 Depreciation and amortization                              1,094     1,275 Stock compensation expense                                 60        25 Amortization of debt costs                                 61        141 Other                                                     (7)       -- Changes in assets and liabilities:                                    Accounts receivable                                        (202)     (2,115) Inventories                                                (7,575)   (3,969) Other assets                                               (76)      (222) Inventory deposits                                         6,808     3,920 Accounts payable                                           1,978     2,474 Accrued expenses                                           406       (445) Net cash provided by operating activities                  2,484     2,823 Cash flows used for investing activities:                             Purchases of property and equipment                        (495)     (363) Sales of property and equipment                            178       -- Net cash used for investing activities                     (317)     (363) Cash flows used for financing activities:                             Change in cash overdrafts                                  (737)     (592) Change in restricted cash                                  --        1,434 Net repayments under credit facility                       (1,123)   (2,633) Net cash used for financing activities                     (1,860)   (1,791) Effect of exchange-rate changes on cash and cash           82        (89) equivalents Net increase in cash and cash equivalents                  389       580 Cash and cash equivalents beginning of year                217       414 Cash and cash equivalents end of period                    $606     $994                                                                                      Tandy Brands Accessories, Inc. And Subsidiaries                         Unaudited Non-GAAP Disclosures                    (in thousands except per share amounts)  Our adjusted EBITDA, a non-GAAP measurement, is defined as net (loss) income before interest, taxes, depreciation and amortization, investments in new licenses and other one-time items. Adjusted EBITDA is presented because we believe it provides useful information about our business activities and also is frequently used by securities analysts, investors, and other interested parties in evaluating a Company's performance.Not all companies utilize identical calculations; therefore, our presentation of adjusted EBITDA may not be comparable to other identically titled measures of other companies. EBITDA and adjusted EBITDA have limitations as analytical tools and should not be considered in isolation, or as substitutes for analysis of our results of operations as reported under U.S. generally accepted accounting principles ("GAAP").The following table reconciles our GAAP net (loss) income to the adjusted EBITDA disclosures.                                          Three Months Ended Six Months Ended                                         December 31        December 31                                         2012     2011  2012    2011 Net (loss) income                        $(5,626)   $2,726  $(6,911)  $1,651 Income taxes                             60         103     (69)      202 Interest expense                         479        382     771       749 Depreciation and amortization            485        567     968       1,150 Other income (expense)                   31        (27)   (5)     11 Inventory write-down                     6,694      --     6,694     -- Investment in new licenses               661        205     756       384 Severances and other restructuring costs 40        86     111      86 Adjusted EBITDA                          $2,824     $4,042  $2,315    $4,233  We have provided our adjusted net (loss) income disclosure, a non-GAAP measurement, as we believe it is important for our stakeholders to understand the impact of certain items on our statements of operations.The following table reconciles our GAAP net (loss) income to the adjusted net (loss) income disclosure.                                            Three Months Ended Six Months Ended                                           December 31        December 31                                           2012     2011  2012    2011 Net (loss) income                          $(5,626)   $2,726  $(6,911)  $1,651 Inventory write-down                       6,694      --     6,694     -- Investment in new licenses                 661        205     756       384 Severances and other restructuring costs   40        86     111      86 Write-off of unamortized debt costs        --       --     --       98 Adjusted net income                        $1,769     $3,017  $650      $2,219 Common shares outstanding assuming         7,130      7,076   7,132     7,087 dilution Adjusted net income per common share       $0.25      $0.43   $0.09     $0.31 assuming dilution  CONTACT: Tandy Brands Accessories, Inc.          Rod McGeachy          President and Chief Executive Officer          214-519-5200                   Investor Relations          Chuck Talley          Chief Financial Officer          214-519-5200  
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