Tandy Brands Exploring Alternatives

Tandy Brands Accessories has retained Financo Inc., an investment banking firm, to explore its strategic alternatives.

NEW YORK — Tandy Brands Accessories, the Fort Worth, Texas–based accessories company, has retained Financo Inc., an investment banking firm, to explore its strategic alternatives.

In an exclusive interview with DNR following the announcement of fourth-quarter and year-end results last Wednesday, Tandy Brands president and CEO J.S.B. (Britt) Jenkins said the decision to hire Financo stemmed from the company’s desire for growth.

“We’ve gone through a restructuring and made a lot of different moves to improve our profitability for the long term,” he said. “So we thought it would be good for Financo to look at our strategic alternatives so we can increase the value to our shareholders.”

Among the options for Financo to explore, Jenkins said, will be an outright sale, a stock buyback, increasing its dividend or even going private. The company may also decide to make additional acquisitions—a strategy that it has employed several times since its founding in 1919. Another option would be to add new licenses to its existing stable, which includes Dockers, Levi’s, Jones New York, Totes, Haggar, Woolrich and Jordache.

“It’s a pretty broad scope,” Jenkins said of the company’s options. Tandy Brands does not intend to disclose developments’ regarding the process until a specific course of action has been approved by the board.

According to sources, Tandy Brands would be more attractive to a strategic buyer than to a private equity firm. “It’s a leader in its industry, has great customer relationships and a lot that can be leveraged,” one observer said.

In April of last year, Tandy Brands announced that it would exit the low-margin socks, cold-weather accessories, fashion scarves, evening bags and most children’s businesses to focus on its core strengths of men’s and women’s belts, wallets, handbags and gift accessories. The company said the decision was intended to improve profitability, even though it would reduce annual sales by about $30 million. It was also expected to enhance margins while cutting selling, general and administrative costs.

For the fiscal year ended June 30, Tandy Brands reported that net income increased to $1.9 million, or 28 cents a share, from a net loss of $3.5 million, or 52 cents a diluted share in fiscal year 2006. Sales, as expected, dropped 13.9 percent to $195.8 million from $227.3 million in the prior fiscal year, due to the exiting of the unprofitable women’s lines.

“I am pleased with the performance of our team following the restructuring announced on April 26, 2006, to exit certain non-profitable lines in our women’s business,” Jenkins said in a statement. “The result of these initiatives contributed to the reduction of selling, general and administrative expenses by $4 million, improved fiscal year 2007 gross margins, excluding charges for discontinued product line inventory, by 240 basis points and reduced debt by 57 percent to $6.1 million.”

In the fourth quarter of fiscal 2007, Tandy Brands widened its loss to $2.9 million, or 43 cents per diluted share, compared with a net loss of $1 million, or 16 cents per diluted share, in the prior-year fourth quarter. Included in the fourth quarter numbers is $762,000 in pretax charges related to the moving of its manufacturing functions from Yoakum, Texas, offshore, along with other severance-related costs. Sales dropped 22.9 percent to $36.4 million compared with $47.1 million in the prior year’s fourth quarter.

Jenkins said sales in the fourth quarter “actually exceeded our expectations despite a slowdown in replenishment orders from our largest customer. Our gross margins were negatively impacted by unexpected returns in our gift product line and an unfavorable product mix including closeout sales of discontinued women’s merchandise.”

He also noted that the outlook for the current quarter is “clouded by the replenishment order delays of our major customer. Our relationship with this customer remains very good, and we are seeing an increase in these orders in recent weeks, but they are not yet back to a normal level. We will delay guidance for the fiscal first quarter and the year until this situation becomes clearer.”

Although he did not identify the retailer, sources said it is Wal-Mart.

Looking ahead, Jenkins stressed that Tandy Brands is “focused on growing our profitable lines of men’s, women’s and boys’ accessories, and we expect to achieve increased profitability in fiscal 2008. We will see the first full year of gross margin benefit of solely producing through our overseas partners.” The company is also optimistic about the launch of three recently signed new licenses: Eileen West, Goodyear Tire and Rubber, and Geno D’Lucca. The Geno D’Lucca men’s belts, small leather goods and sandals will debut at MAGIC for fall delivery to department stores.

Tandy Brands, which was founded in 1919, manufactures men’s, women’s and children’s accessories and small leather goods. In fiscal 2006, belts accounted for 53.3 percent of sales, small leather goods 18 percent and gift accessories 7.9 percent.