Tandy Leather Factory Inc reported financial results for the third quarter of 2007. Consolidated net income for the quarter ended September 30, 2007 was $171,000 compared to consolidated net income of $890,000 for the third quarter of 2006.

Fully diluted earnings per share for the quarter was $0.02, compared to $0.08 in the third quarter of last year. Total sales for the quarter ended September 30, 2007 were $12.8 million, a 2% increase over sales of $12.6 million in third quarter last year.

Consolidated sales for the nine months ended September 30, 2007 were $40.7 million, almost a 1% gain over 2006 sales for the first three quarters of $40.4 million. Consolidated net income for the first three quarters of 2007 was $1.9 million or $0.17 per fully-diluted share versus $3.4 million or $0.30 per fully-diluted share in the comparable period last year.

Sales in the Retail Leathercraft segment, which consists of the Tandy Leather stores, increased $536,000 in the third quarter, an 11% improvement over last year's third quarter. Seventy-one stores comprised Tandy Leather's retail operations on September 30, 2007, compared to sixty-two retail stores a year ago. Three stores were added in the third quarter of 2007 bringing the total number of new stores added in 2007 to nine as of the end of the quarter.

For the first nine months of 2007, Tandy Leather sales increased $1.9 million, or 12%, over the first nine months of 2006. Third quarter sales for the Wholesale Leathercraft segment, which consists of the Leather Factory wholesale centers and national account group, decreased $148,000 over the same quarter last year, a 2% decline. For the first nine months of 2007, Wholesale Leathercraft's sales were down $823,000, or 4%, over the same period in 2006.

Consolidated gross profit margin for the current quarter was 54.2%, declining from 56.2% for the third quarter of 2006. For the first three quarters, consolidated gross profit margin for the current year was 57.1%, improving over last year's gross profit margin of 56.5%. Consolidated operating expenses rose $1 million in the current quarter and $2.6 million for the first nine months over the same periods a year ago.

Personnel costs, advertising and marketing expenses, legal and professional fees and depreciation expense are the primary drivers of the increases. Consolidated operating margins declined for the quarter and year to 0.8% and 6.8%, respectively, compared to 10.1% and 12.4% a year ago.

Ron Morgan, Chief Executive Officer and President, commented, "Our pre-announcement of expected earnings earlier this week adequately relayed our extreme disappointment with our third quarter performance. With that said, we can't change the past - we can only go forward.

I am confident in our ability to learn from past mistakes and be successful in the future. Our focus for the fourth quarter is expense control at the support units and sales at the stores. Given the current retail environment, I'm not expecting great sales results in the fourth quarter which means expense control will be key."

Chief Financial Officer, Shannon Greene, added, "It's easy to look back and wish different decisions had been made. If we'd known a year ago what we know now about customer spending trends, etc., we probably would have reacted differently.

If there's one thing I've learned this year, it's that we are a stubborn bunch and hate to give in - particularly to weak sales. We always believe that we can do better, in spite of the circumstances. With all of that said, we have a lot of work to do to get our expenses down to a level that is acceptable."