TANDY LEATHER FACTORY INC 10-K

ITEM 1. BUSINESS The following discussion, as well as other portions of this Form 10-K, contains forward-looking statements that reflect our plans, estimates and beliefs. Any such forward-looking statements (including, but not limited to, statements to the effect that Tandy Leather Factory, Inc. (“TLF”) or its management “anticipates,” “plans,” “estimates,” “expects,” “believes,” “intends,” and other similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our Consolidated Financial Statements and related notes contained elsewhere in this report. These forward-looking statements are made based upon management’s current plans, expectations, estimates, assumptions and beliefs concerning future events impacting us and should be read carefully because they involve risks and uncertainties. We assume no obligation to update or otherwise revise these forward-looking statements, except as required by law. Specific examples of forward-looking statements include, but are not limited to, statements regarding our forecasts of financial performance, share repurchases, store openings or store closings, capital expenditures and working capital requirements. Our actual results could materially differ from those discussed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this Form 10-K and particularly in “Item 1A. Risk Factors” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise indicates, references in this Form 10-K to “TLF,” “we,” “our,” “us,” the “Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries. General Tandy Leather Factory, Inc. (“TLF,” “we,” “our,” “us,” the” Company,” “Tandy,” or “Tandy Leather” mean Tandy Leather Factory, Inc., together with its subsidiaries) is one of the world’s largest specialty retailers of leather and leathercraft-related items. Founded in 1919 in Fort Worth, Texas, the Company introduced leathercrafting to millions of American and later Canadian and other international customers and has built a track record as the trusted source of quality leather, machines, tools, hardware, supplies, kits and teaching materials for leatherworkers everywhere. Today, our mission remains to build on our legacy of inspiring the timeless art and trade of leatherworking. What differentiates Tandy from the competition is our high brand equity, awareness, and strong brand equity and loyalty, our network of retail stores that provides convenience, a high-touch customer service experience, a wide assortment in our e-commerce channel, a hub for local leathercrafting communities, and our 100-year plus heritage. We believe that this combination of qualities is unique to Tandy and gives the brand competitive advantages that are difficult for others to replicate. We sell our products primarily through company-leased stores and through orders generated from our global websites, and through our commercial division. We produce leather lace, cut leather pieces and most of the do-it-yourself kits that are sold in our stores and on our websites. We also offer production services to our business customers such as cutting (“clicking”) and splitting and some assembly. We maintain our principal offices at 7602 Southwest Loop 820, Suite 101, Benbrook, TX 76126. The Company’s common shares currently trade on the Nasdaq Capital Market Group under the symbol “TLF.” 3 Table of Contents Retail Fleet The Company currently operates a total of 101 retail stores. There are 91 stores in the United States (“U.S.”), nine stores in Canada and one store in Spain. As of December 31, 2025 and 2024, there were no temporary store closure. As of December 31, 2025, all Tandy locations, including our corporate headquarters facilities ( our corporate offices, distribution center, and production facility) are leased. Business Strategy Tandy Leather has been introducing people to leatherworking for over 100 years. Our stores have been, and continue to be, our competitive advantage: where our consumers learn the craft in classes, open table, and from the expertise of our store staff, where they can touch, feel, and test the product, and where they can connect and commune with others passionate about leather. Our websites provide inspiration, detailed product descriptions and specifications, educational information and videos, and a convenient place to also purchase product – especially for those who are far from our retail stores, including a growing international customer base. For many of our retail and web customers, leatherworking evolves from a passion to a trade. Our commercial division is tailored to the needs of those customers who build businesses around leather. With our commercial support team direct-from-our-warehouse shipping model, volume-based competitive pricing, customized product development, and assembly and pre-assembly services, we are building long-term, strategic relationships with our largest customers. Going forward, our strategy is to continue to: • Manage our cost base and use of cash and focus on strengthening our sales by: o Leveraging our competitive advantage of our retail stores. o Unlocking store potential by opening new stores and expanding classes, and outreach. o Growing ecommerce in scaling our digital footprint and using marketplaces as acquisition channels. o Launching our new loyalty program optimizing a new buy online and pick up in stores (BOPIS). • Improving our employee product knowledge, customer service level, and in-store and virtual classes and community engagement. • Expanding workshop space in stores with machines are the highest priorities. • Give customers good reasons to visit stores and an excellent return on their time investment when they do. • Improve our overall digital and technological capabilities to include artificial intelligence where applicable across our entire operation and channels. Economic Conditions Over the past 5 years, as post-covid inflation had significant impact on food and housing costs, our customers had initially pulled back on discretionary spending, but we experienced a slight positive change in their behavior at the beginning of 2025. At the time of filing this Form 10-K, the American and world economies continue to be affected by a combination of factors arising from the continuing war in Ukraine, the more recent and worsening crisis in Israel and the Middle East, and continued tensions between the U.S. and China. Furthermore, it is not clear how the U.S. administration will affect inflation, employment, cost of goods through ongoing shifts in tariffs, tax policy and other external factors that may have an impact on our employees, our customers or the financial performance of Tandy. 4 Table of Contents Customers Our customers fall into two broad categories: those who shop in retail stores and on our website (“Retail Customers”) and those whom we serve through our commercial division (“Commercial Customers”). Retail Customers range from hobbyists to institutions (schools, camps, and other groups) to small businesses. Affinity groups like Military and First Responders and smaller and larger businesses who purchase in our retail stores receive special pricing or general discounts. To be served through our commercial division, customers generally need to spend more than $20,000 annually. Merchandise We carry a wide assortment of products organized into a number of categories, including leather, hand tools, hardware, kits, liquids, machines, and other supplies. We operate a production facility in Benbrook, Texas, where we produce kits, thread lace, belt strips and straps, and Craftaid® tooling templates, and provide some custom production services for commercial and business customers. The factory produces approximately 10% of our products. We distribute product under the Tandy Leather TM , Eco-Flo TM , Craftool TM , CraftoolPro TM and Dr. Jackson’s TM brands, along with our premium TandyPro® line of products. We develop and invest in new products through the ideas and referrals of customers and store personnel as well as the analysis of trends in the market and sales performance at retail. In addition, we have been focused on broadening our assortment through strategic partnerships with key brands to drive category growth and better meet the needs of our customers. Operations Information regarding net sales, gross profit, operating income, and total assets is included within Item 7, Management’s Discussion and Analysis of financial condition and results of operations, and within Item 8, Financial Statements and Supplementary Data. Our stores and website offer a broad selection of products combined with leathercraft expertise in a one-stop shop. Not only can customers purchase leather, related accessories and supplies necessary to complete their projects from a single source, but many of our store associates are also leathercrafters themselves and can provide suggestions and advice on our customers’ projects. Customers value the expertise and high level of customer service from our store associates, the convenience of taking their purchases immediately, as well as the ability to touch, feel and choose their individual pieces of leather, an organic product in which each piece is unique. We also offer numerous classes and open workbenches where customers can work on projects together with the leathercrafting community, and test new tools and techniques. Most of our stores range in size from 1,300 square feet to 9,000 square feet, with the average at approximately 3,500 square feet. Our new Fort Worth flagship store is approximately 8,000 square feet. Stores are located in light industrial warehouse spaces or older strip shopping centers in proximity to major freeways or well-known crossroads. We believe that many of our customers view our stores as a destination: customers interested in leathercrafting seek us out, reducing the value of paying high rents for high foot-traffic locations. Historically, we generate slightly more sales in the fourth quarter of each year due to the holiday shopping season (approximately 28-30% of annual sales), while the other three quarters average approximately 22-24% of annual sales each quarter. 5 Table of Contents Distribution Our stores receive the majority of their inventory from our central distribution center located in Benbrook, Texas, in weekly or, increasingly, bi-monthly shipments, using third-party transportation providers. Occasionally, merchandise is shipped to stores directly from the vendor. We now fulfill all of our U.S. and many of our international web orders from our Benbrook distribution center. Canada web orders are fulfilled out of our nine Canada stores, and European web orders are fulfilled out of our Spain store. We have a global customer service team that handles web order inquiries and phone orders. Our goal is to optimize the tradeoff between the sales and market share we realize from having a broad product line against the safety stock required to support those items. We generally maintain higher inventories of imported or long-lead-time items to ensure a continuous supply. Increased product assortment and some supply chain disruptions over the past several years have put upward pressure on inventory, offset by better sell-throughs, test-and-learn buying, and strategic partnerships with vendors. We have been executing a number of strategic initiatives to test smaller quantities of new items online, buying into them only when we are certain of their success, to tailor product assortments to the needs of local customers in each store, and to ship directly from vendors to customers. We carry about 6,500 stock-keeping units (SKUs) in our current product line and continue to refine both the line, the lead times and safety stock levels required to meet customer demand, online vs. in-store assortment, and overall total inventory levels needed to grow sales and market share. Competition Our competitors include smaller, independently-owned brick-and-mortar retailers, internet-based retailers including those selling on platforms like Amazon and eBay, national craft chains like Michaels Stores, Inc. and Hobby Lobby Stores, Inc., some wholesale-focused distributors, and two mid-sized competitors – Weaver Leather and Springfield Leather – who have one store and an online business. All of these competitors carry a more limited line of leathercraft products compared to Tandy. We are competitive on convenience, price, availability of merchandise, customer service, depth of our product line, and delivery time. Tandy Leather is the only multi-store chain specializing in leathercraft, which we believe provides a competitive advantage over internet-based retailers, the large general craft retailers, and the mid-sized competitors. We also believe that our large size relative to most competitors gives us an advantage in sourcing as well as deep product and leathercrafting expertise among our employees. Suppliers We purchase merchandise and raw materials from nearly 150 suppliers from the United States and approximately 20 foreign countries. In general, our 10 largest suppliers account for approximately 55% of our inventory purchases, and we had one supplier in 2025 who represented about 12% of our purchases. Because leather is sold internationally, market conditions abroad are likely to affect the price of leather in the U.S. Aside from increasing purchases when we anticipate price increases (or possibly delaying purchases if we foresee price declines), we do not attempt to hedge our inventory costs. Our supply chain and vendor relationships remain strong. We are focused on continuing to align our product and sourcing strategies to elevate the overall quality, consistency, and agility to meet the diverse needs of our existing consumers and attract new ones to the brand. Compliance with Environmental Laws Our compliance with federal, state and local environmental protection laws has not had, and is not expected to have, a material effect on our capital expenditures, earnings, or competitive position. Employees As of December 31, 2025, we employed globally 538 people, 401 of whom were employed on a full-time basis. We are not a party to any collective bargaining agreements. Overall, we believe that our relations with employees are good. 6 Table of Contents Intellectual Property The Company owns all the material trademark rights used in connection with the production, marketing, distribution and sale of all Tandy-branded products. In addition, we license a limited number of our trademarks and copyrights used in connection with the production, marketing and distribution of certain categories of goods and limited edition co-branded projects. Major trademarks include federal trade name registrations for “Tandy Leather Factory,” “Tandy Leather,” and “Tandy.” The Company is not dependent on any one particular trademark or design patent, although it believes that the “Tandy” and “Tandy Leather” names are important for its business. In addition, Tandy owns several patents for specific belt buckles and leather-working equipment. Tandy monitors its trademarks and trade names and where appropriate pursues infringers. The Company expects that its material trademarks will remain in full force and effect for as long as we continue to use and renew them. Foreign Sales Information regarding our sales from the United States and abroad and our long-lived assets is found in Note 2, Significant Accounting Policies: Revenue Recognition and Note 3, Balance Sheet Components , of the notes to the consolidated financial statements. For a description of some of the risks related to our foreign operations, see Item 1A, Risk Factors . Available Information We file reports with the SEC. These reports include our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these filings. These reports are available on the Securities and Exchange Commission’s website at www.sec.gov . Our corporate website is located at www.tandyleather.com. We make copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and any amendments thereto filed with or furnished to the SEC available to investors on or through our website free of charge as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. Our SEC filings can be found on the Investor Relations page of our website through the “SEC Filings” link. In addition, certain other corporate governance documents are available on our website through the “Corporate Governance” link. No information contained on any of our websites is intended to be included as part of, or incorporated by reference into, this Form 10-K. Information about our Executive Officers The following table sets forth information concerning our executive officers as of December 31, 2025: Name Age Executive Since Position Johan Hedberg 59 2025 Chief Executive Officer Johan Hedberg has served as our Chief Executive Officer and as a member of our Board of Directors since January 6, 2025. Mr. Hedberg brings more than 30 years of retail leadership experience, most recently as Chief Sales Officer and President, Americas, of Fiskars Group from September 2021 until December 2023. He also served there as Global Chief Sales Officer Fiskars Group from April 2020 until August 2021 and Senior Vice President Global Sales BA Vita from July 2019 until March 2020. Prior to Fiskars, he was Vice President Sales and Marketing, Region Europe and Rest of World, for Thule Group from January 2013 until July 2019. Mr. Hedberg earned a Bachelor of Business Administration from the Cox School of Business, Southern Methodist University, and a Masters of Business Administration from the Kellogg School of Management, Northwestern. 7 Table of Contents