The Leather Factory (TLF)
By: Robert Davis

Over the last week and a half, The Leather Factory (AMEX:TLF) has distributed a total of four press releases. Each of these has contained positive news, and this morning's release announcing record results for its second quarter, substantially exceeding our earlier revenue, net income and earnings per share projections.

While revenues exceeded prior year results by 7.4%, a one percentage point improvement in gross margins and a substantial reduction in interest expense led to a 27.3% increase in net income. Previously, J.M. Dutton had projected revenues of $9.7 million for the quarter, resulting in a net income target of $638,000, or $0.06 per share. Clearly, in hindsight, we were a bit too conservative.

Although the Company did not include in its earnings release a June 30th balance sheet or cash flow statement, it appears from its reduced interest expense versus earlier quarters that TLF saw another quarter of strong cash inflows.

On July 16th, the Company announced that it will open a new Tandy Leather retail store in Fort Worth, TX by the end of the month, at the same location previously occupied by a successful Tandy Leather store. And then, on July 22nd, the Company announced that "its subsidiary, Tandy Leather Company, will open retail stores in Albuquerque, New Mexico, and Las Vegas, Nevada on August 1st." This second press release also states that the Company has accelerated its plans for new retail store openings. "Given the success of the new stores so far, we're on pace to open a total of 10 to 12 Tandy retail stores in 2002."

This strong second quarter earnings report and its accelerated retail expansion plans are together a positive signal of the continued success of The Leather Factory (AMEX:TLF). We maintain our Strong Buy recommendation on this stock for value-oriented portfolios, as it clearly remains undervalued at its current price levels.

J.M.Dutton & Associates, LLC. John M. Dutton, President and Supervisory Analyst, 1129 Manning Drive, Suite 310, El Dorado Hills, CA 95762 Phone (916) 941-4985, Fax (978) 418-6422 Email: [email protected] Web site: www.JMDutton.com

Information, opinions or recommendations contained in this research note are submitted solely for advisory and information purposes. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Such information and the opinions expressed are subject to change without notice. This research note is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed. Neither the Firm, its principals, nor the assigned analysts own or trade shares of any company covered. The Firm does not accept any equity compensation. Anyone may enroll a company for research coverage, which costs US $25,000 prepaid for one-year. Reports are performed on behalf of the public, and are not a service to any company. The analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests and insure independence. Please read full disclosure and other reports and notes on the Company at www.JMDutton.com.

' Copyright, 2002, by J.M. Dutton & Associates, LLC.