Q4 Selling, General and
Administrative Expenses Decrease 16% Vs. Q4 2012
DGSE Companies, Inc. (NYSE MKT: DGSE), a leading wholesaler and
retailer of jewelry, diamonds, fine watches, and precious metal
bullion and rare coin products, today announced its financial
results for the quarter and year ended December 31, 2013.
Fourth Quarter 2013 Summary
- Revenues were $24.7 million compared to
$37.5 million in the year-ago period. Depressed prices in the
precious metals market continued to drive lower sales volumes,
directly impacting scrap purchases, the Company’s historically
largest revenue stream.
- Gross profit was $5.5 million, or 22.2%
gross margin, compared to $7.4 million, or 19.6% gross margin in
the same period last year.
- The fourth quarter included $372,000 in
non-recurring expenses related to additional accruals for the 2010
State of Texas sales tax audit and legal expenses related to the
2012 restatement, compared to $629,000 in non-recurring expenses in
the prior year quarter.
- Selling, general and administrative
(“SG&A”) decreased 16% to $5.8 million from $6.9 million in the
prior-year fourth quarter due to a reduction in non-recurring
expenses and continued expense reduction initiatives.
- Net loss, inclusive of the
non-recurring expenses, was approximately $405,000 or $(0.03) per
share, compared to net income of approximately $135,000, or $0.01
per share, in the year-ago period.
Full Year 2013 Summary
- Full-year revenue of $108.5 million,
down 15% vs. $127.9 million in 2012.
- Gross profit was $19.8 million or 18.2%
gross margin, compared to $24.3 million or 19.0% gross margin
compared to last year. Gross margin increased as a percent of sales
in every category in which the Company operates; however, as the
revenue mix shifted away from the high margin scrap business, the
consolidated margins actually decreased as a percent of sales.
- The full year included $1.8 million in
non-recurring expenses related to the previously-disclosed
financial restatement and related legal matters, including $775,000
in additional accruals for the sales tax audit.
- SG&A expenses decreased $3.4
million or 14% to $21.4 million compared to $24.8 million in the
prior year due to a reduction in non-recurring expenses and
continued expense reduction initiatives.
- Net loss, inclusive of the
non-recurring expenses, was $2.7 million, or $(0.22) per share,
compared to a net loss of $2.3 million, or $(0.19) per share in the
year-ago period. Excluding $1.8 million in one-time expenses
related to the sales tax accrual, 2012 restatement and related
legal matters, the Company would have recorded a net loss of
$878,000 for fiscal 2013, compared to net income from continuing
operations, excluding non-recurring charges, of approximately $1.6
million last year. The 2012 net loss included $690,000 in
losses related to discontinued operations, representing $0.06 per
share.
James Vierling, Chief Executive Officer and Chairman of the
Board, stated, “We continue to navigate a challenging environment,
but recent encouraging movement in the price of gold suggests that
improvements may be on the horizon. We are focused on stabilizing
the business to achieve profitability at current revenue levels
while building incremental revenue streams. We reduced our SG&A
expense by approximately $3.4 million during 2013. In the first
part of 2014, we have now closed six underperforming retail
locations to further cut costs. These six locations, all outside of
our primary markets, generated just 3.6% of our revenue but
contributed 20% of our fiscal 2013 net loss. On an annualized
basis, the closing of these stores should result in approximately
$1.2 million in cost reduction, on top of the $3.4 million in
SG&A costs we have already eliminated. We will continue to
carefully evaluate our stores, making the tough decisions to
streamline our operations where appropriate. Longer term, we are
focused on building our e-commerce function and allocating
resources towards revenue streams with the highest profit
potential, currently our high-end jewelry, diamonds and watches.
With the costs associated with the legacy issues now largely behind
us, and with a more efficient expense structure, we are positioned
for an improved 2014.”
Fourth Quarter 2013 Results
For the quarter ended December 31, 2013, revenues were $24.7
million, a 34% decrease compared to $37.5 million in the quarter
ended December 31, 2012, due primarily to a significant decrease in
gold prices, which were on average 25% lower (as measured by London
PM fix) than in the same period last year. Gold prices had an
especially negative impact on the Company’s bullion and scrap
categories, which were impacted by both lower volumes and lower
prices during the quarter. Jewelry sales increased for the quarter,
as the Company increased its marketing efforts during the holiday
season.
“Our efforts to focus on jewelry and watches during the holiday
season paid dividends,” added Mr. Vierling. “Historically,
customers selling pre-owned or 'scrap' gold created significant
retail traffic at our retail stores, and there was a likelihood of
these customers spending that cash to purchase something else in
our stores. Lower scrap prices have depressed this important
portion of our business. However, we were encouraged by retail
traffic during the fourth quarter, though lower scrap and bullion
sales continued to depress our results. More recent positive
movements in gold prices, thus far in 2014, provide some optimism
of better days ahead, but we are focused on rationalizing expenses
to operate successfully at current revenue levels, which should
create stronger profitability as the industry normalizes.”
Gross profit in the quarter was $5.5 million, or 22.2% of
revenue, compared to $7.4 million, or 19.6% of revenue, in the
prior year quarter. The overall margin, as a percent of sales,
increase was driven by a shift in revenue mix.
SG&A expenses, inclusive of the non-recurring expenses,
decreased $1.1 million, or 16%, in the quarter end December 31,
2013, to $5.8 million compared to approximately $6.9 million in the
prior year quarter. The fourth quarter of 2013 included $372,000 in
non-recurring expenses related to additional accruals for the sales
tax audit, and legal expenses related to the 2012 restatement.
Excluding the non-recurring items, SG&A for the fourth quarter
of 2013 would have been $5.4 million compared to $6.2 million in
the year-ago period.
Net loss for the fourth quarter was $405,000 or ($0.03) per
share, inclusive of the non-recurring expenses, compared to net
income of $135,000, or $0.01 per share, in the year-ago
quarter.
“Though not yet finalized, we believe we have now fully accrued
for the sales tax audit, and hope to formally resolve this issue in
the coming weeks,” added Brett Burford, DGSE’s Chief Financial
Officer. “In addition, we believe we have nearly resolved the SEC
investigation. Going forward, the new management team will be able
to focus on improving the business, and will do so with a lower
cost structure that thankfully does not include these non-recurring
charges.”
Full-Year 2013 Results
Revenues decreased by 15% in 2013, to $108.5 million, compared
to $127.9 million for the prior year. This decrease was primarily
the result of an unprecedented drop in gold prices, which had a
severe negative impact on the Company’s purchases of scrap gold.
The scrap portion of the business has historically been one of the
largest revenue and profit drivers for the Company, and in 2013 saw
an almost 50% reduction. Despite the loss of store traffic due to
fewer scrap sellers, the Company was successful in growing its
jewelry business in 2013, with roughly a 2% increase versus the
prior year. The significant price drop in the first half of the
year did help to drive incremental bullion sales in the second
quarter, but bullion revenue for the full year declined slightly
due to higher volumes but at lower spot prices.
Gross profit for the year was $19.8 million, or 18.2% of
revenue, compared to gross profit of $24.3 million, or 19.0% of
revenue in the prior year. This decrease is almost entirely due to
significantly lower sales in the high-margin scrap business. The
Company increased gross margin as a percent of sales in every
category; however, as the revenue mix shifted away from the high
margin scrap business, consolidated margins actually decreased as a
percent of sales.
SG&A expenses decreased $3.4 million, or 14%, in 2013, to
$21.4 million compared to $24.8 million for the prior year. This
decrease was driven by a reduction in one-time costs, as well as
cost reduction efforts across the Company, and partially offset by
the opening of six new stores in 2012 and 2013. The Company spent
an additional $1.5 million on store operating expenses, attributed
to new stores and stores that had been opened for less than a year.
Additionally, the company spent $1.8 million in 2013 in
non-recurring expenses described above.
Depreciation and amortization increased by 5% in 2013 to
$730,000 compared to $696,000 in the prior year. This increase was
driven by new assets related to store openings, as well as new
assets related to the move of the corporate office.
Net loss for the year was $2.7 million or ($0.22) per share,
inclusive of the non-recurring expenses, compared to net loss of
$2.3 million, or ($0.19) per share, in the prior year. The 2012 net
loss included $690,000 in losses related to discontinued
operations, representing $0.06 per share.
Balance Sheet Summary
At December 31, 2013, DGSE Companies had cash and cash
equivalents of $3.2 million compared to $4.9 million at December
31, 2012. Stockholders’ equity decreased 20% to $10.4 million at
December 31, 2013 compared to $13.1 million at December 31, 2012.
As of year-end, the outstanding balance on the Company’s credit
facility with NTR Metals, Inc. (“NTR”) was $2.4 million compared to
$3.6 million at December 31, 2012. This decrease is the result of
loan principal repayment during the fourth quarter of 2013. On
February 25, 2014 the company and NTR entered into a one-year
extension of the Loan Agreement, extending the termination date to
August 1, 2015. All other terms of the agreement remain the
same.
Conference Call
DGSE Companies management will conduct a live teleconference to
discuss its financial results:
Date: March 27, 2014
Time: 4:30
p.m. ET/3:30 p.m. CT
Dial-in: 1-877-941-2068 if calling from
the United States, or 1-480-629-9712 if dialing internationally.
Replay: A replay will be available until April 3, 2014,
which may be accessed by dialing 1-877-870-5176 within the United
States and 1-858-384-5517 if dialing internationally. Please use
passcode 4673670 to access the replay.
Webcast:
The call will be webcast and will be
available by visiting
http://public.viavid.com/index.php?id=108243.
About DGSE Companies
DGSE Companies, Inc. wholesales and retails jewelry, diamonds,
fine watches, and precious metal bullion and rare coin products
through its Bullion Express, Charleston Gold & Diamond
Exchange, Dallas Gold & Silver Exchange, and Southern Bullion
Coin & Jewelry operations. DGSE also owns Fairchild
International, Inc., one of the largest vintage watch wholesalers
in the country. In addition to its retail facilities in Alabama,
Florida, Georgia, Illinois, South Carolina, Tennessee and Texas,
the Company operates internet websites which can be accessed at
www.bullionexpress.com, www.dgse.com, www.cgdeinc.com, and
www.sbcoin.com. Real-time price quotations and real-time order
execution in precious metals are provided on another DGSE website
at www.USBullionExchange.com. Wholesale customers can access the
full vintage watch inventory through the restricted site at
www.FairchildWatches.com. The Company is headquartered in Dallas,
Texas and its common stock trades on the NYSE MKT exchange under
the symbol "DGSE."
This press release includes statements which may constitute
"forward-looking" statements, usually containing the words
"believe," "estimate," "project," "expect" or similar expressions.
These statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and
uncertainties that could cause actual results to differ materially
from the forward-looking statements. Factors that would cause or
contribute to such differences include, but are not limited to,
continued acceptance of the Company's products and services in the
marketplace, competitive factors, dependence upon third-party
vendors, and other risks detailed in the Company's periodic report
filings with the Securities and Exchange Commission. By making
these forward-looking statements, the Company undertakes no
obligation to update these statements for revisions or changes
after the date of this release.
DGSE COMPANIES, INC. AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 2013 2012 ASSETS
Current Assets: Cash and cash equivalents $ 3,214,770 $ 4,911,087
Trade receivables, net of allowances 269,616 718,501 Inventories
12,921,857 11,932,729 Prepaid expenses 236,649
321,709 Total current assets 16,642,892 17,884,026
Property and equipment, net 5,074,860 4,849,937 Intangible assets,
net 2,942,314 3,169,840 Other assets 244,065
211,069 Total assets $ 24,904,131 $ 26,114,872
LIABILITIES Current Liabilities: Accounts
payable-trade $ 5,666,059 $ 3,561,794 Accrued expenses 2,137,361
1,250,319 Customer deposits and other liabilities 2,401,574
2,617,592 Current maturities of long-term debt 122,536 146,949
Current maturities of capital leases 11,091
28,285 Total current liabilities 10,338,621 7,604,939
Line of credit, related party 2,383,359 3,583,358 Long-term debt,
less current maturities 1,757,827 1,843,062
Total liabilities 14,479,807 13,031,359 Commitments
and contingencies
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value; 30,000,000
shares authorized; 12,175,584 shares issued and outstanding
121,755 121,755 Additional paid-in capital 34,045,654 34,045,654
Accumulated deficit (23,743,085 ) (21,083,896 ) Total
stockholders' equity 10,424,324 13,083,513 Total
liabilities and stockholders' equity $ 24,904,131 $
26,114,872
DGSE
COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS
For the Year EndedDecember
31,
Three Months EndedDecember
31,
2013 2012 2013
2012 Revenue: Sales $ 108,541,687 $ 127,876,610 $
24,722,102 $ 37,502,187 Cost of goods sold 88,780,096
103,592,557 19,242,700
30,145,415 Gross margin 19,761,591 24,284,053 5,479,402 7,356,772
Expenses: Selling, general and administrative expenses
21,438,488 24,802,391 5,772,676 6,878,036 Depreciation and
amortization 729,958 696,477
186,223 248,217 22,168,446
25,498,868 5,958,899 7,126,253
Operating income (loss)
(2,406,855 ) (1,214,815 ) (479,497 )
230,519 Other expense (income) :
Other (income) expense net
(126,021 ) (60,093 ) (107,817 ) 5,919 Interest expense
268,189
306,450 97,623 52,654
142,168 246,357 (10,194 )
58,573
Income (loss) from continuing operations
before income taxes
(2,549,023 ) (1,461,172 ) (469,303 ) 171,946
Income tax expense (benefit)
110,166 160,483 (64,213 )
54,070
Income (loss) from continuing
operations
(2,659,189 ) (1,621,655 ) (405,090 ) 117,876 Discontinued
operations:
Income (loss) from discontinued
operations, net of taxes of $0
- (689,513 ) - 17,128
Net income (loss)
$ (2,659,189 ) $ (2,311,168 ) $ (405,090 ) $ 135,004
Basic net income (loss) per common
share:
Income (loss) from continuing
operations
$ (0.22 ) $ (0.13 ) $ (0.03 ) $ 0.01 Loss from discontinued
operations - (0.06 )
-
-
Net loss per share $ (0.22 ) $ (0.19 ) $ (0.03 ) $ 0.01
Diluted net income (loss) per common
share:
Income (loss) from continuing
operations
$ (0.22 ) $ (0.13 ) $ (0.03 ) $ 0.01 Loss from discontinued
operations - (0.06 ) -
-
Net income (loss) per share
$ (0.22 ) $ (0.19 ) $ (0.03 ) $ 0.01 Weighted-average number
of common shares Basic 12,175,584 12,175,361 12,175,584 12,175,584
Diluted 12,175,584 12,175,361 12,175,584 12,175,584
DGSE Companies, Inc.Jim Vierling, CEO,
972-587-4021investorrelations@dgse.comorHayden IRBrett Maas,
646-536-7331Managing Partnerbrett@haydenir.com
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