Southern Bullion Closure Complete; SEC and
Texas Sales Tax Issues Settled
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 three and six months ended June 30, 2014.
Second Quarter 2014 Business and Financial Highlights
- The shutdown of the company’s Southern
Bullion Coin and Jewelry (“Southern Bullion”) division is now
complete. A total of 23 Southern Bullion locations have been closed
since February 2014 which represents the entirety of the Southern
Bullion operations. We have now reclassified all Southern Bullion
operations into discontinued operations.
- DGSE reported a loss from discontinued
operations of $3.9 million for the quarter, including the $2.9
million write off of the intangible asset related to the Southern
Bullion trade name, and $0.3 million related to fixed assets
previously used in Southern Bullion operations.
- Revenues from continuing operations
were $17.5 million compared to $23.8 million, a 26% decline
compared to the same period in 2013. Significant decreases in both
bullion and scrap sales, a result of the drop in gold prices, were
partially offset by strong growth in jewelry sales.
- Despite the 26% decline in overall
revenue, gross profit from continuing operations improved to $3.0
million, or 17.2% of revenue, compared to $2.9 million, or 12.1% of
revenue in the same period last year. The 5.1% improvement was the
result of a favorable shift in our sales mix, as high-margin
jewelry sales increased, and low margin bullion sales
decreased.
- Selling, general and administrative
expenses (“SG&A”) from continuing operations remained flat at
$3.4 million during the second quarter of 2014, unchanged from the
second quarter of 2013, despite the addition of two new stores that
were not open in the same period of 2013.
- Net loss from continuing operations was
approximately $539,000 or $0.04 per share, compared to net loss
from continuing operations of approximately $525,000, or $0.04 per
share, in the second quarter of 2013.
- Net loss, inclusive of discontinued
operations, was approximately $4,452,000 or $0.36 per share,
compared to a net loss, inclusive of discontinued operations, of
approximately $1,124,000, or $0.09 per share, in the second quarter
of 2013.
- DGSE welcomed two new independent
directors to our Board of Directors. Bruce Quinnell and Dennis
McGill are both highly experienced, senior executives with decades
of business experience and both have spent significant time with
prominent national retailers.
- DGSE announced an agreed final judgment
in the previously disclosed SEC litigation stemming from the
accounting irregularities that resulted in the company’s 2012
restatement of its financials. In connection with the agreed final
judgment, DGSE agreed to undertake certain corporate governance
reforms, many of which are already in place. The judgment required
no payment of civil damages.
- DGSE reached a settlement with the
Comptroller of Public Accounts of the State of Texas (the
“Comptroller”), to pay approximately $1.1 million in taxes,
penalties and interest related to the Comptroller’s Sales and Use
Tax Audit of the company for the period of March 1, 2006 to
November 30, 2009. Pursuant to the agreement, DGSE will pay the
settlement amount over an 18-month period. The company has fully
accrued for this expense.
Dusty Clem, Chairman of the Board and Chief Executive Officer,
stated, “While our earnings are still below my expectations, DGSE
is starting to see the benefits of expanding our focus on
high-margin jewelry, diamond and watch sales. This is reflected in
the fact that our gross profit actually increased this quarter,
despite the fact that our top line revenue was down almost 26%
compared to 2013, due to substantially lower gold prices. Our
success in focusing on these high-margin segments should show even
more benefits as we move into the holiday season.”
Second Quarter 2014 Results
For the quarter ended June 30, 2014, revenues from continuing
operations were $17.5 million, a 26% decrease compared to $23.8
million in the quarter ended June 30, 2013, due primarily to
significant decreases in both bullion and scrap sales as a result
of declining gold prices, which were on average 9% lower (as
measured by London PM Fix) than in the same period last year.
Declining bullion and scrap revenue in the quarter was partially
offset by strong jewelry sales, which continue to show healthy year
over year increases.
Gross profit from continuing operations in the quarter was $3.0
million, or 17.2% of revenue, compared to $2.9 million, or 12.1% of
revenue, in the prior year quarter. The 5.1% improvement was driven
by a favorable shift in our sales mix, as high-margin jewelry sales
increased, and low margin bullion sales decreased.
SG&A expenses decreased by approximately $26,000, or 0.8%,
in the first quarter, to $3.4 million compared to $3.4 million for
the second quarter of 2013. During the quarter, the company
incurred $210,000 in incremental operating expenses related to two
new stores not yet opened during the same quarter in 2013. During
the three months ended June 30, 2014 and 2013, the Company incurred
$137,000 and $227,000, respectively, in professional fees and costs
associated with the 2012 restatement of our financial statements,
the 2010 State of Texas sales tax audit, and related legal
matters.
Loss from continuing operations for the second quarter was
$539,000 or $0.04 per share compared to a net loss from continuing
operations of $525,000, or $0.04 per share, in the second quarter
of 2013.
Loss from discontinued operations for the three months ended
June 30, 2014 was $3.9 million, related to the Southern Bullion
locations closed in February and April of 2014, compared to a net
loss of $599,000 for these locations in the same quarter of 2013.
Discontinued operations for the current quarter includes the
write-off of the $2.9 million intangible asset attributed to the
“Southern Bullion Coin & Jewelry” trade name, as well as the
write-off of approximately $296,000 in fixed assets previously
utilized in Southern Bullion operations.
Net loss for the second quarter was $4.5 million or $0.36 per
share, compared to a net loss of $1.1 million, or $0.09 per share,
in the second quarter of 2013.
Year-to-Date 2014 Results
In the six months ended June 30, 2014, revenues from continuing
operations decreased to $35.6 million, compared to $47.3 million in
the same period last year. This decrease was primarily due to lower
bullion and scrap sales, compared to the same period last year,
mostly due to a significant drop in gold prices, which were on
average 15% lower (as measured by London PM Fix) than in the first
half of 2013.
Gross profit from continuing operations was $6.2 million or
17.5% of revenue, compared to $6.5 million or 13.7% of revenue in
the prior year period. Robust sales of high-margin jewelry
increased gross profit as a percentage of revenue which largely
offset the reduction in top line revenue.
Selling, general and administrative expenses increased
approximately $158,000 or 2.4%, to $6.7 million in the six months
ended June 30, 2014 compared to $6.5 million in the prior year.
This slight increase was largely the result of the opening of two
additional retail locations in 2013, and largely offset by
continued cost reduction efforts across all areas. Depreciation and
amortization were flat at approximately $182,000, for the six
months ended June 30, 2014 as well as the same period in 2013.
The loss from continuing operations for the six months ended
June 30, 2014 was $824,000 compared to $333,000 in the same period
of 2013.
Loss from discontinued operations for the six months ended June
30, 2014 was $4.2 million related to operations of the Southern
Bullion locations closed down in February and April of 2014,
compared to a net loss of $489,000 for these locations in the same
period of 2013. As noted above, discontinued operations also
includes the write-off of the $2.9 million intangible asset
attributed to the “Southern Bullion Coin & Jewelry” trade name,
as well as the write-off of approximately $296,000 in fixed assets
previously utilized in Southern Bullion operations.
Net loss for the six months was $5.0 million or $0.41 per share,
compared to a net loss of $0.8 million, or $0.07 per share, in the
same period of 2013.
Mr. Clem concluded, “We are happy to have efficiently completed
the Southern Bullion closure and to have wrapped up the SEC
settlement and Texas sales tax agreement. These legacy issues are
now finally behind us as we continue to critically evaluate our
store and market configuration, product mix and vendor
relationships in order to move the company to consistent
profitability.”
Balance Sheet Summary
At June 30, 2014, DGSE Companies had cash and cash equivalents
of $2.1 million compared to $2.6 million at December 31, 2013,
related to continuing operations. Stockholders’ equity decreased
46% to $5.5 million at June 30, 2014 compared to $10.4 million at
December 31, 2013, largely due to the write-off of $3.2 million in
intangible and fixed assets of Southern Bullion. As of June 30,
2014, the outstanding balance on the company’s credit facility with
NTR was $2.3 million compared to $2.4 million at December 31,
2013.
Conference Call
DGSE Companies management will conduct a live teleconference to
discuss its financial results:
Date: August 13, 2014
Time: 4:30 p.m.
ET/3:30 p.m. CT
Dial-in: 1-877-407-9039 if calling
from the United States, or 1-201-689-8470 if dialing
internationally.
Replay: A replay will be available
until August 20, 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 13588341 to access the
replay.
Webcast:
The call will be webcast and will be
available by visiting
http://public.viavid.com/index.php?id=110473.
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, and Dallas Gold & Silver Exchange operations. DGSE
also owns Fairchild International, Inc., one of the largest vintage
watch wholesalers in the country. In addition to its retail
facilities in Illinois, South Carolina, and Texas, the company
operates internet websites which can be accessed at
www.bullionexpress.com, www.dgse.com, and www.cgdeinc.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.
-- Tables follow --
DGSE COMPANIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 31, 2014
2013 (Unaudited) ASSETS
Current Assets: Cash and cash equivalents $ 2,143,730 $ 2,637,726
Trade receivables, net of allowances 183,633 162,670 Inventories
11,517,687 9,992,156 Prepaid expenses 217,421 138,600 Assets
related to discontinued operations 139,104
3,711,740 Total current assets 14,201,575 16,642,892
Property and equipment, net 4,505,609 4,588,695 Intangible
assets, net 34,460 41,353 Other assets 115,710 189,425 Noncurrent
assets related to discontinued operations - 3,441,766
Total assets $
18,857,354
$ 24,904,131
LIABILITIES Current
Liabilities: Accounts payable-trade $ 5,259,356 $ 5,535,624 Accrued
expenses 1,728,203 1,729,528 Customer deposits and other
liabilities 1,741,703 2,349,943 Current maturities of long-term
debt 126,699 122,536 Current maturities of capital leases 11,328
11,091 Liabilties related to discontinued operations 449,903
589,899 Total current liabilities
9,317,192 10,338,621 Line of credit, related party 2,303,359
2,383,359 Long-term debt, less current maturities 1,687,696
1,757,827 Total liabilities 13,308,247
14,479,807 Commitments and contingencies
STOCKHOLDERS' EQUITY Common stock, $0.01 par value;
30,000,000 shares authorized;
12,223,584 and 12,175,584 shares issued
and outstanding
122,235 121,755 Additional paid-in capital 34,145,174 34,045,654
Accumulated deficit (28,718,302 ) (23,743,085 ) Total
stockholders' equity 5,549,107 10,424,324 Total
liabilities and stockholders' equity $ 18,857,354 $
24,904,131
DGSE COMPANIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
Six Months Ended
June 30,
2014 2013
2014 2013 Revenue:
Sales $ 17,518,412 $ 23,775,109 $ 35,582,719 $ 47,305,191 Cost of
goods sold 14,508,227 20,889,655
29,361,864 40,844,409 Gross margin 3,010,185
2,885,454 6,220,855 6,460,782 Expenses:
Selling, general and administrative
expenses
3,353,921 3,379,671 6,704,140 6,545,902 Depreciation and
amortization 94,677 76,658
181,815 181,787 3,448,598
3,456,329 6,885,955 6,727,689
Operating loss (438,413 ) (570,875 )
(665,100 ) (266,907 ) Other expense (income): Other
(income) expense, net (31,166 ) (726 ) (57,661 ) 2,461 Interest
expense 88,330 52,258 169,143
103,962 57,164 51,532
111,482 106,423 Loss from
continuing operations before income taxes (495,577 ) (622,407 )
(776,582 ) (373,330 ) Income tax expense (benefit)
43,491 (97,635 ) 47,070 (40,035
) Loss from continuing operations (539,068 ) (524,772 )
(823,652 ) (333,295 ) Discontinued operations: Loss from
discontinued operations (3,913,172 ) (599,003 )
(4,151,565 ) (488,850 ) Net loss $ (4,452,240
) $ (1,123,775 ) $ (4,975,217 ) $ (822,145 ) Basic net loss
per common share: Loss from continuing operations $ (0.04 ) $ (0.04
) $ (0.07 ) $ (0.03 ) Loss from discontinued operations
(0.32 ) (0.05 ) (0.34 ) (0.04 ) Net loss per
share $ (0.36 ) $ (0.09 ) $ (0.41 ) $ (0.07 ) Diluted net
loss per common share: Loss from continuing operations $ (0.04 ) $
(0.04 ) $ (0.07 ) $ (0.03 ) Loss from discontinued operations
(0.32 ) (0.05 ) (0.34 ) (0.04 ) Net
loss per share $ (0.36 ) $ (0.09 ) $ (0.41 ) $ (0.07 )
Weighted-average number of common shares Basic 12,210,397
12,175,584 12,202,214 12,175,584 Diluted 12,210,397 12,175,584
12,202,214 12,175,584
DGSE Companies, Inc.Dusty Clem, Chairman and CEO,
972-587-4021investorrelations@dgse.com
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