DGSE Companies, Inc. (NYSE MKT: DGSE) (“DGSE” or the “Company”),
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 nine months ended
September 30, 2014.
Third Quarter 2014 Business and Financial Highlights
- DGSE reported net income of $180,000
for the quarter, which included a $167,000 gain from discontinued
operations, and income of $13,000 from continuing operations. The
gain from discontinued operations was due to successful lease
termination negotiations, tax benefits related to a reduction in
the final tax calculation for states in which we no longer conduct
business, and the resolution of other miscellaneous issues related
to the wind down of Southern Bullion Coin and Jewelry (“Southern
Bullion”).
- Revenues from continuing operations
were $17.0 million compared to $19.0 million, a 10% decline
compared to the same period in 2013. Strong growth in jewelry,
watch and diamond sales partially offset continued decreases in
both bullion and scrap sales, a result of lower gold prices.
- Gross profit decreased $178,000, or 5%,
based on lower sales. Gross profit as a percent of revenue
increased to 18.4% in the current quarter, compared to 17.4% in the
prior year quarter. The improvement in gross profit as a percent of
revenue 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 were down $873,000
in the quarter, to $2.9 million compared to $3.8 million during the
third quarter of 2013. This reduction was primarily due to a
$650,000 charge the Company took in the third quarter of 2013 in
anticipation of a sales tax settlement with the Texas Comptroller.
This charge did not recur in the third quarter of 2014. The
remainder of the SG&A decrease, an additional $223,000 savings
compared to the prior year, was achieved primarily through
continued efforts to reduce expenses at all levels, including
store-level operating expenses and corporate overhead.
- Net income from continuing operations
was approximately $13,000 or $0.00 per share, compared to net loss
from continuing operations of approximately $863,000, or $0.07 per
share, in the third quarter of 2013.
- Net income, inclusive of discontinued
operations, was approximately $180,000 or $0.01 per share, compared
to a net loss, inclusive of discontinued operations, of
approximately $1,432,000, or $0.12 per share, in the third quarter
of 2013.
“Successfully growing our jewelry business and closely managing
our expenses has allowed us to show a small profit this quarter,
despite revenues being down by 10%”, stated Dusty Clem, Chairman of
the Board and Chief Executive Officer. “DGSE continues to see the
benefits of expanding our focus on high-margin jewelry, diamond and
watch sales, which has enabled us to partially offset the
continued, industry-wide slowdown in the bullion and scrap
businesses. While we are gratified to show a return to positive
earnings for the first time in several quarters, we are certainly
not satisfied with essentially break-even results in our continuing
operations.”
Third Quarter 2014 Results
For the quarter ended September 30, 2014, revenues from
continuing operations were $17.0 million, a 10% decrease compared
to $19.0 million in the quarter ended September 30, 2013. This
decrease was due primarily to significant reductions in both
bullion and scrap sales as a result of declining gold prices.
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 $3.1
million, or 18.4% of revenue, compared to $3.3 million, or 17.4% of
revenue, in the prior year quarter. The 1.0% improvement in gross
profit as a percentage of revenue 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 $873,000, or 23%,
in the third quarter, to $2.9 million compared to $3.8 million for
the third quarter of 2013. During the third quarter of 2013, the
Company accrued $650,000 toward the final settlement of the Texas
State Comptroller audit. The Company did not incur a similar
expense in the current quarter, leading to a significant reduction
in SG&A as compared to the prior year. The remainder of the
SG&A decrease, an additional $223,000 compared to the prior
year, was achieved primarily through continued efforts to reduce
expenses at all levels, including store-level operating expenses
and corporate overhead.
Income from continuing operations for the third quarter, net of
taxes, was $13,000 or $0.00 per share compared to a net loss from
continuing operations of $863,000, or $0.07 per share, in the third
quarter of 2013.
Income from discontinued operations for the three months ended
September 30, 2014 was $167,000, related to the Southern Bullion
locations closed in February and April of 2014, compared to a net
loss of $569,000 for these locations in the same quarter of 2013.
The gain from discontinued operations was due to successful lease
termination negotiations, tax benefits related to a reduction in
the final tax calculation for states in which we no longer conduct
business, and the resolution of other miscellaneous issues related
to the wind down of Southern Bullion. The Company believes it has
now recognized all material expenses related to the closure of
Southern Bullion operations.
Net income for the third quarter was $180,000 or $0.01 per
share, compared to a net loss of $1.4 million, or $0.12 per share,
in the third quarter of 2013.
Year-to-Date 2014 Results
In the nine months ended September 30, 2014, revenues from
continuing operations were $52.6 million, a 21% decrease compared
to $66.3 million in the same period last year. This decrease was
primarily due to lower bullion and scrap sales, mostly a result of
the significant drop in gold prices, which were on average 11%
lower (as measured by London PM Fix) than in the same period last
year. These decreases were significantly offset by our jewelry,
watch and diamond business, which has seen strong growth year to
date.
Gross profit from continuing operations was $9.4 million, or
17.8% of revenue, compared to $9.8 million, or 14.7% of revenue in
the prior year period. Robust sales of high-margin jewelry combined
with reduced sales in the low margin bullion business, led to the
increase in gross profit as a percentage of revenue.
Selling, general and administrative expenses decreased
approximately $722,000 or 7.0%, to $9.6 million in the nine months
ended September 30, 2014 compared to $10.4 million in the prior
year. As noted above, in 2013 the Company accrued $650,000 toward
the final settlement of the Texas State Comptroller audit, and did
not incur a similar expense in the current year, leading to a
reduction in SG&A as compared to the prior year. In addition to
this savings, the Company was able to completely offset incremental
operating expenses related to two stores that had not yet opened
during the first half of 2013, through its continued efforts to
reduce expenses at all levels, including store-level operating
expenses and corporate overhead.
The loss from continuing operations for the nine months ended
September 30, 2014 was $809,000 compared to $1.2 million in the
same period of 2013.
Loss from discontinued operations for the nine months ended
September 30, 2014 was $3.9 million related to the Southern Bullion
locations closed down in February and April of 2014, compared to a
net loss of $1.1 million for these locations in the same period of
2013. 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 at
Southern Bullion locations.
Net loss for the nine months was $4.8 million or $0.39 per
share, compared to a net loss of $2.3 million, or $0.19 per share,
in the same period of 2013.
Mr. Clem concluded, “While we are not satisfied with our current
results, we are starting to see the impact of the strategic
decisions we’ve made over the last several months. As we move ahead
we will be critically evaluating our store count, market
configuration, product mix and vendor relationships in order to
continue to move the Company toward consistent profitability and
value creation.”
Balance Sheet Summary
As of September 30, 2014, DGSE Companies had cash and cash
equivalents of $1.9 million compared to $2.6 million at December
31, 2013, related to continuing operations. Stockholders’ equity
decreased 45% to $5.7 million at September 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 September 30, 2014, the outstanding balance on the Company’s
credit facility with NTR Metals, LLC 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: November 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 November 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 13594851 to access the replay.
Webcast:
The call will be webcast and will be
available by visiting
http://public.viavid.com/index.php?id=111814.
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.
DGSE COMPANIES, INC. AND
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2014 2013
(Unaudited) ASSETS Current Assets: Cash and cash
equivalents $ 1,950,854 $ 2,637,726 Trade receivables, net of
allowances 224,946 162,670 Inventories 11,196,056 9,992,156 Prepaid
expenses 206,980 138,600 Assets related to discontinued operations
22,057 3,711,740 Total current
assets 13,600,893 16,642,892 Property and equipment, net
4,442,826 4,588,695 Intangible assets, net 31,014 41,353 Other
assets 113,474 189,425 Noncurrent assets related to discontinued
operations - 3,441,766 Total assets $ 18,188,207
$ 24,904,131
LIABILITIES Current
Liabilities: Current maturities of line of credit, related party $
2,303,359 $ - Current maturities of long-term debt 128,833 122,536
Current maturities of capital leases 11,448 11,091 Accounts
payable-trade 5,043,843 5,535,624 Accrued expenses 1,489,267
1,729,528 Customer deposits and other liabilities 1,485,218
2,349,943
Liabilities related to discontinued
operations
345,777 589,899 Total current
liabilities 10,807,745 10,338,621 Line of credit, related
party - 2,383,359 Long-term debt, less current maturities
1,651,769 1,757,827 Total liabilities
12,459,514 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 34,145,173 34,045,654
Accumulated deficit (28,538,715 ) (23,743,085 ) Total
stockholders' equity 5,728,693 10,424,324 Total
liabilities and stockholders' equity $ 18,188,207 $
24,904,131
DGSE
COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
OPERATIONS (UNAUDITED)
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2014 2013 2014
2013 Revenue: Sales $ 17,040,249 $ 18,999,701 $
52,622,968 $ 66,304,892 Cost of goods sold 13,905,844
15,687,340 43,267,708 56,532,284
Gross margin 3,134,405 3,312,361 9,355,260 9,772,608
Expenses: Selling, general and administrative expenses 2,936,556
3,809,548 9,632,784 10,354,913 Depreciation and amortization
99,893 87,326 288,600
269,113 3,036,449 3,896,874
9,921,384 10,624,026 Operating
income (loss) 97,956 (584,513 )
(566,124 ) (851,418 ) Other expense (income): Other
(income) expense, net (5,717 ) (2,250 ) (44,679 ) 213 Interest
expense 89,239 66,604 258,383
170,566 83,522 64,354
213,704 170,779 Income
(loss) from continuing operations before income taxes 14,434
(648,867 ) (779,828 ) (1,022,197 ) Income tax expense
1,604 214,414 29,975
174,379 Income (loss) from continuing operations
12,830 (863,281 ) (809,803 ) (1,196,576 ) Discontinued
operations: Income (loss) from discontinued operations, net of
taxes 166,757 (568,673 ) (3,985,827 )
(1,057,523 ) Net income (loss) $ 179,587 $
(1,431,954 ) $ (4,795,630 ) $ (2,254,099 ) Basic net income
(loss) per common share: Income (loss) from continuing operations $
0.00 $ (0.07 ) $ (0.06 ) $ (0.10 ) Income (loss) from discontinued
operations 0.01 (0.05 ) (0.33 )
(0.09 ) Net income (loss) per share $ 0.01 $ (0.12 ) $ (0.39
) $ (0.19 ) Diluted net income (loss) per common share:
Income (loss) from continuing operations $ 0.00 $ (0.07 ) $ (0.06 )
$ (0.10 ) Income (loss) from discontinued operations 0.01
(0.05 ) (0.33 ) (0.09 ) Net income
(loss) per share $ 0.01 $ (0.12 ) $ (0.39 ) $ (0.19 )
Weighted-average number of common shares Basic 12,223,584
12,175,584 12,209,416 12,175,584 Diluted 12,271,362 12,175,584
12,209,416 12,175,584
DGSE Companies, Inc.Dusty Clem, 972-587-4021Chairman and
CEOinvestorrelations@dgse.com
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