DGSE Companies, Inc. Reports Second Quarter Results
Southern Bullion Closure Complete; SEC and Texas Sales Tax Issues Settled
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Dallas - August 13, 2014 - 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.
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