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Stanley Furniture Posts First Quarter Results

Furniture World News Desk on 5/2/2016


Stanley Furniture Company, Inc. (Nasdaq-NGS:STLY) today reports sales and operating results for the first quarter ended April 2, 2016.

First quarter 2016 financial results compared to prior year:

  • Net sales were $11.7 million compared to $14.7 million, down 20.4%, impacted by production delays of new product.

  • Gross profit margins improved to 21.7% compared to 20.3%.

  • Selling, general and administrative expenses were $3.3 million, or 28.3% of net sales, compared to $3.6 million, or 24.9% of net sales.

  • Operating loss was $770,000 compared to a loss of $663,000.

  • Net loss from continuing operations was $1.5 million, or $.10 per diluted share, compared to a net income of $2.8 million, or $.19 per diluted share.

  • Repurchased 400,000 shares of its common stock at an average price of $2.53 per share.

  • Ended the quarter with $25.9 million in cash and $663,000 in restricted cash.
Sales Overview:

Sales for the quarter continued to be negatively impacted by delays in shipping 2015 product introductions, as the construction and initial production of the new factory in Vietnam dedicated solely to the company's new product took longer than originally anticipated. “The completion of the plant's construction phase came so close to the Tet holiday (Vietnamese New Year) that initial staffing of the plant was difficult,” explained Glenn Prillaman, President and Chief Executive Officer. “With construction complete and the plant fully staffed, the focus is on training and managerial development."

The company indicated that completion of most of its delayed customer orders is expected to be achieved by the end of the second quarter. "As the second half of this year begins, more marketable product introduced in 2015 begins hitting retail floors," said Prillaman. “This new product represents a significant change in our value at retail. Prices are 25-40% lower as certain overhead and sourcing costs have been eliminated, yet our product quality and styling remains representative of designs that provide our customers a gateway to the luxury segment of the wood residential market," commented Prillaman. "We are making progress in our efforts to expand our wholesale distribution and expect to see order rates increase accordingly."

“In addition, and as part of this wave of new, more marketable product hitting retail, we and our retailers are enthusiastic about the initial signs at retail of our new nursery and youth brand, Stone & Leigh,” continued Prillaman. “Retail prices of this brand are 25% below where the company’s former brand, Young America, was positioned in the market. Just as importantly, we are launching an unprecedented effort to market directly to the Millennial consumer on behalf of our wholesale customer, and they recognize our ability to drive that elusive consumer into their store. Our experience in the nursery and youth category positions us uniquely, and our retailers recognize our desire and ability to lower the average age of their customer base by helping them attract younger consumers."

Operating results:

Gross profit margins improved to 21.7% compared to 20.3% in the first quarter of last year. This improvement in margins resulted from lower freight costs compared to abnormally high levels in the first quarter of last year. Partially offsetting these lower costs were lower absorption of fixed costs due to lower sales, higher discounting in an effort to fuel growth of inline product and higher quality costs from the company’s existing vendor base.

Selling, general and administrative expenses decreased to $3.3 million from $3.6 million in the first quarter primarily due to lower sales related expenses and the company holding back certain marketing and advertising efforts awaiting sufficient stock availability. Partially offsetting these lower expenses was the decline in cash surrender value growth of corporate-owned life insurance policies as we continued to pay-down policy loans throughout 2015 and then surrendered these policies in the first quarter of 2016.

Operating loss of $770,000 increased over the prior year loss of $663,000, primarily due to lower shipments of the company’s new products.

Net loss from continuing operations was $1.5 million, or $.10 per diluted share, compared to a net income from continuing operations of $2.8 million, or $.19 per diluted share. The current quarter included $600,000 in tax expense related to the liquidation of corporate-owned life insurance policies. The prior year quarter included the receipt of $3.8 million in Continued Dumping Subsidy Offset Act (CDSOA) proceeds, net of taxes.

During the first quarter, the company decided to surrender all of its corporate-owned life insurance policies. On March 28, 2016, the company received $22.4 million in cash proceeds, which consisted of $25.6 million in cash surrender value net of $3.2 million in loans and accrued interest. The company expects to use approximately $23.4 million in net operating loss carry-forwards to reduce taxable income generated from surrendering these policies. In addition, the company will be subject to alternative minimum taxes related to this taxable income and as a result expensed $600,000 during the first quarter.

Balance Sheet:

The company ended the quarter with $25.9 million in cash and $663,000 in restricted cash. Excluding cash received from corporate-owned life insurance policies, the company used approximately $3.0 million of cash during the quarter. Cash was used during the quarter to pay for finished goods inventory that was in transit at the end of the year and to purchase $1.0 million in company stock. Working capital, excluding cash and restricted cash increased to $21.7 million from $21.2 million at the end of the year.

Outlook:

“Our focus is on the execution of our operational strategy overseas, our efforts to market directly to the consumer and growing our wholesale distribution network," said Prillaman. "While the transformation of Stanley from a legacy domestic manufacturer to a progressive marketing and distribution company with a differentiated overseas sourcing strategy has not happened as quickly as we would have preferred or predicted, we continue to make progress executing our plan," concluded Prillaman. "Second quarter could be another tough quarter, but we expect the second half of this year to show improved results.”

More about Stanley Furniture: Established in 1924, Stanley Furniture Company, Inc. is a leading design, marketing and overseas sourcing resource in the middle-to-upscale segment of the wood residential market. The company offers a diversified product line supported by an overseas sourcing model and markets its brands through the wholesale trade’s network of brick-and-mortar furniture retailers, online retailers and interior designers worldwide, as well as through direct sales to the consumer through direct sales to the consumer through a localized approach to ecommerce fulfillment. The company’s common stock is traded on the NASDAQ stock market under the symbol STLY.