Fourth Quarter Sales For Stanley Furniture Decline 5.4%

Furniture World News

Stanley Furniture Company, Inc. reported sales and earnings for 2007. Sales and earnings exceeded management’s guidance range provided in mid-October 2007. Net Sales of $282.8 million decreased 8.0% compared to 2006. Earnings per share decreased 61% to $.55 compared to $1.41 in 2006. Fourth quarter sales of $66.8 million decreased 5.4% from the final quarter of 2006. Earnings per share increased 20% to $.48 from $.40 in the fourth quarter of 2006. Three items had a significant impact on 2007 earnings. Fourth quarter earnings were favorably impacted from the receipt of funds under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA) in connection with the case involving wooden bedroom furniture imported from China. Income of $10.4 million, net of legal expenses and related settlement payments, was recorded in the fourth quarter of 2007 from the receipt of CDSOA funds compared to $4.4 million in 2006. The Company recorded a restructuring charge of $3.6 million in the fourth quarter of 2007 in connection with the previously announced conversion of the Martinsville facility from a manufacturing to a warehousing operation. The Company expects to record an additional charge of about $1.0 million in 2008, with most of the impact occurring in the first half as the conversion process is completed. Lastly, final distribution of assets and termination of the Company’s defined benefit pension plan also occurred during 2007, resulting in a settlement charge to earnings of $6.6 million recorded in the second quarter. See attached tables for a reconciliation of reported to adjusted operating income, net income, and earnings per share for the fourth quarter and total year 2007 compared to 2006. Operating income for 2007 was $10.9 million, or 3.9% of net sales, excluding charges for the pension termination and consolidation of manufacturing operations. This compares to operating income of $22.7 million, or 7.4% of net sales, in 2006. Lower operating income and margins in 2007 compared to 2006 resulted primarily from lower sales and production levels, raw material inflation and increased compensation costs. These factors are partially offset by cost control initiatives implemented in response to lower sales. Cash flow from operations and $25 million in proceeds from a private note placement were used to repurchase 639,331 shares of the Company’s common stock for $13.6 million, pay cash dividends of $4.2 million, make scheduled debt payments of $2.9 million, invest $4.0 million in capital improvements and increase cash on hand by $25.4 million during 2007. Working capital, excluding cash and current maturities of long term debt, decreased $7.0 million, or 10.2%, primarily due to a decrease in accounts receivable and inventories reflecting lower sales. Approximately $19.0 million is currently authorized by the Company’s Board of Directors to repurchase shares of the Company’s common stock. Business Outlook “2007 was another challenging year for both the furniture industry and Stanley Furniture,” commented Jeffrey R. Scheffer, President and Chief Executive Officer. “While the industry-wide slowdown that began in late 2005 showed signs of abating in early 2007, business conditions worsened as the year progressed and we now find ourselves mired in the longest and deepest furniture recession in a generation. Despite the challenging environment, we remain profitable and our financial position remains strong. I am confident we have a mission that differentiates us from the competition, a strategy that provides for profitable growth, and an enthusiastic and engaged management team that is preparing the Company for the eventual upturn in business. However, the guidance offered below for 2008 assumes that business conditions range from the current demand level to a modestly worse environment,” concluded Scheffer. Management offers the following guidance. This guidance excludes any potential receipt of additional funds under the CDSOA involving tariffs collected by the U.S. government on wooden bedroom furniture imported from China. Total Year 2008 guidance: Net sales are expected to be in the range of $255 million to $268 million, compared to $282.8 million in 2007. Operating income is expected to be in the range of $9 million to $12 million (excluding a pre-tax charge to earnings of about $1.0 million for the manufacturing consolidation). The Company’s effective tax rate is expected to be in the range of 32.0% to 32.5% in 2008. Earnings per share are expected to be in the range of $.40 to $.60 per share (excluding a charge to earnings of about $.06 for the manufacturing consolidation) compared to $.54 (excluding pension plan termination, restructuring charge and CDSOA funds) for 2007. First quarter ending March 29, 2008 guidance: Net sales are expected to be in the range of $62 million to $66 million, compared to sales of $75.1 million in the first quarter of 2007. Operating income is expected to be in the range of $2.3 million to $3.0 million (excluding a pre-tax charge to earnings of about $400,000 for the manufacturing consolidation). Earnings per share are expected to be in the range of $.10 to $.15 per share (excluding a restructuring charge of about $.03) compared to $.15 in the year ago quarter. All earnings per share amounts are on a diluted basis. Established in 1924, Stanley Furniture Company, Inc. is a leading manufacturer of wood furniture targeted at the upper-medium price range of the residential market. Its common stock is traded on the Nasdaq stock market under the symbol STLY.