reported net sales of $51.4 million and a net income of $1.1 million, or $0.10 per share, for its fiscal 2011 first quarter which began on February 1, 2010 and ended May 2, 2010. Results included a $500,000 charge ($312,000 or $0.03 per share, after tax), representing the Company's insurance deductible for a fire at one of its distribution facilities during the fiscal 2011 first quarter.
Net sales for the first quarter of fiscal 2011 decreased $710,000 or 1.4% compared to $52.1 million for the same period a year ago. Net income for the quarter increased $1.5 million to $1.1 million, compared to a net loss of $456,000, or $0.04 per share, for the comparable period last year. Last year's first quarter included an intangible asset impairment charge on the Company's Bradington-Young trade name of $673,000 ($419,000 or $0.04 per share, after tax.)
Lower sales were driven primarily by sourcing delays, along with continued sluggish business conditions. The industry-wide slow down which began in the fall of 2008 prompted the Company's Asian sourcing partners to reduce manufacturing capacity. While longer production and shipping lead times are believed to be temporary, the Company expects some short-term delays as additional capacity is added in Asia in both manufacturing and shipping. The Company had approximately 8.2 weeks of order backlog at quarter-end as compared to 4.6 weeks at the prior-year quarter end.
"We're gratified to report another profitable quarter, as we improved profit margins despite a slight sales decline and a still struggling economy," said Paul B. Toms Jr., chairman, chief executive and president. "Our sales performance was a mixed bag. Upholstery sales continued to rebound with double digit increases in orders and shipments at both upholstery companies. Our wood furniture division has not yet rebounded as strongly, partially due to lower demand, but also because of lengthened lead times out of Asia."
Toms noted that both production levels and shipping capacity have improved in recent weeks, "By late July or August, we expect to be in a better inventory position, which will allow us to reduce our backlog and increase volume as shipments begin to exceed orders."
Gross profit increased $542,000 to $11.8 million or 22.9% of net sales in the fiscal 2011 first quarter, compared to $11.2 million or 21.6% of net sales in the same period a year ago. The gross profit increase in the 2011 quarter was mainly due to lower freight costs on imported wood and metal furniture and slightly increased margins in our upholstery division due primarily to increased sales. Offsetting these improvements was a net charge to cost of sales of $500,000 ($312,000 or $0.03 per share, after tax), representing the Company's insurance deductible for a fire at one of its distribution facilities during the fiscal 2011 first quarter.
Selling and administrative expenses decreased to $10.1 million or 19.6% of net sales for the fiscal 2011 first quarter, compared to $11.2 million or 21.5% of net sales for the fiscal year 2010 first quarter. The decrease in expenses was principally due to ongoing cost reduction initiatives undertaken in response to lower sales volume, along with lower bad debt expense in fiscal 2011.
"Our reduction in selling and administrative expenses as a percent of sales represents real progress in light of lower sales volume," Toms said. "We're now seeing the long-term positive impact of the cost reductions and controls we put in place during the last few years."
Operating income for the fiscal 2011 first quarter increased to $1.7 million or 3.3% of net sales as compared to an operating loss of 1.2% of net sales during the comparable 2010 quarterly period, primarily as a result of higher gross profit margins, the absence of an impairment charge in fiscal 2011 and lower fixed costs as a percent of sales due to higher sales volumes at the Company's upholstery companies.
Excluding the aforementioned impairment charge on the Bradington-Young trade name, the comparable prior year operating margin would have been $45,000 or 0.1% of net sales.
Cash, Inventory and Debt Levels
Cash and cash equivalents increased by $752,000 to $38.7 million as of May 2, 2010 from $38.0 million on January 31, 2010 due principally to decreased accounts receivable and higher accrued expenses, partially offset by increased inventories. "In order to improve our service position and capitalize on anticipated increased demand, we expect to continue building inventory through the summer and fall," Toms said.
The Company had no long-term debt at May 2, 2010 and had $13.1 million available on its revolving line of credit at quarter-end.
Business Outlook
"While we are entering the time of the year that is traditionally our weakest sales quarter, we are growing market share in upholstery and demand for our wood furniture has stabilized. We had a very strong April High Point Market at all three companies, and pre-ordered our market introductions to put us in the position to ship many of them this summer. We expect that deliveries from our vendors will continue to improve. While we don't anticipate a significant increase in demand at retail, we do expect to improve our volume by shipping down our backlog and getting fresh new products out on retail floors more quickly than is typical. We're seeing some positive signs in the economy including stability in the housing market, increased demand for luxury goods and recovery in some retail sectors. Barring unforeseen circumstances, we expect overall demand, including demand for wood furniture in the upper-medium price points, to gradually improve as we move through the year," Toms said.
Announcements
On March 10, 2010, the Company reported a fire that was contained to a small area of one of its distribution facilities. Costs related to the Company's insurance deductible resulted in a net charge to costs of sales of $500,000 ($312,000 or $0.03 per share, after tax.) "Most importantly, our employees escaped injury. We had very minimal product loss and damage to our facility, thanks to the efforts of first responders and our employees," Toms said.