announced its results of operations for its fiscal quarter ended August 28, 2010.
Consolidated sales for the quarter ended August 28, 2010 were $58.5 million as compared to $57.7 million for the quarter ended August 29, 2009, an increase of 1.5%. Gross margins for the third quarter of 2010 and 2009 were 45.5% and 45.1%, respectively. The margin increase was primarily a result of the retail segment's increased share of the overall sales mix, as well as improved margins in the Company-owned stores. Selling, general and administrative expenses, excluding bad debt and notes receivable valuation charges, increased $1.6 million for the third quarter of 2010 as compared to the third quarter of 2009, again primarily due to the net addition of 12 Company-owned retail stores since the third quarter of 2009. The Company also recorded $1.3 million of bad debt and notes receivable valuation charges during the third quarter of 2010 as compared to $1.2 million for the third quarter of 2009, a $0.1 million increase. The Company reported a net loss of $2.4 million, or $0.21 per share, for the quarter ended August 28, 2010, as compared to a net loss of $3.4 million, or $0.30 per share, for the quarter ended August 29, 2009.
In order to better understand profitability trends related to on-going operations, the Company's management considers the effects of certain items on results for the quarter. Accordingly, the results for the quarter ended August 28, 2010 included $0.5 million of periodic costs associated with carrying idle retail facilities. The results for the quarter ended August 29, 2009 included $1.8 million of lease exit charges and $0.5 million of periodic costs associated with carrying idle retail facilities. Excluding these items, the net loss for the quarter ended August 28, 2010 would have been $1.9 million as compared to a net loss of $1.1 million for the quarter ended August 29, 2009.
"The Company grew quarterly wholesale sales on a year over year basis for the first time in four years," said Robert H. Spilman, Jr., President and CEO. "However, actions that we have taken over the course of the year to position the Company for the future adversely affected our performance for the period. In particular, losses from newly acquired stores and the costs associated with opening two new stores temporarily slowed the pace of progress shown by our Corporate Retail Division. In addition, the slow sales environment of the summer months has historically made the third quarter our weakest of the year. But beyond this seasonality, supply chain delays and aggressive holiday wholesale discounts negatively impacted our bottom line. We have addressed all of these areas and expect corresponding improvement going forward."
"Additionally, the Company grew wholesale inventories by $8 million during the quarter," Mr. Spilman added. "This increase is designed to offer higher service levels to our customers and to grow our wholesale volume. We expect to further increase inventories in the fourth quarter, although at a considerably slower pace. As a result, the Company used approximately $7 million of cash during the quarter. While we continue to monitor our cost structure and overall expenses, we believe that this investment will result in top-line sales growth and improved operating results in the future."
Wholesale Segment
Net sales for the wholesale segment were $43.8 million for the third quarter of 2010 as compared to $41.8 million for the third quarter of 2009, an increase of 4.9%. While the Company saw a slight improvement in wholesale orders as compared to the third quarter of 2009, shipments were adversely affected by delays in receiving imported product from certain of the Company's overseas suppliers. In an effort to mitigate the stock outages caused by these delays and improve service levels to our customers, the Company has increased inventory levels through the end of the third quarter. Approximately 54% of wholesale shipments during the third quarter of 2010 were imported products compared to approximately 51% for the third quarter of 2009. Gross margins for the wholesale segment were 29.6% for the third quarter of 2010 as compared to 30.3% for the third quarter of 2009. This decrease is primarily due to additional sales and promotional discounts given during the third quarter of 2010 to stimulate demand and the introduction of a lower cost upholstery line that has a slightly lower margin. Wholesale SG&A, excluding bad debt and notes receivable valuation charges, increased $0.1 million, or 0.8%, for the third quarter of 2010 as compared to 2009. As a percentage of net sales, SG&A decreased 1.1 percentage points to 25.6% from 26.7% during the third quarter of 2009. The Company recorded $1.3 million of bad debt and notes receivable valuation charges for both the third quarter of 2010 and 2009.
The dollar value of wholesale backlog, representing orders received but not yet shipped to dealers and company stores, was $13.8 million at August 28, 2010 as compared with $8.8 million at August 29, 2009. A significant portion of the $5.0 million increase in wholesale backlog is attributable to delayed wood product shipments and higher demand for certain imported upholstery products. During the third quarter, wholesale backlog decreased $2.8 million, primarily due to improved delivery of upholstered product, particularly at the end of the quarter. Deliveries of imported wood product, while improving, continued to be impacted by stock outages. The Company expects to moderately increase the level of wood inventory through the fourth quarter to improve service levels and reduce the backlog to a more normal level.
"We have been focused on stemming the attrition that we have been experiencing in our wholesale division, so the 4.9% increase that we produced during the quarter was a positive step," continued Mr. Spilman. "The increase, however, was partially achieved by a very aggressive promotional discount during our Memorial Day sales period. Although the resulting sales that were generated were significantly in excess of our plan, the overall effect on our margins made the aggregate discount too expensive."
"Orders from traditional sales channels (sales outside of our store network) have been building throughout the year," added Mr. Spilman. "We are encouraged that for the first time in several years quarterly shipments outside of the store network exceeded the prior year's."
"We are pleased with our Upholstery Division's performance as sales grew 17% during the period, driven by our recently introduced starting price point domestic assortment and new imported leather and motion products," said Mr. Spilman. "Upholstery operating profit improved slightly over last year as these new introductions carried a lower margin. Wood volume declined during the quarter, primarily due to last year's closing of our fiberboard operation and the aforementioned supply chain issues that have prevented the Company from completely leveraging its wood sales backlog. We expect the high backlog will finally ship through the system by the end of the fourth quarter."
Retail Segment
At August 28, 2010, the total store network included 55 licensee-owned stores and 47 Company-owned and operated stores. During the three months ended August 28, 2010, the Company acquired certain assets of, and now operates, two additional licensee stores. In addition, two single-store licensees closed during the third quarter of 2010.