Stanley Furniture Reports Large Decline In Second Quarter Earnings Due To Homelife Bankruptcy

Furniture World Magazine

Stanley Furniture Company, Inc. reported sales and earnings for the second quarter of 2001. Net sales of $52.9 million declined 26.7% compared to a record second quarter last year. Net income was $835 thousand or $.12 per share compared to record earnings of $5.1 million or $.67 per share in 2000. Second quarter 2001 results include an unusual charge net of taxes of $1.8 million ($2.8 million pre-tax) or $.26 per share to write-off the entire amount due from Homelife, the company's largest customer that recently filed for bankruptcy protection. Excluding this unusual charge, net income for the second quarter of 2001 was $2.6 million or $.38 per share, within the anticipated range previously announced by the company. For the first half of 2001, net sales of $118.0 million decreased 17.6% from $143.1 million for the six months of 2000. Net income, excluding the previously mentioned unusual charge, declined to $6.7 million or $.97 per share from $10.2 million or $1.33 per share in the first half of last year. Including the unusual charge, net income was $4.9 million or $.71 per share for the first six months of 2001. The company reduced production during the first half of 2001 in response to order trends primarily through selective downtime at its facilities. As a result, total inventories of $58.8 million increased slightly from year end levels due to normal seasonal trends. Operating income, excluding the unusual charge, as a percent of net sales was 9.7% and 10.7% for the second quarter and first half of 2001, respectively, compared to 12.7% in each of the comparable prior year periods. The decrease resulted primarily from the lower sales and production levels. Start-up costs associated with the new home office factory, which began production in March 2000, reduced operating income in the prior year periods. Improved operating results from this facility and lower selling, general and administrative expenses partially offset the impact of lower sales and production levels for the second quarter and first half of 2001, versus the comparable prior year periods. "Obviously, we are disappointed with the revenue decline in the second quarter," commented Albert L. Prillaman, chairman and chief executive officer. "Compounding the overall weak retail furniture environment was reduced shipments to Homelife, our largest customer, which has historically accounted for about 7% of total sales. While there will be near-term disruption, we anticipate a significant portion of this business will be absorbed by our independent dealer base." "A year ago we were dealing with capacity constraints and favored our Young America(TM) and home office product categories by limiting new introductions in our collections (dining room, bedroom, tables and entertainment units) category. We are addressing the collections business with increased product introductions including a refocus on certain style categories made possible due to our sourcing strategy. This strategy allows us to maintain the delivery and quality our customers have come to expect while improving the value of our products by sourcing certain components and controlling the final manufacturing process. As anticipated, our Young America and home office sales have performed much better relative to collections during the first half of 2001," continued Mr. Prillaman. "Considering the sales decline, we are extremely pleased with our operating margins and believe we have the opportunity to realize considerable operating leverage when business conditions improve. While we look forward to improved business conditions later this year, we will continue to closely manage cost and inventory levels. Our estimate for the third quarter compared to a record prior year is a sales decline in the mid-teens on a percentage basis, and earnings per share of $.45 to $.50, compared to $.68 last year, and, for the full year 2001, our estimate is $1.75 to $2.00," concluded Mr. Prillaman.