Stanley Furniture Company, Inc. (Nasdaq:STLY) today reported sales
and operating results for the third quarter of 2016.
Third quarter 2016 financial results compared to prior
year:
- Net sales were $11.0 million compared to $13.8 million, down
19.8%.
- Gross profit margins were 16.6% compared to 24.8%, negatively
impacted by discounting older product, promotional activities and
lower sales.
- Selling, general and administrative expenses were $3.8 million,
or 34.5% of net sales, compared to $2.8 million, or 20.5% of net
sales.
- Net loss from continuing operations was $2.1 million compared
to net income from continuing operations of $391,000.
- A special $1.25 per share cash dividend totaling $17.6 million
was distributed to shareholders. An additional $0.25 per share
dividend was declared subsequent to quarter end.
- Available cash at quarter end was $7.3 million and restricted
cash was $663,000.
Year-to-date 2016 financial results compared to prior
year:
- Net sales were $34.8 million compared to $43.6 million, down
20.2%.
- Gross profit margins were 18.5% compared to 23.5%.
- Selling, general and administrative expenses were $10.6
million, or 30.5% of net sales, compared to $9.9 million, or 22.8%
of net sales.
- Net loss from continuing operations was $5.0 million compared
to net income of $4.4 million, including $4.8 million in CDSOA
proceeds in the prior year.
- Used approximately $3.2 million of cash in operations, $17.6
million to pay a $1.25 per share special dividend and $1.0 million
to repurchase company common stock.
Sales Overview:
Sales continued to be negatively impacted by production delays
in conjunction with the company’s strategic manufacturing alliance
with Starwood Manufacturing Corporation. New product introductions
manufactured at the new factory constructed to support the alliance
and introduced since the fall season of 2015 are expected to be
either completed in the fourth quarter or are already in transit to
customers.
The new factory built by Starwood and dedicated to Stanley’s new
product did not make the significant progress expected during the
quarter. The quarter ended with over 60% of the company’s order
backlog assigned to this factory. Capacity utilization was
again hindered by initial production runs of new designs, and costs
and delays associated with product quality issues negatively
impacting margins.
“Our wholesale customers clearly see the difficulties we are
experiencing getting our overseas operations with Starwood where we
expect them to be in order to provide the level of product quality
and service they deserve,” said Glenn Prillaman, President and
Chief Executive Officer. “Our recent performance is
disappointing, however the expected value of our new product from
both the Stanley and Stone & Leigh brands at retail remains of
great interest to our customers. Our increasing backlog for new
product demonstrates customer confidence in the company’s ability
to overcome initial road blocks to success with our differentiated
overseas strategy.”
Orders and shipments for the company’s new brand of nursery and
youth furniture, Stone & Leigh, grew again this quarter. The
company expects further growth as production improvements support
its planned omni-channel approach to market this new brand and
reach the Millennial consumer.
Operating results:
Gross profit margins were 16.6% and 18.5% for the three and nine
months ended October 1, 2016 compared to 24.8 and 23.5% in the
prior year comparable periods. The lower margins for both
periods resulted from a) the approximately 20% lower sales in both
periods, resulting in a lower absorption of fixed costs, b)
continued discounting to assist customers with their promotional
efforts, preserve company cash and move older products, and c)
higher quality related costs.
“As we await the shipment of backlog of newer product, we
continue to aggressively promote older products that are
immediately available to ship in the quarter, and this is
negatively affecting margins,” commented Prillaman. “Retail floor
sample promotions reported in the prior quarter assisted in
prolonging life cycles of older products as we expected, yet the
growth of the company now depends upon newer product success within
the retail landscape.”
Selling, general and administrative expenses were $3.8 million
and $10.6 million for the three and nine month period of 2016
compared to $2.8 million and $9.9 million in the comparable prior
year periods, respectively. For the three month period, these
expenses increased due to higher advertising and showroom costs,
the decline in cash surrender value growth of corporate-owned life
insurance policies due to the surrendering of these policies early
this year and higher legal and professional expenses related to the
engagement of Stephens Inc. to assist with an ongoing review of
strategic and capital allocation opportunities. Higher
expenses for the nine month period were primarily due to the
decline in cash surrender value growth of corporate-owned life
insurance policies as the company continued to pay down policy
loans throughout 2015 and then surrendered these policies in the
first quarter of 2016.
Operating losses were $2.0 million and $4.2 million for the
three and nine month periods of 2016 compared to an operating
income of $587,000 and $311,000, respectively, for the prior year
comparable periods.
Net loss from continuing operations was $2.1 million, or ($.15)
per diluted share, and $5.0 million, or ($.35) per diluted share,
for the three and nine months of 2016, respectively, compared to a
net income from continuing operations of $391,000, or $.03 per
diluted share and net income of $4.4 million, or $.30 per diluted
share, for the three and nine months of 2015, respectively.
The current nine months included $616,000 in tax expense related to
the liquidation of corporate-owned life insurance policies.
The prior year nine month periods included the receipt $4.8 million
in CDSOA proceeds, net of taxes.
During the first quarter, the company decided to surrender 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 $19.7 million in net operating loss
carry-forwards as a result of taxable income generated from
surrendering these policies.
Balance Sheet:
The company ended the period with $7.3 million in available cash
and $663,000 in restricted cash. During the current nine
month period, the company used approximately $21.4 million of cash
to pay a special dividend of $1.25 per share, fund operating losses
and purchase company stock. Working capital, excluding cash
and restricted cash, decreased to $19.3 million from $21.2 million
at December 31, 2015.
Subsequent to quarter end, the company entered into a secured
revolving credit facility that provides for maximum borrowings of
$4.0 million and matures October 2018. This facility was
obtained to provide flexibility to manage short-term fluctuations
in working capital.
“We are pleased to have secured a credit facility with Wells
Fargo Bank, National Association to support the company’s future
plans for growth,” said Prillaman. “Until we are in a position to
use cash for growth, the management team remains very focused on
preserving cash until the lack of overseas production no longer
limits our ability to generate cash by shipping order backlog.”
Second Special Dividend:
As announced earlier this quarter, the Board of Directors
planned to declare an additional special dividend of $0.25 per
share once the company secured a revolving credit facility
sufficient to fund fluctuations in working capital. As a
result, the Board has declared a special dividend of $0.25 per
share payable on November 18, 2016 to shareholders of record as of
the close of business on November 11, 2016.
“We are pleased to return value to our shareholders through a
cash dividend, as we believe we have sufficient cash on hand, as
well as access to our recently obtained credit facility, to operate
our business," said Prillaman.
Outlook:
“Although our execution to date has lacked the progress we
expect in any new venture, our relationship with our overseas
vendors, particularly Starwood, remains strong,” concluded
Prillaman. “We believe in the differentiated strategy we are so
diligently pursuing to lower costs and lead times and better serve
customers.”
Management expects the coming quarter to again be a difficult
one for sales due to a lack of sufficient inventory of newly
introduced product, and margins should remain well below expected
levels. As overseas operations improve, the company
expects to move forward with sales expansion plans into each of its
multiple channels of distribution in the first half of next
year.
About the Company
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 a localized approach to ecommerce
fulfillment. The company’s common stock is traded on the
NASDAQ stock market under the symbol STLY.
Forward-Looking Statements
Certain statements made in this news release are not based on
historical facts, but are forward-looking statements. These
statements can be identified by the use of forward-looking
terminology such as “believes,” “estimates,” “expects,” “may,”
“will,” “should,” or “anticipates,” or the negative thereof or
other variations thereon or comparable terminology, or by
discussions of strategy. These statements reflect our
reasonable judgment with respect to future events and are subject
to risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking
statements. Such risks and uncertainties include disruptions
from transitioning to and using a single contract manufacturer for
substantially all of our products including those arising in the
event the manufacturer is not able to manufacture as anticipated in
terms of cost, quality or timeliness or in the event we lost this
relationship, disruptions in foreign sourcing including those
arising from supply or distribution disruptions or those arising
from changes in political, economic and social conditions, as well
as laws and regulations, in countries from which we source
products, international trade policies of the United States and
countries from which we source products, the inability to raise
prices in response to inflation and increasing costs, lower sales
due to worsening of current economic conditions, the cyclical
nature of the furniture industry, business failures or loss
of large customers, failure to anticipate or respond to changes in
consumer tastes, fashions and perceived value in a timely manner,
competition in the furniture industry, environmental, health, and
safety compliance costs, failure or interruption of our
information technology infrastructure. Any forward-looking
statement speaks only as of the date of this news release and we
undertake no obligation to update or revise any forward-looking
statements, whether as a result of new developments or
otherwise.
All earnings per share amounts are shown on a diluted basis.
STANLEY FURNITURE COMPANY, INC. |
Consolidated Operating Results |
(in thousands, except per share data) |
(unaudited) |
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
Oct. 1, |
|
Sept. 26, |
|
Oct. 1, |
|
Sept. 26, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
11,036 |
|
|
$ |
13,760 |
|
|
$ |
34,772 |
|
|
$ |
43,565 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
9,201 |
|
|
|
10,350 |
|
|
|
28,334 |
|
|
|
33,333 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
1,835 |
|
|
|
3,410 |
|
|
|
6,438 |
|
|
|
10,232 |
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative expenses |
|
|
3,807 |
|
|
|
2,823 |
|
|
|
10,626 |
|
|
|
9,921 |
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(1,972 |
) |
|
|
587 |
|
|
|
(4,188 |
) |
|
|
311 |
|
|
|
|
|
|
|
|
|
|
CDSOA income, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,896 |
|
Other income, net |
|
|
5 |
|
|
|
12 |
|
|
|
16 |
|
|
|
52 |
|
Interest (income)
expense, net |
|
|
(6 |
) |
|
|
216 |
|
|
|
103 |
|
|
|
756 |
|
(Loss) income from continuing
operations before income taxes |
|
|
(1,961 |
) |
|
|
383 |
|
|
|
(4,275 |
) |
|
|
4,503 |
|
Income tax expense
(benefit) |
|
|
119 |
|
|
|
(8 |
) |
|
|
682 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income from continuing
operations |
|
|
(2,080 |
) |
|
|
391 |
|
|
|
(4,957 |
) |
|
|
4,432 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) from discontinued
operations |
|
|
- |
|
|
|
74 |
|
|
|
- |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(2,080 |
) |
|
$ |
465 |
|
|
$ |
(4,957 |
) |
|
$ |
4,423 |
|
|
|
|
|
|
|
|
|
|
Diluted (loss) income
per share: |
|
|
|
|
|
|
|
|
(Loss) income from continuing
operations |
|
$ (.15) |
|
$ .03 |
|
$ (.35) |
|
$ .30 |
Income from discontinued
operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Diluted (loss) income
per share |
|
$ (.15) |
|
$ .03 |
|
$ (.35) |
|
$ .30 |
|
|
|
|
|
|
|
|
|
Diluted weighted
average number of shares |
|
|
14,094 |
|
|
|
14,548 |
|
|
|
14,143 |
|
|
|
14,531 |
|
Special dividend per
share |
|
$ |
1.25 |
|
|
|
- |
|
|
$ |
1.25 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
STANLEY FURNITURE COMPANY, INC. |
Supplemental Information |
Reconciliation of GAAP to Non-GAAP Operating
Results |
(in thousands, except per share data) |
(unaudited) |
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
Oct. 1, |
|
Sept. 26, |
|
Oct. 1, |
|
Sept. 26, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
|
|
|
Reconciliation
of net (loss) income from continuing operations as reported to net
(loss) income from continuing operations as adjusted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from
continuing operations as reported |
|
$ |
(2,080 |
) |
|
$ |
391 |
|
|
$ |
(4,957 |
) |
|
$ |
4,432 |
|
Less income from CDSOA,
net of tax |
|
|
- |
|
|
|
(8 |
) |
|
|
- |
|
|
|
(4,825 |
) |
Plus tax expense impact
from liquidation of corporate-owned life insurance policies |
|
|
16 |
|
|
|
- |
|
|
|
616 |
|
|
|
- |
|
Net (loss) income from continuing
operations as adjusted |
|
$ |
(2,064 |
) |
|
$ |
383 |
|
|
$ |
(4,341 |
) |
|
$ |
(393 |
) |
|
|
|
|
|
|
|
|
|
Note:We have included the above reconciliation
of reported financial measures according to GAAP to non-GAAP
financial measures because we believe that this reconciliation
provides useful information that allows investors to compare net
(loss) income from continuing operations to that of other periods
by excluding CDSOA receipts (net of taxes) and the tax expense
impact from the liquidation of corporate-owned life insurance
policies. These measures should be considered in addition to
results prepared in accordance with GAAP and should not be
considered a substitute for or superior to GAAP results.
STANLEY FURNITURE COMPANY, INC. |
Consolidated Condensed Balance
Sheets |
(in thousands) |
(unaudited) |
|
|
|
October 1, |
|
December 31, |
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
Assets |
|
|
|
|
Current assets: |
|
|
|
|
Cash |
|
$ |
7,293 |
|
|
$ |
6,497 |
|
Restricted cash |
|
|
663 |
|
|
|
663 |
|
Accounts receivable, net |
|
|
5,142 |
|
|
|
6,925 |
|
Inventories |
|
|
21,349 |
|
|
|
20,934 |
|
Prepaid expenses and other current
assets |
|
|
503 |
|
|
|
959 |
|
|
|
|
|
|
Total current assets |
|
|
34,950 |
|
|
|
35,978 |
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
1,654 |
|
|
|
1,787 |
|
Cash surrender value of
life insurance, net |
|
|
- |
|
|
|
22,253 |
|
Other assets |
|
|
2,940 |
|
|
|
3,128 |
|
|
|
|
|
|
Total assets |
|
$ |
39,544 |
|
|
$ |
63,146 |
|
|
|
|
|
|
Liabilities and
Stockholders' Equity |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts payable |
|
$ |
5,319 |
|
|
$ |
5,883 |
|
Accrued expenses |
|
|
2,388 |
|
|
|
1,701 |
|
|
|
|
|
|
Total current liabilities |
|
|
7,707 |
|
|
|
7,584 |
|
|
|
|
|
|
Other long-term
liabilities |
|
|
8,074 |
|
|
|
7,910 |
|
|
|
|
|
|
Stockholders'
equity |
|
|
23,763 |
|
|
|
47,652 |
|
|
|
|
|
|
Total liabilities and stockholders'
equity |
|
$ |
39,544 |
|
|
$ |
63,146 |
|
|
|
|
|
|
|
|
|
|
STANLEY FURNITURE COMPANY, INC. |
Consolidated Condensed Statements of Cash
Flows |
(in thousands) |
(unaudited) |
|
|
|
|
|
|
|
Nine Months Ended |
|
|
October 1, |
|
September 26, |
|
|
|
2016 |
|
|
|
2015 |
|
Cash flows from
operating activities: |
|
|
|
|
Cash received from customers |
|
$ |
36,818 |
|
|
$ |
42,426 |
|
Cash paid to suppliers and
employees |
|
|
(39,389 |
) |
|
|
(44,091 |
) |
Cash from Continued Dumping and
Subsidy Offset Act |
|
|
- |
|
|
|
4,896 |
|
Income taxes paid, net |
|
|
(415 |
) |
|
|
(103 |
) |
Interest paid, net |
|
|
(193 |
) |
|
|
(670 |
) |
Net cash (used) provided by
operating activities |
|
|
(3,179 |
) |
|
|
2,458 |
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
Proceeds from surrender of
corporate-owned life insurance policies |
|
|
28,139 |
|
|
|
- |
|
Purchase of other assets |
|
|
(14 |
) |
|
|
- |
|
Decrease in restricted cash |
|
|
- |
|
|
|
527 |
|
Net cash provided by investing
activities |
|
|
28,125 |
|
|
|
527 |
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
Payment of insurance policy
loans |
|
|
(5,495 |
) |
|
|
(4,279 |
) |
Purchase and retirement of common
stock |
|
|
(1,012 |
) |
|
|
- |
|
Stock purchase and retirement for
tax withholdings on vesting of restricted awards |
|
|
(14 |
) |
|
|
- |
|
Payment of dividends |
|
|
(17,618 |
) |
|
|
- |
|
Net cash used by financing
activities |
|
|
(24,139 |
) |
|
|
(4,279 |
) |
|
|
|
|
|
Cash flows from
discontinued operations: |
|
|
|
|
Net cash (used) provided by
discontinued operations |
|
|
(11 |
) |
|
|
1,287 |
|
|
|
|
|
|
Net increase (decrease)
in cash and equivalents |
|
|
796 |
|
|
|
(7 |
) |
Cash and equivalents at
beginning of period |
|
|
6,497 |
|
|
|
5,584 |
|
|
|
|
|
|
Cash and
equivalents at end of period |
|
$ |
7,293 |
|
|
$ |
5,577 |
|
|
|
|
|
|
Reconciliation
of net (loss) income to net cash (used) provided by operating
activities: |
|
|
|
|
Net (loss) income |
|
$ |
(4,957 |
) |
|
$ |
4,423 |
|
|
|
|
|
|
Loss from discontinued
operations |
|
|
- |
|
|
|
9 |
|
Depreciation and
amortization |
|
|
350 |
|
|
|
352 |
|
Stock-based
compensation |
|
|
218 |
|
|
|
539 |
|
Changes in assets and
liabilities |
|
|
1,210 |
|
|
|
(2,865 |
) |
Net cash (used)
provided by operating activities |
|
$ |
(3,179 |
) |
|
$ |
2,458 |
|
|
|
|
|
|
|
|
|
|
Stanley Furniture Company, Inc.
Investor Contact: Anita W. Wimmer
(336) 884-7698
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