Stanley Furniture Company, Inc. reported sales and earnings for the second quarter of 2007.
Net sales of $67.7 million decreased 12.6% from the second quarter of 2006. The company recorded a net loss of $(2.4) million or $(.23) per share compared to net income of $3.9 million or $.32 per share in the year ago quarter. The net loss for the second quarter of 2007 included a charge to earnings of $6.6 million ($4.5 million net of taxes) or $.43 per share for the previously announced final termination of the Company's defined benefit pension plan.
For the first half of 2007, net sales of $142.8 million decreased 11.3% from the comparable prior year period. Including the charge to earnings for final termination of the Company's defined benefit pension plan, a net loss of $(700) thousand or $(.07) per share was recorded for the first half of 2007 compared to net income of $9.3 million or $.75 per share in the first half of 2006.
Operating income, excluding pension termination charge of $6.6 million, declined to $3.5 million or 5.2% of net sales in the second quarter of 2007 compared to $6.3 million or 8.1% of net sales in the year-ago quarter. Year-to-date operating income, excluding pension termination charge of $6.6 million, decreased to $6.6 million or 4.6% of net sales compared to $14.9 million or 9.3% of net sales in the first half of 2006. Lower margins resulted primarily from lower sales and production levels together with higher raw material and compensation costs. These factors were partially offset by lower performance based compensation expense due to lower earnings. Sequentially, operating margins improved to 5.2% of net sales in the second quarter of 2007 compared to 4.1% of net sales in the first quarter of 2007. This improvement was primarily due to lower staffing and output levels at one of the Company's factories which was completed late in the first quarter of 2007 and elimination of the associated transition costs.
The Company received $25 million in proceeds from a private note placement in April 2007. This note bears interest at 6.73% per annum and is payable in seven equal annual principle payments starting in May 2011, with the final payment due in May 2017. A portion of the proceeds from this loan, cash on hand, and cash flow from operations was used to repurchase 521,831 shares of the Company's common stock for $11.3 million, pay cash dividends of $2.1 million, and make scheduled debt payments of $1.4 million in the first half of 2007. Working capital, excluding cash and current maturities of long-term debt, increased $3.0 million during the first half of 2007 primarily due to a build in inventories. Approximately $21.3 million is currently authorized by the Company's Board of Directors to repurchase shares of the Company's common stock.
A year ago the Company announced its decision to terminate its defined benefit pension plan. No benefits were accrued under this plan since it was frozen in 1995, at which time Company contributions to a 401K savings plan became the Company's primary retirement benefit. Having received all necessary regulatory approvals, distribution of assets and final plan termination occurred in the second quarter of 2007. As expected, this resulted in a final cash contribution of $1.6 million and a charge to earnings of $6.6 million pre-tax, $4.5 million net of taxes, or $.43 per share. Pension expense related to this plan was approximately $1.2 million pre-tax for 2005 and 2006.
"Business conditions deteriorated slightly as the second quarter progressed," commented Jeffrey R. Scheffer, President and Chief Executive Officer. "While we are disappointed with lower sales and earnings, we believe this is consistent with current industry-wide conditions."
"We are not anticipating any significant improvement in the demand environment for the balance of 2007. Consequently, we have lowered our sales and earnings guidance as set forth below," concluded Scheffer.
Management offers the following guidance. This guidance excludes any potential receipt of funds under the Continued Dumping and Subsidy Offset Act of 2000 ("CDSOA") involving tariffs collected by the U.S. government on wooden bedroom furniture imported from China.
Total year 2007 guidance:
- Net sales are expected to be in the range of $280 million to $290 million, compared to $307.6 million in 2006.
- Operating income is expected to be in the range of $12.7 million to $14.2 million (excluding a charge to earnings of $6.6 million for the pension plan termination).
- Earnings per share are expected to be in the range of $.65 to $.75 (excluding a charge to earnings of $.42 for the pension plan termination) compared to $1.17 for 2006, excluding income from CDSOA.
Third quarter ending September 29, 2007 guidance:
- Net sales are expected to be in the range of $70 million to $74 million, compared to sales of $75.9 million in the third quarter of 2006.
- Operating income is expected to be in the range of $3.2 million to $3.8 million.
- Earnings per share are expected to be in the range of $.16 to $.20 compared to $.26 in the third quarter of 2006.
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. Manufacturing facilities are located in Stanleytown and Martinsville, Va. and Robbinsville and Lexington, N.C. Its common stock is traded on the Nasdaq stock market under the symbol STLY.
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