Stanley Furniture Company Inc. (STLY)
Q3 2009 Earnings Call
October 15, 2009; 09:00am ET
Albert Prillaman - Chairman & Chief Executive Officer
Glenn Prillaman - President & Chief Operating Officer
Douglas Payne - Executive Vice President
John Baugh - Stifel Nicolaus
Budd Bugatch - Raymond James
Tucker Anderson - Cumberland Associates
Previous Statements by STLY
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It is now my pleasure to introduce your host, Mr. Douglas Payne, Executive Vice President for Stanley Furniture. Thank you, Mr. Payne. You may begin.
Thank you, Rob. Good morning. Welcome to our quarterly conference call to review our third quarter 2009 operating results. We appreciate your participation. Joining me this morning is Albert Prillaman, our Chairman and CEO; and Glenn Prillaman, our President and Chief Operating Officer. Because of some sales meeting in the upcoming international home furnishings market in High Point, North Carolina, the three of us are in separate locations this morning.
During our call this morning we may make forward-looking statements which are subject to risks and uncertainties. A discussion of the factors that could cause actual results to differ materially from our expectations is contained in the company’s SEC filings and the Press Release, announcing our third quarter 2009 results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise any forward-looking statements to reflect events or circumstances after today’s call.
With that out of the way, I believe Albert has some opening comments.
Thank you Doug. Good morning everyone. It was a difficult quarter and a disappointing quarter. After a sequential increase in sales in the second quarter, we were kind of optimistic for the fall selling season, but business drifted off again in the third quarter.
I remind you that we are in the, let’s call it the luxury market of the wood business. Our customer is the jumbo loan house buyer, and that market remains severely depressed, and that makes our business very difficult. The lower sales also made it more difficult in our manufacturing operations. Glenn will address that, and Doug will address our balance sheet, which as you can see from our press release, remains very strong.
So, Glenn let me turn it over to you first, and you make any comments about the operating results, marketing initiatives and so forth.
Okay, thank you. Let me also say that we are disappointed in the results. We recognize that our market segment continues to struggle, and we are currently acting on certain cost reduction efforts to lower our break-even point. A specific example of such is our offering an early retirement program, which will reduce our headcount as we move into next year.
In addition, although it’s too early to share details, we are looking at multiple options to better utilize our capacity. On the sales and marketing side, we are extremely optimistic about the repositioning of the Young America brand, as the brand you can trust, and we once again think we will create a niche in the marketplace for this product category that we can own.
What we are doing is costly and it creates some short-term interruption inside our factories and with our retail distribution. It has and will continue to contribute to operating income challenges, but we do believe we have made the right decision strategically for the future, for the product line and for the company’s profitability.
On the Stanley Furniture adult side of our product line, we continue to believe in a blended strategy of domestic production supplemented by overseas sourcing, and we are currently seeing some promising results from last market’s introduction, even though the overall marketplace is certainly lack-lustered.
Thank you Glenn. Doug, why don’t you take us through the balance sheet, and any color on the financials that you think are appropriate?
Okay. As Albert indicated, our balance sheet remains in excellent shape. We ended the quarter with $42.4 million of cash on hand, and our total debt is $27.9 million. The $42.4 million of cash on hand is up about $1.7 million from the end of the second quarter. We began the year with $44 million of cash on hand, and we made a scheduled debt payment of $1.4 million during the second quarter. Excluding this payment our cash on hand at the end of the third quarter is about where we started the year.
Working capital excluding cash and current maturities and long-term debt decreased to $46.1 million at the end of the third quarter, which compares to $53.8 million a year ago and $54.5 million at year-end 2008. In response to the lower sales, we have quickly adjusted our inventory levels.
Inventories declined $12.2 million or 26% from the year ago quarter, and have declined $12 million since December 2008. Accounts receivable have declined 28% from a year ago, to the end of the third quarter at $18.1 million. While we’ve experienced some slower pay practices as you might expect due to the recessionary environment, our day sales outstanding and accounts receivable is within our normal historical range, and in keeping with our balance sheet management, we did not repurchase any stock or pay cash dividends during the quarter.
One other thing I might point out, the consolidation of our Lexington, North Carolina warehouse operation into other company-owned warehouse space is progressing slightly ahead of schedule, and we expect to be complete during the fourth quarter.