Stanley Furniture Company, Inc. (STLY)

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Stanley Furniture Company, Inc. (STLY)

Q2 2008 Earnings Call

July 15, 2008 9:00 am ET


Douglas I. Payne – Executive Vice President – Finance & Administration & Secretary

Jeffery R. Scheffer – Chairman of the Board, President & Chief Executive Officer

Albert L. Prillaman – Lead Director


Budd Bugatch – Raymond James

Analyst for John Baugh – Stifel Nicolaus & Company, Inc.

Joseph Weiss – JRW Associates

Todd Schwartzmann – Sidoti & Company



Welcome to the Stanley Furniture second quarter investor conference call. (Operator Instructions) It is now my pleasure to introduce your host Douglas Payne, Executive Vice President for Stanley Furniture.

Douglas I. Payne

Welcome to our quarterly conference call to review our second quarter 2008 operating results. We appreciate your participation. Joining me this morning is Jeff Scheffer, our President and CEO and Albert Prillaman, our Chairman.

During our call this morning we may make forward-looking statements which are subject to risk and uncertainties. A discussion of factors that could cause actual results to differ materially from our expectations are contained in the company’s SEC filings and the press release announcing our second quarter 2008 results. Any forward-looking statements speak 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, at this time Jeff has some opening comments.

Jeffery R. Scheffer

I’ll make just a few comments on current business conditions, our announcement of last week and our revised guidance for the year. Doug will then take you through the balance sheet before we open the call to your questions. As you are undoubtedly aware, business conditions remain extremely difficult. The perfect storm of historically low levels of housing activity, consumer confidence and personal disposal income has us still searching for a bottom in this current cycle. And frankly, we don’t see much out there that would suggest business turning up any time soon. That said, we’re determined to remain profitable at these lower volume levels and are committed to taking the steps necessary to lower our cost structure.

We’re looking at our business from top to bottom and last week announced the consolidation of our Lexington North Carolina production in to our Robbinsville North Carolina facility. Once completed, this consolidation will result in $5 to $6 million in annual pre-tax savings while still providing us enough capacity to grow our volume back to historical levels and beyond. We are also eliminating two executive level positions, offering a voluntary early retirement incentive to qualified salary associates and we are continuing to look at ways throughout the business to enhance our profitability and competitiveness. As difficult as these actions are now, I’m confident we are positioning the business for success.

As for the revised guidance we provided in last evening’s release, you should know it reflects business conditions continuing at current levels and not taking another leg down.

Douglas I. Payne

Our balance sheet continues to be in excellent shape and reflects our view that now is the time to be more conservative and maintain a very strong financial position in these uncertain and somewhat unprecedented times. Cash from operations during the first half of 2008 was used to pay cash dividends of $2.1 million, make scheduled debt payments of $1.4 million, fund capital expenditures of $584,000 and increase cash on hand by $2.2 million. Working capital excluding cash and current maturities of long term debt decreased to $57.3 million at the end of the second quarter compared to $71.6 million a year ago.

Inventories declined 19% to $51.1 million down from $62.9 million at the end of the second quarter of 2007. Accounts receivables also declined 16% to $25.9 million from $31 million a year ago. Our days sales outstanding in accounts receivables equal 43 days at the end of the second quarter representing a slight improvement over the prior year and well within our normal historical range. Approximately $19 million is currently authorized by our board of directors to repurchase stock. We curtailed our share repurchases in the later portion of 2007. We believe now is the time to be more conservative and to maintain a very strong financial position as we work our way through the current business environment.

Jeffery R. Scheffer

We’ll open the call to questions.

Question-and-Answer Session

(Operator Instructions) Your first question comes from Budd Bugatch – Raymond James.

Budd Bugatch – Raymond James

I don’t know that there’s any questions to really ask about the current state, I think we all understand what’s going on. My real question goes to the outlook for the business or the structure of the business somewhat longer term. Whenever it is we come out of this what does the business look like in terms of its gross margin potential, SG&A, operating margin potential and returns on capital? I’m sure the board is looking at this, I would hope the board is looking at it longer term and saying, “Okay what does it look like?” I think ultimately before you peaked out 25% or 26% or 27% gross margins and 12% or 13% op margins. What do we look for down the road?

Jeffery R. Scheffer

Bud, I think a couple of assumptions first of all. One, business we believe will come back, exactly when we’re clueless at this point but we believe it will come back. We’re not sure it will come back as typically as hard as it has in the past. We think this recovery is going to be probably slower than the ones we’ve been through prior. The actions we’re taking now are to structure our company not just for these times but also for those times when we come out.

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