Stanley Furniture Company, Inc. (STLY)

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Stanley Furniture

Q4 2007 Earnings Call

January 29, 2008 9:00 am ET


Douglas I. Payne - Executive Vice President, Finance & Administration and Secretary

Jeffrey R. Scheffer - Chairman, President and Chief Executive Officer


Budd Bugatch - Raymond James

Todd Schwartzman - Sidoti

Jimmy Yu - Aristos Capital Management

John Baugh - Stifel Nicolaus

Charlie Carter – [inaudible]



Welcome to the Stanley Furniture 2007 operating results. (Operator Instructions)

It is now my pleasure to introduce your host, Mr. Douglas Payne, Executive Vice President for Stanley Furniture. Thank you, Mr. Payne, you may now begin.

Douglas I. Payne

Thank you, Jackie. Good morning and welcome to our quarterly conference call to review our 2007 operating results. We appreciate your participation. Joining me this morning is Jeff Scheffer, our Chairman, President, and CEO.

During our call this morning, we may make forward-looking statements which are subject to risks and uncertainties. The 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 2007 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.

At this time, Jeff has some opening comments.

Jeffrey R. Scheffer

Thanks, Doug and good morning, everyone. I’ll make a few comments on the year just ended, current business conditions, and our guidance going forward. Doug will then take you through the balance sheet, and after that we’ll open the call to your questions.

Obviously 2007 was a challenging year for both the furniture industry and Stanley. Knowing that many of you have moved on from ‘07 and are looking ahead to ’08 -- if not ’09 -- I am not going to rehash our ‘07 results contained in last evening’s press release.

However, I believe it is worth pointing out the considerable progress we made in the business last year. In 2007, we worked hard to better align our production levels with demand. During the first quarter we rationalized our Robbinsville, North Carolina production levels by reducing headcount there approximately 40%.

During the fourth quarter, we began the process of converting our Martinsville, Virginia production into our Stanley Town, Virginia plant and converting that Martinsville facility into a warehousing operation. In addition, we continued our use of lean business principles as part of our continuous improvement efforts.

During the year, we conducted 127 week-long rapid improvement events, involving 437, or nearly 22%, of our associates. Most of these events focus on the creation of manufacturing cells, establishing standard work and reducing machine time setup. These actions still leave us ample capacity to grow the business and position us to leverage operating improvements when business conditions improve.

Looking ahead to 2008, we have planned our year as if business conditions will range from current demand levels to a modestly worse environment. Very frankly, we have yet to see a bottom to this current cycle and would not expect to see any significant improvement in business conditions until housing turns up and unfortunately it appears that could be a while.

That said, our total year 2008 guidance is as follows -- and I would point out this guidance excludes any potential receipt of additional funds under the CDSOA.

Total year ‘08 net sales are expected to be in the range of $255 million to $268 million. That’s a 5% to 10% decrease range there compared to ‘07, the year just ended, where sales were $282.8 million. Operating income is expected to be in the range of $9 million to $12 million; that excludes a pre-tax charge to earnings of about $1 million for the manufacturing consolidation I mentioned a moment ago.

The company’s effective tax rate is expected to be in the range of 32% to 32.5%. In ‘08, earnings per share are expected to be in the range of $0.40 to $0.60 per share and that excludes a charge to earnings of about $0.06 for the manufacturing consolidation compared to $0.54 last year which I think you know excluded the pension plan termination, restructuring charge, and CDSOA funds.

For the first quarter of ‘08, our guidance is as follows: net sales are expected to be in the range of $62 million to $66 million compared to sales of $75.1 million in the first quarter of ’07. While year over year this is a significant reduction, I would point that sequentially this guidance is in line with our most recent quarter.

Operating income is expected to be in the range of $2.3 million to $3 million, excluding a pre-tax charge to earnings of about $400,000 for the manufacturing consolidation.

Earnings per share are expected to be in the range of $0.10 to $0.15. That excludes a restructuring charge of about $0.03 compared to $0.15 in the year-ago quarter.

Obviously, these remain very challenging times for our industry, and we are not sure how much deeper and longer this cycle will go. As such, we will continue to manage the business prudently. Our financial position remains strong and I’m confident we have an enthusiastic and engaged management team that is preparing the business for the eventual upturn.

Douglas I. Payne

Thank you, Jeff. Disciplined allocation of capital remains a high priority. As a result of our strong cash flow, our excellent financial position and positive long-term outlook, we continue to invest in the future of the business and use significant amounts of cash to repurchase our stock and pay cash dividends.

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