STLY

Stanley Furniture Company, Inc. (STLY)

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Stanley Furniture Company, Inc. (STLY)

Q3 2008 Earnings Call

October 14, 2008 9:00 am ET

Executives

Douglas Payne - Executive Vice President

Albert Prillaman – Chairman, Chief Executive Officer

Analysts

John Baugh – Stifel Nicolaus

Budd Bugatch – Raymond James

Todd Schwartzman – Sidoti and Company

Presentation

Operator

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

Douglas Payne

Welcome to our quarterly conference call to review our third quarter 2008 operating results. We appreciate your participation. Joining me this morning is Albert Prillaman, our Chairman and CEO. During our call this morning we may make forward-looking statements which are subject to risks 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 third quarter 2008 results.

Any forward-looking statements 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, Albert has some opening comments.

Albert Prillaman

The sales and earnings for the quarter were within the guidance range we had provided in mid July. Net sales were down a disappointing 25%. Of course we had some restruction charges in the quarter as we have consolidated two plants into one and that continues to go well as we previously indicated.

The first nine months sales were down about 18% and year to date operating income about $3 million or 1.7% of sales excluding the restructuring charges, operation income was about the break even level for the quarter because of the significant sales decline, but frankly we were pleased to be at near that break even level with that much of a decline.

The manufacturing consolidation as I said earlier is going well. It's difficult, but we're very pleased with what that will do for us as we control our costs in the future. We continue to generate very positive cash flow and our financial position just continues to improve as we move through this recessionary climate.

I will now ask Doug to comment on the balance sheet.

Douglas Payne

As Albert indicated, our balance sheet continues to be in excellent shape. We generated strong cash flow from operations, reduced working capital, increased cash on hand to $36.7 million and continue to improve our financial position in the third quarter.

Cash from operations during the first nine months of 2008 was used to pay cash dividends of $3.1 million, next scheduled debt payments of $1.4 million, fund capital expenditures of $1.5 million, and increase cash on hand by $5.1 million.

Working capital excluding cash and current maturities of long term debt decreased to $53.8 million at the end of the third quarter compared to $73 million a year ago. Inventories declined 24% to $47.5 million, down from $62.3 million at the end of the third quarter of 2007. Accounts receivable also declined 29% to $25.1 million from $35.3 million a year ago.

Base sales outstanding and accounts receivable equaled about 46 days at the end of the quarter and is well within our normal range. Approximately $19 million remains authorized by the Board of Directors to repurchase stock. As you know, we curtailed our share repurchases in the latter portion of 2007. We continue to believe now is the time to be more conservative and maintain a very strong financial position in these uncertain times.

Albert Prillaman

As we go forward the recessionary climate has continued. The last ten days we've actually seen another downturn for obvious reasons, but hopefully that will soon correct itself. We're not changing the guidance that we gave in mid July, and in general terms what that means for the year, we expect operating profit in the $2 million to $4 million range, excluding the various restructuring charges that we have.

As we look at our business, we certainly believe that we have well positioned ourselves from a balance sheet viewpoint as we go through this recession, but at some point in time we're very aware of the fact that we've got to start growing again. If you look at our business in two segments, the Young America business is pretty healthy. Its downturn has been fairly modest over the past year.

Where we've really had some difficulties and the product line that needs some work done is our Stanley line, our adult business, our bedroom, dining room, home office, home entertainment. And certainly when you get into our adult dining room and bedroom business, it is very much a postponeable category, and it has suffered more during this slow down. And that's fairly typical over the last several downturns, but we're working very hard to improve that. We're very pleased.

We have already introduced some of the product that we plan to bring to the October market. We've had very positive results on that. We'll actually be shipping that in November. That's our Coastal Living collection which we're very excited about going into next year. And we have formulated plans to really show off that side of our business.

So as we come out of this thing, and we will come out of it at some point, we like our position. We like our balance sheet and we plan to be a strong performing company again as we come through this recession.

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