High Point, NC February 25, 2015/Businesswire/ -- Stanley Furniture Company, Inc. (Nasdaq-NGS:STLY) today reported sales and operating results for the fourth quarter and total year ending December 31, 2014.
Sales for Stanley Furniture’s fourth quarter were up just over 20% year-over-year and up 3.5% for total year 2014. The company grew sales of continuing operations despite disruptions from the discontinuation of its Young America brand announced in April. The quarter represented improved operating results with gross margins improving to 23.3% and SG&A improving to 19.5%, within the company’s previously guided range of $3-$3.5 million. Operating income for the quarter was $599,000 compared to a loss of $1.7 million in the prior year quarter, excluding restructuring charges.
“We were pleased with our momentum exiting the year. The distractions from discontinued operations subsided and we are fully focused on profitable growth. In 2015 we look forward to growing sales, leveraging our cost structure and creating value for our shareholders,” stated Glenn Prillaman, President and Chief Executive Officer. “Our multi-year effort to operate competitively and grow in our industry’s changing marketplace has not been without missteps. However, the opportunity that lies ahead for our company is now showing through sales gains.”
·Net sales increased 20.8% to $16.0 million compared to $13.3 million in the fourth quarterof 2013.
·Gross margin improved to 23.3% compared to 19.3% in the fourth quarter of 2013.
·Selling, general and administrative expenses decreased to $3.1 million (19.5% of netsales) compared to $4.2 million (31.9% of net sales) in the fourth quarter of 2013,excluding a restructuring charge of $238,000 included in the prior year quarter expensesfor consolidation and relocation of the corporate office.
· Operating income was $599,000 (3.7% of net sales) compared to a loss of $1.7 million in the prior year quarter, excluding restructuring charges.
· Other expenses includes an impairment charge of $2.5 million for an asset funded by settlements collected by the American Furniture Manufacturers Committee of Legal Trade and set aside for future legal expenses incurred by the committee.
· Net loss from continuing operations was $6,000 compared to a net loss in the prior year quarter of $2.4 million, excluding asset impairment and restructuring charges.
· Cash surrender value increased $15.0 million as cash was used to pay down loans and accrued interest taken against cash surrender value on life insurance policies used to fund a legacy deferred compensation plan. This loan pay-down will reduce annual interest expense to approximately $1.4 million to $1.5 million and the company’s liquidity remains unchanged as access to these funds remains readily available.
· As of December 31, 2014, the company’s financial position reflected $21.9 million in cash, restricted cash and cash surrender value from life insurance policies.
Total Year 2014:
· Net sales increased 3.5% to $60.6 million compared to $58.6 million in 2013.
· Gross margin declined slightly to 20.4% compared to 21.5% in 2013, excluding a $354,000 charge taken in second quarter of 2014 for a lease obligation related to a warehouse that was no longer being utilized.
· Selling, general and administrative expenses decreased to $14.9 million (24.6% of net sales) compared to $15.5 million (26.5% of net sales) in 2013, excluding a restructuring charge of $770,000 included in the 2013 expenses for consolidation and relocation of the corporate office.
· Operating loss was $2.5 million compared to a loss of $2.9 million in 2013, excluding restructuring charges.
· Net loss from continuing operations was $5.0 million compared to a net loss of $5.4 million in 2013, excluding asset impairment and restructuring charges.
Loss from discontinued operations for the fourth quarter was $682,000 and consisted mostly of ongoing warehouse and shipping cost, facility clean-up and exit cost and additional asset impairment charges. Total year loss from discontinued operations was $22 million and consisted of accelerated depreciation and asset impairments, losses from final operations and salary continuation costs. Overall cash generated from discontinued operations during the fourth quarter was $2.3 million and $10 million for the total year. The estimated cash remaining to collect on sale of inventory and customer receivables, net of liabilities and ongoing expenses is expected to be approximately $1.1 million.
Asset Impairment Charge
Other expense of $2.5 in the fourth quarter includes the impairment of prepaid legal services funded by settlements collected by the American Furniture Manufacturers Committee of Legal Trade (CLT) from 2010 through 2014 in connection with wooden bedroom furniture imported from China. These settlements had been set aside for future legal expenses incurred as a member of the CLT. The company’s decision in the fourth quarter to discontinue lite manufacturing for wooden bedroom furniture in its Martinsville, Virginia facility reduces our influence with the CLT, which reduces control over this asset. Therefore, the company wrote the asset off during the quarter.
Cash, restricted cash and cash available from cash surrender value of life insurance policies was $21.9 million at December 31, 2014. Working capital, excluding cash and restricted cash, short-term investments and discontinued operations, increased to $21.4 million compared to $19.9 million at December 31, 2013. The increase was primarily the result of a decrease in accrued salaries, wages and benefits tied to the company’s efforts to properly align its organizational structure and higher inventory levels. “We are pleased to have maintained such a strong balance sheet during the major changes we have taken our company through over the past year. We have minimal capital expenditures planned for 2015, and we expect only a nominal investment in working capital related to the launch of new product lines,” said Prillaman.
In 2015, the company expects to continue to maintain a healthy balance sheet, grow revenues, expand margins and generate positive net income. It expects to execute its current strategy offering diversified product lines through multiple channels of distribution while executing an efficient sourcing model and further developing the Stanley Furniture brand in the global marketplace.
“Given the size of our company and market share lost during our multi-year disruptions due to change, our management team will not be satisfied with marginal growth,” stated Prillaman. “While sales in any particular quarter remain very difficult to predict, we feel confident in our position with customers.”
Prior Period Revisions
The company identified two errors during the current year that will result in a revision to its prior year financials. The first error was disclosed and remediated prior to year end and related to the accounting for the deferred compensation liability associated with its legacy deferred compensation plan. The second error related to not properly expensing ocean freight and the related accounts payable. The company does not believe that the errors were material to any of the company’s previously filed financial statements, but has determined that correcting the cumulative amount of the error would be material to the fiscal 2014 consolidated financial statements. Consequently, the company will revise its previously-issued consolidated financial statements commencing with its Form 10-K for the year ending December 31, 2014. The impact
of the revision of the Company’s Consolidated Statements of Operations is to increase the net loss by 1.6% in 2013, 4.3% in the fourth quarter of 2013 and decrease net income 1.3% in 2012.
The revisions have no impact on Cash Flows for any period. The cumulative impact of the error corrections to the Company’s Consolidated Balance Sheet and Statement of Stockholders Equity will result in recognizing an additional deferred compensation liability of $3.8 million at December 31, 2013 and $4.3 million at December 31, 2012, with a corresponding decrease in retained earnings and accumulated other comprehensive loss and an increase in accounts payable of $1.1 million and a corresponding decrease in retained earnings at December 2013. “The material weaknesses identified in our internal controls have either been remediated prior to year end or will be remediated during the first quarter of 2015,” commented Prillaman. “Management and the Board of Directors are committed to maintaining a strong internal control environment, and believe that these efforts will improve our control environment.”
About the Company
Established in 1924, Stanley Furniture Company, Inc. is a leading design, marketing and sourcing resource in the upscale segment of the wood residential market. The company offers a diversified product line supported by an overseas sourcing model. The company distributes and markets its Stanley Furniture brand through a network of carefully chosen retailers and interior designers worldwide. The company’s common stock is traded on the NASDAQ stock market under the symbol STLY.
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