TORRANCE, CA -- Virco Mfg. Corp. announced first quarter results in the following letter to stockholders from Robert A. Virtue, president and CEO:
Our first quarter results reflect the continued softness in state and municipal funding in general, and public school funding in particular. Sales declined by 2.4% from $24,256,000 in the first quarter of fiscal 2011 to $23,668,000 in the first quarter of fiscal 2012. Although sales declined modestly, pre-tax operating loss improved in the first quarter of fiscal 2012 compared to the comparable period of the prior year from $(5,372,000) to $(4,817,000).
Publicly funded entities are continuing to suffer severe budget challenges. Reduced tax revenues and structural spending deficits continue to adversely impact budgets for education spending, typically the largest line item in a state budget. Most states, cities, counties, and school districts are facing continued reductions in operating budgets requiring cutbacks in personnel and services, leaving less money for replacement furniture. Completions of bond funded construction projects, which is typically when furniture is purchased and installed, are expected to decline in 2012 compared to 2011.
As discussed more fully in the Company's annual report on Form 10-K for the year ended Jan. 31, 2012, during the third quarter of 2011 the Company implemented a voluntary early retirement program to bring the Company's cost structure in line with decreased revenues. When combined with normal attrition rates, the Company reduced its headcount by more than 200 positions and started 2012 with 21% fewer employees than in 2011. This reduction in force was concentrated in manufacturing, and included both direct labor and indirect positions. The intent of the Company is to meet the seasonal demand for production and distribution through more aggressive use of temporary seasonal workers.
Virco M Three Months Ended
(In thousands, except
Net sales $23,668 $24,256
Cost of sales 16,701 17,478
Gross profit 6,967 6,778
administrative & other
expense 11,784 12,150
Loss before income taxes (4,817) (5,372)
Income tax expense 16 28
Net loss $(4,833) $(5,400)
Cash dividend declared $ -- $0.05
Net loss per share -
basic (a) $(0.34) $(0.38)
Weighted average shares
outstanding - basic (a) 14,296 14,205
(a) Net loss per share was calculated based on basic shares
outstanding due to the anti-dilutive effect on the
inclusion of common stock equivalent shares.
4/30/2012 1/31/2012 4/30/2011
--------- ---------- ---------
Current assets $53,881 $45,808 $64,722
Non-current assets 47,516 48,417 50,568
Current liabilities 38,001 26,840 39,059
Non-current liabilities 37,105 36,489 31,741
Stockholders' equity 26,291 30,896 44,490
Despite a modest reduction in first quarter sales, our first quarter operating results showed improvement. Gross profit improved to 29.4% of net sales from 27.9% due to a combination of increased selling prices, reduced factory spending, and stable costs for raw materials, partially offset by reductions in factory overhead absorption. During the first quarter of 2012, the Company reduced production levels by approximately 25% compared to the first quarter of 2011. This had an adverse impact on factory overhead absorption, but due to reduced levels of spending, the unabsorbed factory overhead variance only increased by $100,000. Our 2011 reduction in force and other cost control efforts also enabled us to reduce our selling, general and administrative expenses, both in absolute dollars and as a percentage of sales.
Longer term, underlying demographic trends remain as favorable as at any time since the early 1960s. Annual births in the U.S. are now slightly above their average of 4 million during each of the 19 years of the famed "Baby Boom" (1945-1964). Despite underlying demographic strength, the domestic market for classroom furniture seems likely to remain soft until the economy and the related state and local tax receipts recover.
We continue to aggressively pursue all profitable business in our market, and we continue to bring new products to market in an effort to gain market share. Despite a significant reduction in headcount, our direct sales force has been substantially unaffected and the Company is increasing spending for certain marketing initiatives. We have effectively controlled our balance sheet, specifically inventory, and anticipate the need to increase production levels in the second and third quarters if current order rates continue to increase. Along with our ongoing sales to public, private, and charter schools, the Company continues to accelerate efforts to increase sales to customers who purchase furniture and equipment through the General Services Administration (GSA). Virco is also experiencing growing success in certain international markets. To complement these efforts, Virco is increasing its outreach to customers in colleges and universities nationwide.
SOURCE: Virco Mfg. Corp.
Have something to say? Share your thoughts with us in the comments below.