Q2 2010 Earnings Call
August 5, 2010 17:00 p.m. ET
John Hastings – VP, Communications
Ralph Scozzafava – Chairman and CEO
Steve Rolls – SVP and CFO
John Baugh - Stifel Nicolaus
Budd Bugatch – Raymond James
Maggie Gilliam - Gilliam & Company
Previous Statements by FBN
» Furniture Brands International, Inc. Q1 2010 Earnings Call Transcript
» Furniture Brands International Inc. Q4 2009 Earnings Call Transcript
» Furniture Brands International, Inc. Q3 2009 Earnings Call Transcript
Good day ladies and gentlemen, and welcome to the second quarter 2010 Furniture Brands earnings conference call. [Operator instructions.] I would now like to turn the conference over to your host for today, Mr. John Hastings. Please proceed sir.
Thank you operator, and good morning everyone. Welcome to our second quarter earnings conference call. With us today are Ralph Scozzafava, chairman of the board and chief executive officer; and Steve Rolls, senior vice president and chief financial officer.
During our prepared comments and the question-and-answer session that follows, we will be making statements expressing the beliefs and expectations of management regarding future performance. Any such statements are forward-looking statements, which reflect our current views with respect to future events and are based on assumptions, and are therefore limited to certain risks and uncertainties.
These risks and uncertainties include, without limitation, the risk factors set forth in our Form 10-Ks and 10-Qs filed with the SEC and all of our subsequent SEC filings. We do not undertake or plan to update these forward-looking statements even though our situation may change.
During today’s call, management comments will use certain non-U.S. GAAP financial measures to supplement our U.S. GAAP disclosures. Whenever we disclose such non- U.S. GAAP financial measures, we provide in the company’s earnings announcement a reconciliation of such measures to the most closely applicable U.S. GAAP measure.
Thank you and I will now turn the call over to Ralph.
Thanks John. Good morning. We appreciate you being with us again today. I'll make a few brief remarks about our performance for the quarter, and then I'll turn the call over to Steve.
In yesterday's second quarter press release, we reported net sales of $289.5 million, a gross margin of 25.7%, and earnings of $4.2 million, or $0.09 a share. That's a significant improvement over last year's loss of $16 million and gross profit margin of 21.4% on the same sales level. We've made solid progress here, and we've also been effective in managing our expenses and our cash.
Furniture Brands' top priority going forward is increasing profitable top line sales. Sales were up slightly from a year ago, even without nearly $12 million in ready-to-assemble business. Now we like that business segment, and we have good plans to grow it, but with branded products that are a better fit for our capabilities.
In our traditional core businesses, we're seeing strength in mid-priced upholstery with Lane and Broyhill taking advantage of that dynamic. We're also seeing a rebound at the high end of the market, as designers and their clients are moving forward with projects that may have been postponed over the past year.
Much of our product spectrum between Lane, Broyhill, and our designer brands is occupied by Thomasville, and their retail store performance is one of the best pieces of news this quarter. Same-store comp sales were up 21% this quarter, and our retail gross profit continues to improve year over year and sequentially. Creating a profitable retail business segment is a key element of our long term value strategy, and the Thomasville store performance tells me we have the right team in place and they're doing good work.
Steve will now take us through the results and discuss the drivers of the financial statements. Steve?
Thanks Ralph. Yesterday's press release showed sales for the quarter of $289.5 million, up slightly from the second quarter of 2009. As Ralph said, sales in the 2009 quarter included an incremental $12 million from two lines of ready-to-assemble business that we are no longer selling. Ralph will address our RTA strategy in his closing comments.
Gross margin for the quarter was 25.7%, compared to 21.4% in the 2009 quarter. We maintained the significant improvement in gross margin that we reported in the first quarter. On a sequential basis, factory downtime increased only $1.3 million on a $33 million decrease in sales. This shows that while we're creating the right manufacturing footprint, while getting better utilization from our plants and our people. And remember that low factory downtime doesn't mean that we're at capacity. A broad increase in demand can be met at our current facilities through second shifts.
Our company-owned retail stores also continued to improve. Gross margin at our 71 owned stores and showrooms improved 240 basis points to 41.7%, and contributed an incremental 60 basis points to our overall gross margin improvement.
The incremental retail margin improvement illustrates the profit contribution of a better run retail operation. The 40 Thomasville stores we've operated for more than 15 months showed a same-store sales increase of 21% for the second quarter of 2010 versus 2009. This is the second straight quarter of a double-digit improvement in our core retail segment, and it speaks to the power of the Thomasville brand in the marketplace, and the improved marketing efforts to drive consumers to our stores and our dealers.
SG&A for the quarter was $75.2 million, which includes approximately $1 million in costs associated with closed retail stores. During the quarter we reduced by approximately $4 million a $9.1 million reserve established at the end of 2009, in anticipation of international trade compliance issues. This reduction had a small cash impact and primarily reflects our actions during 2010 to manage our potential exposure to these trade issues. Additional selected items for both quarters are detailed in a table attached to the press release.