Furniture Brands International (FBN)

Q3 2010 Earnings Call

November 4, 2010 08:30 am ET

Executives

John Hastings - VP, Communications

Ralph Scozzafava - Chairman of the Board, Chief Executive Officer

Steve Rolls - Senior Vice President, Chief Financial Officer

Analysts

Chad Bolen - Raymond James

Tim Madey - Primary Funds

Stanley Elliott - Stifel Nicolaus

Emerson Whitley - Harvest Capital

Presentation

Operator

Compare to:
Previous Statements by FBN
» Furniture Brands CEO Discusses Q2 2010 Results - Earnings Call Transcript
» Furniture Brands International, Inc. Q1 2010 Earnings Call Transcript
» Furniture Brands International Inc. Q4 2009 Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to the third quarter Furniture Brands earnings conference call. My name is [Stephanie] and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). I would now like to turn the conference over to your host for today, Mr. John Hastings. Please proceed.

John Hastings

Thank you, [Stephanie], and good morning, everyone. Welcome to our third 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, therefore, are subject to risks and uncertainties.

These risks and uncertainties include, without limitation, the risk factors set forth in our Form 10Ks and 10Qs 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-US GAAP financial measures to supplement our US GAAP disclosures. Whenever we disclose such non-US GAAP financial measures, we provide in the company’s earnings announcement a reconciliation of such measures to the most closely applicable US GAAP measure.

Thank you and I will now turn the call over to Ralph.

Ralph Scozzafava

Good morning, everyone. We appreciate you being with us again today. I'll make a few brief remarks about our performance for the quarter and then turn the call over to Steve to take you through some of our financials in more detail.

Yesterday's press release reported net sales of $272 million, a gross margin of 24.8%, and a net loss of $2.1 million or $0.04 per share. That compares to a loss of $23.5 million or $0.49 a share in the third quarter of '09 when we reported sales of $294 million and a gross margin of 23.1%.

Now, the third quarter is a historically weak sales period for us and the 2010 quarter's performance was further impacted by the timing of our week-long shutdown for July 4 in our domestic manufacturing operations. That shutdown occurred in the third quarter of 2010 versus the second quarter of '09.

Adjusting for the timing difference of the shutdown in our decision to exit some unprofitable ready-to-assemble business, our sales for Q3 in 2010 were essentially flat with the 2009 quarter. While the sluggish activity in the consumer spending area is affecting our top line, I'm very encouraged by our continued improvement in our gross margin and the consistent reduction in our administrative costs.

We've created a high degree of operating leverage by leaning out our manufacturing processes, by improving our retail store operations and by taking more costs and waste out of our business model. The fastest way to deliver that leverage to net income and to our shareholders is through top line sales growth. We know that. That's where I spend almost all of my time on a day-to-day basis and that’s where we're making significant investments in our brands.

Lane, Broyhill and Thomasville are three of the best known consumer brands in our industry. They all have dynamic marketing plans for the rest of 2010 and into 2011 that include exciting new products, national TV and print advertising, trade promotions, e-commerce initiatives and local PR events that will drive traffic to our dealer stores and to our own stores. I'll go into more detail on our efforts to drive sales in my closing comments.

At this point, I'll turn it over to Steve.

Steve Rolls

Thanks, Ralph. Yesterday's press release showed sales for the quarter of $272 million compared to $293.7 million in the third quarter of 2009. As Ralph mentioned, a comparison of the quarters is negatively effected by the timing of the plant shutdowns and our RTA business.

On a net basis, the timing of the shutdown reduced the sales comp by approximately $11 million and the RTA business is down $7 million in the third quarter on a year-over-year basis. Gross margin for the quarter was 24.8% compared to 23.1% from the 2009 quarter. We've been able to maintain increased gross margin throughout 2010 even with the lower sales.

The improvements are primarily related to our transition to lean and cellular manufacturing. Today we have converted all of our high volume production lines to a cellular layout that uses our proprietary lean manufacturing method called Edge. The remaining lines are generally at our smaller operations that have a much higher degree of custom work.

Conversion of these lines has much more tailor to the specific operation. One thing to consider in the move to lean and cellular is that the transition typically results in a temporary decline in productivity as the teams acclimate to the new process. We look to maintain and improve our gross margin progress going forward.

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