Furniture Brands International, Inc. (FBN)
Q1 2010 Earnings Call Transcript
May 6, 2010 8:30 am ET
John Hastings – VP, Communications
Ralph Scozzafava – Chairman and CEO
Steve Rolls – SVP and CFO
Barry Vogel – Barry Vogel & Associates
Budd Bugatch – Raymond James
Stanley Elliott – Stifel Nicolaus
Previous Statements by FBN
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Good day ladies and gentlemen, and welcome to the quarter one 2010 Furniture Brands earnings conference call. My name is Veronica, 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) As a reminder, this conference is being recorded for replay purposes.
I would now like to turn the conference over to your host for today, Mr. John Hastings. Please proceed, Mr. Hastings.
Thank you Veronica and good morning everyone, and welcome to our first quarter earnings conference call. With us today are Ralph Scozzafava, Chairman of the Board and Chief Executive Officer; and Steve Rolls, Senior VP 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 most recent annual report on Form 10-K 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 our 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.
Thanks John. Good morning everybody. We appreciate you being with us again today. I will make a few brief remarks about our performance for the quarter, and then I will turn it over to Steve Rolls for more details.
Yesterday as earnings release reported that our topline sales in the first quarter of 2010 totaled $322 million, down 9.7% from a year ago, and up 12.9% from the fourth quarter of ’09. This sequential increase is the most meaningful we have seen on the topline in sometime. The earnings release also reported that our gross margin was 26.2% compared to 22.5% in the ’09 quarter.
Since Furniture Brands launched our strategic plan in ’08, we stated that our gross margin will be a key indicator of our progress. While I am pleased with our progress this quarter, I think we still have room for improvement. Also in yesterday’s release, we reported net income of $3.5 million or $0.07 a share. One of the main objectives of our efforts has been to lower the breakeven point for the company, so that we could generate positive shareholder returns in any economic environment. To achieve positive earnings on sales of $322 million speaks of the progress that our team has made in taking costs out of the company and exiting on profitable business.
As our consumer-tested products gained traction in the marketplace, we expect to deliver more earnings power through a smarter and a more efficient company going forward. Steve will now take us through the results in more detail and discuss the drivers of the financial statements. Steve?
All right. Thanks Ralph. As Ralph said, sales for the quarter were $322 million, up 12.9% sequentially and down 9.7% from the first quarter of 2009. Sales in the first quarter of 2009 included the liquidation of Ralph Lauren inventory after we exited that contract at the end of 2008. Revenues in the 2010 quarter also reflect our exiting some ready-to-assemble business in late 2009. In both cases, this was on profitable business. Those two factors attributed to approximately 40% of the year-over-year sales decline. In the past, we might have kept that business just – Hello?
Mr. Hastings, you are on the line.
I am not sure where that cut back, so I will start back a little bit about the revenues being down year-over-year. The two factors that I talked about are attributed to about 40% of the year-over-year sales decline. In the past, we might have kept that business just to keep the factories running absorb overhead, I think the lesser we have learned over the last two years is to take as many costs out of the business as possible, because you can’t count on a rising or an even stable topline to absorb all the costs.
Today, as business conditions and demand improve, we have a very scalable manufacturing model that can add capacity with lean manufacturing efficiencies and eventually through additional shifts. Gross margin for the quarter of 26.2% is the highest reported quarterly gross margin since the fourth quarter of 2004, and shows a 370 basis points increase from the first quarter of 2009. More than half of the improvement was due to supply chain improvements. A key initiative for the supply chain team in 2010 is the continued rollout of lean manufacturing across the company. This is not a new process, but an extension of the very successful EDGE program that Hickory Chair created more than a decade ago.