Furniture Brands International, Inc. ( FBN)

Q2 2011 Earnings Call

August 4, 2011 8:30 am ET

Executives

Steven G. Rolls – Senior Vice President and Chief Financial Officer

Ralph P. Scozzafava – Chairman and Chief Executive Officer

Analysts

Brad Thomas – Keybanc Capital Markets

Todd Schwartzman – Sidoti & Company

Chad Bolen – Raymond James & Associates

Barry Vogel – Barry Vogel & Associates

Maggie Gilliam – Gilliam & Co.

John Baugh – Stifel Nicolaus

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Furniture Brands International, Inc. Earnings Conference Call. My name is Tiana and I will the 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, today’s conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today Mr. Steve Rolls, Chief Financial Officer. Please proceed.

Steven G. Rolls

Thank you, operator. Good morning, everyone, and thanks for joining us today. I’ll take a moment to read the Safe Harbor statement before I go over the financial results for our second quarter. Ralph Scozzafava, our Chairman and Chief Executive Officer will then follow with a discussion of the highlights in the quarter.

I need to remind you that certain comments made during this call may contain forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. Our actual results and future financial conditions may differ materially from those expressed in any such forward-looking statements as a result of many factors that may be outside of our control. Please refer to our SEC filings, including our annual report filed on Form 10-K for a complete discussion of the major risks and uncertainties that may affect our business. The forward-looking statements made today are as of the date of this call and we do not undertake any obligation to update our forward-looking statements.

If you do not have a copy of yesterday’s press release, you may obtain one along with copies of prior press releases and past SEC filings by linking through to the Investor Relations page of our website, furniturebrands.com.

Now, I’d like to move on to our financial results.

As reported in the last evening’s financial results press release, total sales were $296.2 million in the second quarter, an increase of 2.3% over the same period last year. On a sequential basis, sales in the second quarter were almost flat versus the first quarter of 2011.

Gross margin for the quarter was 24.8%, down compared to 25.7% last year. The decrease in gross margin on a year-over-year basis was driven largely by higher material costs relative to sales price and inventory write-downs. We continue to work on our ongoing productivity and price initiatives to help mitigate the impact of the cost pressures that we are facing.

SG&A expenses totaled $79.3 million for the second quarter, compared to $75.2 million last year and down slightly from the $79.6 million level we reported in the first quarter of 2010. On a year-over-year basis the increase in SG&A was primarily due to higher advertising expense and favorable settlements in 2010 related to certain international tax and trade compliance matters. We expect SG&A for the third quarter of fiscal 2011 to be slightly above the just reported second quarter levels and we will update you about our expectation for fiscal fourth quarter SG&A levels on our third quarter earnings conference call.

On the retail side of our business, the 45 Thomasville stores that we have operated for more than 15 months showed a same-store sales increase of 8% this quarter. Even at this quarter, we were up against a strong 21% same-store sales comp in the second quarter of 2010. We are pleased with Thomasville’s same-stores sales performance. This represents the sixth straight quarter of same-store sales growth.

Our 66 total company-owned retail stores at the end of second quarter was lower than our 71 stores at the end of the second quarter of 2010. Even with this reduction in stores, we reported flat retail sales on year-over-year basis and a slight reduction in retail operating losses.

Inventory at quarter end was $246 million versus $251 million in the second quarter of 2010. We expect to end this year with inventory levels down approximately $10 million to $20 million from the 2010 year-end levels of $250 million. Cash at quarter end totaled $35 million and debt totaled $77 million.

At the end of the quarter the excess availability to borrow under our revolver was approximately $54 million with total liquidity of $89 million. The decrease in our cash balance compared to the end of the first quarter largely reflects the investments being made in Indonesia, Mexico and SAP. In addition, we made a $2.4 million payment associated with the refinancing of our asset-based loan through 2016, which we mentioned in last quarters release.

We said capital spending for the year would be more heavily weighted to the first half and you can see that was indeed the case with the year-to-date capital spending coming in at $17.4 million. We continue to expect our capital expenditure for the full year to be with in our previously issued $25 million to $29 million guidance range.

We continue to expect depreciation expense to be approximately $24 million. Our required 2011 pension contribution is expected to be approximately $3 million. As we get near to the end of 2011, we will have greater visibility with respect to the required contribution in 2012.

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