Furniture Brands' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Furniture Brands International, Inc. ( FBN)

Q4 2011 Earnings Call

February 9, 2012 8:30 AM ET

Executives

Rick Isaak – Vice President and Controller

Steve Rolls – Chief Financial Officer

Ralph Scozzafava – Chairman and CEO

Analysts

Brad Thomas – Keybanc Capital Markets

John Baugh – Stifel Nicolaus

Budd Bugatch – Raymond James

David Liu – Bernstein

Sean Matlock – Kennedy Capital Management

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Fourth Quarter 2011 Furniture Brands Earnings Conference Call. My name is Lucy, and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of the presentation. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call Mr. Rick Isaak, Vice President and Controller. Please proceed.

Rick Isaak

Thank you. Good morning, everyone, and thanks for joining us today. Steve Rolls is in the room but due to strange vocal cords he is trying to avoid speaking, so I’ll read his prepared remarks. I want to take a moment to read the Safe Harbor statement before I go over the financial results of our fourth quarter and full year. Ralph Scozzafava, our Chairman and Chief Executive Officer will then follow with a discussion of the highlights of the quarter and year.

I need to remind you that certain comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Our actual results and future financial condition 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 Form 10-Qs and Form 10-Ks for 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 today’s press release, you may obtain one, along with copies of the prior press releases and past SEC filings by linking through to the Investor Relations page of our website, furniturebrands.com.

Now on to our financial results. As reported in this morning’s press release, total sales were $255.5 million for the fourth quarter, a decrease of 7.4% over the same period last year. For the full year sales were $1.1 billion -- $1.11 billion, down 4.5% from the $1.16 billion in sales reported in 2010.

Gross profit for the fourth quarter of 2011 was $58.8 million and gross margin was 23%, up from $50.1 million in gross profit and 18.1% in gross margin in the fourth quarter of last year. The increase in fourth quarter 2011 gross margin was primarily due to $10.3 million of lower expenses related to restructuring activity, compensation and benefits, and a $6.2 million decrease in inventory charges, partially offset by higher raw material costs of almost $5 million.

For the full year, gross profit was $267.3 million and gross margin was 24.1%, as compared to $276.3 million in gross profit and 23.8% in gross margin in 2010. The increase in full year 2011 gross margin was primarily due to lower expenses of $15 million related to restructuring activities, compensation and benefits, partially offset by higher raw material costs of $14 million.

SG&A expenses totaled $69 million for the fourth quarter, compared to $94.5 million in the fourth quarter of 2010. The decrease in fourth quarter SG&A was primarily due to a $10.2 million reduction in expenses related to restructuring, compensation and benefits, a $7.8 million reduction in non-working marketing and sales expenses, a $3 million reduction in bad debt expense, and $3.1 million of higher gains on facility and asset sales.

On a full year basis SG&A totaled $302.9 million, as compared to $320.2 million in 2010. The decrease in SG&A on a full year basis was primarily due to a $14.6 million reduction in expenses related to restructuring, compensation and benefits, a $3.1 million reduction in non-working marketing and sales expenses, a $1.8 million reduction in bad debt expense, a $1.1 million reduction in vacant facility costs and $1.5 million of higher gains on facility and asset sales, partially offset by $4.4 million in favorable settlement of certain international tax and trade compliance matters that took place in 2010.

Last quarter we spoke to you about $30 million in new annualized cost savings, about 70% of which will be realized in the SG&A line. We realized only a partial benefit from the $30 million in savings in the fourth quarter of 2011, but beginning with the first quarter of 2012, we expect the quarterly base SG&A run rate of $73 million to $77 million to fully reflect the impact of these cost savings. This base SG&A run rate may increase or decrease depending on changes such as brand support activities and incentive compensation accruals.

On a retail side of our business the 44 Thomasville stores we’ve operated for more than 15 months showed a same-store sales decrease of 4% this quarter, following a 15% same-store sales increase in the fourth quarter of 2010.

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