Furniture Brands International's CEO Discusses Q1 2012 Results - Earnings Call Transcript - Seeking Alpha
Furniture Brands International, Inc. ( FBN) Q1 2012 Earnings Conference Call May 3, 2012 8:30 AM ET
Operator
Good day ladies and gentlemen and welcome t the Q1 2012 Furniture Brands Earnings Conference Call. My name is [Gruns] and will be your operator for today. At this time all participants are in listen-only mode. (Operator Instructions) As a reminder this call is being recorded for replay purposes.
I’d now like to turn the call over to Steve Rolls, Chief Financial Officer. Please proceed.
Steve Rolls
Thank you. Good morning everyone and thanks for joining us today. I want to take a moment to read the Safe Harbor statement before I go over the financial results of our first quarter. Ralph Scozzafava, our Chairman and Chief Executive Officer will then follow with the discussion of the highlights of the quarter.
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 and 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 maybe outside of or control. Please refer to our SEC filings including our Form 10-Qs and Form-10-Ks for a discussion of the major risks and uncertainties that may affect our business.
Forward-looking statements made today are as of the date of this call; we do not undertake any obligation to update our forward-looking statements. We do not have a copy of today’s press release and may obtain one along with copies of prior press releases and past SEC filings. I linked it through to the Investor Relations page of our website on FurnitureBrands.com.
Now onto our financial results. As reported in this morning’s press release total sales were 287.3 million for the first quarter, decrease of 3.6% from the same period last year. Gross profit for the first quarter 2012 was 71.4 million and gross margin was 24.9% as compared to 77.5 million in gross profit, and 26% gross margin in the first quarter of last year.
The year-over-year change in gross margin was primarily due to new product rollout and clearance of older inventory partially offset by higher retail margin and lower expenses resulting from prior restructuring activities.
SG&A expenses totaled 70 million for the first quarter compared to 79.6 million first quarter of last year. A decrease in first quarter SG&A was primarily due to lower expenses is all in from prior restructuring activities and lower non-working marketing spend.
SG&A for the quarter was below our previous guidance range of 73 million to 77 million as a result of timing of certain marketing and benefits costs. For the remaining quarters of 2012, we expect SG&A to track towards the lower end of this 73 to 77 million (inaudible).
On the retail side of our business, sales of the 44 Thomasville stores that we have operated for more than 15 months or even with the first quarter of 2011, following a 17% same-store sales increase in the first quarter of 2011.
Retail sales at the 64 company owned stores and showrooms were 35.5 million in the first quarter of 2012 as compared to 39 million in the first quarter of 2011. The company owned stores and show rooms numbered 65. Our retail operating loss for open stores improved to 4 million from 6.2 million loss reported in the first quarter of 2011, driven by reduced year-on-year inventory clearance activity and lower SG&A cost.
Moving on to our balance sheet. Working capital consisting of inventory plus receivables less payables resulted in a $7.7 million use of cash during the quarter. March was our strongest sales month of the quarter, driving a large increase in receivables.
Cash at quarter end totaled 15.4 million and long-term debt was 77 million. We can borrow an additional 28.7 million above our $35 million threshold into our ABL at the quarter end, resulting in total liquidity of 44.1 million.
Capital expenditures for the quarter came in at $1.4 million. For the full-year of 2012, we continue to expect to generate positive free cash flow before our capital expenditures to be toward the lower end of our 16 to $18 million guidance range. Depreciation to be also towards the lower end of our 22 to $24 million guidance range and some contributions to be $14.5 million. We contributed $2.5 million to our pension plan in the first quarter of 2012; we will contribute $12 million of pension plan in the remaining three quarters of 2012.
I’ll now turn the call over to Ralph to provide more commentary on our results.
Ralph Scozzafava
Thanks Steve and good morning everybody. We reported sales of 287.3 million for the first quarter down 3.6% over the prior year, much like prior quarters, we saw above average performance on our higher end brands. And upholstery once again drove stronger volume than our Casegoods business.
I will discuss the highlights of particular brands in a few moments, but want to say that while we have much work to do to increase our revenues; we are pleased with our improved profitability. We spent considerable time in each earnings call over the past year detailing our cost and efficiency initiatives and their associated benefits. The improvement in our operating profit this quarter to 1.4 million was driven by the impact of these initiatives.
Our Mexico and Indonesia plants are both ramping up very nicely with production on-track to deliver the enhanced profitability sometime in the second half of this year. So, we remain on-track to generate the expected 10 to 12 million in annual run rate pretax savings for both of these projects in 2014.
One of the associated benefits with this lower cost capacity, it has enabled us to value engineer some of our product offerings to hit some lower opening price points of retail and do it in an acceptable margin. We have been very pleased with the customer reaction to this new product.
Moving on to our brands, we saw our same-store sales at Thomasville finish the quarter even with our 2011 first quarter which was up 17% versus the first quarter of 2010. In March, we had our first mailing to consumers of our Thomasville catalogue and it exceeded our expectations. We were able to communicate to our consumers the Thomasville style and design story with a high quality marketing piece delivered directly to their homes. The catalogue was also complemented by our traditional TV and online marketing support enabling us to deliver a cohesive message across different marketing mediums to our customers. We saw strong improvement in our Thomasville written business in March in response to our enhanced efforts and the in-store effectiveness of our design associates at retail.
At Lane, we are pleased with the traction that our entry level price point product is getting in the marketplace. The product style and value did represents is resonating with our dealers and making us more competitive on retail floors. The increase usage of our Mexico cut-and-sew facility is enabling us to be more competitive in the new product area at Lane and at Broyhill.
At the recent higher brand market, we introduced a number of new products across our wide range of styles from cotemporary to very traditional, and we have launched these styles at a range of price points. We have good traffic in our showrooms and we look to see a number of these new product introduction shipping over the next two or three months.
At Broyhill, we are excited to launch our mixed direct container shipping option to our dealers in late 2011. As we told you on a prior call, this program allows our dealers to order and ship a wider variety of Broyhill Casegoods product collections on a single container load and have it shipped directly to them from our mixing center in Asia, thereby creating cost savings for them and for us and giving a large number of dealers the ability to be more competitive with their retail pricing on our products.
This program begins shipping in the second quarter; in fact we shipped our first container two weeks ago. With regard to upholstery the continued updating of our Broyhill product offerings continue to include newer updated traditional and contemporary product, that have seen good traction as Broyhill upholstery is among our strongest performing product lines on the market today.
As many of you who follow us know we have been working hard to drive lean thinking into our culture, to eliminate a necessary waste, to leverage our resources and ultimately make us a better company. We continue to see those efforts contribute to our product value proposition also helped in the gross profit area and reducing our SG&A expenses. The ability and commitment to find better and more competitive waste to run our business will continue and this will now become an engrained element to our culture across our company.
We also continue to improve in the planning and replenishment areas as evidenced by our improved inventory position on a year-over-year and also sequential basis. We will continue to look for ways to be more disciplined in this area as we move throughout the balance of this year.
So, in summary we are pleased to deliver a significant improvement in operating profits in the first quarter. The cost and efficiency initiatives put in place are yielding the desired results. On the sales front, we still have lots of work to do and our focus remains on developing strong relevant product and values that resonate with our customers and our dealers, working hard to provide the highest level of service to our dealers and customers and improving our performance in our company owned stores. We are going to do all of this while staying disciplined and efficient and the cost and capital allocation areas and in order to continue to improve our profitability and deliver positive free cash flow.
Well, that concludes our prepared remarks, I want to now hand this back to the operator so we can start our Q&A session.
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