Stanley Furniture Co. (STLY) CEO Discusses Q2 2013 Results - Earnings Call Transcript - Seeking Alpha

Stanley Furniture Co.
(STLY) CEO Discusses Q2 2013

Results - Earnings Call Transcript - Seeking Alpha
seekingalpha.com/article/1550962-stanley-f urniture-co-stly-ceo-discusses-q2-2013-results-
earnings-call-transcript
Executives
Micah S. Goldstein - Chief Financial Of f icer, Chief Operating Of f icer, Principal Accounting Of f icer,
Secretary and Director
Glenn Charles Prillaman - Chief Executive Of f icer, President and Director
Analysts
Budd Bugatch - Raymond James & Associates, Inc., Research Division
Steve Hale
Barry George Haimes - Sage Asset Management, LLC
John A. Baugh - Stif el, Nicolaus & Co., Inc., Research Division
Brad Hathaway
Alan W. Weber - Robotti & Company, Incorporated
Stanley Furniture Co. (STLY) Q2 2013 Earnings Call July 16, 2013 9:00 AM ET
Operator
Greetings, and welcome to the Stanley Furniture Second Quarter Investor Call. [Operator
Instructions] As a reminder, this conf erence is being recorded.
It is now my pleasure to introduce your host, Micah Goldstein, Chief Operating and Financial Of f icer
f or Stanley Furniture. Thank you, Mr. Goldstein, you may now begin.
Micah S. Goldstein
Thank you, Jesse. Good morning, everyone. Glenn and I appreciate you taking the time to join us as
we review the results of our second quarter.
During the call this morning, we may make some f orward-looking statements that are subject to risks
and uncertainties. A discussion of f actors that could cause actual results to dif f er materially f rom our
expectations is contained in our SEC f ilings and the press release announcing the quarter results.
Any f orward-looking statement speaks only as of today, and we undertake no obligation to update
or revise those f orward-looking statements to ref lect events or circumstances af ter this morning's
call. Glenn?
Glenn Charles Prillaman
Good morning, thank you f or joining us this morning. The most recent quarter represented a
signif icant milestone f or our company's multiyear journey to reposition itself f or growth. The of f ice
and showroom consolidation, along with the launch of our new enterprise system were the last 2
strategic steps to reposition our company.
As we begin the second half of the year, we have now either completed or are ref ining the multiple
initiatives that we believe have been necessary f or growth. Implementing the initial parts of these
initiatives have been very disruptive to our customers and our management team over the last f ew
years, and we are glad to have those times behind us. We are now completely f ocused on the
execution of our operating models, which should make us one of the most customer-f riendly
companies within our market segment.
To be a little more specif ic, on the quarter, I'll share with you that we entered the quarter concerned
about orders. We did not see the kind of demand we wanted to see in our segment in the
marketplace. And af ter we had successf ully put both brands in a good service position in Q1, we f elt
good about our ability to go into market and f ace customers.
Now the service position we put ourselves in is something we had told you we were working on
throughout the previous year, as we had a lot of moving parts in operations, both overseas and in
Robbinsville. So when we were in f ront of customers at the April Furniture Market in High Point, we
took an aggressive position on discounting existing designs to gain f loor space at retail. I can tell
you that worked. While these discounts resulted in a decrease in gross margin, this is a onetime
event. And it will allow more customers to see our product, which should drive prof itable growth in the
back half of the year and into the next.
Our placements on existing goods in the Stanley line are up signif icantly year-to-date. We remain in a
good service position on the Stanley line. And we continue to improve the Young America service
position. Although I will tell you that our systems launch did not allow the visibility of either of these
service positions f or quite a bit of the second quarter.
Other accomplishments in the quarter included the successf ul relocation of the corporate of f ice, the
opening of our new High Point showroom to wonderf ul reviews of new product and a well-attended
f urniture market, the introduction of new staf f to customers, and we did see shipments and
operating perf ormance f or the company's Young America brand improve slightly compared to prior
year and prior quarter. We have multiple opportunities f or sales growth underway there.
Lastly, in May, we did launch, as I mentioned earlier, our new enterprise resource planning system.
This is our largest systems initiative ever and our f irst major upgrade to our systems in over 20
years. It was disruptive. And as we understand any launch to be, we still have glitches in the system
that are not allowing us to satisf y customers. But we are, in most cases, ef f ectively in business,
acknowledging, invoicing and shipping new orders. We f eel strongly about our ability to dif f erentiate
not just through product design, marketing and operations, but also by becoming a more ef f icient
and easier company with which to do business.
Micah, why don't you take us through some details?
Micah S. Goldstein
Just some brief comments on f inances and operations, and then we'll turn it over f or questions. Net
sales f or the quarter were $24.2 million and basically f lat to the prior-year period. Our Stanley brand
was down slightly f rom the second quarter of last year and more signif icantly on a sequential basis.
Although, as Glenn mentioned, we did get some positive order momentum exiting market and grew
our backlog during the quarter.
Young America sales grew in the mid-single digits over the prior-year period, and were basically f lat
on a sequential basis. Young America orders were up over the prior year, but down on a sequential
basis, which is a normal Q2 to Q1 trend. Backlog declined during the quarter, but remained higher than
it was at this point last year and f lat with where it was at year end.
Gross margin declined to 9% of net sales in the second quarter. The decrease can be attributed to 2
main f actors, both related to the Stanley product line. The f irst, Glenn already mentioned when he
spoke about discounts of existing goods at market and the second was related to inf lation on
imported products and our decision to delay pricing action until the launch of our new system.
SG&A remains well managed, given the emphasis we're placing on marketing both brands. Our
adjusted spend of $4.8 million increased by approximately $300,000 compared to the prior year.
Although, I still believe a number of approximately $5 million is correct if you're trying to model out
our expenses.
Net of restructuring expenses, our operating loss f or the quarter was $2.7 million. The gross margin
hit, combined with a higher SG&A spend, explains the change in our operating perf ormance compared
to the second quarter of last year. We do expect gross margins to improve and as such, should see
operating losses narrow in the third quarter.
We were successf ul with our inventory reduction ef f orts in the second quarter, as we guided, and
expect net working capital to be stable in the third quarter. We're estimating capital spending in Q3 to
be less than $0.5 million.
On the operations side, plant and vendor perf ormance both improved, but were overshadowed by the
challenges Glenn mentioned related to the launch of our new system. The Young America f actory
continues to show improved productivity. And in the most recent quarter, the f actory output was
similar to 2011 levels with 200 f ewer employees. On the Stanley side, our vendors shipped more
dependably, which remains our top f ocus, along with control and inventory levels.
With that, let's open the line f or questions. Jesse?
Question-and-Answer Session
Operator
[Operator Instructions] Our f irst question is coming f rom the line of Budd Bugatch with Raymond
James.
I guess, can you give us some quantif ication of these disruptions? First, the level of aggressive
discounting and second, what the inf lation or the lack of the price increase cost you?
Micah S. Goldstein
Yes. Budd, if you look at -- if you compare Q2 of '12 to Q2 of '13, we had a $300,000 increase in
SG&A, so there's $1.5 million dif f erence in gross margin. The best we could tell you is that's about
$700,000 related to discounting, about $0.5 million related to inf lation and about $300,000 related to
a slight mix change between the product lines.
Okay. And in the discounting, you said you were aggressive. Can you quantif y f or us the number of
placements that you were able to get f rom that?
Micah S. Goldstein
As I said, Budd, the placements were up signif icantly year-to-date, just f or competitive reasons, and I
really don't want to give a number of exactly how many placements we have. But we've seen right
around a 10% increase in placement year-to-date. And then on the discounting, it varied f rom
customer to customer. And we did what it took to get the existing designs on the f loor in order to set
ourselves up f or the second half and to jump-start the growth in the Stanley line.
So let me make sure I understand; you're not going to quantif y how many placements we got. What
were the -- what was the average discount? I don't care about the individual, but what did it average
as a percentage?
Micah S. Goldstein
25% to 30%.
25% to 30%, okay. And have all those goods been shipped?
Micah S. Goldstein
Yes. The vast majority of those have been shipped. We shouldn't see any measurable ef f ect on
gross margin in the third quarter on that.
And so the market was in April, when were those goods shipped? I understood those were in stock
goods, so they should have been shipped probably in May. Is that...
Micah S. Goldstein
Yes. Sorry about the f eedback, I'm not sure what that was. But yes, they were shipped in May, if not
late April. Some of them were shipped in June as well.
I see. And so have we seen now retail f rom that? Have we seen reorders? And can you give us any
quantif ication of that, because if the Stanley product line was still down signif icantly, how come we
know that we're starting to see sales f rom that?
Micah S. Goldstein
Even though we might ship orders in May, Budd, some of those orders could have come f rom our
Asia warehouse. And look, retail in our segment, it's not like the f loor space was there and waiting,
and there was an empty slot on our retailer's f loors as you know. It takes a little while f or a retailer to
get that spot open f or us and we did what it took to secure that spot, but it doesn't happen
immediately. I think you're going to begin to see the results of that in the third quarter, as I said. And
you'll see the results of that in the f ourth quarter and on into next year a little bit as well, I'm sure.
Well, you have a salesman out there and product -- and Territory Managers, I think, in each of your
territories. They would be able to tell you, I would think on a weekly basis, how many of those
placements were actually f loored. They would be out seeing those customers, correct?
Micah S. Goldstein
That is correct. And I'm in very, very close contact with our sales reps in the f ield who have done an
excellent job...
So what percentage of new placements have actually been f loored now?
Micah S. Goldstein
A small percentage.
That's disappointing.
Micah S. Goldstein
Well, not when you consider the logistics involved with an overseas operating model. We did not have
a lot of those products in our domestic warehouse so...
What percentage were in the domestic and what percentage were in the overseas warehouse?
Micah S. Goldstein
Small percentage was in the domestic, so you had quite a f ew products that ship f rom the Asia
warehouse.
And that takes how long? That takes 21 days to get it across the pond, I guess?
Micah S. Goldstein
No. Well, it depends on where you are. It can take 45 days. If you're on the East Coast, it can take
anywhere f rom 30 to 45.
Is that the place you don't have the container schedule?
Micah S. Goldstein
Well, no. It's because on the East Coast, you're over 30 days to get to the port.
Okay. On the price increase, can you quantif y the level of the price increase that was delayed?
Micah S. Goldstein
It was around 5%.
And that now is actually being charged? And that's in place f or the third and f ourth quarter and the
f uture?
Micah S. Goldstein
Yes.
So that is being charged, okay. All right. Finally, in the quarter, regarding revenues. Can you give us
any quantif ication of how the quarter proceeded? Was there any dif f erence -- signif icant dif f erence
month over month?
Micah S. Goldstein
Budd, I would say that we -- if you're looking at revenue by month during the quarter, that the
beginning of the quarter, as Glenn said, we entered the quarter with a pretty low backlog and low
order rate. We were concerned and shared that concern as we were trying to guide where our sales
might be in the second quarter and market was strong. We ended up -- May was a challenging month
f or us and then June was a much better shipping month. And I think if you look at receivables, you'll
see that we shipped much better in June than we did in May. April is a 5-week period f or us, so April is
always going to be a higher sales number than May and June.
So it looks like, at least in our calculation, receivable days were actually up about 9 days here, f rom
the second quarter last year to the second quarter of this year. And that's just all ref lecting the -- not
wider terms, but a higher shipping rate in the last month of the quarter?
Micah S. Goldstein
Yes. It's mostly related to timing, although some of the discounting that we did at market, we did --
made strategic decisions on whether to use discounting or terms, and there were some customers
that pay well that we extended terms instead of discounts.
All right. Good luck. We'll be curious to see how third quarter is. Do you think revenues in the third
quarter will be up year-over-year?
Micah S. Goldstein
Yes.
In both segments?
Micah S. Goldstein
Yes. I expect -- we expect to see growth on both product lines.
And do you want to quantif y any of that?
Micah S. Goldstein
That would be tough.
Operator
The next question is coming f rom the line of Steve Hale with Hale Partnership.
Steve Hale
Quick question. Glenn, on one thing you said, you said you expected prof itable growth in the second
half . I just wanted to -- given the historical kind of communication of $30 million of revenue being
your breakeven, is that just -- when you say prof itable, is that getting us closer to breakeven, but it
will be unprof itable? I just wanted to clarif y.
Yes. I didn't mean to suggest that we're going to breakeven in the second half by saying prof itable
growth. I probably was ref erring to -- and I'm not exactly sure where I said that, but I was probably
ref erring to a -- compared to the amount of discounting that we did to set ourselves up f or growth in
Q3 and Q4, this is going to be much more prof itable. And I may well have been talking, Steve, only
about the Stanley line, which if I was, then that product line is already prof itable. So if we grow in
Stanley, then it's prof itable growth f or that line.
Steve Hale
Got it. Yes, I just wanted to clarif y. That makes sense relative to your historical comments. The
second question I have, Micah, given that you guys have just f inished this quarter all of the transition
and I know that you had in the Q that there was a little bit more, I think, $900,000-or-so more of
CapEx. Can we just go through, quickly, I want to make sure I have the numbers right. You spent $8
million on kind of PP&E and Robbinsville, correct?
Micah S. Goldstein
Yes. That's a good number to use.
Steve Hale
Yes. A little over $3 million kind of the systems and the ERP.
Micah S. Goldstein
I think that'll be closer to $4 million.
Steve Hale
Okay. And then $2 million or so on the new headquarters and the showroom up-f its. Is that all kind of
ballpark, correct?
Micah S. Goldstein
Yes.
Steve Hale
Okay. So we're talking $13 million or $14 million?
Micah S. Goldstein
Yes. It's a little over $2 million -- $2.2 million on the showroom.
Steve Hale
Okay. But order magnitude we're somewhere in the $13 million or $14 million range and kind of this
transf ormational CapEx spend, when we f orget working capital and share repurchase?
Micah S. Goldstein
Sure. I mean, yes. Inventory growth was a big part of that as well, to go f rom being a domestic
manuf acturer to an importer on our adult f urniture line, there was a major consumption of cash to
get the inventories in sync with that type of supply chain.
Steve Hale
Yes. I'm trying to exclude that. So that's what I'm just going, the PP&E, the systems and the
showroom were $13 million or $14 million?
Micah S. Goldstein
Sure.
Steve Hale
Okay. And so now that you guys are -- and outside of operating losses in the interim, we're 2.5 years
kind of f rom the onset, can you comment on just relative to whatever expectation management the
board had when you guys set out on this path and spent that capital, given that we're still $24 million
or so in revenue f rom breakeven, has it tracked according to plan? Are we below plan? And just kind
of what the thoughts on the return on invested capital are to date?
Steve, this is Glenn. I think that the use of cash is f airly dynamic. What changed was that we were in
receipt of the $40 million related to the CDSOA f unds. And that really changed the way we and the
board thought about how we needed to speed the repositioning of the company. So f or instance,
when we got that money, which I'll remind you, was intended to help companies like us compete on a
global scale, we did things like speed up the reengineering of the Young America product line. That
cost us some money to do that as quickly as we did because, as I've mentioned bef ore, we replaced
10,000 f loor samples around the country in a matter of about a quarter. We decided to increase
inventories of the Stanley line anticipating a better economy, af ter we saw a stronger f irst quarter of
orders than we had seen in a little while in that product line. We upped our spend on website and
eCommerce platf orms to prepare ourselves f or growth. We decided to move a little f aster on our
systems implementation, little f aster than we would normally -- than we originally planned to move,
and that cost a little more. And then we spent a little more than we originally thought we would on
of f ice and showroom, but most of that is related to getting down here, getting everybody under one
roof so that we could enter the third quarter as a new company. So as f ar as the payback on it goes,
I think there's -- whether or not the company is going to grow and the strategic initiatives we've put in
place that have used cash create that growth, that's what's still yet to be seen. And I'm sure what
everybody is waiting to see, and what we're looking f orward to reporting on.
Steve Hale
Yes. Glenn, I want to go there. What I'm trying to understand is when you look back historically, kind
of the expectation, I think, if I look at your conf erence calls where kind of mid-2010, you were
expecting to be breakeven by end of 2011. You guys told us in Q1 of '12 you expected to kind of exit
the year breakeven. And looking at where numbers are now, it looks like we're not going to get there
this year. So I'm just trying to put together whatever -- when we spent -- I think we just laid out $14
million bef ore we include operating losses, relative to what the plan was, I'm trying to understand,
given the past messaging, where we are. And then as we look f orward, kind of where we're expecting
to go and how long? Because I think you just said, Glenn, that we were up mid-single digits on the
Young America line in sales quarter-over-quarter prior year, f lat sequentially, is that correct?
Yes.
Steve Hale
And so if we look at getting that business to breakeven, with the sales you guys have broken out, I
mean are we talking another 3 years? Like, how -- when you guys look at that, how do you think
about it? And when we look at the capital that's been invested and the losses that are being f unded
there, how do you, as management board, think in terms of planning and return on the invested
capital?
Well -- and I do appreciate your question. I hope I'm trying to answer -- I hope I'm answering it well. No
doubt, it's been harder than we thought. We've really changed everything in the company in some of
the worst economic times that the industry's had in some time. And I can say, whether you say the
starting point was 2.5 years ago, 3.5 years ago, we certainly expected the economy to be a little
better than it is. So it's taken us longer than we thought, it's cost us more than we thought. The key
thing is, if I'm answering your question correctly, is the major spending to get us where we are today,
it's over. We don't have any more showroom and of f ice consolidation expenses, there are no more
systems expenses to speak of on that scale. And we do not have plant and machinery equipment to
buy in Robbinsville of that scale. So as Micah said, in the third quarter, we expected CapEx to be less
than $0.5 million. And now, it's just about growth. So if you look at what we've said in the past, we
said that breakeven is somewhere at or close to $30 million f or a quarter in revenues. So you can
see that we're at $24 million now. So we def initely have ways to go. But we think we're well positioned
to grow that. Now when we're going to hit a $30 million quarter, that's kind of very dif f icult f or me to
say, but I don't think it's 3 years.
Steve Hale
Well, Glenn, here's the -- I guess, here's the direct question. If you guys have told us, I think you
exited Q4 '11 prof itable on the adult line, and then you've said it's prof itable last year, it's prof itable
this year. And when you look at the $120 million breakeven annual run rate, sounds like that's all
coming f rom having to increase, and you can publish what you put in the 10-K, $37 million last year of
Young America sales. It sounds like that's the drag and the cash burn on the business where the
operating losses are coming f rom. So the question becomes, I guess what I'm getting at is, at what
point do you look at that business and you say we can't keep f unding operating losses on it? Is it a
year f rom now, 2 years f rom now, 3 years f rom now? Because given the run rate on the cash burn
that we've had this year, $7.5 million when you net out working capital, I think everyone is looking at
the cash that we got f rom the CDSOA and just wondering when we'll get a return on that versus a
burn on that? Does that make sense?
Absolutely. And you're not asking anything that we don't discuss on constant basis at the board
meetings.
Steve Hale
Okay. That's what I wanted to conf irm.
Absolutely. And if you take -- if the initiatives we've put in place to make Robbinsville a domestic -- an
ef f icient domestic manuf acturing f acility and make our product line meaningf ul in the marketplace, if
those things don't make Young America grow and breakeven, and we don't see that in a relatively
short amount of time considering how much time we've spent to get it to this point, then that's
another decision to make. And you're right, you're right, that is a cash drain on operations.
Steve Hale
Got it. That's super f air, Glenn. I appreciate you articulating that. That's what I was trying to get at
and understand. And I'm glad you guys are discussing it on the board level.
Operator
Our next question is coming f rom the line of Barry Haimes with Sage Asset Management.
I have 2 questions, I guess. One, just coming back to the ERP upgrade and the -- some of the
disruptions that caused. Could you just describe a little bit more whether any of those were outside
casing to where it af f ected customers much or was it more the internal struggles to get it where it
needs to be? And then where are we in that process? Are we still in the middle in these [ph] or are we
in the later in these in terms of getting to closer to normal operations on the ERP? Second question
is, I wonder is -- so I think a quarter ago when we were talking about the overall industry environment
at retail, it was still kind of a sluggish. How would you describe the overall industry environment f or
case goods as we exit the second quarter and start the third?
Barry, this is Glenn. Let me start by saying we are in the later stages of getting the enterprise system
to the point where our customer is delivered accurate, timely, transparent inf ormation about the
operations of the company. So that's good news, and that's part of what I say, when I say those big
strategic initiatives are behind us. Now we're just ref ining and getting to the point of execution on
these models, that's what I mean. So by no means that we're in the initial stages or in the f irst half of
the systems implementation as f ar as our customer is concerned. The problems that we have with
the systems implementation were, while they weren't exclusive to customer f acing problems, that's
where all -- most of the disruption came f rom. We went f or a period of time where our customers
didn't have visibility of stock availability. It's very dif f icult to operate as a retail sales associate when
you do not have that. We were in f or a period of time when we were not acknowledging orders. So I
don't think I have to tell you how disruptive that is. So the majority of the issues were customer-
f acing. And that's what's unique about this initiative versus retooling a f actory or closing a f actory or
moving an of f ice or opening a showroom, is that you can have all that stuf f going on behind the
scenes and work really hard as our staf f has and our sales f orce has to mask that f or the customer
and the consumer. But this systems implementation, by its very nature, is all about customer-f acing
data. And when you go f or a period of time in a quarter without it, it's really going to af f ect the
conf idence of that salesperson. We know that, we're addressing that. And like I said in the opening
comments, we are ef f ectively back in business on the basics, but we have a lot of ref ining to do. So
we are acknowledging, we are invoicing, we are shipping things that are basic to running the
business.
And then the second question on the retail environment?
The retail, Barry, we are in the summer, and we do not typically see strong demand f or premium case
goods in the summer months. What we are expecting is that the ef f orts that we've made in Q1 to put
both lines in a great service position, and in Q2 to increase placements, we're expecting that to drive
some of our growth. And then we're expecting us to -- we're going to slowly regain momentum with
the help of our staf f and with the help of our sales f orce in the f ield. As the inf ormation that
surrounds the sale of our products becomes now trusted. And so I don't have a lot of great things to
say about the retail climate right now. I don't know that it's worse, but I don't know that it's better.
Operator
The next question is coming f rom the line of John Baugh f rom Stif el.
John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division
I joined late, so I apologize if you've already answered this. But my question was on the discounting.
Were those samples or like 6 month, 1 year promotions on orders? And were that both used as well
as adults?
Existing product, John. Existing product that had been introduced previous to April market. And that
was only on the Stanley product line.
Okay, only on adult [ph].
Correct.
Okay. And are you in a -- how are you thinking, you mentioned, I think, in Budd's question that you
have raised prices 5% ef f ective, I guess, with orders f or Q3 and Q4. Is that across the entire product
line or is that just the Stanley line as well?
That was the Stanley line only, John. And we kind of mixed that 2 dif f erent price increases across the
line, but 5% -- when I say 2 dif f erent price increases, we did it on older patterns at one point and
then newer patterns at another. So it's about a 5% net price increase. And that's really based on
material cost and which was a lot of -- a lot of which was driven by wage increases overseas earlier
in the year.
Okay. And I'm assuming that the challenge to making money in Robbinsville is getting more volume
through there. You have the age-old dilemma or debate, I guess, about whether to discount that, to
increase volumes. And I guess that would ultimately lead you to a lower prof it potential. But you're
burning cash in that business, and maybe you need to get to a f uture problem to survive the short to
intermediate term. I'm curious how you think about those levers?
Well, John, as long as -- if we're not covering overhead, it certainly makes more sense to discount
than if we are. But you're right. The model f or prof itability in Robbinsville is volume. We continue to
make progress on lowering things like material cost and leveraging labor and so on and so f orth. But
the answer is in volume growth. And I think what we have to do is realize that we have not given many
of our customers a chance to grow uninterrupted by many of the moving parts we've had in the
business. And we enter Q2 -- Q3, excuse me, and f or instance attend next month's, or this month,
Vegas Market in a f ew weeks, being in that position f or the f irst time in quite a while. So it's -- we
expect growth without a signif icant amount of discounting.
Okay.
That doesn't mean we won't promote, obviously, and you tend to ask about that. So I def initely don't
want to give you the impression that we're against promoting. But nothing that would be really out of
the ordinary.
Okay. And is there -- I appreciate it if you don't want to communicate this publicly. But is there either a
timeline, an EBIT loss, or a cash burn f or overall cash level, where there's a line in the sand as it
relates to Robbinsville or the whole company, I guess? But that's where the issue really lies.
John, I think that we're in very close touch and I share with the board quite of ten f eedback f rom the
f ield. And I think that once we've given our customer a chance to respond to our products and do
business through good service f rom us and not be interrupted and where we're not hard to do
business with, we're going to know whether this plan has begun to work. And I'm going to know a lot
sooner than most. And so if we have to make a call that says we're not going to be able to grow at
the rate we need to, we will. But we're going to know early or earlier, and we'll make decisions
accordingly. But we still think this is the right plan f or the long-term prof itability f or the Young America
line.
So one should see over the course of the next 2, 3, 4 quarters, I don't want to put words in your
mouth, but I'm going to, one should see improvement in volumes in Robbinsville and narrowing EBIT
losses, presumably if you get volume increases? Or this tougher decision has to be made?
That is correct.
Operator
The next question is coming f rom the line of Brad Hathaway with Far View Capital Management.
Brad Hathaway
Quick question f or you. Are you able to quantif y at all the impact of the ERP disruptions on Q2?
Brad, that's dif f icult to do. It touched a lot of dif f erent parts of the business. And so the best thing I
can tell you about it is the initial stages of it, the biggest disruptions are behind us. It doesn't mean
we don't have still work to do and glitches to f ix, but we're trying to look f orward and make sure we
can be easy to do business with.
Brad Hathaway
Okay. Great. And actually, one other one. So in terms of cash usage f or the back half of the year, I
mean it seems like, obviously, the capital expenditures are coming down pretty dramatically and
working cap, do you have any thoughts as to whether or not that would be use or a source. And so
then I guess, obviously, the biggest f actor will be the operating loss. Is that kind of correct way to
think about it?
Micah S. Goldstein
Yes. Brad, I think that is the right way to think about it. At least f or the third quarter, which we
obviously have a lot more visibility into, we're expecting working capital -- net working capital to be
f lat, so it will not be a source or a use. And the cash burn in the third quarter is going to come f rom 2
places: Our loss, or whatever that ends up being; and the minor capital spends that f low through in
the quarter. Obviously, revenue growth during the quarter will, as it goes up, our loss comes down.
And so we're doing everything we can, as Glenn has described, to try and make sure that we can ship
as much product as possible in the third quarter to minimize those losses. But the bulk of our
spending is done.
Brad Hathaway
Okay. So I guess, then to think about it, with that $500,000 CapEx, that should be pretty close to
your depreciation. So really, it's going to be -- cash burn should be roughly EBIT loss going f orward?
That would be in Q3?
Micah S. Goldstein
That's a really good way to look at it.
Operator
[Operator Instructions] Our next question is coming f rom the line of Alan Weber with Robotti &
Company.
When you talk about the changes being disruptive to the customers, is that then -- it came f rom both
of the products, having both of the product lines? Or more specif ically in one of the other?
Probably more specif ically on the Young America product line in the quarter. We -- because of the
way we schedule goods domestically versus overseas, that data goes into the system dif f erently
and theref ore, kind of comes out dif f erently. Now it doesn't look any dif f erent when the system
operates correctly. And we now have it operating very close to where we want, as f ar as the
transparency of the data. But it af f ected Young America a little more so than it did Stanley.
And do you believe that you've permanently jeopardized your relationship with some customers due
to this?
That's dif f icult to say. I know that there are customers that we have -- we've been so dif f icult to do
business with. I know that we'll be living with this f or a long time, because this is a small industry and
a lot of the business relationships are very close. But that also could be a positive long term. I mean,
if we're able to do what we think we can do, we think there are enough customers out there that are
attracted to our product designs. And that see our models as a way to allow them to sell premium
goods. And we're one of the f ew people in the industry in our segment. And so, yes, we have some
work to do to repair the relationships, but it's mostly driven by great product and great service, great
quality, and those are the things we are f ocused on.
Okay. And do -- you talked about the breakeven f or the company. Do you talk about the breakeven
f or Young America?
Micah S. Goldstein
We do not. We speak about it at the total company level, which we believe, somewhere just slightly
below $30 million will get us there.
Operator
Our next question is a f ollow-up question f rom the line of Steve Hale with Hale Partnership.
Steve Hale
I just wanted to f ollow-up to the questions on volume in Robbinsville. Have you guys -- if that's the
problem on utilization there, have you guys considered other alternatives like private label
manuf acturing or is that of f the table? Just curious of your thoughts?
No, Steve, and don't apologize f or asking another question. That's totally on the table.
Operator
It appears there are no f urther questions at this time. I would like to turn the f loor back over to Mr.
Prillaman f or any concluding remarks.
Well, I'd just like to thank everyone f or joining us and I appreciate all the questions. We do f eel like we
have these strategic changes behind us and it's now down to executing our plan on what we think is
a new platf orm. The major uses of cash are behind us, and we do look f orward to seeing customers
f ace-to-f ace through travel in Q3, as well as the Las Vegas Market. So we thank you very much, and
we look f orward to reporting growth to you in the f uture quarters.
Operator
Thank you. Ladies and gentlemen, this does conclude today's teleconf erence. You may disconnect
your lines at this time. Thank you f or your participation, and have a wonderf ul day.
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Stanley Furniture Co. (STLY) CEO Discusses Q2 2013 Results - Earnings Call Transcript - Seeking Alpha

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(STLY) CEO Discusses Q2 2013

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