The last time I covered Stanley Furniture Co. (NASDAQ:STLY), I was upbeat on the company’s outlook. Indeed, at the time, management had just instigated a turnaround plan and things appeared to be moving along nicely. However, since then Stanley’s sales have fallen further, losses have risen and judging by the company’s sliding share price, many investors are now starting to question if Stanley will be able to turn itself around before it’s too late.
For investors, Stanley Furniture Co. (NASDAQ:STLY)’s fourth quarter and full-year 2013 results release provided little in the way of information on Stanley’s turnaround. Yes, it would appear that management is upbeat about the company’s future but so far, profits have failed to materialize, which is worrying considering the fact that the bulk of the company’s restructuring efforts took place during the first half of last year — Stanley’s quarterly losses have only increased since the first half of last year.
Stanley Furniture’s management has a lot to answer for
Stanley Furniture Co. (NASDAQ:STLY)’s management has blamed these rising losses as, “a result of overall industry conditions within the casegoods sector of the industry…retail traffic slowed as the [fourth] quarter progressed…we would have shown year-over-year sales growth in the quarter if not for a delay in shipping our newest major introduction in our Stanley product line, now being delivered to customers.”
However, according to The American Furniture Industry: 2013 Industry Watch Update it would appear that the wider industry is actually reporting rising sales, implying that Stanley Furniture Co. (NASDAQ:STLY)’s falling sales are directly related to the company’s mistakes. In particular, according to the industry update, Ashley Furniture Inds, the US’ largest furniture retailer, expected sales to expand 10.1% during 2013 compared to 2012. What’s more, La-Z-Boy, the country’s third largest furniture company expected sales to expand 6.1% during the year. Actually, the report estimates (accurate figures are unavailable as some constituents are unlisted) that during 2013, sales at the US’ top 20 domestic furniture companies expanded by 4.7% in total, with only three of the 20 companies surveyed predicting a fall in sales; four companies reported growth of 0% to 1%.
Stanley Furniture structurally weak
Unfortunately, it would appear that even though, as Stanley Furniture Co. (NASDAQ:STLY)’s management puts it, “…the capital expenditure associated with restructuring the company and its brands to position them for growth are behind us…” the company is still hemorrhaging cash – selling and administrative expenses were almost four times more than gross profit during the fourth quarter.
Somewhat surprisingly, it would appear that during the fourth quarter, year-on-year SGA costs increased 15% despite restructuring efforts. Further, current SGA costs imply that Stanley needs to increase its gross margin to 25%, (currently 10.1%, down from 12.4% in the same period last year due to rising material costs and discounting,) to cover costs and turn a profit. Without a gross margin improvement, Stanley’s quarterly revenue is going to have to jump by at least 100% to even come close to covering operational costs, SGA as well as interest expenses.
So all in all, it would appear that Stanley Furniture Co. (NASDAQ:STLY) still has much work to do before a turnaround is complete and the company is able to return to profit.