Production delays experienced by Stanley Furniture’s new Vietnam manufacturing partner Starwood Manufacturing Corp. contributed to a nearly 20% decline in Stanley’s sales during the third quarter, the company reported Tuesday.

The company, which is the parent for youth and nursery furniture brand Stone & Leigh, said that net sales for the quarter totaled $11 million, down 19.8% from $13.8 million in the third quarter of 2015, while the company’s net loss from continuing operations was $2.1 million compared to net income of $391,000 during the same period last year.

The company also said that gross profit margins for the third quarter were 16.6% for the quarter, compared to 24.8% last year, a factor the company attributed to the discounting of older product, promotional activities and lower sales.

“As we await the shipment of backlog of newer product, we continue to aggressively promote older products that are immediately available to ship in the quarter, and this is negatively affecting margins,” said Glenn Prillaman, president and CEO. “Retail floor sample promotions reported in the prior quarter assisted in prolonging life cycles of older products as we expected, yet the growth of the company now depends upon newer product success within the retail landscape.”

Year to date, the company said net sales were down 20.2%, from $43.6 million in the first nine months of 2015 to $34.8 million during the same period this year. The net loss from continuing operations was $5 million, compared to net income of $4.4 million, which included $4.8 million in income from antidumping duties received last year. Gross profit margins were 18.5% for the first nine months of 2016 compared to 23.5% last year.

The company also said it had $7.3 million in available cash at the end of the third quarter and $663,000 in restricted cash.

The company said while sales in the quarter were impacted by delays related to the Starwood Alliance, new product introductions manufactured at the factory and introduced since last fall are expected to be complete in the fourth quarter or already in transit to customers.

“The new factory built by Starwood and dedicated to Stanley’s new product did not make the significant progress expected during the quarter,” the company said in a press release announcing the earnings. “The quarter ended with over 60% of the company’s order backlog assigned to this factory. Capacity utilization was again hindered by initial production runs of new designs, and costs and delays associated with product quality issues negatively impacting margins.”

“Our wholesale customers clearly see the difficulties we are experiencing getting our overseas operations with Starwood where we expect them to be in order to provide the level of product quality and service they deserve,” Prillaman said. “Our recent performance is disappointing, however the expected value of our new product from both the Stanley and Stone & Leigh brands at retail remains of great interest to our customers. Our increasing backlog for new product demonstrates customer confidence in the company’s ability to overcome initial road blocks to success with our differentiated overseas strategy.”

The company did note that orders and shipments for its new Stone & Leigh youth and nursery furniture line grew in the quarter and that it expects further growth as “production improvements support its planned omnichannel approach to market this new brand and reach the Millennial consumer.”

The company said that subsequent to quarter end, it entered into a secured revolving credit facility that provides for maximum borrowings of $4 million and matures October 2018. The company obtained this facility to “provide flexibility to manage short-term fluctuations in working capital.”

“We are pleased to have secured a credit facility with Wells Fargo Bank, National Association to support the company’s future plans for growth,” Prillaman said. “Until we are in a position to use cash for growth, the management team remains very focused on preserving cash until the lack of overseas production no longer limits our ability to generate cash by shipping order backlog.”

The company announced its partnership with Starwood earlier this year. The factory, which began production at the end of last year, is providing about 150,000 square feet of dedicated manufacturing space for Stanley.

Prillaman added that although the company’s “execution to date has lacked the progress we expect in any new venture, our relationship with our overseas vendors, particularly Starwood, remains strong,” concluded Prillaman. “We believe in the differentiated strategy we are so diligently pursuing to lower costs and lead times and better serve customers.”

The company expects the coming year to be a difficult one for sales, due to a lack of sufficient inventory of newly introduced product. It added that margins also should be well below expected levels. It added that as overseas operations improve, the company expects to move forward with sales expansion plans into each of its multiple channels of distribution in the first half of next year.

(Source: furnituretoday.com  Author: Thomas Russell)