Stanley Moving Adult Production Offshore

May 12, 2010  by in UnCategorized   

By Home Furnishings Business in Case Goods on May 13, 2010 Stanley Furniture (NASDAQ: STLY), one of the few case goods company that was making product domestically, plans to move that production offshore.

The move will impact 530 employees at the company's Stanleytown, Va., factory. The move does not change the company's strategy to produce its Young America nursery and youth line.

The company reported a net loss of $19 million for the first quarter ended April 3 compared to a $2.4 million loss in the same quarter of last year. Net sales for the quarter were $36.5 million, a 8.5 percent slide from $39.8 million during the first quarter last year.

Stanley said the path to profitability is through an offshore supply strategy. The company will transition the majority of its Stanleytown, Va., facility to a number of key offshore vendors with whom it has existing relationships.

Most of the factory will become a warehouse and distribution center. In addition, the company will retain a domestic assembly and finish processing in its Martinsville, Va., facility that will allow Stanley to offer multiple finish options on specific items throughout its lines.

Young America will continue to be manufactured in Robbinsville, N.C., except for certain SKUs that will be phased over to offshore vendors to lower the cost.

"We believe any sound business must have a strategy which satisfies customer needs and differentiates itself from its competition,€ said Glenn Prillaman, president and chief executive officer. €œDomestic manufacturing seamlessly blended with overseas sourcing has been the hallmark of our company€™s operations model for over 10 years. Over that time period, the
driving factors of demand for each of our two major product lines have become increasingly unique and we must adjust to address these changes in the marketplace."

Prillaman said the company's focus on domestic production for Young America is imperative to ensure quick ship and its product offering.

"We continue to serve our Young America customers with differentiating features such as multiple finish options and functional flexibility ..." he said. "Our transition away from overseas sources with this product line began late last year and it continues to challenge us. We believe we have dedicated the appropriate resources to improve our efficiencies in our Robbinsville, N.C., facility where the majority of the product line is made."

Prillman said the company will be implementing a price increase charging for the features and benefits it has added to the line.

Stanley expects restructuring expenses of about $12 million to $15 million as the plan is implemented over the balance of this year. The company said it expects most of the staffing reduction to take place in the fourth quarter of this year.

"Obviously we are disappointed with our operating results," Prillaman said. "However, after a significant amount of careful planning, we are taking decisive actions to establish a path toward profitability. Due to the depth and length of this recession and the continued sluggishness of the housing market, many of our end consumers simply are not in the marketplace for premium residential wood furniture. Unfortunately, the decrease in demand for premium residential wood furniture has resulted in a unit volume well below the amount necessary to support a facility the size of Stanleytown. We deeply regret the impact this will have on our associates affected by this decision."

Stanley has renegotiated the terms of its long-term debt to provide for a pay down of notes with a no pre-payment penalty to reduce future interest expense while maintaining flexibility through the first quarter of 2011. The interest rate on the notes remains the same, but the loan is now secured by company assets.

"We believe we can differentiate our products by creating more tasteful fashion and styling at an accessible value for today€™s changing consumer without merely utilizing Asian manufacturing to source commodity furniture and market solely on price," Prillaman said. "We believe our
remaining domestic manufacturing efforts will add substantial value and further differentiate our products from competitors in our price segment.  We think an increasing number of affluent consumers around the world seek choice and customization. Additionally, our retailers need timely product support and service. It is very difficult to face the fact that consumer demand will no longer support the livelihoods of so many, but our company must move forward. With our new plans, we believe Stanley Furniture will thrive once again, playing an influential role in our segment of the furniture industry."

In addition, the company said Albert Prillaman will retire as chairman at the end of the year. He will continue to serve as a director.

"I am confident in the company's strategy with the restructuring plan announced today," he said. "Now that the transition to a new CEO is complete and we have developed this restructuring plan, the end of the year is an appropriate time for me to step down as chairman."

Michael Haley has been elected as lead director for the company's board. Haley has served as an independent director since April 2003 and is chairman of the corporate governance and nominating committee on the board.