Rowe Shipments off in Second Quarter

July 12, 2006  by in UnCategorized   

By Home Furnishings Business in Upholstery on July 2006 The Rowe Cos.’ second-quarter 2006 net shipments of $67.7 million were off 15.2 percent from the same prior-year period; while the upholstery manufacturer and operator of retailer Storehouse’s loss almost doubled from $2.5 million in second-quarter 2005 to $4.9 million for the three months ended May 28.

Gross profit as a percentage of net shipments showed improvement, though, rising to 33.6 percent, from 30.3 percent for the second quarter of 2005. Price increases announced in the late fall took effect during the quarter, manufacturing efficiencies were implemented as part of the company’s turnaround plan, and higher-margin retail shipments increased as a percentage of total shipments due to 12 new Storehouse stores opening since the beginning of 2005.

Second-quarter 2006 included two charges--a pre-tax charge of $1 million to write-down the value of excess, discontinued and slow-moving fabric inventory (created from a combination of duplicate fabric orders, quantities ordered in excess of customer needs and a lack of system visibility as to quantities on hand and on order from fabric vendors) in the manufacturing segment; and a $350,000 pre-tax charge to increase the company’s bad debt reserve due to the uncertain retail environment. The inventory charge was included in cost of goods sold, while the bad debt charge was included in selling and administrative expenses.

“During the second quarter we continued to achieve cost reductions in our manufacturing operations as part of our turnaround plan, contributing to an improvement in manufacturing gross margins compared to the second quarter of 2005,” stated Gerald Birnbach, chairman and president. “In our retail unit, the 12 new stores opened since the beginning of 2005 also contributed to our overall higher gross margin. However, incoming orders have been below prior-year levels at our manufacturing unit, and on a same-store basis at our retail units. As a result, we have adjusted our capacity by reducing employee head count, and through these reductions and attrition, the staffing level in our manufacturing unit is down 29 percent compared to May 2005. Selling prices and delivery fees were increased in both operating units during the quarter. Management of our retail unit has initiated a number of cost saving efforts including a hiring freeze, travel restrictions, and has committed to engage an outside consulting firm to assist in further cost saving efforts. These steps are in addition to those reported in our first quarter release.”

For the first six months of fiscal 2006, Rowe’s net shipments fell 7.3 percent to $134.8 million, compared to the comparable prior-year period. The first-half net loss from continuing operations was $8.3 million, compared to a prior-year loss of $5.5 million.

The Rowe Cos. operates two subsidiaries: Rowe Furniture Inc., a manufacturer of quality upholstered furniture for the middle and upper middle market; and Storehouse Inc., a multi-channel, lifestyle home furnishings business including 71 retail home furnishings stores.