Dollar hurts Shermag 3Q sales
By Furniture Today Staff -- Furniture Today, March 14, 2004
Sherbrooke, Quebec — Sherbrooke, Quebec— Full-line Canadian furniture maker Shermag said revenues in its third quarter ended Jan. 2 climbed 19% to C$56.5 million, while net earnings declined 18.7% to C$3.5 million.
President and CEO Jeff Casselman attributed the earnings decline to the strengthening Canadian dollar and to lower-than-expected performance in the Nadeau division.
The less-favorable currency exchange rate "almost entirely offset the growth in units sold in our Shermag businesses, causing year-over-year revenues in our divisions to be flat in dollar terms before the consideration of Jaymar," he said.
Casselman told industry analysts in a conference call that, without Jaymar, Shermag's unit sales were up 3% in the latest quarter.
Upholstery house Jaymar, which Shermag acquired in May 2003, and the continuing popularity of Shermag's casual dining collections, were strong contributors to third quarter revenues, he said.
The imported formal dining room collections launched in High Point in April 2003 also generated increasingly robust sales during the Thanksgiving and Christmas seasons in the United States, Casselman said, resulting in additional store placements for the coming year. For the nine months, revenue surged 25.2% to C$164.8 million, while net earnings in the period rose 14.3% to C$12.8 million.
Shermag's export sales rose 13.3% in the third quarter to C$42.3 million, and by 24.3% during the first three quarters to C$126.5 million. But the rise in the Canadian dollar's value versus the U.S. greenback hurt Shermag's gross margin.
"Currently, 72% of our revenue is in U.S. dollars," Casselman said. "Shermag is competing in an ever-more-challenging global environment. We chose not to raise prices last fall, so we have to look for internal savings to offset the loss of gross margin."
But while the company is improving efficiencies and reducing selling and administrative expenses, that hasn't completely mitigated the impact of the Canadian dollar's relative strength, he said.
Steps taken include a reduction in management salaries and bonuses, reorganization of administrative services, and retooling of the Edmundston, New Brunswick, plant to support the growing casual dining business.
"The focus is to redesign Shermag to compete with a 75-cent (U.S.) dollar," Casselman said, adding Shermag also will be more aggressive in its hunt for new global sources, particularly in hardware and components.
He said Shermag would continue to support the U.S. antidumping petition seeking import duties on Chinese wood bedroom furniture. "We have received no negative reactions from retailers on our support for the (petition)," he said. "I don't see any reason to change our position."
Looking ahead, Casselman said, "Notwithstanding some recent improvement in the retail sector, we maintain the same cautious outlook of the past several quarters. We are continuing our aggressive marketing and expansion of new product to ensure that our collections are able to realize a broader and deeper penetration of the various distribution channels in the North American market."
| Shermag(a) | |||
|---|---|---|---|
| Owns Mobilier Shermag, Mobilier HPL, Nadeau and Scanway Chanderic | |||
| Earnings per share are fully diluted, and all figures in parentheses are loses or declines. | |||
| Quarter ended 1/2 | 2004 | 2003 | Change |
| Revenues | C$56,454,000 | C$47,449,000 | 19.0% |
| Operating income | 7,349,000 | 8,187,000 | (10.2%) |
| Net income | (b)3,460,000 | (c)4,255,000 | (18.7%) |
| Earnings per share | 0.26 | 0.32 | (18.8%) |
| 9 months ended 1/2 | 2004 | 2003 | Change |
| Revenues | C$164,816,000 | C$131,653,000 | 25.2% |
| Operating income | 26,808,000 | 22,317,000 | 20.1% |
| Net income | (b)12,763,000 | (c)11,169,000 | 14.3% |
| Earnings per share | 0.94 | 0.83 | 13.3% |
| (a) In Canadian dollars. (b) Includes a C$310,000 pretax exchange gain in the 2004 quarter and a C$613,000 pretax exchange loss in the 2004 nine months. (c) Includes pretax exchange gains of C$80,000 in the 2003 quarter and C$276,000 in the 2003 nine months. |
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