Shermag posts hefty losses
By Powell Slaughter -- Furniture Today, July 4, 2005
Sherbrooke, Quebec — Citing the weak U.S. dollar, high logistics costs, labor problems and a poor performing juvenile division, full-line Canadian manufacturer Shermag posted losses in its fourth quarter and year ended April 1.
The country's third-largest furniture maker took a C$16.2 million charge in the fourth quarter related to the previously announced closing of a case goods plant and the cash write-down of goodwill on its Jaymar upholstery division.
The company expects to take another C$7 million in unusual charges in the current fiscal year as it continues to restructure, closing one or two plants and shifting more of its line to imported product. Imports now account for about 20% of volume.
The fourth-quarter loss came to C$13.7 million, and the year's loss was C$9.9 million. Fourth-quarter net revenues were C$60.6 million, and for the year were C$228.8 million, off 5.8% and 3.8%, respectively, from prior-year figures.
In the comparable periods a year ago, Shermag posted net profits of C$4.3 million in the quarter and C$17.1 million in the year.
"Lower earnings were due primarily to the weakness of the U.S. dollar, high warehousing and logistical costs, labor disruptions, and continued underperformance of the company's juvenile division," said President and CEO Jeff Casselman in a release.
In a conference call with analysts, Casselman reiterated the company's strategy of focusing domestic manufacturing on product dependent on what he called "choice and speed" for appeal to consumers.
But he said Shermag hasn't yet pinned down a "vocation" for its remaining domestic plants. While as many as two more plants in Canada could shut down, he declined to say exactly on which products and in which plants Shermag would focus domestic production
"What has not been completed is a specific analysis on which product goes where," he said.
The company also is re-evaluating its investment in sawmills, and already has said it will close a sawmill in Maine.
"Shermag's strong financial position has allowed it to maintain aggressive pricing and momentum while it undertakes this re-engineering," Casselman said. "These changes represent a significant investment in the future of the company and will result in a simpler, more efficient, faster and more customer-oriented company."
The weak U.S. greenback has made Shermag products relatively more expensive in the United States, which accounted for 72% of its sales last year.
As part of an effort to improve its upholstery business, the company said a new glider rocker plant in Asia, built to company specifications by a key supplier, will ramp up to full production in the next nine months.
Casselman said it's been over a year since Shermag's glider rocker business has been profitable. Custom glider rocker production will remain in Canada while mass-produced gliders will come from the Asia plant.
Shermag did not respond by press time to queries on the location and size of the Asia factory, or the amount of product it expects from that source.
The company anticipates a difficult first quarter in its current fiscal year, citing problems with two undisclosed U.S. department store accounts, one involving excess inventory and the other computer problems as it moves to a new operating platform.
| Shermag(a) | |||
|---|---|---|---|
| Owns Mobilier Shermag, Mobilier HPL, Nadeau and Scanway Chanderic | |||
| Earnings per share are fully diluted, and all figures in parentheses are losses or declines. | |||
| 13 weeks ended 4/1 | 2005 | 2004 | Change |
| (a) In Canadian dollars. (b) Includes a C$16.2 million pretax charge for property, plant and equipment writedowns, a Jaymar goodwill impairment charge and for severance costs in both periods. The 2005 quarter also includes a C$1.1 million income tax benefit. | |||
| Revenues | C$60,628,000 | C$64,382,000 | (5.8%) |
| Operating income | 3,562,000 | 10,459,000 | (65.9%) |
| Net income | (b)(13,671,000) | 4,328,000 | — |
| Earnings per share | (1.02) | 0.32 | — |
| 52 weeks ended 4/1 | 2005 | 2004 | Change |
| Revenues | C$228,830,000 | C$237,926,000 | (3.8%) |
| Operating income | 15,784,000 | 37,267,000 | (57.6%) |
| Net income | (b)(9,908,000) | 17,091,000 | — |
| Earnings per share | (0.74) | 1.27 | — |
