Shermag's 2Q revenue falls 11.5%
By Michael J. Knell -- Furniture Today, November 26, 2006
Sherbrooke, Quebec — Full-line manufacturer and importer Shermag continues to be hurt by an unfavorable exchange rate and sagging sales to Canadian retailers, although slightly higher U.S. sales and improved efficiencies are helping ease the pain.
In its second quarter ended Sept. 29, net revenue fell 11.5% to C$42.5 million from C$48.1 million in last year's comparable quarter, and the net loss came to C$1.1 million or nine Canadian cents per share, a substantial improvement over last year's loss of C$2.1 million or 16 cents per share.
For the six months, net revenue amounted to C$85 million, down 11.7% from C$96.3 million in last year's first half. The net loss for the first six months was C$5.5 million or 41 cents per share, worse than the loss of C$3.6 million or 27 cents per share, recorded last year.
"The consistent focus on our business transformation plan is beginning to yield results as we have begun to see some progress in our efficiencies," said President and CEO Jeff Casselman in a conference call with analysts. "We have also been successful in further increasing the level of imported products. These gains, however, continued to be offset in part by additional changes in the U.S.-Canadian dollar exchange rate."
Shermag said that in the latest quarter, the average exchange rate was C$1.13 to US$1, compared to C$1.24 to US$1 in last year's second period, representing a depreciation in the U.S. dollar.
The impact on sales was C$3.3 million in the quarter, despite an uptick in export sales of 1.7% to US$28.2 million. In Canadian dollars, sales to U.S. retailers fell 8.6% in the second quarter to C$31.7 million, and 6.6% in the first half to C$62.2 million.
Sales to U.S. retailers accounted for 68.1% of the company's shipments in the second quarter, compared with 65.3% a year earlier. Sales to Canadian retailers fell 14.9% to C$13.8 million in the quarter and declined 17.5% to C$29.1 million in the first half.
Casselman told analysts the Metropolitan Home collection launched at last month's High Point Market was well received by buyers, and that the first orders will be shipped in April.
Shermag has lost several customers to bankruptcy in the past several months, the most important being Atlanta-based Storehouse, the retail division of The Rowe Companies. Casselman said Storehouse had placed orders valued at C$5 million annually.
He said the plan to increase imports of non-custom product is progressing well, and that over 35% of Shermag product should be sourced offshore this year.
| Shermag(a) | |||
|---|---|---|---|
| Owns Jaymar, Mobilier HPL, Mobilier Shermag, Nadeau, Scanway Chanderic and Sofas International | |||
| Earnings per share are fully diluted, and all figures in parentheses are losses or declines. | |||
| 13 weeks ended 9/29 | 2006 | 2005 | Change |
| (a) In Canadian dollars. (b) Includes income tax benefits of C$684,000 in the 2006 13 weeks, C$848,000 in the 2005 13 weeks, C$2.7 million in the 2006 26 weeks and C$1.4 million in the 2005 26 weeks. The 2005 periods also include pretax charges for unusual items of C$706,000 in the 2005 13 weeks and C$1.8 million in the 2005 26 weeks. | |||
| Revenues | C$42,517,000 | C$48,068,000 | (11.5%) |
| Operating income | (699,000) | (578,000) | — |
| Net income (b) | (1,147,000) | (2,085,000) | — |
| Earnings per share | (0.09) | (0.16) | — |
| 26 weeks ended 9/29 | 2006 | 2005 | Change |
| Revenues | C$84,999,000 | C$96,287,000 | (11.7%) |
| Operating income | (4,548,000) | (418,000) | — |
| Net income (b) | (5,526,000) | (3,597,000) | — |
| Earnings per share | (0.41) | (0.27) | — |
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