Shermag will close 2 plants
By Michael J. Knell -- Furniture Today, February 18, 2007
Sherbrooke, Quebec — Manufacturer and importer Shermag said it will close two factories as it shifts more production to Asia while struggling with a soft retail marketplace.
Shermag reported last week that net revenue in its fiscal third quarter ended Dec. 29 fell 17.4% from the same period a year earlier to C$38.4 million. Its net loss widened to C$7.7 million, from C$4.3 million a year ago.
Sales fell on both sides of the border. Canadian sales declined 12.3% during the quarter to C$13.5 million. Exports for the quarter fell 14%, to US$23.9 million, reflecting what Shermag described as "a difficult business environment."
Sales to U.S. retailers, mainly department stores such as Macy's, account for 67% of Shermag's volume — down from more than 75% a few years ago.
The rising value of the Canadian dollar continued to hamper the company's performance. During the third quarter, the average exchange rate was C$1.13 to the US$1, compared to C$1.21 for the same period of 2005. This shift hurt the bottom line by C$1.9 million, the company said.
"The third quarter was particularly affected by the sales shortfall, high domestic manufacturing costs, and higher than anticipated start-up costs at the new Montréal distribution center," Jeff Casselman, president and CEO, told analysts in a conference call.
For the first nine months of the year, net revenue fell 13.6% to C$123.4 million, while the year-to-date net loss grew to C$13.2 million from C$7.9 million a year earlier.
Shermag said it will close its bedroom factory in Disraeli, Quebec, and its casual dining facility in St-Etienne-de-Lauzon, Quebec, on April 6, eliminating nearly 300 jobs. In connection with the action, the company took a C$3.5 million writedown of assets in the third quarter.
"The decision to close the Disraeli and St-Etienne-de-Lauzon facilities is made necessary by a significant domestic overcapacity arising from our outsourcing strategy. We continue to pursue our strategy of global sourcing of mass-produced products blended with the domestic production of choice-based products," Casselman said.
"This difficult transition has been amplified by a general softness in the home furnishings retail market which has been underlined by first half losses to bankruptcy of several customers," he added.
Shermag has shed almost half its work force in the past three years, going from about 2,400 employees in 2004 to about 1,300 after the newly announced layoffs. It will continue to operate a sawmill, veneer facility and six remaining furniture plants.
Casselman noted that the first shipments of the company's new Metropolitan Home Collection are scheduled for early May.
"However, these difficult business conditions will necessitate reductions in selling, general and administrative expenses," he added.
| 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 12/29 | 2006 | 2005 | Change |
| (a) In Canadian dollars. (b) Includes a C$3.5 million pretax charge in the 2006 quarter and nine months to write down the value of long-term assets. |
|||
| Revenues | C$38,369,000 | C$46,452,000 | (17.4%) |
| Operating income | (6,521,000) | 180,000 | |
| Net income (b) | (7,708,000) | (4,297,000) | |
| Earnings per share | (0.58) | (0.32) | |
| 9 months ended 12/29 | 2006 | 2005 | Change |
| Revenues | C$123,368,000 | C$142,739,000 | (13.6%) |
| Operating income | (11,069,000) | (238,000) | |
| Net income (b) | (13,234,000) | (7,894,000) | |
| Earnings per share | (0.99) | (0.59) | |
