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Stanley Furniture Co. (NASDAQ:STLY)

Q2 2013 Earnings Call

July 16, 2013 9:00 am ET

Executives

Micah S. Goldstein - Chief Financial Officer, Chief Operating Officer, Principal Accounting Officer, Secretary and Director

Glenn Charles Prillaman - Chief Executive Officer, President and Director

Analysts

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Steve Hale

Barry George Haimes - Sage Asset Management, LLC

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Brad Hathaway

Alan W. Weber - Robotti & Company, Incorporated

Operator

Greetings, and welcome to the Stanley Furniture Second Quarter Investor Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Micah Goldstein, Chief Operating and Financial Officer for Stanley Furniture. Thank you, Mr. Goldstein, you may now begin.

Micah S. Goldstein

Thank you, Jesse. Good morning, everyone. Glenn and I appreciate you taking the time to join us as we review the results of our second quarter.

During the call this morning, we may make some forward-looking statements that are subject to risks and uncertainties. A discussion of factors that could cause actual results to differ materially from our expectations is contained in our SEC filings and the press release announcing the quarter results. Any forward-looking statement speaks only as of today, and we undertake no obligation to update or revise those forward-looking statements to reflect events or circumstances after this morning's call. Glenn?

Glenn Charles Prillaman

Good morning, thank you for joining us this morning. The most recent quarter represented a significant milestone for our company's multiyear journey to reposition itself for growth. The office and showroom consolidation, along with the launch of our new enterprise system were the last 2 strategic steps to reposition our company.

As we begin the second half of the year, we have now either completed or are refining the multiple initiatives that we believe have been necessary for growth. Implementing the initial parts of these initiatives have been very disruptive to our customers and our management team over the last few years, and we are glad to have those times behind us. We are now completely focused on the execution of our operating models, which should make us one of the most customer-friendly companies within our market segment.

To be a little more specific, on the quarter, I'll share with you that we entered the quarter concerned about orders. We did not see the kind of demand we wanted to see in our segment in the marketplace. And after we had successfully put both brands in a good service position in Q1, we felt good about our ability to go into market and face customers.

Now the service position we put ourselves in is something we had told you we were working on throughout the previous year, as we had a lot of moving parts in operations, both overseas and in Robbinsville. So when we were in front of customers at the April Furniture Market in High Point, we took an aggressive position on discounting existing designs to gain floor space at retail. I can tell you that worked. While these discounts resulted in a decrease in gross margin, this is a onetime event. And it will allow more customers to see our product, which should drive profitable growth in the back half of the year and into the next.

Our placements on existing goods in the Stanley line are up significantly year-to-date. We remain in a good service position on the Stanley line. And we continue to improve the Young America service position. Although I will tell you that our systems launch did not allow the visibility of either of these service positions for quite a bit of the second quarter.

Other accomplishments in the quarter included the successful relocation of the corporate office, the opening of our new High Point showroom to wonderful reviews of new product and a well-attended furniture market, the introduction of new staff to customers, and we did see shipments and operating performance for the company's Young America brand improve slightly compared to prior year and prior quarter. We have multiple opportunities for sales growth underway there.

Lastly, in May, we did launch, as I mentioned earlier, our new enterprise resource planning system. This is our largest systems initiative ever and our first major upgrade to our systems in over 20 years. It was disruptive. And as we understand any launch to be, we still have glitches in the system that are not allowing us to satisfy customers. But we are, in most cases, effectively in business, acknowledging, invoicing and shipping new orders. We feel strongly about our ability to differentiate not just through product design, marketing and operations, but also by becoming a more efficient and easier company with which to do business.

Micah, why don't you take us through some details?

Micah S. Goldstein

Just some brief comments on finances and operations, and then we'll turn it over for questions. Net sales for the quarter were $24.2 million and basically flat to the prior-year period. Our Stanley brand was down slightly from the second quarter of last year and more significantly on a sequential basis. Although, as Glenn mentioned, we did get some positive order momentum exiting market and grew our backlog during the quarter.

Young America sales grew in the mid-single digits over the prior-year period, and were basically flat on a sequential basis. Young America orders were up over the prior year, but down on a sequential basis, which is a normal Q2 to Q1 trend. Backlog declined during the quarter, but remained higher than it was at this point last year and flat with where it was at year end.

Gross margin declined to 9% of net sales in the second quarter. The decrease can be attributed to 2 main factors, both related to the Stanley product line. The first, Glenn already mentioned when he spoke about discounts of existing goods at market and the second was related to inflation on imported products and our decision to delay pricing action until the launch of our new system.

SG&A remains well managed, given the emphasis we're placing on marketing both brands. Our adjusted spend of $4.8 million increased by approximately $300,000 compared to the prior year. Although, I still believe a number of approximately $5 million is correct if you're trying to model out our expenses.

Net of restructuring expenses, our operating loss for the quarter was $2.7 million. The gross margin hit, combined with a higher SG&A spend, explains the change in our operating performance compared to the second quarter of last year. We do expect gross margins to improve and as such, should see operating losses narrow in the third quarter.

We were successful with our inventory reduction efforts in the second quarter, as we guided, and expect net working capital to be stable in the third quarter. We're estimating capital spending in Q3 to be less than $0.5 million.

On the operations side, plant and vendor performance both improved, but were overshadowed by the challenges Glenn mentioned related to the launch of our new system. The Young America factory continues to show improved productivity. And in the most recent quarter, the factory output was similar to 2011 levels with 200 fewer employees. On the Stanley side, our vendors shipped more dependably, which remains our top focus, along with control and inventory levels.

With that, let's open the line for questions. Jesse?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is coming from the line of Budd Bugatch with Raymond James.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

I guess, can you give us some quantification of these disruptions? First, the level of aggressive discounting and second, what the inflation or the lack of the price increase cost you?

Micah S. Goldstein

Yes. Budd, if you look at -- if you compare Q2 of '12 to Q2 of '13, we had a $300,000 increase in SG&A, so there's $1.5 million difference in gross margin. The best we could tell you is that's about $700,000 related to discounting, about $0.5 million related to inflation and about $300,000 related to a slight mix change between the product lines.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Okay. And in the discounting, you said you were aggressive. Can you quantify for us the number of placements that you were able to get from that?

Micah S. Goldstein

As I said, Budd, the placements were up significantly year-to-date, just for competitive reasons, and I really don't want to give a number of exactly how many placements we have. But we've seen right around a 10% increase in placement year-to-date. And then on the discounting, it varied from customer to customer. And we did what it took to get the existing designs on the floor in order to set ourselves up for the second half and to jump-start the growth in the Stanley line.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

So let me make sure I understand; you're not going to quantify how many placements we got. What were the -- what was the average discount? I don't care about the individual, but what did it average as a percentage?

Micah S. Goldstein

25% to 30%.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

25% to 30%, okay. And have all those goods been shipped?

Micah S. Goldstein

Yes. The vast majority of those have been shipped. We shouldn't see any measurable effect on gross margin in the third quarter on that.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

And so the market was in April, when were those goods shipped? I understood those were in stock goods, so they should have been shipped probably in May. Is that...

Micah S. Goldstein

Yes. Sorry about the feedback, I'm not sure what that was. But yes, they were shipped in May, if not late April. Some of them were shipped in June as well.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

I see. And so have we seen now retail from that? Have we seen reorders? And can you give us any quantification of that, because if the Stanley product line was still down significantly, how come we know that we're starting to see sales from that?

Micah S. Goldstein

Even though we might ship orders in May, Budd, some of those orders could have come from our Asia warehouse. And look, retail in our segment, it's not like the floor space was there and waiting, and there was an empty slot on our retailer's floors as you know. It takes a little while for a retailer to get that spot open for us and we did what it took to secure that spot, but it doesn't happen immediately. I think you're going to begin to see the results of that in the third quarter, as I said. And you'll see the results of that in the fourth quarter and on into next year a little bit as well, I'm sure.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Well, you have a salesman out there and product -- and Territory Managers, I think, in each of your territories. They would be able to tell you, I would think on a weekly basis, how many of those placements were actually floored. They would be out seeing those customers, correct?

Micah S. Goldstein

That is correct. And I'm in very, very close contact with our sales reps in the field who have done an excellent job...

Budd Bugatch - Raymond James & Associates, Inc., Research Division

So what percentage of new placements have actually been floored now?

Micah S. Goldstein

A small percentage.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

That's disappointing.

Micah S. Goldstein

Well, not when you consider the logistics involved with an overseas operating model. We did not have a lot of those products in our domestic warehouse so...

Budd Bugatch - Raymond James & Associates, Inc., Research Division

What percentage were in the domestic and what percentage were in the overseas warehouse?

Micah S. Goldstein

Small percentage was in the domestic, so you had quite a few products that ship from the Asia warehouse.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

And that takes how long? That takes 21 days to get it across the pond, I guess?

Micah S. Goldstein

No. Well, it depends on where you are. It can take 45 days. If you're on the East Coast, it can take anywhere from 30 to 45.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Is that the place you don't have the container schedule?

Micah S. Goldstein

Well, no. It's because on the East Coast, you're over 30 days to get to the port.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Okay. On the price increase, can you quantify the level of the price increase that was delayed?

Micah S. Goldstein

It was around 5%.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

And that now is actually being charged? And that's in place for the third and fourth quarter and the future?

Micah S. Goldstein

Yes.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

So that is being charged, okay. All right. Finally, in the quarter, regarding revenues. Can you give us any quantification of how the quarter proceeded? Was there any difference -- significant difference month over month?

Micah S. Goldstein

Budd, I would say that we -- if you're looking at revenue by month during the quarter, that the beginning of the quarter, as Glenn said, we entered the quarter with a pretty low backlog and low order rate. We were concerned and shared that concern as we were trying to guide where our sales might be in the second quarter and market was strong. We ended up -- May was a challenging month for us and then June was a much better shipping month. And I think if you look at receivables, you'll see that we shipped much better in June than we did in May. April is a 5-week period for us, so April is always going to be a higher sales number than May and June.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

So it looks like, at least in our calculation, receivable days were actually up about 9 days here, from the second quarter last year to the second quarter of this year. And that's just all reflecting the -- not wider terms, but a higher shipping rate in the last month of the quarter?

Micah S. Goldstein

Yes. It's mostly related to timing, although some of the discounting that we did at market, we did -- made strategic decisions on whether to use discounting or terms, and there were some customers that pay well that we extended terms instead of discounts.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

All right. Good luck. We'll be curious to see how third quarter is. Do you think revenues in the third quarter will be up year-over-year?

Micah S. Goldstein

Yes.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

In both segments?

Micah S. Goldstein

Yes. I expect -- we expect to see growth on both product lines.

Budd Bugatch - Raymond James & Associates, Inc., Research Division

And do you want to quantify any of that?

Micah S. Goldstein

That would be tough.

Operator

The next question is coming from the line of Steve Hale with Hale Partnership.

Steve Hale

Quick question. Glenn, on one thing you said, you said you expected profitable growth in the second half. I just wanted to -- given the historical kind of communication of $30 million of revenue being your breakeven, is that just -- when you say profitable, is that getting us closer to breakeven, but it will be unprofitable? I just wanted to clarify.

Glenn Charles Prillaman

Yes. I didn't mean to suggest that we're going to breakeven in the second half by saying profitable growth. I probably was referring to -- and I'm not exactly sure where I said that, but I was probably referring to a -- compared to the amount of discounting that we did to set ourselves up for growth in Q3 and Q4, this is going to be much more profitable. And I may well have been talking, Steve, only about the Stanley line, which if I was, then that product line is already profitable. So if we grow in Stanley, then it's profitable growth for that line.

Steve Hale

Got it. Yes, I just wanted to clarify. That makes sense relative to your historical comments. The second question I have, Micah, given that you guys have just finished this quarter all of the transition and I know that you had in the Q that there was a little bit more, I think, $900,000-or-so more of CapEx. Can we just go through, quickly, I want to make sure I have the numbers right. You spent $8 million on kind of PP&E and Robbinsville, correct?

Micah S. Goldstein

Yes. That's a good number to use.

Steve Hale

Yes. A little over $3 million kind of the systems and the ERP.

Micah S. Goldstein

I think that'll be closer to $4 million.

Steve Hale

Okay. And then $2 million or so on the new headquarters and the showroom up-fits. Is that all kind of ballpark, correct?

Micah S. Goldstein

Yes.

Steve Hale

Okay. So we're talking $13 million or $14 million?

Micah S. Goldstein

Yes. It's a little over $2 million -- $2.2 million on the showroom.

Steve Hale

Okay. But order magnitude we're somewhere in the $13 million or $14 million range and kind of this transformational CapEx spend, when we forget working capital and share repurchase?

Micah S. Goldstein

Sure. I mean, yes. Inventory growth was a big part of that as well, to go from being a domestic manufacturer to an importer on our adult furniture line, there was a major consumption of cash to get the inventories in sync with that type of supply chain.

Steve Hale

Yes. I'm trying to exclude that. So that's what I'm just going, the PP&E, the systems and the showroom were $13 million or $14 million?

Micah S. Goldstein

Sure.

Steve Hale

Okay. And so now that you guys are -- and outside of operating losses in the interim, we're 2.5 years kind of from the onset, can you comment on just relative to whatever expectation management the board had when you guys set out on this path and spent that capital, given that we're still $24 million or so in revenue from breakeven, has it tracked according to plan? Are we below plan? And just kind of what the thoughts on the return on invested capital are to date?

Glenn Charles Prillaman

Steve, this is Glenn. I think that the use of cash is fairly dynamic. What changed was that we were in receipt of the $40 million related to the CDSOA funds. And that really changed the way we and the board thought about how we needed to speed the repositioning of the company. So for instance, when we got that money, which I'll remind you, was intended to help companies like us compete on a global scale, we did things like speed up the reengineering of the Young America product line. That cost us some money to do that as quickly as we did because, as I've mentioned before, we replaced 10,000 floor samples around the country in a matter of about a quarter. We decided to increase inventories of the Stanley line anticipating a better economy, after we saw a stronger first quarter of orders than we had seen in a little while in that product line. We upped our spend on website and eCommerce platforms to prepare ourselves for growth. We decided to move a little faster on our systems implementation, little faster than we would normally -- than we originally planned to move, and that cost a little more. And then we spent a little more than we originally thought we would on office and showroom, but most of that is related to getting down here, getting everybody under one roof so that we could enter the third quarter as a new company. So as far as the payback on it goes, I think there's -- whether or not the company is going to grow and the strategic initiatives we've put in place that have used cash create that growth, that's what's still yet to be seen. And I'm sure what everybody is waiting to see, and what we're looking forward to reporting on.

Steve Hale

Yes. Glenn, I want to go there. What I'm trying to understand is when you look back historically, kind of the expectation, I think, if I look at your conference calls where kind of mid-2010, you were expecting to be breakeven by end of 2011. You guys told us in Q1 of '12 you expected to kind of exit the year breakeven. And looking at where numbers are now, it looks like we're not going to get there this year. So I'm just trying to put together whatever -- when we spent -- I think we just laid out $14 million before we include operating losses, relative to what the plan was, I'm trying to understand, given the past messaging, where we are. And then as we look forward, kind of where we're expecting to go and how long? Because I think you just said, Glenn, that we were up mid-single digits on the Young America line in sales quarter-over-quarter prior year, flat sequentially, is that correct?

Glenn Charles Prillaman

Yes.

Steve Hale

And so if we look at getting that business to breakeven, with the sales you guys have broken out, I mean are we talking another 3 years? Like, how -- when you guys look at that, how do you think about it? And when we look at the capital that's been invested and the losses that are being funded there, how do you, as management board, think in terms of planning and return on the invested capital?

Glenn Charles Prillaman

Well -- and I do appreciate your question. I hope I'm trying to answer -- I hope I'm answering it well. No doubt, it's been harder than we thought. We've really changed everything in the company in some of the worst economic times that the industry's had in some time. And I can say, whether you say the starting point was 2.5 years ago, 3.5 years ago, we certainly expected the economy to be a little better than it is. So it's taken us longer than we thought, it's cost us more than we thought. The key thing is, if I'm answering your question correctly, is the major spending to get us where we are today, it's over. We don't have any more showroom and office consolidation expenses, there are no more systems expenses to speak of on that scale. And we do not have plant and machinery equipment to buy in Robbinsville of that scale. So as Micah said, in the third quarter, we expected CapEx to be less than $0.5 million. And now, it's just about growth. So if you look at what we've said in the past, we said that breakeven is somewhere at or close to $30 million for a quarter in revenues. So you can see that we're at $24 million now. So we definitely have ways to go. But we think we're well positioned to grow that. Now when we're going to hit a $30 million quarter, that's kind of very difficult for me to say, but I don't think it's 3 years.

Steve Hale

Well, Glenn, here's the -- I guess, here's the direct question. If you guys have told us, I think you exited Q4 '11 profitable on the adult line, and then you've said it's profitable last year, it's profitable this year. And when you look at the $120 million breakeven annual run rate, sounds like that's all coming from having to increase, and you can publish what you put in the 10-K, $37 million last year of Young America sales. It sounds like that's the drag and the cash burn on the business where the operating losses are coming from. So the question becomes, I guess what I'm getting at is, at what point do you look at that business and you say we can't keep funding operating losses on it? Is it a year from now, 2 years from now, 3 years from now? Because given the run rate on the cash burn that we've had this year, $7.5 million when you net out working capital, I think everyone is looking at the cash that we got from the CDSOA and just wondering when we'll get a return on that versus a burn on that? Does that make sense?

Glenn Charles Prillaman

Absolutely. And you're not asking anything that we don't discuss on constant basis at the board meetings.

Steve Hale

Okay. That's what I wanted to confirm.

Glenn Charles Prillaman

Absolutely. And if you take -- if the initiatives we've put in place to make Robbinsville a domestic -- an efficient domestic manufacturing facility and make our product line meaningful in the marketplace, if those things don't make Young America grow and breakeven, and we don't see that in a relatively short amount of time considering how much time we've spent to get it to this point, then that's another decision to make. And you're right, you're right, that is a cash drain on operations.

Steve Hale

Got it. That's super fair, Glenn. I appreciate you articulating that. That's what I was trying to get at and understand. And I'm glad you guys are discussing it on the board level.

Operator

Our next question is coming from the line of Barry Haimes with Sage Asset Management.

Barry George Haimes - Sage Asset Management, LLC

I have 2 questions, I guess. One, just coming back to the ERP upgrade and the -- some of the disruptions that caused. Could you just describe a little bit more whether any of those were outside casing to where it affected customers much or was it more the internal struggles to get it where it needs to be? And then where are we in that process? Are we still in the middle in these [ph] or are we in the later in these in terms of getting to closer to normal operations on the ERP? Second question is, I wonder is -- so I think a quarter ago when we were talking about the overall industry environment at retail, it was still kind of a sluggish. How would you describe the overall industry environment for case goods as we exit the second quarter and start the third?

Glenn Charles Prillaman

Barry, this is Glenn. Let me start by saying we are in the later stages of getting the enterprise system to the point where our customer is delivered accurate, timely, transparent information about the operations of the company. So that's good news, and that's part of what I say, when I say those big strategic initiatives are behind us. Now we're just refining and getting to the point of execution on these models, that's what I mean. So by no means that we're in the initial stages or in the first half of the systems implementation as far as our customer is concerned. The problems that we have with the systems implementation were, while they weren't exclusive to customer facing problems, that's where all -- most of the disruption came from. We went for a period of time where our customers didn't have visibility of stock availability. It's very difficult to operate as a retail sales associate when you do not have that. We were in for a period of time when we were not acknowledging orders. So I don't think I have to tell you how disruptive that is. So the majority of the issues were customer-facing. And that's what's unique about this initiative versus retooling a factory or closing a factory or moving an office or opening a showroom, is that you can have all that stuff going on behind the scenes and work really hard as our staff has and our sales force has to mask that for the customer and the consumer. But this systems implementation, by its very nature, is all about customer-facing data. And when you go for a period of time in a quarter without it, it's really going to affect the confidence of that salesperson. We know that, we're addressing that. And like I said in the opening comments, we are effectively back in business on the basics, but we have a lot of refining to do. So we are acknowledging, we are invoicing, we are shipping things that are basic to running the business.

Barry George Haimes - Sage Asset Management, LLC

And then the second question on the retail environment?

Glenn Charles Prillaman

The retail, Barry, we are in the summer, and we do not typically see strong demand for premium case goods in the summer months. What we are expecting is that the efforts that we've made in Q1 to put both lines in a great service position, and in Q2 to increase placements, we're expecting that to drive some of our growth. And then we're expecting us to -- we're going to slowly regain momentum with the help of our staff and with the help of our sales force in the field. As the information that surrounds the sale of our products becomes now trusted. And so I don't have a lot of great things to say about the retail climate right now. I don't know that it's worse, but I don't know that it's better.

Operator

The next question is coming from the line of John Baugh from Stifel.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

I joined late, so I apologize if you've already answered this. But my question was on the discounting. Were those samples or like 6 month, 1 year promotions on orders? And were that both used as well as adults?

Glenn Charles Prillaman

Existing product, John. Existing product that had been introduced previous to April market. And that was only on the Stanley product line.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Okay, only on adult [ph].

Glenn Charles Prillaman

Correct.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And are you in a -- how are you thinking, you mentioned, I think, in Budd's question that you have raised prices 5% effective, I guess, with orders for Q3 and Q4. Is that across the entire product line or is that just the Stanley line as well?

Glenn Charles Prillaman

That was the Stanley line only, John. And we kind of mixed that 2 different price increases across the line, but 5% -- when I say 2 different price increases, we did it on older patterns at one point and then newer patterns at another. So it's about a 5% net price increase. And that's really based on material cost and which was a lot of -- a lot of which was driven by wage increases overseas earlier in the year.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And I'm assuming that the challenge to making money in Robbinsville is getting more volume through there. You have the age-old dilemma or debate, I guess, about whether to discount that, to increase volumes. And I guess that would ultimately lead you to a lower profit potential. But you're burning cash in that business, and maybe you need to get to a future problem to survive the short to intermediate term. I'm curious how you think about those levers?

Glenn Charles Prillaman

Well, John, as long as -- if we're not covering overhead, it certainly makes more sense to discount than if we are. But you're right. The model for profitability in Robbinsville is volume. We continue to make progress on lowering things like material cost and leveraging labor and so on and so forth. But the answer is in volume growth. And I think what we have to do is realize that we have not given many of our customers a chance to grow uninterrupted by many of the moving parts we've had in the business. And we enter Q2 -- Q3, excuse me, and for instance attend next month's, or this month, Vegas Market in a few weeks, being in that position for the first time in quite a while. So it's -- we expect growth without a significant amount of discounting.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Okay.

Glenn Charles Prillaman

That doesn't mean we won't promote, obviously, and you tend to ask about that. So I definitely don't want to give you the impression that we're against promoting. But nothing that would be really out of the ordinary.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And is there -- I appreciate it if you don't want to communicate this publicly. But is there either a timeline, an EBIT loss, or a cash burn for overall cash level, where there's a line in the sand as it relates to Robbinsville or the whole company, I guess? But that's where the issue really lies.

Glenn Charles Prillaman

John, I think that we're in very close touch and I share with the board quite often feedback from the field. And I think that once we've given our customer a chance to respond to our products and do business through good service from us and not be interrupted and where we're not hard to do business with, we're going to know whether this plan has begun to work. And I'm going to know a lot sooner than most. And so if we have to make a call that says we're not going to be able to grow at the rate we need to, we will. But we're going to know early or earlier, and we'll make decisions accordingly. But we still think this is the right plan for the long-term profitability for the Young America line.

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

So one should see over the course of the next 2, 3, 4 quarters, I don't want to put words in your mouth, but I'm going to, one should see improvement in volumes in Robbinsville and narrowing EBIT losses, presumably if you get volume increases? Or this tougher decision has to be made?

Glenn Charles Prillaman

That is correct.

Operator

The next question is coming from the line of Brad Hathaway with Far View Capital Management.

Brad Hathaway

Quick question for you. Are you able to quantify at all the impact of the ERP disruptions on Q2?

Glenn Charles Prillaman

Brad, that's difficult to do. It touched a lot of different parts of the business. And so the best thing I can tell you about it is the initial stages of it, the biggest disruptions are behind us. It doesn't mean we don't have still work to do and glitches to fix, but we're trying to look forward and make sure we can be easy to do business with.

Brad Hathaway

Okay. Great. And actually, one other one. So in terms of cash usage for the back half of the year, I mean it seems like, obviously, the capital expenditures are coming down pretty dramatically and working cap, do you have any thoughts as to whether or not that would be use or a source. And so then I guess, obviously, the biggest factor will be the operating loss. Is that kind of correct way to think about it?

Micah S. Goldstein

Yes. Brad, I think that is the right way to think about it. At least for the third quarter, which we obviously have a lot more visibility into, we're expecting working capital -- net working capital to be flat, so it will not be a source or a use. And the cash burn in the third quarter is going to come from 2 places: Our loss, or whatever that ends up being; and the minor capital spends that flow through in the quarter. Obviously, revenue growth during the quarter will, as it goes up, our loss comes down. And so we're doing everything we can, as Glenn has described, to try and make sure that we can ship as much product as possible in the third quarter to minimize those losses. But the bulk of our spending is done.

Brad Hathaway

Okay. So I guess, then to think about it, with that $500,000 CapEx, that should be pretty close to your depreciation. So really, it's going to be -- cash burn should be roughly EBIT loss going forward? That would be in Q3?

Micah S. Goldstein

That's a really good way to look at it.

Operator

[Operator Instructions] Our next question is coming from the line of Alan Weber with Robotti & Company.

Alan W. Weber - Robotti & Company, Incorporated

When you talk about the changes being disruptive to the customers, is that then -- it came from both of the products, having both of the product lines? Or more specifically in one of the other?

Glenn Charles Prillaman

Probably more specifically on the Young America product line in the quarter. We -- because of the way we schedule goods domestically versus overseas, that data goes into the system differently and therefore, kind of comes out differently. Now it doesn't look any different when the system operates correctly. And we now have it operating very close to where we want, as far as the transparency of the data. But it affected Young America a little more so than it did Stanley.

Alan W. Weber - Robotti & Company, Incorporated

And do you believe that you've permanently jeopardized your relationship with some customers due to this?

Glenn Charles Prillaman

That's difficult to say. I know that there are customers that we have -- we've been so difficult to do business with. I know that we'll be living with this for a long time, because this is a small industry and a lot of the business relationships are very close. But that also could be a positive long term. I mean, if we're able to do what we think we can do, we think there are enough customers out there that are attracted to our product designs. And that see our models as a way to allow them to sell premium goods. And we're one of the few people in the industry in our segment. And so, yes, we have some work to do to repair the relationships, but it's mostly driven by great product and great service, great quality, and those are the things we are focused on.

Alan W. Weber - Robotti & Company, Incorporated

Okay. And do -- you talked about the breakeven for the company. Do you talk about the breakeven for Young America?

Micah S. Goldstein

We do not. We speak about it at the total company level, which we believe, somewhere just slightly below $30 million will get us there.

Operator

Our next question is a follow-up question from the line of Steve Hale with Hale Partnership.

Steve Hale

I just wanted to follow-up to the questions on volume in Robbinsville. Have you guys -- if that's the problem on utilization there, have you guys considered other alternatives like private label manufacturing or is that off the table? Just curious of your thoughts?

Glenn Charles Prillaman

No, Steve, and don't apologize for asking another question. That's totally on the table.

Operator

It appears there are no further questions at this time. I would like to turn the floor back over to Mr. Prillaman for any concluding remarks.

Glenn Charles Prillaman

Well, I'd just like to thank everyone for joining us and I appreciate all the questions. We do feel like we have these strategic changes behind us and it's now down to executing our plan on what we think is a new platform. The major uses of cash are behind us, and we do look forward to seeing customers face-to-face through travel in Q3, as well as the Las Vegas Market. So we thank you very much, and we look forward to reporting growth to you in the future quarters.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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Source: Stanley Furniture Co. (STLY) CEO Discusses Q2 2013 Results - Earnings Call Transcript
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