James R. Ridings – Chairman of the Board & Chief Executive Officer
J. Marcus Scrudder – Chief Financial Officer & Corporate Secretary
Brad Dale Heimann – President & Chief Operating Officer
Craftmade International, Inc. (CRFT) F2Q08 Earnings Call February 6, 2008 11:00 AM ET
Hello and welcome to today’s Craftmade second quarter fiscal year 2008 conference call. Your host for today’s call is Jimmy Ridings, Chief Executive Officer of Craftmade. Mr. Ridings, please begin your conference.
James R. Ridings
I want to thank everybody for joining us today. Today I have Marcus and Brad with me and after Marcus gives the Safe Harbor statement then I’ll give some details on the quarter.
J. Marcus Scrudder
Forward-looking statements; during this call certain statements may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may involve [inaudible] and other factors which may cause the actual results, performance or achievements of Craftmade International, Inc. to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors are discussed in more detail in the company’s filings with the Securities & Exchange Commission.
James R. Ridings
Okay, the housing market continues to decline but we have taken every step we possibly can to offset that and look at future growth opportunities. The highlight of the quarter was the acquisition of Woodard which we closed on January 2nd of this year and we’re very excited about the new product line and we’ll offset some of the housing problems and it also will give us the ability to get into the hospitality market. We feel that Woodard is the perfect acquisition, it provides us with additional manufacturing flexibility, complements our existing outdoor product offerings and leverages our core products. The integration is progressing well and we believe that the new manufacturing plant combined with the new product line will help us diversify our product offering and make us less dependent on the housing market.
To give you a little on the Craftmade fortune, we had market in January. We introduced the most new items that we have ever done in our market. They were received very well. It looks as though people are placing orders and it looks as though this is something that will help us offset and we’ll be able to continue to pick up more market share. Like I said, we were down 10% but housing is down 30 to 40%, I feel like we did very well. I’d say our balance sheet continues to be strong and we were able to issue our 55th consecutive quarterly dividend and we anticipate going forward. As we’ve always been, we’re committed to the shareholder value that we can produce and we have products and opportunities to better align ourselves with the current operating environment. We will continue to look at acquisitions that fit and we feel like will help us keep growth going. That’s something we will always do at appropriate times.
At the market in January we were able to get in a few Woodard pieces for our allotted showrooms to look at and the reception was very good. It look as though – right now we’re working on putting together a group of products that we will be going to the showrooms with. Aligning showrooms that have their ceilings full and their walls but the floor space is available and we’re putting together something and hopefully we’ll have this done by the first part of March and that way we will be going out to our 1,600 showrooms to see how much product we can place. At the same time, Woodard has basically approximately 1,000 showrooms out there that carry patio furniture. They don’t have anything on the ceiling, we feel like it’s a perfect place to place outdoor product, our fans, our outdoor lighting and so we’ve basically picked up 2,600 accounts with the opportunity to place product to.
As you heard yesterday, I am stepping down as CEO as of June 30th and I am going to be Chairman of the Board. Woodard has some very quality people in their office and we just want to be able to see if we can get somebody younger and a little bit stronger to go forward. So anyway, I will turn it over to Marcus now.
J. Marcus Scrudder
I’ll provide highlights for the period-over-period comparisons for our second quarter. Looking at consolidated and net income for the second quarter, consolidated net sales were $20.8 million down 20.7% from $26.6 million in the last year second quarter. Consolidated net income for the quarter was $496,000 compared to $1.5 million in the year ago quarter. On a fully diluted basis, second quarter earnings for 2008 were $0.09 per share as compared to the $0.29 for the fiscal 2007 quarter.
Now, to break down the segment sales; Craftmade segment sales were $12.3 million which was a 10.7% decline from $13.8 million reported in the same period last year. This decline was primarily due to the weak housing market as Jimmy discussed earlier. Second quarter net sales for the TSI segment decreased $4.3 million or 33.4% to $8.5 million as compared to the $12.7 million in the same period last year. The decrease trade source was primarily due to the loss of the indoor and outdoor lighting SKUs we disclosed last November. We also did have some lower sales with portable lamps and accessories. The portable lamps drop in design turns was primarily due to the benefit we obtained last year from rolling out mix matched portable lamps to four additional Lowes’ distribution centers that we hadn’t been supplying since September 05. Currently design turns supplies mix and match portable lamps for all DCs. Management feels that the future growth of the TSI segment is contingent upon our continuing success and efforts to introduce new products, product lines and marketing concepts to existing customers and expand to new customers.
Turning to gross profit, for the second quarter ending December 31 the gross profit for the company as a percentage of net sales decreased 0.9% to 31.2 as compared to 32.1% last year. Gross profit as a percentage of net sales for the Craftmade segment increased 0.7% to 36.3% compared to 35.6 in the quarter ended December 31, 2006. These increases resulted from lower product costs and partially offset by higher returns and allowances. Gross profit as a percentage of net sales for TSI segment decreased 4.4% to 23.9% of net sales for the quarter ended December 31, 2007 compared to 28.3% in the same period last year. The decrease was due to last year we had some benefits obtained from lower costs for markdowns and product resets primarily as a result of the loss of the indoor and outdoor lighting orders by Lowes. In the same light, gross profits as a percentage of net sales decreased for design trends as a result of benefits obtained last year from lower costs associated with product resells.
For fiscal year 2008 we expect gross profit as a percentage of net sales for TSI to remain consistent with the fiscal year ended June 30 07 provided the segment maintains the sales mix, customer concentration and level of vendor program commitments similar to what it maintained this year.
To look at expenses, total SG&A expenses for the quarter decreased to $4,977,000 excluding depreciation and amortization as compared to $5,135,000 in the same quarter last year. The decrease is primarily due to lower commissions and lower variable costs due to the drop in sales. Minority interest expense decreased $206,000 to $307,000 for the quarter ended December 31, 2007 as compared to $513,000 for the same period in the previous quarter. The decrease in minority interest results from lower profits of design trends as a result of the net sales. Net interest expense of the company decreased $139,000 to $254,000 for the quarter ended December 31 compared to $393,000 for the same quarter last year. This decrease is primarily a result of lower outstanding balances on our sources of debt due to lower working capital.
I’ll turn it over to Jimmy for his comments.
James R. Ridings
We continue to build ground work for future growth in this company. Through the acquisition of Woodard we have basically doubled the size of the company and we feel like we are getting the opportunity to have, as I said, through cost selling we were able to continue to increase revenues and at the same time offset some of the downward pressure of the housing markets. So, hopefully what we’ll do now is continue to work hard and I’ll turn it over to any questions.
(Operator Instructions) At this time there appear to be no questions.
James R. Ridings
Okay, thank you. I want to thank everybody for joining us and we will look much forward to next quarter when we have Woodard as part of the numbers. Thank you.
Thank you. This call has now concluded. You may now disconnect your phones. Have a great day.
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