Rowe cuts costs as losses mount; 2Q sales drop 15.2%
Manufacturer-retailer tells SEC Chapter 11 filing a possibility
Jay McIntosh -- Home Accents Today, 7/13/2006 5:40:00 AM
McLEAN, Va. — The Rowe Companies posted a $4.9 million loss in its second quarter as the manufacturer and retailer continued to cut costs in its struggle to turn a profit.
Sales of $67.7 million in the quarter ended May 28 were 15.2% below the same period last year, the company reported. Shipments in the upholstery manufacturing segment fell 29.7% to $34 million, including $5.1 million in sales to Rowe’s Atlanta-based retail chain, 71-store Storehouse.
Rowe said its financial advisor, Morgan Joseph & Co., continues to talk with “a number of parties who have expressed preliminary interest in providing capital to the company,” and also is evaluating other potential transactions to raise money. In a filing with the Securities and Exchange Commission, the company warned that it could suffer adverse effects if cash-raising efforts fail, possibly including a Chapter 11 bankruptcy filing.
In early trading today, Rowe’s stock price was down about 38% to 90 cents per share.
Retail sales by Storehouse rose 3.7% to $38.8 million in the second quarter because of new stores opened since May 2005. Same-store sales slipped 5.8% compared with the same period a year ago.
Meanwhile, Rowe said it cut 200 manufacturing jobs in the second quarter, renegotiated certain raw material pricing agreements and worked to reduce waste and improve efficiency. The steps will yield $9.6 million in annual savings, Rowe said.
“During the second quarter we continued to achieve cost reductions in our manufacturing operations as part of our turnaround plan, contributing to an improvement in manufacturing gross margins compared to the second quarter of 2005,” said Chairman and President Gerald Birnbach.
Price increases announced last fall took effect during the quarter, and higher-margin retail shipments increased as a percentage of total shipments due to the new Storehouse stores opened since the beginning of 2005, the company said.
The company also said its Storehouse management has initiated cost-saving moves, including a hiring freeze and travel restrictions, and will hire a consultant to help with further savings.
Rowe took two pretax charges in its latest quarter — $1 million to write down the value of excess, discontinued and slow-moving fabric inventory in the manufacturing segment, and $350,000 added to the retail segment’s bad debt reserve “due to the uncertain retail environment.”
The quarter’s $4.9 million net loss was nearly double the $2.5 million loss posted in the 2005 second quarter. In its first half, the company reported an $8.3 million loss, compared with a $2.7 million loss in the 2005 first half, with sales down 7.3% to $134.8 million.
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