Shermag reports third quarter results



    SHERBROOKE, QC, Feb. 8 /CNW Telbec/ - Shermag Inc. (TSX: SMG) ("Shermag"
or the "Company") today reported its results for the third quarter and nine
months ended December 28, 2007. All dollar amounts referenced in this news
release are denominated in Canadian currency unless otherwise indicated.
    Shermag's third quarter 2007-2008 results reflect the impacts of ongoing
external challenges the Company faces, including the continued strengthening
of the Canadian dollar, the weakness of the US housing market and its related
impact on new furniture sales, and increasing competition from low-cost
overseas manufacturers. The Company's management and Board of Directors have
developed and are implementing a number of strategies, including plant
closures, staff reductions, and a complete review of Shermag's operations,
aimed at improving the Company's performance in light of these factors.
    Consolidated gross revenue for the third quarter ended December 28, 2007
totalled $25.3 million, down 38% from consolidated sales of $40.6 million for
the corresponding period last year. Net revenue was $23.4 million, a 39%
reduction from the $38.4 million posted a year ago. Net loss for the third
quarter was $22.3 million or $1.67 per fully diluted share, compared to a net
loss of $7.7 million or $0.58 per fully diluted share a year earlier. It is
important to note that almost three-quarters of this loss is attributable to
restructuring costs related to the closures announced in December 2007 of four
manufacturing plants.
    For the first three quarters of the current fiscal year, the Company's
consolidated gross revenue totalled $83.7 million, a 37% reduction from the
$131.9 million earned in the same period last year. Net revenue was
$78.4 million, a decline of 36% compared to net revenue of $123.4 million
earned in the same period last year. Net loss was $29.9 million or $2.24 per
fully diluted share, compared to a net loss of $13.2 million or $0.99 per
fully diluted share, for the same period a year earlier.
    In the third quarter, Canadian sales were reduced by 24%, from
$13.5 million to $10.3 million year-over-year. In US dollars, exports declined
by 36%, from $23.9 million to $15.3 million. In Canadian dollars, the value of
exports fell 45% to $15 million, or 59% of gross revenue. The average exchange
rate applied to the third quarter financial results was CA$0.98/US$, compared
to CA$1.13/US$ for the same period last year.
    For the first nine months of the current fiscal year, Canadian sales
declined by 18%, from $42.7 million in 2006 to $35 million in 2007. Exports
for the nine-month period ended December 28, 2007, expressed in US dollars,
were reduced by 41% over the comparable period in 2006-2007, from
$79.1 million to $46.4 million. In Canadian dollars, the value of exports
decreased by 46%, to $48.7 million or 58% of gross revenue over the same
period in the previous year. The average exchange rate applied to the first
nine months of the current fiscal year was CA$1.05/US$, compared to
CA$1.13/US$ for the same period last year. The variation in the exchange rate
is estimated to have had a negative impact of $3.7 million on sales.

    Full comparative results for the third quarter and the nine months ended
December 28, 2007 were as follows:

    
    Comparative results - 3rd Quarter
    -------------------------------------------------------------------------
    (in thousands of dollars,                      3rd Quarter   3rd Quarter
     except per share data)                          2007-2008     2006-2007
    -------------------------------------------------------------------------
    Gross revenue                                    $  25,317     $  40,562
    -------------------------------------------------------------------------
    Gross earnings (1)                               $     577     $   2,176
    -------------------------------------------------------------------------
    Unusual items - restructuring costs              $  16,729     $   3,474
    -------------------------------------------------------------------------
    Loss before income taxes                         $ (22,505)    $ (11,022)
    -------------------------------------------------------------------------
    Net loss                                         $ (22,282)    $  (7,708)
    -------------------------------------------------------------------------
    Loss per common share - basic                    $   (1.67)    $   (0.58)
    -------------------------------------------------------------------------
    Loss per common share - diluted                  $   (1.67)    $   (0.58)
    -------------------------------------------------------------------------
    Exports                                          $  14,976     $  27,024
    -------------------------------------------------------------------------
    (1) Excluding amortization

    Comparative results - Nine month period
    -------------------------------------------------------------------------
    (in thousands of dollars,                      Nine months   Nine months
     except per share data)                          2007-2008     2006-2007
    -------------------------------------------------------------------------
    Gross revenue                                    $  83,663     $ 131,895
    -------------------------------------------------------------------------
    Gross earnings (1)                               $   7,606     $  12,459
    -------------------------------------------------------------------------
    Unusual items - restructuring costs              $  16,729     $   3,474
    -------------------------------------------------------------------------
    Loss before income taxes                         $ (33,239)    $ (19,211)
    -------------------------------------------------------------------------
    Net loss                                         $ (29,905)    $ (13,234)
    -------------------------------------------------------------------------
    Loss per common share - basic                    $   (2.24)    $   (0.99)
    -------------------------------------------------------------------------
    Loss per common share - diluted                  $   (2.24)    $   (0.99)
    -------------------------------------------------------------------------
    Exports                                          $  48,672     $  89,237
    -------------------------------------------------------------------------
    (1) Excluding amortization
    

    The quarter's gross margin was reduced as a result of the depreciation of
the American dollar, as well as the facts that fixed costs could not be
reduced at the same pace as revenues and that higher discounts were applied
than had been in previous quarters. The benefits of the selective price
increases the Company instituted during the third quarter will be reflected in
the results in the coming months. In addition, the Company recorded a loss of
$16.7 million under "unusual items" on the closure of four of its
manufacturing plants announced in December 2007. Finally, the consolidation of
the Company's operations necessitated an impairment of long-lived assets
totalling $13.1 million, as well as a reduction of $3.6 million attributable
to the revised carrying values of inventories related to the plant closures.

    Outlook

    Since the end of November 2007, Shermag has focused strongly on
activities aimed at facilitating a turnaround, and intensified their
implementation as a means of accelerating the Company's transformation. The
expenses related to the significant activities recently undertaken through
Shermag's turnaround initiative, including plant closures and layoffs, have
been reflected in the Company's third quarter results - however the full
impacts of the savings in operational expenses associated with these
activities have not yet been reflected. Management expects these impacts to be
more apparent in the Company's results in the coming months.

    Shermag's management expects the recent settling of the US/Canadian
exchange at parity level to help to return a certain measure of predictability
to the Company's results. However, the weakness of the residential housing
market in the United States will likely continue to have a negative impact on
furniture sales, as will strong competition from low-priced suppliers
overseas. To counteract the impacts of these external factors on our overall
business, Shermag's management will continue to vigorously pursue reductions
in fixed costs, and will accelerate its review of Shermag's overall operations
to identify further opportunities. Management is encouraged by the progress
made to date, and is committed to continuing this work.

    Profile

    Shermag Inc. (SMG), headquartered in Sherbrooke, Québec, is a leader in
the design, production, marketing and distribution of high-quality residential
furniture. The Company is a vertically integrated manufacturer and importer
with its own cutting rights, sawmill, manufacturing operations and global
sourcing division. It currently employs approximately 1,050 people; following
the February 2008 plant closures, Shermag will have 730 employees.

    Disclaimer

    This news release, in particular the section under the heading "Outlook",
contains forward-looking statements about the Company's operations,
objectives, strategies, financial situation and performance. These statements
are made based on assumptions and management's best estimates with regard to
future events. However, the business of the Company is subject to risks and
uncertainties that could cause actual results to differ from expected results.
Important factors that could cause such differences are changes in pricing
pressure being exerted by competitors, particularly Asian-based companies,
significant movement in the Canadian/US dollar exchange rate, and
unanticipated problems in implementing the Company's Business Transformation
Plan, among others. A broader discussion of risk factors that could affect
future performance can be found in the Company's Annual MD&A and Annual
Information Form, filed with Canadian securities regulatory authorities. Given
these risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. The Company
disclaims any intention or obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.




For further information:

For further information: Shermag Inc., (819) 566-1515

Organization Profile

SHERMAG INC.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890