Stanley Furniture Co.

(STLY) CEO Discusses Q2 2013 Results - Earnings Call Transcript - Seeking Alpha
seekingalpha.com /article/1550962-stanley-f urniture-co-stly-ceo-discusses-q2-2013-resultsearnings-call-transcript Executives Micah S. Goldstein - Chief Financial Of f icer, Chief Operating Of f icer, Principal Accounting Of f icer, Secretary and Director Glenn Charles Prillaman - Chief Executive Of f icer, President and Director Analysts Budd Bugatch - Raymond James & Associates, Inc., Research Division Steve Hale Barry George Haimes - Sage Asset Management, LLC John A. Baugh - Stif el, Nicolaus & Co., Inc., Research Division Brad Hathaway Alan W. Weber - Robotti & Company, Incorporated Stanley Furniture Co. (ST LY) Q2 2013 Earnings Call July 16, 2013 9:00 AM ET Operator Greetings, and welcome to the Stanley Furniture Second Quarter Investor Call. [Operator Instructions] As a reminder, this conf erence is being recorded. It is now my pleasure to introduce your host, Micah Goldstein, Chief Operating and Financial Of f icer f or Stanley Furniture. T hank you, Mr. Goldstein, you may now begin. Micah S. Goldstein T hank 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 f orward-looking statements that are subject to risks and uncertainties. A discussion of f actors that could cause actual results to dif f er materially f rom our expectations is contained in our SEC f ilings and the press release announcing the quarter results. Any f orward-looking statement speaks only as of today, and we undertake no obligation to update or revise those f orward-looking statements to ref lect events or circumstances af ter this morning's call. Glenn? Glenn Charles Prillaman Good morning, thank you f or joining us this morning. T he most recent quarter represented a

signif icant milestone f or our company's multiyear journey to reposition itself f or growth. T he of f ice 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 ref ining the multiple initiatives that we believe have been necessary f or growth. Implementing the initial parts of these initiatives have been very disruptive to our customers and our management team over the last f ew years, and we are glad to have those times behind us. We are now completely f ocused on the execution of our operating models, which should make us one of the most customer-f riendly companies within our market segment. To be a little more specif ic, 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 af ter we had successf ully put both brands in a good service position in Q1, we f elt good about our ability to go into market and f ace 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 f ront of customers at the April Furniture Market in High Point, we took an aggressive position on discounting existing designs to gain f loor 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 prof itable growth in the back half of the year and into the next. Our placements on existing goods in the Stanley line are up signif icantly 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 f or quite a bit of the second quarter. Other accomplishments in the quarter included the successf ul relocation of the corporate of f ice, the opening of our new High Point showroom to wonderf ul reviews of new product and a well-attended f urniture market, the introduction of new staf f to customers, and we did see shipments and operating perf ormance f or the company's Young America brand improve slightly compared to prior year and prior quarter. We have multiple opportunities f or sales growth underway there. Lastly, in May, we did launch, as I mentioned earlier, our new enterprise resource planning system. T his is our largest systems initiative ever and our f irst 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 satisf y customers. But we are, in most cases, ef f ectively in business, acknowledging, invoicing and shipping new orders. We f eel strongly about our ability to dif f erentiate not just through product design, marketing and operations, but also by becoming a more ef f icient 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 f inances and operations, and then we'll turn it over f or questions. Net sales f or the quarter were $24.2 million and basically f lat to the prior-year period. Our Stanley brand was down slightly f rom the second quarter of last year and more signif icantly 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 f lat 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 f lat with where it was at year end. Gross margin declined to 9% of net sales in the second quarter. T he decrease can be attributed to 2 main f actors, both related to the Stanley product line. T he f irst, Glenn already mentioned when he spoke about discounts of existing goods at market and the second was related to inf lation 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 f or the quarter was $2.7 million. T he gross margin hit, combined with a higher SG&A spend, explains the change in our operating perf ormance 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 successf ul with our inventory reduction ef f orts 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 perf ormance both improved, but were overshadowed by the challenges Glenn mentioned related to the launch of our new system. T he Young America f actory continues to show improved productivity. And in the most recent quarter, the f actory output was similar to 2011 levels with 200 f ewer employees. On the Stanley side, our vendors shipped more dependably, which remains our top f ocus, along with control and inventory levels. With that, let's open the line f or questions. Jesse? Question-and-Answer Session Operator [Operator Instructions] Our f irst question is coming f rom the line of Budd Bugatch with Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division I guess, can you give us some quantif ication of these disruptions? First, the level of aggressive discounting and second, what the inf lation 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 dif f erence in gross margin. T he best we could tell you is that's about $700,000 related to discounting, about $0.5 million related to inf lation 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 quantif y f or us the number of

placements that you were able to get f rom that? Micah S. Goldstein As I said, Budd, the placements were up signif icantly year-to-date, just f or 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 f rom customer to customer. And we did what it took to get the existing designs on the f loor in order to set ourselves up f or 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 quantif y 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. T he vast majority of those have been shipped. We shouldn't see any measurable ef f ect 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 f eedback, 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 f rom that? Have we seen reorders? And can you give us any quantif ication of that, because if the Stanley product line was still down signif icantly, how come we know that we're starting to see sales f rom that? Micah S. Goldstein Even though we might ship orders in May, Budd, some of those orders could have come f rom our Asia warehouse. And look, retail in our segment, it's not like the f loor space was there and waiting, and there was an empty slot on our retailer's f loors as you know. It takes a little while f or a retailer to get that spot open f or 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 f ourth 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. T hey would be able to tell you, I would think on a weekly basis, how many of those placements were actually f loored. T hey would be out seeing those customers, correct? Micah S. Goldstein T hat is correct. And I'm in very, very close contact with our sales reps in the f ield who have done an excellent job... Budd Bugatch - Raymond James & Associates, Inc., Research Division So what percentage of new placements have actually been f loored now? Micah S. Goldstein A small percentage. Budd Bugatch - Raymond James & Associates, Inc., Research Division T hat'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 f ew products that ship f rom the Asia warehouse. Budd Bugatch - Raymond James & Associates, Inc., Research Division And that takes how long? T hat 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 f rom 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 quantif y 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 f or the third and f ourth quarter and the f uture? 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 quantif ication of how the quarter proceeded? Was there any dif f erence -- signif icant dif f erence 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 f or 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 f or 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, f rom the second quarter last year to the second quarter of this year. And that's just all ref lecting 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 quantif y any of that? Micah S. Goldstein T hat would be tough. Operator T he next question is coming f rom the line of Steve Hale with Hale Partnership. Steve Hale Quick question. Glenn, on one thing you said, you said you expected prof itable 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 prof itable, is that getting us closer to breakeven, but it will be unprof itable? I just wanted to clarif y. Glenn Charles Prillaman Yes. I didn't mean to suggest that we're going to breakeven in the second half by saying prof itable growth. I probably was ref erring to -- and I'm not exactly sure where I said that, but I was probably ref erring to a -- compared to the amount of discounting that we did to set ourselves up f or growth in Q3 and Q4, this is going to be much more prof itable. And I may well have been talking, Steve, only about the Stanley line, which if I was, then that product line is already prof itable. So if we grow in Stanley, then it's prof itable growth f or that line. Steve Hale Got it. Yes, I just wanted to clarif y. T hat makes sense relative to your historical comments. T he second question I have, Micah, given that you guys have just f inished 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. T hat'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-f its. 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 transf ormational CapEx spend, when we f orget working capital and share repurchase? Micah S. Goldstein Sure. I mean, yes. Inventory growth was a big part of that as well, to go f rom being a domestic manuf acturer to an importer on our adult f urniture 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 f rom 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 f rom 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 f airly dynamic. What changed was that we were in receipt of the $40 million related to the CDSOA f unds. And that really changed the way we and the board thought about how we needed to speed the repositioning of the company. So f or 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. T hat cost us some money to do that as quickly as we did because, as I've mentioned bef ore, we replaced 10,000 f loor samples around the country in a matter of about a quarter. We decided to increase inventories of the Stanley line anticipating a better economy, af ter we saw a stronger f irst quarter of orders than we had seen in a little while in that product line. We upped our spend on website and eCommerce platf orms to prepare ourselves f or growth. We decided to move a little f aster on our systems implementation, little f aster 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 of f ice 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 f ar 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 f orward 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 conf erence 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 bef ore 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 f orward, 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, f lat 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 f unded 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. T he 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 of f ice 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 f or a quarter in revenues. So you can see that we're at $24 million now. So we def initely 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 dif f icult f or 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 prof itable on the adult line, and then you've said it's prof itable last year, it's prof itable this year. And when you look at the $120 million breakeven annual run rate, sounds like that's all coming f rom 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 f rom. 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 f unding operating losses on it? Is it a year f rom now, 2 years f rom now, 3 years f rom 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 f rom 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. T hat's what I wanted to conf irm. Glenn Charles Prillaman Absolutely. And if you take -- if the initiatives we've put in place to make Robbinsville a domestic -- an ef f icient domestic manuf acturing f acility and make our product line meaningf ul 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. T hat's super f air, Glenn. I appreciate you articulating that. T hat'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 f rom 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 af f ected 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 f or 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 inf ormation 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 ref ining 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 f irst half of the systems implementation as f ar as our customer is concerned. T he problems that we have with the systems implementation were, while they weren't exclusive to customer f acing problems, that's where all -- most of the disruption came f rom. We went f or a period of time where our customers didn't have visibility of stock availability. It's very dif f icult to operate as a retail sales associate when

you do not have that. We were in f or 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 customerf acing. And that's what's unique about this initiative versus retooling a f actory or closing a f actory or moving an of f ice or opening a showroom, is that you can have all that stuf f going on behind the scenes and work really hard as our staf f has and our sales f orce has to mask that f or the customer and the consumer. But this systems implementation, by its very nature, is all about customer-f acing data. And when you go f or a period of time in a quarter without it, it's really going to af f ect the conf idence of that salesperson. We know that, we're addressing that. And like I said in the opening comments, we are ef f ectively back in business on the basics, but we have a lot of ref ining 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 T he retail, Barry, we are in the summer, and we do not typically see strong demand f or premium case goods in the summer months. What we are expecting is that the ef f orts 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 staf f and with the help of our sales f orce in the f ield. As the inf ormation 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 T he next question is coming f rom the line of John Baugh f rom Stif el. 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% ef f ective, I guess, with orders f or Q3 and Q4. Is that across the entire product line or is that just the Stanley line as well?

Glenn Charles Prillaman T hat was the Stanley line only, John. And we kind of mixed that 2 dif f erent price increases across the line, but 5% -- when I say 2 dif f erent 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 prof it potential. But you're burning cash in that business, and maybe you need to get to a f uture 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. T he model f or prof itability in Robbinsville is volume. We continue to make progress on lowering things like material cost and leveraging labor and so on and so f orth. 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 f or instance attend next month's, or this month, Vegas Market in a f ew weeks, being in that position f or the f irst time in quite a while. So it's -- we expect growth without a signif icant amount of discounting. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division Okay. Glenn Charles Prillaman T hat doesn't mean we won't promote, obviously, and you tend to ask about that. So I def initely 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 f or 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 of ten f eedback f rom the f ield. And I think that once we've given our customer a chance to respond to our products and do business through good service f rom 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 f or the long-term prof itability f or 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 T hat is correct. Operator T he next question is coming f rom the line of Brad Hathaway with Far View Capital Management. Brad Hathaway Quick question f or you. Are you able to quantif y at all the impact of the ERP disruptions on Q2? Glenn Charles Prillaman Brad, that's dif f icult to do. It touched a lot of dif f erent 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 f ix, but we're trying to look f orward 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 f or 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 f actor 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 f or the third quarter, which we obviously have a lot more visibility into, we're expecting working capital -- net working capital to be f lat, so it will not be a source or a use. And the cash burn in the third quarter is going to come f rom 2 places: Our loss, or whatever that ends up being; and the minor capital spends that f low 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 f orward? T hat would be in Q3? Micah S. Goldstein T hat's a really good way to look at it. Operator

[Operator Instructions] Our next question is coming f rom 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 f rom both of the products, having both of the product lines? Or more specif ically in one of the other? Glenn Charles Prillaman Probably more specif ically 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 dif f erently and theref ore, kind of comes out dif f erently. Now it doesn't look any dif f erent when the system operates correctly. And we now have it operating very close to where we want, as f ar as the transparency of the data. But it af f ected 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 T hat's dif f icult to say. I know that there are customers that we have -- we've been so dif f icult to do business with. I know that we'll be living with this f or 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 f ew 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 f ocused on. Alan W. Weber - Robotti & Company, Incorporated Okay. And do -- you talked about the breakeven f or the company. Do you talk about the breakeven f or 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 f ollow-up question f rom the line of Steve Hale with Hale Partnership. Steve Hale I just wanted to f ollow-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 manuf acturing or is that of f the table? Just curious of your thoughts? Glenn Charles Prillaman

No, Steve, and don't apologize f or asking another question. T hat's totally on the table. Operator It appears there are no f urther questions at this time. I would like to turn the f loor back over to Mr. Prillaman f or any concluding remarks. Glenn Charles Prillaman Well, I'd just like to thank everyone f or joining us and I appreciate all the questions. We do f eel like we have these strategic changes behind us and it's now down to executing our plan on what we think is a new platf orm. T he major uses of cash are behind us, and we do look f orward to seeing customers f ace-to-f ace through travel in Q3, as well as the Las Vegas Market. So we thank you very much, and we look f orward to reporting growth to you in the f uture quarters. Operator T hank you. Ladies and gentlemen, this does conclude today's teleconf erence. You may disconnect your lines at this time. T hank you f or your participation, and have a wonderf ul day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource f or bloggers and journalists, and are excited to contribute to the democratization of f inancial inf ormation on the Internet. (Until now investors have had to pay thousands of dollars in subscription f ees f or transcripts.) So our reproduction policy is as f ollows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. T HE INFORMAT ION CONTAINED HERE IS A T EXT UAL REPRESENTAT ION OF T HE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTAT ION OR OT HER AUDIO PRESENTAT ION, AND WHILE EFFORT S ARE MADE T O PROVIDE AN ACCURAT E T RANSCRIPT ION, T HERE MAY BE MAT ERIAL ERRORS, OMISSIONS, OR INACCURACIES IN T HE REPORT ING OF T HE SUBSTANCE OF T HE AUDIO PRESENTAT IONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILIT Y FOR ANY INVEST MENT OR OT HER DECISIONS MADE BASED UPON T HE INFORMAT ION PROVIDED ON T HIS WEB SIT E OR IN ANY T RANSCRIPT. USERS ARE ADVISED T O REVIEW T HE APPLICABLE COMPANY'S AUDIO PRESENTAT ION IT SELF AND T HE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVEST MENT OR OT HER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. T hank you!