Virco Mfg. Corporation Friday reported significantly improved operating and net income and stronger cash flow on moderately improved revenue for the Company’s fiscal year ended January 31, 2016. For the full year, revenue increased $4,543,000 from $164,052,000 to $168,595,000. Operating income more than doubled from $2,372,000 to $5,948,000. Net income was up over 400%, from $849,000 last year to $4,549,000, due partly to the effect of lower interest expense and tax benefits from prior years’ Net Operating Loss provisions (NOL).
These improved full-year results fall within what may be a pattern of intensifying seasonality in the Company’s core market of public school Furniture, Fixtures and Equipment (FF&E). In the fourth quarter ended January 31, 2016, which comprises the traditionally slow shipping months of November, December and January, revenues were down 23% compared to the prior year, from $25,354,000 to 19,494,000. While revenue decreased significantly, order rates for the fourth quarter were stable, declining by about 1%. Despite this pause at the end of the season, higher summer shipments were strong enough to generate annual growth of over $4.5 million. Since the holiday pause, order rates have returned to the trend of moderate growth that characterized most of last year. Results for Virco’s first quarter of FYE 2017 will be reported in June, by which time management expects to provide its traditional early-season assessment of market trends and conditions.
If seasonality is indeed intensifying, management believes it may play to Virco’s strengths of vertically integrated domestic manufacturing and distribution. Given the Company’s shorter and more nimble supply chain, management believes it can respond better to a compressed delivery cycle compared to suppliers who rely on distant offshore factories. This is especially true if custom sizing or modifications are required for furniture, as is often the case with refurbishment projects in older “as-built” facilities with their legacy infrastructure and utilities. A recent report “2016 State of Our Schools” produced by a collaboration of the 21st Century School Fund, The National Council on School Facilities, and The Center for Green Schools estimated extensive future needs for refurbishing America’s public schools, which average over 44 years old nationwide. This same report points out that at any given time during an average workday or school week, over 1/6 of Americans spend at least some time on a public school campus (50,000,000 students and over 6,000,000 teachers and administrators).
Commenting on this year’s results, Chairman and CEO Robert Virtue said:
“We’ve been battling some real headwinds for the past 7 years. The worst of these was weak funding for public schools. Now that funding is beginning to stabilize, we believe schools will return to a more regular pattern of furniture and equipment replacements. We may have seen some of that this summer, with our heavier seasonal deliveries.
“We also see an opportunity on the competitive front. We’ve always believed that in the long run, given the bulkiness and seasonality of school furniture, our U.S. factories would eventually have meaningful cost and quality advantages over imports. This year’s results show that these advantages are finally showing up in our bottom line.
“We’re also very happy to see our long-time customers in public education benefitting from the broader economic recovery. We think of ourselves as their partner in the mission of public education. A desire to serve this market was the impetus behind Virco’s founding in 1950 and it remains our primary focus today.”
President Doug Virtue elaborated on these trends:
“Over a decade ago we compared the individual cost elements of domestically made school furniture with imports. We discovered a threshold where freight costs offset the benefits of cheap overseas labor. As we had hoped, that threshold has gradually shifted upward. As distribution continues to become a larger component of overall cost, the competitive position of our two U.S. factories may become even stronger.
“Our design/engineering teams and experienced workforce can also react more quickly to requests for special designs. A good example is campus upgrades or renovations, where standard furniture may not support 21st Century curricula in the ‘as-built’ spaces of older schools. We pride ourselves on being able to make these custom modifications to support new learning styles while also helping to maintain the vitality and relevance of older, community-centered public schools.
“This is especially true for science, technology, engineering, arts and math upgrades (STEAM) as well as so-called ‘maker spaces’ that combine hands-on materials and process training with more traditional teaching. Because these skills are so essential in our own U.S. factories, we’re pleased to support their renewed emphasis in the education agenda.”