Inscape (INQ.TO), a leading designer and manufacturer of furnishings for the workplace, today announced its fourth quarter and annual financial results ended April 30, 2017.
Sales in the fourth quarter were 2.7% higher than the same quarter of last year. Benefits from the growth in the furniture segment and more favorable U.S. currency hedges were reduced by a decrease in the quarterly sales of the Walls segment and overall lower realized selling price. On a normalized U.S. exchange and realized selling price basis, sales in the current quarter of fiscal 2017 were about the same as the fourth quarter of last year. Sales in the Company’s fourth quarter are normally lower than other quarters due to slowdown of sales orders during the holidays and reduced number of working days compared to the first three quarters.
“We are very pleased with our continued progress in our strategic growth plan,” said Brian Mirsky, CEO.“As we enter our new fiscal year, our focus will be on operational execution to support our sales, marketing and product development efforts.”
The fiscal 2017 annual sales of $95.3 million were 19.3% higher than the previous year’s $79.8 million. The increase of $15.4 million included $8.5 million U.S. exchange due to improved U.S. currency hedge rates. Both furniture and Walls segments recorded increase in sales. On a normalized U.S. exchange and realized selling price basis, fiscal 2017 sales were up by 12.1%.
The fourth quarter net loss of $2.1 million is below net income of $5.4 million in the same quarter of last year. The current quarter’s net loss included an unrealized derivative loss of $1.9 million, versus a gain of $7.5 million in the same quarter of last year relating to the change in the fair market value of outstanding U.S. currency hedge contracts. With the exclusion of the unrealized derivative loss/gain and other unusual items, the current quarter had an adjusted loss of $0.9 million compared with an adjusted loss of $1.3 million in the same quarter of last year; an improvement of $0.4 million. The improvement was mainly a result of higher U.S. currency hedge rates and lower SG&A.
Fiscal year 2017 ended with a net loss of $0.2 million, compared to a net loss of $1.3 million in fiscal year 2016. Similar to the quarterly results, both reporting periods had several unusual items that had very significant impact on the net loss. With the exclusion of these unusual items, current year adjusted net income was $3.3 million, compared with last year’s adjusted net loss of $5.0 million, an improvement of $8.3 million. The substantial increase in the year-over-year net income was attributable to favorable U.S. currency hedge rates, higher sales volume, lower fixed SG&A, partially offset by lower realized selling prices and higher raw material costs.
The adjusted income or loss is a non-GAAP measure, which does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers.
The following is a reconciliation of net income and loss calculated in accordance with GAAP to the non-GAAP measure:
The fourth quarter gross profit as a percentage of sales of 26.5% was 1.1 percentage points higher than the same quarter of last year. The cost of goods sold of the current quarter included a write down of obsolete and slow moving inventory of $0.3 million, or 1.5% of sales. In the prior year quarter, the cost of goods sold included a restructuring cost of $0.3 million, or 1.4% of sales. The year-over-year increase of 1.1 percentage points in gross profit percentage was the result of gains from U.S. currency hedge rates partially offset by higher raw material costs, lower realized selling prices and the inventory write down.
Fiscal year 2017 gross profit as a percentage of sales increased 5.2 percentage points from last year’s 24.8% to the current year’s 30.0%. The cost of goods sold of the current quarter included a write down of obsolete and slow moving inventory of $0.4 million, or 0.4% of sales; and the $0.3 million restructuring cost in the previous year also represents 0.4% of fiscal 2016 sales. More favorable U.S. currency hedge rates and higher volumes in both Furniture and Walls segment were the main source of the gross profit improvement, which was reduced by lower realized selling prices and higher raw material costs.
SG&A for the quarter was 28.5% of sales, compared with last year’s 33.5%. The current quarter SG&A of $6.0 million was $0.8 million lower than the same quarter of last year, of which $0.5 million was due to a reduction in the market value of share-based compensation during the quarter when the Company share price moved down from $5.24 at the beginning of the quarter to $4.05 at the end of the quarter. The remaining $0.3 million decrease in SG&A consists mainly of lower salaries, benefits and year-end bonus adjustments.
SG&A for the year was 27.6% of sales versus 32.8% last year. The SG&A expense of $26.3 million was $0.2 million or 0.6% higher than last year, consisting of $0.6 million variable SG&A relating to higher sales volume, offset by decrease of $0.4 million in fixed SG&A. Last year’s higher fixed SG&A was mainly caused by a one-time settlement loss on the wind-up of one of the Company’s defined benefit pension plans and investment in West Elm Workspace with Inscape start-up costs.
At the previous fiscal year ended April 30, 2016, the Company recorded a valuation allowance of $7.0 million to derecognize the future income tax benefit of loss carry forwards as deferred tax assets. For the twelve-month period ended April 30, 2017, $0.9 million of the valuation allowance was utilized to reduce the Company’s income tax expense.
At the end of the fiscal year, the company was debt-free and had cash, cash equivalents and short-term investments totaling $11.5 million and an unused credit facility.