Virco Mfg. Corporation (Nasdaq:VIRC) today announced quarterly and full-year results for its fiscal year ended January 31, 2018.
For the full year ended January 31, 2018, revenue grew 9.2% to $189,287,000 from $173,417,000 the prior year. For the fourth quarter ended the same date, revenue was up a more modest 5% to $24,622,000 from $23,441,000. Operating income declined 33% for the full year due to a strategic decision early in the year not to raise prices. For the quarter, operating income declined 11.6%. Downward revaluation of deferred tax assets due to the recent tax law revision resulted in a one-time, non-operating, non-cash reversal of $4,438,000. This resulted in a net loss of $3,209,000 for the year and $8,550,000 for the quarter. As with last year’s recognition of the value of these deferred tax assets which resulted in a one-time, non-operating, non-cash increase to reported earnings of $17,962,000, management does not consider these fluctuations in tax law as indicative of underlying operations.
More relevant is the strong organic growth in demand for the Company’s products and services. This demand has continued into the early months of the new year, with order rates, backlog, and margins all suggesting further improvement is possible for the full year. As always, management cautions against using early trends—whether favorable or unfavorable—as the primary basis for evaluating Company progress. Nonetheless, after a number of years attempting to balance the scale of operations with market demand, the recent multi-year pattern of profitable revenue growth suggests the rebalancing has succeeded.
As the year progressed, it became apparent that higher costs for certain services and materials were not being captured by headline inflation figures but were nonetheless having an impact on Company margins. The strategic decision not to raise prices thus had a notable negative impact on earnings. Management believes this has been addressed with a moderate but appropriate price increase for the coming year. Recognizing the inherent tension between higher prices—a cost ultimately born by working families whose children use Virco furniture at school—and higher returns, management considers the balance between costs and prices just as carefully as the balance between capacity and demand.
Ongoing shifts in the logic of global sourcing have so far been favorable for the Company, validating prior decisions to maintain robust domestic capabilities in product development, fabrication, assembly and distribution. Improvements in these operations were masked by the decision not to raise prices. However, management believes they provide a more reliable foundation for bottom-line realization of this year’s price increase.
Commenting on this year’s results, Chairman and CEO Robert Virtue said:
“This marks our fourth consecutive year of profitable revenue growth. As a result, we were able to resume our traditional annual cycle of fabrication and assembly, which has proven over many years to be the most efficient operating model for our highly seasonal business. Despite a decision not to raise prices, the efficiencies generated by our American factory and distribution teams were sufficient to allow the resumption of a regular quarterly dividend.
“For many years Virco was one of the most reliable dividend-paying public companies. After eliminating the dividend due to serious economic and global challenges, it was always our goal to restore it and return to the reliability that is a such a proud part of our history. Among our many accomplishments last year, which included meaningful growth and raises for all of our workers, I’m most pleased about having been able to reinstate the dividend.”
President Doug Virtue commented on Virco’s goals for the future:
“As we look forward to the continued evolution of public education, we want to make sure we remain relevant in key areas of mutual concern: inclusion, dignity, and leadership. We will continue developing furniture that encourages students of all learning styles to participate actively in the classroom. We will build our products with care and quality because that’s what every student deserves. We will continue to innovate new platforms that support new curricula, especially experiential leaning such as technical, craft, and professional services training.”