Furniture Branded

Three months ago, in the course of writing up Furniture Brands' (NYSE: FBN  ) fourth-quarter and full-year 2006 earnings results, I made several predictions. I noted the dangerously tottering piles of inventory stacked around the firm's warehouses (figuratively speaking), combined with CEO Mickey Holliman's observation that Q1 2007 sales were likely to decline 10% year over year. Given all that, I wrote, "It's practically a given what we'll be seeing in the next quarter's (and maybe more than one) earnings news: falling sales, falling inventories (probably not falling fast enough), and falling margins as the firm tries to rectify that situation."

Guess what? That's precisely what happened.

When Furniture Brands reported its Q1 results Wednesday evening, the numbers looked both worse, and better, than expected. Take the 13% sales decline. It was worse than the 10% that Holliman predicted back in February, but better than the 15% he subsequently warned of in March. (Thank heavens for the power of lowered expectations.) Sadly, the earnings number came in right on target with March's prediction. Simply put, profits imploded this quarter, down 90% year over year to $0.06. And even if you back out several one-time items -- restructuring charges and arcane accounting for "interest rate swaps" and the like -- the decline still exceeded 80%.

Granted, this is an industrywide phenomenon, as evidenced by the news next door at Haverty Furniture (NYSE: HVT  ) (profits down 83%) last week, and at Ethan Allen (NYSE: ETH  ) last month (profits down 8%). But while misery loves company, no amount of company will make the next few months feel particularly pleasant. According to Holliman, "soft retail conditions" that "worsened as the quarter progressed" aren't going away. Furniture Brands does "not see an improving marketplace." On the contrary, management warned of a likely 15% sales decline in Q2, and about a $0.09 per share loss.

Indeed, a loss looks inevitable this quarter. Although the firm has made progress in working down its inventories, they continue to stand 13% higher than one year ago. This means that Furniture Brands will likely need price cuts to shift goods from the warehouses to customers' homes. Meanwhile, the slide in sales is draining operating efficiency. The company's 13% decline in sales went woefully unmatched by a basically flat number for selling, general, and administrative costs.

Long story short: Better break out the hide-a-bed, furniture investors. It's going to be a long, cold night.

What did we expect out of Furniture Brands last quarter, and what did it produce? Find out in:

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Fool contributor Rich Smith does not own shares of any company named above.


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