Stanley Steeped in Sorrow

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I think the best a Fool can say about Stanley Furniture's (Nasdaq: STLY) third-quarter earnings news (posted yesterday) would be this: I've seen worse.

Through the first three quarters of the year, Stanley saw its sales slide 9% year over year. Meanwhile, profits collapsed like Britney Spears' career -- down 91% year to date. Viewed against that backdrop, yesterday's 3.6% sales decline and 38.5% profits pratfall look positively benign.

Of course, Mr. Market saw things differently, slicing 13% from Stanley's market cap on the news. Stanley's $73.2 million in Q3 sales may have beaten estimates, but apparently not by enough to outweigh the $0.16-per-share profits, which missed estimates by a couple of pennies. And Stanley warned investors it will do even worse next quarter, losing money on operations even before losing more money as it takes charges to restructure its operations. Total damage: about a $0.33-per-share loss, of which $0.26 stems from the restructuring charges.

Aside from that, Mrs. Lincoln, how was the play?
All of the above probably explains the hissy fit Mr. Market threw yesterday. But personally, what depresses me even more than the GAAP fiasco is what's happening on Stanley's cash flow statement. There, we find the firm starting to resemble a real dog of a stock: Bassett Furniture (NYSE: BSET). Every quarter I check in on that one lately, it's the same story: Sorry, we didn't generate any cash profits this quarter. Instead, we hawked the family jewels to pay our dividend.

Sure, Stanley may also have bought back 639,331 shares this year, but (a) it paid far more ($21.27) than those shares are worth today; and (b) to get the funds necessary to pay the dividend and buy the shares, Stanley had to take out a $25 million loan.

Straws for the grasping
All that said, Stanley is still a recommendation of Motley Fool Hidden Gems, and I want to point out at least a couple of straws for our members to grasp at. First, despite all its woes, Stanley remains ever-so-slightly free-cash-flow positive for the year to date. That's more than Bassett can say, and it puts Stanley in respectable company in this regard, along with Furniture Brands (NYSE: FBN), Ethan Allen (NYSE: ETH), and Hooker Furniture (Nasdaq: HOFT). Second, "it's always darkest before the dawn." Eventually, people will start buying houses again, and furniture to fill 'em. Then the sun can come back out for Stanley.

This year hasn't been kind to Stanley. Read all about it (if you dare) in:

• Stanley Furniture Still Uncomfortable: Fool by Numbers
• Stanley Still Short
• Stanley Furnishes Another Disappointment: Fool by Numbers