Virco Reports First Quarter Results

Virco Mfg. Corporation (VIRC) announced results for the first quarter ended April 30, 2019, in the following letter to shareholders:

Revenue for the first quarter ended April 30, 2019 increased 19% to $26,893,000 this year vs. $22,569,000 last year. This significant improvement occurred despite a generalized slowdown in the rate of incoming orders, which may be linked to one or more of the following:

  1. Trade uncertainties and their related impacts on imported school furniture and components;

  2. Regional delays in school construction due to severe weather in winter and late spring, especially in the Midwest and the drainages of the Arkansas and Mississippi Rivers; and

  3. Some negative reaction to the Company’s previously announced price increase, which went into effect at the beginning of this year’s order cycle.

Because of the extreme seasonality of the school furniture market, where orders peak in spring but deliveries peak in summer, Management has for many years relied on the metric of year-to-date shipments plus backlog to track business activity. The Company’s first quarter communications often report this number to help investors evaluate the Company’s trajectory. Through the end of May, shipments plus backlog stood at $99,741,000 versus $106,063,000 on the same date last year. This is a decline of 6.0%.

However, factoring in the Company’s price increase, the trajectory in 2019 is more favorable. As discussed in our Form 10K for the year ended January 31, 2019, the Company incurred severe cost increases in raw materials and imported components in the prior year. The Company increased selling prices at the beginning of the year – enough to recover the cost increases from the prior year and anticipated costs increases in the current year. The effect of the price increase was not apparent in the first quarter as the Company began the year with a backlog of approximately $20 million of orders received prior to the price increase.

Management further believes that order rates may begin to approach last year’s levels as summer progresses. Order rates for the seasonally slow months of February and March were significantly below the comparable months in the prior year, and order rates matched the prior year in the months of April and May. The Company’s ability to deliver quickly from its U.S. factories and warehouses may prove attractive in this year of uncertainty as school districts confront project delays for any of the reasons mentioned above.

The bottom-line impacts of higher selling prices will only become fully apparent with the peak volumes of summer. Nonetheless, the operating loss of $3,597,000 in the seasonally light first quarter represents a 19% improvement compared to last year’s loss of $4,468,000 in the same period.

Here are the numbers for the first quarter ended April 30, 2019:

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Virco Chairman and CEO Robert Virtue commented on the first quarter results: “We are now well into this year’s order cycle under the new pricing regime. Given all the moving pieces with global trade and weather impacts, we are reasonably satisfied with our progress so far. We expect to have a traditionally busy summer delivery season, but we’re also very well prepared for that since we have such a high proportion of the backlog already manufactured and ready for delivery. The precision of aim on these orders is the highest that I can recall in my years at Virco. We are well positioned to deliver a high level of customer satisfaction this summer.”

President Doug Virtue elaborated: “During the off-season we successfully implemented a strategic inventory program designed to insure complete, timely deliveries for orders received before the typical summer rush. Our program has been well received by our customers, and we believe it may be part of the reason why this year’s first quarter shipments were higher than last year even with the overall decline in order rates. If this momentum continues through summer, it will have a positive effect on year-end results, especially when combined with this year’s higher selling prices.”