Michael J. Knell
SHERBROOKE, Quebec — Full-line manufacturer and importer Shermag continues to be hurt by an unfavorable

exchange rate and sagging sales to Canadian retailers, although slightly higher U.S. sales and improved efficiencies are easing the pain.

In its second quarter ended Sept. 29, net revenue fell 11.5% to C$42.5 million from C$48.1 million in last year’s comparable quarter, and the net loss came to C$1.1 million, or nine Canadian cents per share, a substantial improvement over last year’s loss of C$2.1 million, or 16 cents per share.

For the six months, net revenue amounted to C$85 million, down 11.7% from C$96.3 million in last year’s first half. The net loss for the first six months was C$5.5 million, or 41 cents per share, worse than the loss of C$3.6 million, or 27 cents per share, recorded last year.

“The consistent focus on our business transformation plan is beginning to yield results as we have begun to see some progress in our efficiencies,” said President and CEO Jeff Casselman in a conference call with analysts. “We have also been successful in further increasing the level of imported products. These gains, however, continued to be offset in part by additional changes in the U.S./Canadian dollar exchange rate.”

Gross revenues in the second quarter were C$45.5 million, compared to C$51 million in the comparable period last year, and for the first half were C$91.3 million, down from C$102 million last year.

Shermag said the average exchange rate during the latest quarter was C$1.13/US$, compared to C$1.24/US$ in last year’s second period, representing a 9% depreciation in the U.S. dollar.

The impact on sales was C$3.3 million during the quarter, despite an uptick in export sales of 1.7% to US$28.2 million. In Canadian dollars, sales to U.S. retailers fell 8.6% in the second quarter to C$31.7 million, and 6.6% in the first half to C$62.2 million.

Sales to U.S. retailers accounted for 68.1% of the company’s shipments in the second quarter, compared to 65.3% in last year’s comparable quarter.

Sales to Canadian retailers fell 14.9% to C$13.8 million in the quarter, and declined 17.5% to C$29.1 million in the first half.

Casselman told analysts the Metropolitan Home collection launched at last month’s High Point Market was well received by buyers, and that its reception “underlines Shermag’s strength in developing exciting new products for all parts of the modern home.”

The first orders for Metropolitan Home will be shipped in April, he said.

Shermag has lost several customers to bankruptcy in the past several months, the most important being Atlanta-based Storehouse, the retail division of The Rowe Companies. Casselman said Storehouse had placed orders valued at C$5 million annually.

He told analysts the loss of Storehouse “reflects general market conditions which continue to be difficult and highly competitive.”

“At the same time, the benefits of the company’s transformation process are starting to bear fruit,” Casselman said. “Our plan to focus our domestic facilities on ‘choice-based products’ is gaining traction and efficiency, and the plan to increase imports of non-choice items is also progressing well. It is anticipated that more than 35% of our products will be sourced offshore this year.”