Investor Presentation

Investor Presentation
Caution Regarding Forward-Looking Statements
Matters discussed in this document and in our public disclosures, whether written or oral, relating to future events or our
future performance, including any discussion, express or implied, of our anticipated growth, operating results, future earnings
per share, or plans and objectives, contain forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are often identified by the words “will,”
“believe,” “positioned, ” “estimate,” “project,” “target,” “continue,” “intend,” “expect,” “future,” “anticipates,” and similar
expressions that are not statements of historical fact. These statements are not guarantees of future performance and involve
certain risks, uncertainties and assumptions that are difficult to predict. Our actual results and timing of certain events could
differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under ``Risk Factors'' in our Annual Report on Form 10-K for the year ended December 31, 2011,
and in our other subsequent public filings with the Securities and Exchange Commission. Such factors include, but are not
limited to: risks associated with the execution of our strategic plan; changes in economic conditions; loss of market share due
to competition; changes in our pension funding obligations; failure to forecast demand or anticipate or respond to changes in
consumer tastes and fashion trends; failure to achieve projected mix of product sales; business failures of large customers;
distribution realignments; manufacturing realignments and cost savings programs; increased reliance on offshore (import)
sourcing of various products; fluctuations in the cost, availability and quality of raw materials; product liability uncertainty;
environmental regulations; future acquisitions; loss of key personnel; impairment of intangible assets; anti-takeover provisions
which could result in a decreased valuation of our common stock; loss of funding sources or our inability to secure additional
financing to meet our operating and capital needs; and our ability to open and operate new retail stores successfully. It is
routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it
should be clearly understood that all forward-looking statements and the internal projections and beliefs upon which we base
our expectations included in this report or other periodic reports are made only as of the date made and may change. While
we may elect to update forward-looking statements at some point in the future, we do not undertake any obligation to update
any forward-looking statements whether as a result of new information, future events or otherwise.
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Who We Are
Furniture Brands International (NYSE: FBN)
Third-largest US home furnishings company
LTM net sales of $1.1 billion
Headquartered in St. Louis, Missouri
Approximately 9,100 employees worldwide
13 domestic and 3 international manufacturing sites
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Industry’s Top Portfolio of Brands
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HIGHLY CONFIDENTIAL
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HIGHLY CONFIDENTIAL
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HIGHLY CONFIDENTIAL
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HIGHLY CONFIDENTIAL
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HIGHLY CONFIDENTIAL
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Investment Considerations
Well positioned in a large, fragmented industry
Re-energized programs to drive profitable sales
Middle stages of manufacturing turnaround
Highly scalable SG&A and improving profitability
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Broadest Portfolio in $65 Billion Industry
Price Tier 1
$3 B retail
$6 B retail
Price Tier 2
Mass
Appeal
Niche
Appeal
$10 B retail
$30 B retail
Price Tier 3
$4 B retail
$13 B retail
Price Tier 4
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Price Tier Defined as: Average retail prices paid by consumers
Niche vs. mass appeal based on: Breadth of the brand’s product portfolio; Number of styles
brand represents; and Diversification of brand across distribution channels
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FBN Has 4 of the 9 Most Recognized Brands
(Unaided + Aided)
91%
Aided Awareness
82%
Unaided Awareness
71%
70%
69%
57%
Top-of-Mind Awareness
58%
57%
47%
50%
45%
50%
56%
41%
29%
33%
37%
39%
25%
21%
27%
17%
13%
15%
10%
9%
La-Z-Boy
19%
Ethan Allen
IKEA
8%
Broyhill
4%
Thomasville
9%
Ashley
10%
6%
3%
1%
Lane
2%
1%
Pottery Barn Drexel-Heritage
NOTE: Consumer Awareness = Unaided Awareness + Top-of-Mind Awareness
“When thinking about brands of furniture, which ones come to mind?”
“To the best of your knowledge, which of the following are brands of furniture?”
Source: FBN Consumer Segmentation study Aug 2008
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Investment Considerations
Well positioned in a large, fragmented industry
Re-energized programs to drive profitable sales
Middle stages of manufacturing turnaround
Highly scalable SG&A and improving profitability
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Areas of Focus
• Lane and Broyhill positioned to target all key product
category, style, and price segments for mass market
• Competitive case goods mixing program from Broyhill
• New store format and enhancements from our
Thomasville Brand
• Migrated to updated and transitional furniture styles
across several brands
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Lane Full Portfolio of Product Style and Price Points
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Broyhill Case Goods Mixing Program
Retail
Customer
factory
Asia
Factories
factory
Asia
Mixing
Center
Containers
to
Customers
Retail
Customer
Retail
Customer
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Thomasville New Store Appearance and Better Layout
Then…
… Now
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Broyhill Medici Transitional Introduction
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Lane Ethan Transitional Sectional
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Drexel Heritage Renderings Transitional Introduction
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Thomasville Studio 455 Transitional Introduction
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Investment Considerations
Well positioned in a large, fragmented industry
Re-energized programs to drive profitable sales
Middle stages of manufacturing turnaround
Highly scalable SG&A and improving profitability
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Areas of Focus
• Improvement in key manufacturing metrics
• Continued implementation of lean manufacturing
• New manufacturing plant in Indonesia
• New cut-and-sew facility in Mexico
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Progress on Key Supply Chain Metrics
Best in Class
Competitive
Under
Performing
(Incident Rate)
(Cost of Failure)
(On-Time, In-Full)
(Variances/GM)
(Days on Hand)
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Lean/Cellular Manufacturing … Before
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Lean/Cellular Manufacturing … After
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FBN’s New Indonesia Plant
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Plant Blends Modern Equipment & Craftsmanship
Intricate hand carving is a hallmark
of the Indonesian operations.
Modern conveyor system improves
efficiency in operations.
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Indonesia Production Plans for 2012
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Mexican Cut-and-Sew Operations
1 day
2 days
2 ½ days
• Yucatan is sewing area for many industries (furniture, automotive, clothing)
‒ Highly skilled local workforce
• Site is 20 miles from modern container port
• Began operations in March 2011
• Modest capex requirement
• FBN is leasing existing facility with 3-year purchase option
• Government incentives for training, initial costs
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February 2011…45 people
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March 2012…430 people
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Looking Ahead
500,000
600
Ramp up Plan
450,000
500
400,000
Output in
Kits
400
300,000
250,000
300
200,000
# of People
350,000
200
150,000
100,000
100
50,000
0
0
2011
2012
2013
Capacity
People
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Investment Considerations
Well positioned in a large, fragmented industry
Re-energized programs to drive profitable sales
Middle stages of manufacturing turnaround
Highly scalable SG&A and improving profitability
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Before 2008: Holding Company Model
Siloed Operating Companies With Separate Organizational Structures
Human
Resources
Human
Resources
Human
Resources
Human
Resources
Human
Resources
Finance
Finance
Finance
Finance
Finance
Information
Technology
Information
Technology
Information
Technology
Information
Technology
Information
Technology
Supply Chain
Supply Chain
Supply Chain
Supply Chain
Supply Chain
Marketing
Marketing
Marketing
Marketing
Marketing
Sales
Sales
Sales
Sales
Sales
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Current: Operating Company Model
Ensures common processes, streamlined service delivery, and operational
excellence while reducing costs
FBN
Broyhill
Lane
Thomasville
Drexel-Heritage
Designer Brands
Sales
Sales
Sales
Sales
Sales
Marketing and Product Research
Human Resources
Finance/IT
Supply Chain
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New Model Drives Out Costs
Annual Selling, General & Administrative Costs ($, millions)
500
469.4
400
311.9
300
200
100
0
2007
2011
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Past Retail Strategy Added Legacy Costs
• In 2002, FBN launched a program to open more single-brand stores
• FBN provided either lease guarantees or sub-leases to independent
operators of Lane, Broyhill, Thomasville or Drexel Heritage stores
• Beginning in 2007, FBN abandoned the Lane/Broyhill retail concept
• FBN remains liable for 23 “dark store” leases with a remaining total
expense burden of approximately $15.4 million
2012
2013
2014
2015
Thereafter
Total Obligation
$
$
5.2
4.9
3.5
1.1
0.7
15.4
Dark store expenses are offset by sublease
income. Current income stream is estimated
to be $1.5mm in 2012 and 2013, $0.9mm in 2014,
$0.5mm in 2015 and $0.2mm after 2015.
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Thomasville Retail Results Improving
• FBN owns 48 of 99 Thomasville stores and is committed to the
Thomasville retail store strategy
• Thomasville same-store comps were even in Q1 2012 compared to 2011
following 7 increases in the last 8 quarters and results are improving
SFS %
# Stores
FY '08
-5%
12
FY '09
-20%
25
1Q10
+16%
40
2Q10
+21%
40
3Q10
+22%
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4Q10
+15%
45
1Q11
+17%
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2Q11
+8%
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3Q11
+5%
45
4Q11
-4%
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1Q12
+0%
44
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Thomasville Retail Results Improving
•
Thomasville retail operating results improving over the past 5 quarters
Thomasville Retail Operating Loss
0
-0.5
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
-1
-1.5
-2
-2.5
-3
Thomasville Retail
Operating Loss
(in millions)
-3.5
-4
-4.5
-5
Operating loss above does not include our wholesale profit on retail sales
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Thomasville Lease Roll-off Provides Opportunity
60
50
Store Leases By Quarter
40
30
20
10
0
4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 2015+
As current store leases expire, FBN can:
• Renew existing lease at lower, market rates
• Move to a smaller store in a comparable location
• Move to a better location within that market
• Close the store
Increase
Sales
Decrease
Costs
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Pension Obligation is Manageable
• GAAP underfunded status of $183 MM at 3/31/12
• Funding status is highly dependent on interest rates
─ Each 25 basis point change in discount rate raises/lowers GAAP
underfunded status by approximately $14MM
• We will contribute $14.5 MM in 2012 to the Pension Plan
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Cost Reductions Generating Operating Leverage
Years Ended
($ in Millions)
12/31/11
Net Sales
$ 1,107.7 $ 1,159.9
Three Months Ended
12/31/10
3/31/12
$
3/31/11
287.3 $
297.8
Cost of Sales
840.4
883.6
215.8
220.3
Gross Profit
267.3
276.3
71.4
77.5
SG&A
311.9
321.3
70.0
79.6
Operating Profit (Loss)
Operating Margin
$ (44.5) $ (45.0)
-4.0%
-3.9%
$
1.4
0.5%
$
(2.1)
-0.7%
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Summary of Ongoing Cost Reductions
• Completed cost reductions in 2011: over $30MM in annualized savings in 2012.
• Mexico & Indonesia manufacturing facilities: $10MM - $12MM in annualized
savings. Continued improvement until expected full realization in 2014.
• Dark store leases: ~$4MM annual drag currently. Leases start to expire rapidly
in 2014 as their terms mature – opportunity exists to reduce costs sooner with
buyouts prior to expiration.
• Above-market Thomasville and other retail leases: Large portion expire in 2013 2015 timeframe. Stores will be candidates for closure or relocation and re-sizing.
Resulting benefits in the form of reduced rents or increased sales volumes.
• Facilities held for sale: $15MM of assets with $1.3MM in annualized savings
expected with eventual sale of these 6 facilities.
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Conclusion
• Management targeting every aspect of FBN for improvement
• Transformation begun in 2008 has yielded results and
continues to show progress
─ 400+ basis point increase in gross margin
─ SG&A reduced by about $150 million
─ Strong improvement in quality, safety, delivery metrics
• Operational focus on product, delivery, and customers
• Financial focus on cash generation, liquidity, and profitable
sales growth
• Given actions on cost front, strong operating leverage will
accompany increases in sales volume
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