Furniture Maker Gets Some Credit, Stock Boost

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After years of declining sales and profits, school furniture maker Virco Manufacturing Corp. – and its stock price – hit a low point in early December after the Torrance company reported defaulting on a line of credit and higher-than-expected costs of an employee buyout program.

But an announcement last week that the company had secured a new line of credit apparently eased some concerns, prompting Virco shares to rise 13 percent to $1.53 and make it one of the biggest gainers on the LABJ Stock Index for the week ended Dec. 28. (See page 26.)

The company reported a loss of $3.3 million on revenue of $53.1 million in the quarter ending Oct. 31, down from $60.1 million in revenue in the same period in 2010. The lower revenue figure violated the terms of a line of credit with Wells Fargo Bank in San Francisco.

Al Kaschalk, an analyst at Wedbush Securities Inc. in Los Angeles, said the new line of credit with PNC Bank in Pittsburgh relieved investors.

“The credit facility allows folks to understand liquidity is not so much an issue for the company,” Kaschalk said. “The fact that a bank sees a certain size or scale of business operations and that they can lend them the money, that supports that there’s a legitimate business here.”

But there’s no doubt Virco is still struggling, and even with last week’s gains, the company’s share price has lost about half its value since June. Kaschalk rates the stock neutral and lowered his target price to $2 from $2.50 after the company’s Dec. 15 earnings report.

Virco officials were not available to comment.

The company, which makes desks, chairs and other school and office furniture at its headquarters in Torrance and a plant in Conway, Ark., sells about half of all school furniture in the United States.

Sales have fallen from $230 million in 2007 to $181 million in the last fiscal year as school districts have cut back on purchases. The company is on pace to sell even less in the current fiscal year, which will end Jan. 31.

Virco in September announced that it was offering buyouts to all of its 1,050 employees to cut costs. About 150 took the buyouts and others retired. Last month, the company disclosed it expects to pay about $5.2 million for the buyouts.

That’s likely more than the company expected, Kaschalk said, calling $5.2 million “a big number relative to annual revenue and just the company in general.”

Despite the cost, he said Virco is making the right moves to restructure itself, though the company’s future depends on how long it takes for sales to improve.

“I think they’ve got their hands on the pulse here to try to get this figured out. But there’s not a lot you can do without the end market coming to them,” he said.

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