Financial News Release

<< Back
02/21/17
La-Z-Boy Reports Fiscal 2017 Third-Quarter Results

MONROE, Mich., Feb. 21, 2017 (GLOBE NEWSWIRE) -- La-Z-Boy Incorporated (NYSE:LZB) today reported its operating results for the fiscal 2017 third quarter ended January 28, 2017.

Fiscal 2017 third-quarter highlights:

  • The company reported earnings per diluted share of $0.47 attributable to La-Z-Boy Incorporated compared with $0.43 in last year’s third quarter;
  • Operating margin for the upholstery segment was 11.5%, the highest in any third quarter in over a decade;
  • The company acquired nine La-Z-Boy Furniture Galleries® stores in the northeastern Pennsylvania market;
  • The company acquired the license to sell the La-Z-Boy brand in the U.K. and Ireland;
  • The company generated $38.9 million in cash from operating activities; and
  • Written same-store sales for the La-Z-Boy Furniture Galleries® store network remained even with last year.

Sales for the fiscal 2017 third quarter were $390.0 million, up 1.6% compared with the prior year’s third quarter.  The company reported net income from continuing operations attributable to La-Z-Boy Incorporated of $23.3 million, or $0.47 per diluted share, versus $21.9 million, or $0.43 per diluted share, in last year’s third quarter.

Kurt L. Darrow, Chairman, President and Chief Executive Officer, of La-Z-Boy, said, “The retail environment for home furnishings remains challenging.  Against that backdrop, however, we delivered increases in sales and earnings per share for the quarter.  As we move forward, we are continuing to adjust some of our marketing and merchandising strategies to address the current environment.  And, as we seek to more fully populate the North American landscape with La-Z-Boy Furniture Galleries® stores through our 4-4-5 initiative, we expect the volume associated with the store build-out combined with supply chain initiatives will further improve the efficiencies of our operations and drive profitability.  Additionally, our recent acquisitions will allow us to capitalize on our integrated retail strategy which we believe will continue to be a key component in the company’s growth as we work to create and return value to shareholders.”

Wholesale Segments

For the fiscal 2017 third quarter, sales in the company’s upholstery segment increased 0.2% versus the prior year’s third quarter to $302.9 million.  In the casegoods segment, sales for the fiscal 2017 third quarter were $23.3 million, down 5.5% from last year’s third quarter.

Darrow commented, “We are very pleased with the strong operating margin of 11.5% in the upholstery segment, the highest we have posted in the third quarter in over a decade.  Our supply chain team continues to streamline procurement, logistics and plant productivity to drive performance and, in turn, we are improving our service to customers with quicker delivery.  In particular, the ability to deliver custom furniture to consumers in four weeks or less remains a competitive advantage and differentiator in the marketplace.  We achieve this with unparalleled scale through the combination of approximately 175 frames and almost 1,000 covers between fabrics and leathers in our La-Z-Boy branded product lineup.  Additionally, our sister upholstery company, England, continues to grow and perform well.  It is expanding with existing customers and finding new customers as it enlarges its presence in the Western portion of the U.S.”

Darrow added, “Earlier this month we announced we would invest approximately $26 million over a three-year period in our largest U.S. manufacturing facility, located in Dayton, Tennessee, responsible for nearly $400 million of our annual revenue.  The scope of the project, which will run in two distinct phases, includes the construction of a new state-of-the-art Innovation Center, followed by various upgrades and renovations throughout the upholstery plant and supply centers located at the Dayton Campus.  The new Innovation Center will provide our team of engineers and designers an inspiring and collaborative work environment while allowing us to attract the best talent in the business to continue to be the industry’s leader in innovation.  Ongoing investment across our manufacturing operations is imperative to ensure our plants are modern so we continue to drive efficiencies and productivity.”

Darrow continued, “During the period, we acquired the distribution rights for the La-Z-Boy brand in the U.K. and Ireland.  Annual sales volume for the business is approximately $42 million, based on current exchange rates.  Prior to the acquisition, we were capturing approximately half the volume with the licensing agreement that was in place and we are now in a position to realize the full value of the business.  With the brand having vast appeal worldwide, we are identifying opportunities to expand our geographic presence while monetizing the value of the brand in various locales and this was one such opportunity.”

Darrow stated, “We have made a lot of progress in the casegoods segment and are confident we are well positioned for the long term.  We have streamlined sourcing, are in a 97% in-stock position on our best-selling groups and we are servicing our customers well with an average ship time of six days.  Today, our product line up, pricing structure and service position are in sync and I believe the business is in a solid position to grow and improve its profitability. For the quarter, the casegoods operating margin declined slightly to 6.8%, primarily due to weaker volume.”

Retail Segment

For the fiscal 2017 third quarter, sales in the company’s retail segment increased 10.9% to $122.1 million versus the prior year’s third quarter, and the operating margin was 5.2%.  For the core 119 stores included in last year’s comparable quarter, delivered sales for the segment declined 8.1% compared with an increase of 6.6% in the prior-year period. 

Darrow stated, “Increasing the size of our company-owned retail segment is one of our key growth strategies as we benefit from the combined wholesale/retail margin inherent in our integrated retail model.  During the period, we acquired nine stores in the northeastern Pennsylvania market, which are expected to contribute approximately $35 million in annual sales to the company’s retail segment.  And as part of our 4-4-5 store growth strategy, we opened one new store and remodeled two.”

Darrow added, “We made targeted marketing investments that helped drive pockets of growth, but our  sales declined for our core stores as we were unable to overcome challenges in the overall retail environment.  This sales decline reduced our ability to absorb the fixed costs associated with the retail business and impacted our operating margin.  For the period, on lower traffic, conversion was flat while the average ticket increased, fueled by higher design sales.”

La-Z-Boy Furniture Galleries® Store Network

For the third quarter of fiscal 2017, the La-Z-Boy store network, including both company-owned and independent-licensed stores, saw same-store written sales, which the company tracks as an indicator of retail activity, that were flat versus last year’s third quarter.

For the third quarter in fiscal 2017, total written sales, which include new and closed stores, were up 2.9% compared with the fiscal 2016 comparable period.  At the end of the third quarter, the La-Z-Boy Furniture Galleries® store system was composed of 346 stand-alone stores, with 110 in the new concept design format.

Darrow commented, “For fiscal 2017, we are on track for 23 store projects, including eight net new stores, as we work to build out the La-Z-Boy Furniture Galleries® store system through our 4-4-5 initiative.  During the third quarter, the network opened three stores, relocated one and remodeled three stores.  Projected fourth quarter activity includes two new stores and two closures.”

FISCAL 2017 PROJECTED* STORE ACTIVITY

  Total FY16 New Closed Acquired Total FY17 Remodel Relocation
Company-owned 124 7 (1 ) 14   144 3 -
Dealer-owned 214 6 (4 ) (14 ) 202 5 2
Total 338 13 (5 ) -   346 8 2

*Projects anticipated to be completed.

Balance Sheet and Cash Flow

During the quarter, the company generated $38.9 million in cash from operating activities.  La-Z-Boy ended the fiscal 2017 third quarter with $110.3 million in cash and cash equivalents, $29.9 million in investments to enhance returns on cash, and $9.0 million in restricted cash.  During the quarter, the company had $5.3 million in capital expenditures, paid $5.4 million in dividends, and spent $5.3 million purchasing 0.2 million shares of stock in the open market under its existing authorized share purchase program, with remaining authorization to purchase 3.1 million shares.

Dividend

The board of directors declared a regular quarterly cash dividend of $0.11 per share on the company’s stock.  The dividend will be paid on March 15, 2017, to shareholders of record as of March 6, 2017.

Business Outlook

Darrow concluded, “While the retail environment for home furnishings remains challenging, our brand strength, relevant product offering, vast proprietary distribution system and extensive base of independent dealers will allow us to navigate through this period as we modify our go-to-market strategies.  At the same time, our operating platform is efficient, fueled by an outstanding supply chain, and we are working to create long-term value for shareholders.  As a reminder, our fiscal 2017 fourth quarter will include a standard 13 weeks versus last year’s fourth quarter which included 14 weeks.”

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, February 22, 2017, at 8:30 a.m. eastern time.  The toll-free dial-in number is 877.407.0778; international callers may use 201.689.8565. 

The call will be webcast live, with corresponding slides, and archived on the Internet.  It will be available at http://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-calendar. A telephone replay will be available for a week following the call. This replay will be accessible to callers from the U.S. and Canada at 877.481.4010 and to international callers at 919.882.2331. Enter Conference ID #10228.

Forward-looking Information

This news release contains, and oral statements made from time to time by representatives of La‑Z‑Boy may contain, forward-looking statements. With respect to all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 

Actual results could differ materially from those we anticipate or project due to a number of factors, including: (a) changes in consumer confidence and demographics; (b) the possibility of a recession; (c) changes in the real estate and credit markets and their effects on our customers, consumers and suppliers; (d) international political unrest, terrorism or war; (e) volatility in energy and other commodities prices; (f) the impact of logistics on imports and exports; (g) tax rate, interest rate, and currency exchange rate changes; (h) operating factors, such as supply, labor or distribution disruptions (e.g. port strikes); (i) changes in legislation or changes in the domestic or international regulatory environment  (including new or increased duties); (j) adoption of new accounting principles; (k) severe weather or other natural events such as hurricanes, earthquakes, flooding, tornadoes and tsunamis; (l) our ability to procure or transport fabric rolls, leather hides or cut-and-sewn fabric and leather sets domestically or abroad; (m) information technology conversions or system failures and our ability to recover from a system failure; (n) effects of our brand awareness and marketing programs; (o) the discovery of defects in our products resulting in delays in manufacturing, recall campaigns, reputational damage, or increased warranty costs; (p) litigation arising out of alleged defects in our products; (q) unusual or significant litigation; (r) our ability to locate new La-Z-Boy Furniture Galleries® stores (or store owners) and negotiate favorable lease terms for new or existing locations; (s) the impact of potential goodwill or intangible asset impairments; and (t) those matters discussed in Item 1A of our fiscal 2016 Annual Report on Form 10-K and other factors identified from time-to-time in our reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements, whether to reflect new information or new developments or for any other reason.

 Additional Information

This news release is just one part of La-Z-Boy’s financial disclosures and should be read in conjunction with other information filed with the Securities and Exchange Commission, which is available at: http://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-sec.  Investors and others wishing to be notified of future La-Z-Boy news releases, SEC filings and quarterly investor conference calls may sign up at:  http://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-alerts&t=&id=&.

Background Information

La-Z-Boy Incorporated is one of the world’s leading residential furniture producers, marketing furniture for every room of the home. The La-Z-Boy Upholstery segment companies are England and La-Z-Boy. The Casegoods segment consists of three brands: American Drew, Hammary, and Kincaid. The company-owned Retail segment includes 142 of the 346 La-Z-Boy Furniture Galleries® stores.

The corporation’s branded distribution network is dedicated to selling La-Z-Boy Incorporated products and brands, and includes 346 stand-alone La-Z-Boy Furniture Galleries® stores and 551 independent Comfort Studio® locations, in addition to in-store gallery programs for the company’s Kincaid and England operating units. Additional information is available at http://www.la-z-boy.com/.

   
LA-Z-BOY INCORPORATED  
CONSOLIDATED STATEMENT OF INCOME  
   
    Quarter Ended
   
(Unaudited, amounts in thousands, except per share data)   1/28/17   1/23/16    
Sales   $389,992   $384,014    
Cost of sales     233,875     236,024    
Gross profit     156,117     147,990    
Selling, general and administrative expense     123,235     113,206    
Operating income     32,882     34,784    
Interest expense     562     120    
Interest income     241     204    
Income from Continued Dumping and Subsidy Offset Act, net     273     102    
Other income (expense), net     638     (93 )  
Income before income taxes     33,472     34,877    
Income tax expense     9,830     12,643    
Net income     23,642     22,234    
Net income attributable to noncontrolling interests     (356 )   (328 )  
Net income attributable to La-Z-Boy Incorporated   $23,286   $21,906    
             
Basic weighted average common shares     48,914     50,038    
Basic net income attributable to La-Z-Boy Incorporated per share   $0.47   $0.44    
             
Diluted weighted average common shares     49,384     50,539    
Diluted net income attributable to La-Z-Boy Incorporated per share   $0.47   $0.43    
             
Dividends declared per share   $0.11   $0.10    


LA-Z-BOY INCORPORATED  
CONSOLIDATED STATEMENT OF INCOME  
   
    Nine Months Ended
   
(Unaudited, amounts in thousands, except per share data)   1/28/17   1/23/16    
Sales   $1,107,354   $1,108,328    
Cost of sales     669,012     690,300    
Gross profit     438,342     418,028    
Selling, general and administrative expense     350,524     329,884    
Operating income     87,818     88,144    
Interest expense     794     365    
Interest income     679     573    
Income from Continued Dumping and Subsidy Offset Act, net     273     102    
Other income (expense), net     287     2,387    
Income before income taxes     88,263     90,841    
Income tax expense     29,508     32,825    
Net income     58,755     58,016    
Net income attributable to noncontrolling interests     (830 )   (1,482 )  
Net income attributable to La-Z-Boy Incorporated   $57,925   $56,534    
             
Basic weighted average common shares     49,057     50,371    
Basic net income attributable to La-Z-Boy Incorporated per share   $1.17   $1.12    
             
Diluted weighted average common shares     49,532     50,880    
Diluted net income attributable to La-Z-Boy Incorporated per share   $1.16   $1.11    
             
Dividends declared per share   $0.31   $0.26    


LA-Z-BOY INCORPORATED  
CONSOLIDATED BALANCE SHEET  
   
(Unaudited, amounts in thousands, except par value)   1/28/17   4/30/16  
Current assets          
Cash and equivalents   $110,320   $112,358  
Restricted cash     8,991     8,977  
Receivables, net of allowance of $2,784 at 1/28/17 and $3,145 at 4/30/16     143,208     146,545  
Inventories, net     193,695     175,589  
Other current assets     41,894     38,503  
Total current assets     498,108     481,972  
Property, plant and equipment, net     169,128     171,590  
Goodwill     73,777     37,193  
Other intangible assets, net     18,781     8,558  
Deferred income taxes – long-term     37,960     41,683  
Other long-term assets, net     66,846     59,033  
Total assets   $864,600   $800,029  
           
Current liabilities          
Current portion of long-term debt   $243   $290  
Accounts payable     50,998     44,661  
Accrued expenses and other current liabilities     138,852     112,476  
Total current liabilities     190,093     157,427  
Long-term debt     344     513  
Other long-term liabilities     87,237     84,877  
Contingencies and commitments          
Shareholders’ equity          
Preferred shares – 5,000 authorized; none issued          
Common shares, $1 par value – 150,000 authorized; 48,860 outstanding
  at 1/28/17 and 49,331 outstanding at 4/30/16
    48,860     49,331  
Capital in excess of par value     288,532     279,339  
Retained earnings     272,578     252,472  
Accumulated other comprehensive loss     (33,785 )   (34,000 )
Total La-Z-Boy Incorporated shareholders’ equity     576,185     547,142  
Noncontrolling interests     10,741     10,070  
Total equity     586,926     557,212  
Total liabilities and equity   $864,600   $800,029  
           


LA-Z-BOY INCORPORATED  
CONSOLIDATED STATEMENT OF CASH FLOWS  
   
    Nine Months Ended  
(Unaudited, amounts in thousands)   1/28/17   1/23/16  
Cash flows from operating activities          
Net income   $58,755   $58,016  
Adjustments to reconcile net income to cash provided by 
  (used for) operating activities
         
Deferred income tax expense     3,214     5,000  
Provision for doubtful accounts     (64 )   (675 )
Depreciation and amortization     21,311     19,308  
Equity-based compensation expense     7,571     6,868  
Pension plan contributions     (2,300 )   (7,000 )
Change in receivables     (576 )   15,284  
Change in inventories     (5,929 )   (23,121 )
Change in other assets     (4,518 )   1,991  
Change in payables     6,359     349  
Change in other liabilities     7,431     (6,306 )
Net cash provided by operating activities     91,254     69,714  
           
Cash flows from investing activities          
Proceeds from disposal of assets     273     2,506  
Capital expenditures     (15,529 )   (19,825 )
Purchases of investments     (20,778 )   (15,816 )
Proceeds from sales of investments     13,899     23,896  
Acquisitions, net of cash acquired     (35,878 )   (19,232 )
Change in restricted cash     (15 )   660  
Net cash used for investing activities     (58,028 )   (27,811 )
           
Cash flows from financing activities          
Payments on debt     (217 )   (415 )
Stock issued for stock and employee benefit plans     3,500     253  
Excess tax benefit on stock option exercises     1,924     774  
Purchases of common stock     (25,062 )   (29,096 )
Dividends paid     (15,270 )   (13,137 )
Net cash used for financing activities     (35,125 )   (41,621 )
           
Effect of exchange rate changes on cash and equivalents     (139 )   (886 )
Change in cash and equivalents     (2,038 )   (604 )
Cash and equivalents at beginning of period     112,358     98,302  
Cash and equivalents at end of period   $110,320   $97,698  
           
Supplemental disclosure of non-cash investing activities          
Capital expenditures included in payables   $1,012   $  


LA-Z-BOY INCORPORATED  
SEGMENT INFORMATION  
   
    Quarter Ended   Nine Months Ended  
 (Unaudited, amounts in thousands)   1/28/17   1/23/16   1/28/17   1/23/16  
Sales                  
Upholstery segment:                  
Sales to external customers   $246,650   $250,740   $715,357   $743,304  
Intersegment sales     56,273     51,652     150,771     137,581  
Upholstery segment sales     302,923     302,392     866,128     880,885  
                   
Casegoods segment:                  
Sales to external customers     20,499     22,528     64,651     69,517  
Intersegment sales     2,760     2,091     9,534     6,714  
Casegoods segment sales     23,259     24,619     74,185     76,231  
                   
Retail segment sales     122,121     110,160     325,206     293,291  
                   
Corporate and Other:                  
Sales to external customers     722     586     2,140     2,216  
Intersegment sales     1,978     1,328     4,751     2,594  
Corporate and Other sales     2,700     1,914     6,891     4,810  
                   
Eliminations     (61,011 )   (55,071 )   (165,056 )   (146,889 )
Consolidated sales   $389,992   $384,014   $1,107,354   $1,108,328  
                   
Operating Income (Loss)                  
Upholstery segment   $34,979   $33,022   $102,318   $94,656  
Casegoods segment     1,593     1,768     6,587     6,092  
Retail segment     6,325     8,834     11,515     19,279  
Corporate and Other     (10,015 )   (8,840 )   (32,602 )   (31,883 )
Consolidated operating income   $32,882   $34,784   $87,818   $88,144  
                           

 

Contact:
Kathy Liebmann
(734) 241-2438
kathy.liebmann@la-z-boy.com

La-Z-Boy Incorporated