Financial News Release

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08/22/17
La-Z-Boy Reports Fiscal 2018 First-Quarter Results

MONROE, Mich., Aug. 22, 2017 (GLOBE NEWSWIRE) -- La-Z-Boy Incorporated (NYSE:LZB) today reported its operating results for the fiscal 2018 first quarter ended July 29, 2017.

  • Consolidated sales increased 4.8% to $357.1 million versus $340.8 million in last year’s first quarter;
  • Same-store written sales for the La-Z-Boy Furniture Galleries® network increased 0.7%;  
  • Cash flow from operations was $19.5 million;
  • The company returned $16.8 million to shareholders through dividends and share purchases; and
  • Earnings per share for the quarter were $0.24 versus $0.28 in last year’s first quarter.

Sales for the fiscal 2018 first quarter were $357.1 million, compared with $340.8 million in the prior year’s first quarter.  The company reported net income attributable to La-Z-Boy Incorporated of $11.7 million, or $0.24 per share, versus $13.8 million, or $0.28 per share, in last year’s first quarter.  The fiscal 2018 first quarter’s results included a $0.03 per share benefit in other income for an investment gain, and last year’s first quarter included a $0.03 per share benefit for a legal settlement.

Sales in the company’s upholstery segment increased 2.6% to $274.4 million and the operating margin declined to 8.5% from 11.4% in last year’s first quarter, which included a 0.9 percentage point benefit from a legal settlement.  In the casegoods segment, sales increased 1.9% to $25.5 million and the operating margin increased to 10.7% from 8.6%. Sales in the retail segment increased 15.5% to $110.5 million.  On the core base of 122 stores included in last year’s first quarter, delivered sales declined 1.1% versus the prior year and the segment’s operating margin decreased to 1.6% from 2.3%.

Kurt L. Darrow, Chairman, President and Chief Executive Officer of La-Z-Boy, said, “After a strong finish to fiscal 2017, we are disappointed with our start to this fiscal year.  Although we posted a consolidated sales increase for the quarter, much of it related to acquired sales which did not add volume to our upholstery manufacturing operations which is our most profitable segment.  Lower volume throughout our plants made it difficult to absorb fixed costs and this, combined with the normal seasonal slowdown and continued investments across the business, impacted our upholstery operating margin for the period. Additionally, due to acquisitions and growth in our retail segment, SG&A expenses increased during the quarter.  As we move forward, we intend to manage our SG&A appropriately given various levels of volume.  Our casegoods business performed well for the quarter as we continue to improve our product offering, value proposition and service levels to our customers.  We believe this business is well positioned for continued growth moving forward.”

Darrow continued, “Over the past year, we have developed a comprehensive e-commerce strategy to address the evolution in furniture sales through this channel and are pursuing three opportunities:  increasing online sales of La-Z-Boy furniture through la-z-boy.com and other digital players; leveraging the strength of our world-class global supply chain to support other e-commerce brands; and investing in new online companies.  One such investment that converted to preferred shares in a recent round of financing, has already increased in value and contributed to our earnings this quarter.”

Darrow added, “During the period, we continued to grow our retail segment.  The company opened two La-Z-Boy Furniture Galleries® stores as part of our 4-4-5 strategy and further integrated recently acquired stores.  For the quarter, we achieved a written same-store sales increase of 0.7% throughout the La-Z-Boy Furniture Galleries® store network during the summer period and look forward to moving into the traditionally stronger fall selling season. We are in an excellent service position and as we have demonstrated, we are able to drive increased profitability throughout our manufacturing operations with adequate volume. We remain optimistic about our business for the remainder of the fiscal year, particularly as we capitalize on a dual strategy to reach core La-Z-Boy consumers through our vibrant store program and our independent dealer network while attracting a new and younger consumer through our multi-faceted e-commerce approach.”

FISCAL 2018 PROJECTED* STORE ACTIVITY

      Total FY17     New     Closed     Total FY18     Remodel     Relocation
Company-owned     143      7     (2 )     148     -     -
Dealer-owned     204      7     (4 )     207     8     5
Total     347     14     (6 )     355     8     5

*Projects anticipated to be completed.

Balance Sheet and Cash Flow

During the quarter, the company generated $19.5 million in cash from operating activities.  La-Z-Boy ended the quarter with $119.6 million in cash and cash equivalents, $33.4 million in investments to enhance returns on cash, and $6.0 million in restricted cash.  During the quarter, the company had $9.1 million in capital expenditures, used $15.9 million to pay for the U.K. acquisition that closed in January, paid $5.3 million in dividends, and spent $11.5 million purchasing 0.4 million shares of stock in the open market under its existing authorized share purchase program, leaving 8.3 million shares of purchase availability in the program.

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, August 23, 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 #10425.

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) fires, 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 ability to increase volume through our e-commerce initiatives; (t) the impact of potential goodwill or intangible asset impairments; and (u) those matters discussed in Item 1A of our fiscal 2017 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 145 of the 348 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 348 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)     7/29/17       7/30/16  
Sales     $ 357,079       $ 340,783  
Cost of sales       217,976         206,562  
Gross profit       139,103         134,221  
Selling, general and administrative expense       122,805         111,763  
Operating income       16,298         22,458  
Interest expense       157         115  
Interest income       343         204  
Other income (expense), net       1,749         (762 )
Income before income taxes       18,233         21,785  
Income tax expense       6,489         7,777  
Net income       11,744         14,008  
Net income attributable to noncontrolling interests       (93 )       (202 )
Net income attributable to La-Z-Boy Incorporated     $ 11,651       $ 13,806  
                 
Basic weighted average common shares       48,357         49,105  
Basic net income attributable to La-Z-Boy Incorporated per share     $ 0.24       $ 0.28  
                 
Diluted weighted average common shares       48,846         49,594  
Diluted net income attributable to La-Z-Boy Incorporated per share     $ 0.24       $ 0.28  
                 
Dividends declared per share     $ 0.11       $ 0.10  


               
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
               
(Unaudited, amounts in thousands, except par value)   7/29/17       4/29/17  
Current assets              
Cash and equivalents   $ 119,628       $ 141,860  
Restricted cash     5,963         8,999  
Receivables, net of allowance of $2,557 at 7/29/17 and $2,563 at 4/29/17     134,904         150,846  
Inventories, net     178,508         175,114  
Other current assets     49,882         40,603  
Total current assets     488,885         517,422  
Property, plant and equipment, net     171,078         169,132  
Goodwill     74,766         74,245  
Other intangible assets, net     18,438         18,489  
Deferred income taxes – long-term     38,372         40,131  
Other long-term assets, net     76,982         69,436  
Total assets   $ 868,521       $ 888,855  
               
Current liabilities              
Current portion of long-term debt   $ 206       $ 219  
Accounts payable     47,352         51,282  
Accrued expenses and other current liabilities     126,948         147,175  
Total current liabilities     174,506         198,676  
Long-term debt     242         296  
Other long-term liabilities     90,777         88,778  
Contingencies and commitments              
Shareholders’ equity              
Preferred shares – 5,000 authorized; none issued              
Common shares, $1 par value – 150,000 authorized; 48,268 outstanding at 7/29/17 and 48,472 outstanding at 4/29/17     48,268         48,472  
Capital in excess of par value     293,041         289,632  
Retained earnings     280,251         284,698  
Accumulated other comprehensive loss     (30,248 )       (32,883 )
Total La-Z-Boy Incorporated shareholders’ equity     591,312         589,919  
Noncontrolling interests     11,684         11,186  
Total equity     602,996         601,105  
Total liabilities and equity   $ 868,521       $ 888,855  


         
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
         
      Quarter Ended  
(Unaudited, amounts in thousands)     7/29/17       7/30/16  
Cash flows from operating activities                
Net income     $ 11,744       $ 14,008  
Adjustments to reconcile net income to cash provided by (used for) operating activities                
Deferred income tax expense       1,344         (1,076 )
Provision for doubtful accounts       (22 )       (77 )
Depreciation and amortization       7,758         6,800  
Equity-based compensation expense       3,558         3,329  
Change in receivables       15,753         17,664  
Change in inventories       (2,477 )       510  
Change in other assets       (10,837 )       (1,467 )
Change in payables       (3,974 )       403  
Change in other liabilities       (3,339 )       (4,341 )
Net cash provided by operating activities       19,508         35,753  
                 
Cash flows from investing activities                
Proceeds from disposals of assets       459         35  
Proceeds from property insurance       450          
Capital expenditures       (9,146 )       (5,209 )
Purchases of investments       (10,851 )       (7,695 )
Proceeds from sales of investments       5,857         3,670  
Acquisitions, net of cash acquired       (15,879 )       (5,281 )
Net cash used for investing activities       (29,110 )       (14,480 )
                 
Cash flows from financing activities                
Payments on debt       (66 )       (89 )
Stock issued for stock and employee benefit plans, net of shares withheld for taxes       377         860  
Excess tax benefit on stock option exercises               1,137  
Purchases of common stock       (11,491 )       (13,567 )
Dividends paid       (5,337 )       (4,923 )
Net cash used for financing activities       (16,517 )       (16,582 )
                 
Effect of exchange rate changes on cash and equivalents       851         116  
Change in cash, cash equivalents and restricted cash       (25,268 )       4,807  
Cash, cash equivalents and restricted cash at beginning of period       150,859         121,335  
Cash, cash equivalents and restricted cash at end of period     $ 125,591       $ 126,142  
                 
Supplemental disclosure of non-cash investing activities                
Capital expenditures included in payables     $ 1,671       $  


         
LA-Z-BOY INCORPORATED
SEGMENT INFORMATION
         

 
    Quarter Ended  
 (Unaudited, amounts in thousands)     7/29/17       7/30/16  
Sales                
Upholstery segment:                
Sales to external customers     $ 224,814       $ 223,809  
Intersegment sales       49,593         43,607  
Upholstery segment sales       274,407         267,416  
                 
Casegoods segment:                
Sales to external customers       21,019         20,585  
Intersegment sales       4,491         4,453  
Casegoods segment sales       25,510         25,038  
                 
Retail segment sales       110,516         95,720  
                 
Corporate and Other:                
Sales to external customers       730         669  
Intersegment sales       1,930         1,210  
Corporate and Other sales       2,660         1,879  
                 
Eliminations       (56,014 )       (49,270 )
Consolidated sales     $ 357,079       $ 340,783  
                 
Operating Income (Loss)                
Upholstery segment     $ 23,299       $ 30,499  
Casegoods segment       2,739         2,147  
Retail segment       1,767         2,183  
Corporate and Other       (11,507 )       (12,371 )
Consolidated operating income     $ 16,298       $ 22,458  
                     

LA-Z-BOY INCORPORATED
UNAUDITED FISCAL 2017 QUARTERLY FINANCIAL DATA (AS ADJUSTED)

In the first quarter of fiscal 2018, we early adopted the provisions of ASU 2017-07, which reclassified certain pension costs out of cost of sales and into other income (expense), net. This change required retrospective application to the prior year. To aid in the understanding of our financial results, the table below presents our fiscal 2017 quarterly financial results, as adjusted to conform to current year presentation.

(Unaudited, amounts in thousands, except per share data)                                
Fiscal Quarter Ended     7/30/16       10/29/16       1/28/17       4/29/17  
Sales     $ 340,783       $ 376,579       $ 389,992       $ 412,706  
Cost of sales       206,562         227,195         233,185         243,815  
Gross profit       134,221         149,384         156,807         168,891  
Selling, general and administrative expense       111,763         115,526         123,235         125,437  
Operating income       22,458         33,858         33,572         43,454  
Interest expense       115         117         562         279  
Interest income       204         234         241         302  
Income from Continued Dumping and Subsidy Offset Act, net                       273          
Other income (expense), net       (762 )       (969 )       (52 )       (1,000 )
Income before income taxes       21,785         33,006         33,472         42,477  
Income tax expense       7,777         11,901         9,830         14,248  
Net income       14,008         21,105         23,642         28,229  
Net income attributable to noncontrolling interests       (202 )       (272 )       (356 )       (232 )
Net income attributable to La-Z-Boy Incorporated     $ 13,806       $ 20,833       $ 23,286       $ 27,997  
                                 
Diluted weighted average common shares       49,594         49,511         49,384         49,181  
Diluted net income attributable to La-Z-Boy Incorporated per share     $ 0.28       $ 0.42       $ 0.47       $ 0.57  
                                 
Dividends declared per share     $ 0.10       $ 0.10       $ 0.11       $ 0.11  


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

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