La-Z-Boy Reports Solid Fiscal 2021 Third-Quarter Results
Strong Written Orders Drive Record Backlog
Quarterly Dividend Increased
Fiscal 2021 third quarter versus Fiscal 2020 third quarter:
- Consolidated sales decreased 1.2% to
$470.2 million - Written same-store sales for the entire La-Z-Boy Furniture Galleries® network increased 6.3%, with strong acceleration in January
- Consolidated operating margin:
- GAAP: 7.3% versus 11.0%
- Non-GAAP(1): 9.5% versus 9.4%
- Wholesale(2): 10.2% versus 11.1%
- Retail: 8.9% versus 9.8%
- Net income attributable to
La-Z-Boy Incorporated per diluted share (“EPS”):- GAAP:
$0.62 versus$0.74 - Non-GAAP(1):
$0.74 versus$0.72
- GAAP:
- Strong cash generation, with fiscal year-to-date cash from operating activities of
$250 million - Cash(3) more than doubled to
$393 million at quarter end - The company returned
$7.4 million to shareholders through share repurchases and dividends during the quarter
Consolidated sales in the third quarter of fiscal 2021 decreased 1.2% to
For the entire La-Z-Boy Furniture Galleries® network, written same-store sales increased 6.3% for the fiscal 2021 third quarter compared with the fiscal 2020 third quarter. Stripping out Canadian stores that were closed at various points during the quarter due to COVID-19 restrictions, written same-store sales increased 8.2% for the network. Strong momentum in January brought fiscal 2021 year-to-date written same-store sales for the network to 18% versus the prior-year period.
For the fiscal 2021 third quarter, delivered sales in the company’s Wholesale(2) segment decreased 3.9% to
Retail segment delivered sales decreased 0.9% to
Within Corporate & Other, Joybird sales increased 30% to
GAAP diluted EPS was
Balance Sheet and Cash Flow
Year to date, the company generated
Dividend
On
Business Outlook
Due to the unusual business trends driven by the pandemic,
Given the continued temporary impacts of COVID-19 on the company’s manufacturing facilities and broader supply chain, and comparing with a prior-year base period which included the month-long pandemic shutdown,
(1)Non-GAAP amounts for the third quarter of fiscal 2021 exclude:
- purchase accounting charges related to acquisitions totaling
$10.4 million pre-tax, or$0.20 per diluted share, primarily due to a write-up of the Joybird contingent consideration liability based on forecasted future performance, with$10.3 million included in operating income and$0.1 million included in interest expense - income of
$5.2 million pre-tax, or$0.08 per diluted share, related to the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") recorded in other income related to the impact of employee retention credits
Non-GAAP amounts for the third quarter of fiscal 2020 exclude:
- purchase accounting charges of
$1.4 million pre-tax, or$0.02 per diluted share, with$1.3 million included in operating income and$0.1 million included in interest expense - a charge of
$6.0 million pre-tax, or$0.10 per diluted share, related to an impairment for one investment - income of
$8.7 million pre-tax, or$0.14 per diluted share, related to the company's supply chain optimization initiative, including the closure of the company'sRedlands, California upholstery manufacturing facility and relocation of itsNewton, Mississippi leather cut-and-sew operations
Please refer to the accompanying “Reconciliation of GAAP to Non-GAAP Financial Measures” for detailed information on calculating the Non-GAAP measures used in this press release and a reconciliation to the most directly comparable GAAP measure.
(2)Wholesale segment: Effective in the first quarter of fiscal 2021, in order to better align with the manner in which we view and manage the business, coupled with economic and customer channel similarities, the company revised its reportable operating segments by aggregating the former Upholstery segment with the former Casegoods segment to form the newly combined Wholesale segment. The change in reportable operating segments reflects how the company evaluates financial information used to make operating decisions. Prior-period results disclosed in this earnings release with respect to the Wholesale segment have been revised to reflect these changes.
(3)Cash includes cash, cash equivalents and restricted cash.
Conference Call
The call will be webcast live, with corresponding slides, and archived on the Internet. It will be available at https://lazboy.gcs-web.com/. A telephone replay will be available for a week following the call. This replay will be accessible to callers from the
Cautionary Note Regarding Forward-Looking Statements
This news release contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Generally, forward-looking statements include information concerning expectations, projections or trends relating to our results of operations, financial results, financial condition, strategic initiatives and plans, expenses, dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, future economic performance, business, and industry and the effect of the novel coronavirus (“COVID-19”) pandemic on our business operations and financial results.
The forward-looking statements in this press release are based on certain assumptions and currently available information and are subject to various risks and uncertainties, many of which are unforeseeable and beyond our control, such as the continuing and developing impact of, and uncertainty caused by, the COVID-19 pandemic. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. Our actual future results and trends may differ materially depending on a variety of factors, including, but not limited to, the risks and uncertainties discussed in our fiscal 2020 Annual Report on Form 10-K and other factors identified in our reports filed with the
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
Background Information
The corporation’s branded distribution network is dedicated to selling
Non-GAAP Financial Measures
In addition to the financial measures prepared in accordance with accounting principles generally accepted in
Management believes that presenting certain Non-GAAP financial measures will help investors understand the long-term profitability trends of our business and compare our profitability to prior and future periods and to our peers. Management excludes purchase accounting charges because the amount and timing of such charges are significantly impacted by the timing, size, number and nature of the acquisitions consummated and the success with which we operate the businesses acquired. While the company has a history of acquisition activity, it does not acquire businesses on a predictable cycle, and the impact of purchase accounting charges is unique to each acquisition and can vary significantly from acquisition to acquisition. Similarly, business realignment charges and the charges related to the company’s supply chain optimization initiative are dependent on the timing, size, number and nature of the operations being moved or closed, and the charges may not be incurred on a predictable cycle. Management also excludes benefits from the CARES Act and refunds related to the termination of the company's defined benefit pension plan when assessing the company's operating and financial performance due to the one-time nature of these transactions. Management believes that exclusion of these items facilitates more consistent comparisons of the company’s operating results over time. Where applicable, the accompanying “Reconciliation of GAAP to Non-GAAP Financial Measures” tables present the excluded items net of tax calculated using the effective tax rate from operations for the period in which the adjustment is presented, except for the non-tax deductible adjustment to the fair value of contingent consideration which reflects the associated GAAP tax impact in the period presented.
CONSOLIDATED STATEMENT OF INCOME
Quarter Ended | Nine Months Ended | |||||||||||||||||||
(Unaudited, amounts in thousands, except per share data) | ||||||||||||||||||||
Sales | $ | 470,196 | $ | 475,856 | $ | 1,214,774 | $ | 1,336,701 | ||||||||||||
Cost of sales | 268,944 | 276,218 | 696,604 | 786,962 | ||||||||||||||||
Gross profit | 201,252 | 199,638 | 518,170 | 549,739 | ||||||||||||||||
Selling, general and administrative expense | 166,838 | 147,325 | 431,492 | 444,403 | ||||||||||||||||
Operating income | 34,414 | 52,313 | 86,678 | 105,336 | ||||||||||||||||
Interest expense | (298 | ) | (265 | ) | (1,103 | ) | (891 | ) | ||||||||||||
Interest income | 285 | 844 | 902 | 2,093 | ||||||||||||||||
Other income (expense), net | 6,532 | (5,998 | ) | 7,995 | (5,390 | ) | ||||||||||||||
Income before income taxes | 40,933 | 46,894 | 94,472 | 101,148 | ||||||||||||||||
Income tax expense | 11,344 | 12,178 | 24,900 | 25,540 | ||||||||||||||||
Net income | 29,589 | 34,716 | 69,572 | 75,608 | ||||||||||||||||
Net income attributable to noncontrolling interests | (357 | ) | (204 | ) | (607 | ) | (434 | ) | ||||||||||||
Net income attributable to |
$ | 29,232 | $ | 34,512 | $ | 68,965 | $ | 75,174 | ||||||||||||
Basic weighted average common shares | 46,261 | 46,262 | 46,064 | 46,545 | ||||||||||||||||
Basic net income attributable to |
$ | 0.63 | $ | 0.75 | $ | 1.50 | $ | 1.61 | ||||||||||||
Diluted weighted average common shares | 46,818 | 46,584 | 46,407 | 46,867 | ||||||||||||||||
Diluted net income attributable to |
$ | 0.62 | $ | 0.74 | $ | 1.49 | $ | 1.60 |
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands, except par value) | ||||||||||
Current assets | ||||||||||
Cash and equivalents | $ | 390,324 | $ | 261,553 | ||||||
Restricted cash | 2,703 | 1,975 | ||||||||
Receivables, net of allowance of |
129,256 | 99,351 | ||||||||
Inventories, net | 212,114 | 181,643 | ||||||||
Other current assets | 153,800 | 81,804 | ||||||||
Total current assets | 888,197 | 626,326 | ||||||||
Property, plant and equipment, net | 213,088 | 214,767 | ||||||||
175,560 | 161,017 | |||||||||
Other intangible assets, net | 30,597 | 28,653 | ||||||||
Deferred income taxes – long-term | 15,635 | 20,839 | ||||||||
Right of use lease assets | 337,337 | 318,647 | ||||||||
Other long-term assets, net | 79,758 | 64,640 | ||||||||
Total assets | $ | 1,740,172 | $ | 1,434,889 | ||||||
Current liabilities | ||||||||||
Accounts payable | $ | 96,388 | $ | 55,511 | ||||||
Short-term borrowings | — | 75,000 | ||||||||
Lease liabilities, current | 66,416 | 64,376 | ||||||||
Accrued expenses and other current liabilities | 388,043 | 155,282 | ||||||||
Total current liabilities | 550,847 | 350,169 | ||||||||
Lease liabilities, long-term | 289,406 | 270,162 | ||||||||
Other long-term liabilities | 111,901 | 98,252 | ||||||||
Shareholders' equity | ||||||||||
Preferred shares – 5,000 authorized; none issued | — | — | ||||||||
Common shares, |
46,316 | 45,857 | ||||||||
Capital in excess of par value | 333,975 | 318,215 | ||||||||
Retained earnings | 401,117 | 343,633 | ||||||||
Accumulated other comprehensive loss | (1,982 | ) | (6,952 | ) | ||||||
779,426 | 700,753 | |||||||||
Noncontrolling interests | 8,592 | 15,553 | ||||||||
Total equity | 788,018 | 716,306 | ||||||||
Total liabilities and equity | $ | 1,740,172 | $ | 1,434,889 |
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended | ||||||||||
(Unaudited, amounts in thousands) | ||||||||||
Cash flows from operating activities | ||||||||||
Net income | $ | 69,572 | $ | 75,608 | ||||||
Adjustments to reconcile net income to cash provided by (used for) operating activities | ||||||||||
(Gain)/loss on disposal of assets | 133 | (10,051 | ) | |||||||
Gain on sale of investments | (438 | ) | (468 | ) | ||||||
Change in deferred taxes | 5,189 | 1,238 | ||||||||
Provision for doubtful accounts | (2,483 | ) | 210 | |||||||
Depreciation and amortization | 24,620 | 23,035 | ||||||||
Equity-based compensation expense | 9,115 | 7,235 | ||||||||
Change in receivables | (28,720 | ) | (11,178 | ) | ||||||
Change in inventories | (26,419 | ) | (62 | ) | ||||||
Change in right-of use lease asset | 48,864 | 48,972 | ||||||||
Change in other assets | (1,193 | ) | 5,116 | |||||||
Change in payables | 42,354 | 659 | ||||||||
Change in lease liabilities | (48,963 | ) | (48,534 | ) | ||||||
Change in other liabilities | 158,200 | 27,979 | ||||||||
Net cash provided by operating activities | 249,831 | 119,759 | ||||||||
Cash flows from investing activities | ||||||||||
Proceeds from disposals of assets | 252 | 11,242 | ||||||||
Proceeds from insurance | — | 1,080 | ||||||||
Capital expenditures | (26,722 | ) | (35,464 | ) | ||||||
Purchases of investments | (27,744 | ) | (26,248 | ) | ||||||
Proceeds from sales of investments | 26,317 | 24,688 | ||||||||
Acquisitions | (7,783 | ) | (6,412 | ) | ||||||
Net cash used for investing activities | (35,680 | ) | (31,114 | ) | ||||||
Cash flows from financing activities | ||||||||||
Payments on debt and finance lease liabilities | (75,020 | ) | (135 | ) | ||||||
Stock issued for stock and employee benefit plans, net of shares withheld for taxes | 6,259 | 828 | ||||||||
Purchases of common stock | (875 | ) | (35,346 | ) | ||||||
Dividends paid to shareholders | (9,700 | ) | (18,641 | ) | ||||||
Dividends paid to minority interest joint venture partners (1) | (8,507 | ) | — | |||||||
Net cash used for financing activities | (87,843 | ) | (53,294 | ) | ||||||
Effect of exchange rate changes on cash and equivalents | 3,191 | 1,107 | ||||||||
Change in cash, cash equivalents and restricted cash | 129,499 | 36,458 | ||||||||
Cash, cash equivalents and restricted cash at beginning of period | 263,528 | 131,787 | ||||||||
Cash, cash equivalents and restricted cash at end of period | $ | 393,027 | $ | 168,245 | ||||||
Supplemental disclosure of non-cash investing activities | ||||||||||
Capital expenditures included in payables | $ | 1,569 | $ | 4,026 |
(1) Includes dividends paid to joint venture minority partners resulting from the repatriation of dividends from our foreign earnings that we no longer consider permanently reinvested.
SEGMENT INFORMATION
Quarter Ended | Nine Months Ended | |||||||||||||||||||
(Unaudited, amounts in thousands) | ||||||||||||||||||||
Sales | ||||||||||||||||||||
Wholesale segment: | ||||||||||||||||||||
Sales to external customers | $ | 274,314 | $ | 285,418 | $ | 720,258 | $ | 815,412 | ||||||||||||
Intersegment sales | 76,394 | 79,393 | 197,039 | 220,195 | ||||||||||||||||
Wholesale segment sales | 350,708 | 364,811 | 917,297 | 1,035,607 | ||||||||||||||||
Retail segment sales | 165,959 | 167,494 | 419,371 | 458,894 | ||||||||||||||||
Corporate and Other: | ||||||||||||||||||||
Sales to external customers | 29,923 | 22,944 | 75,145 | 62,395 | ||||||||||||||||
Intersegment sales | 3,768 | 2,725 | 9,004 | 8,137 | ||||||||||||||||
Corporate and Other sales | 33,691 | 25,669 | 84,149 | 70,532 | ||||||||||||||||
Eliminations | (80,162 | ) | (82,118 | ) | (206,043 | ) | (228,332 | ) | ||||||||||||
Consolidated sales | $ | 470,196 | $ | 475,856 | $ | 1,214,774 | $ | 1,336,701 | ||||||||||||
Operating Income (Loss) | ||||||||||||||||||||
Wholesale segment | $ | 35,686 | $ | 49,046 | $ | 95,309 | $ | 112,195 | ||||||||||||
Retail segment | 14,707 | 16,383 | 23,173 | 33,272 | ||||||||||||||||
Corporate and Other | (15,979 | ) | (13,116 | ) | (31,804 | ) | (40,131 | ) | ||||||||||||
Consolidated operating income | $ | 34,414 | $ | 52,313 | $ | 86,678 | $ | 105,336 |
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
Quarter Ended | Nine Months Ended | |||||||||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||||||||
GAAP gross profit | $ | 201,252 | $ | 199,638 | $ | 518,170 | $ | 549,739 | ||||||||||||
Add back: Purchase accounting charges - incremental expense upon the sale of inventory acquired at fair value | — | 88 | 429 | 403 | ||||||||||||||||
Add back: Business realignment charges | (2 | ) | — | 1,303 | — | |||||||||||||||
Add back: Supply chain optimization initiative | — | 1,029 | (50 | ) | 5,292 | |||||||||||||||
Non-GAAP gross profit | $ | 201,250 | $ | 200,755 | $ | 519,852 | $ | 555,434 | ||||||||||||
GAAP SG&A | $ | 166,838 | $ | 147,325 | $ | 431,492 | $ | 444,403 | ||||||||||||
Less: Purchase accounting charges - adjustment to fair value of contingent consideration and amortization of intangible assets and retention agreements | (10,257 | ) | (1,194 | ) | (13,736 | ) | (3,576 | ) | ||||||||||||
Less: Business realignment charges | — | — | (2,580 | ) | — | |||||||||||||||
Add back: Supply chain optimization initiative gain on sale | — | 9,745 | — | 9,745 | ||||||||||||||||
Non-GAAP SG&A | $ | 156,581 | $ | 155,876 | $ | 415,176 | $ | 450,572 | ||||||||||||
GAAP operating income | $ | 34,414 | $ | 52,313 | $ | 86,678 | $ | 105,336 | ||||||||||||
Add back: Purchase accounting charges | 10,257 | 1,282 | 14,165 | 3,979 | ||||||||||||||||
Add back: Business realignment charges | (2 | ) | — | 3,883 | — | |||||||||||||||
Add back: Supply chain optimization initiative | — | (8,716 | ) | (50 | ) | (4,453 | ) | |||||||||||||
Non-GAAP operating income | $ | 44,669 | $ | 44,879 | $ | 104,676 | $ | 104,862 | ||||||||||||
GAAP income before income taxes | $ | 40,933 | $ | 46,894 | $ | 94,472 | $ | 101,148 | ||||||||||||
Add back: Purchase accounting charges recorded as part of gross profit, SG&A, and interest expense | 10,449 | 1,448 | 14,657 | 4,505 | ||||||||||||||||
Add back: Business realignment charges | (2 | ) | — | 3,883 | — | |||||||||||||||
Add back: Supply chain optimization initiative charges/(gain) | — | (8,716 | ) | (50 | ) | (4,453 | ) | |||||||||||||
Less: CARES Act benefit | (5,219 | ) | — | (5,219 | ) | — | ||||||||||||||
Add back: Investment impairment | — | 6,000 | — | 6,000 | ||||||||||||||||
Less: Pension termination refund | — | — | — | (1,900 | ) | |||||||||||||||
Non-GAAP income before income taxes | $ | 46,161 | $ | 45,626 | $ | 107,743 | $ | 105,300 | ||||||||||||
GAAP net income attributable to |
$ | 29,232 | $ | 34,512 | $ | 68,965 | $ | 75,174 | ||||||||||||
Add back: Purchase accounting charges recorded as part of gross profit, SG&A, and interest expense | 10,449 | 1,448 | 14,657 | 4,505 | ||||||||||||||||
Less: Tax effect of purchase accounting | (1,073 | ) | (376 | ) | (1,479 | ) | (1,138 | ) | ||||||||||||
Add back: Business realignment charges | (2 | ) | — | 3,883 | — | |||||||||||||||
Less: Tax effect of business realignment charges | — | — | (938 | ) | — | |||||||||||||||
Add back: Supply chain optimization initiative charges/(gain) | — | (8,716 | ) | (50 | ) | (4,453 | ) | |||||||||||||
Less: Tax effect of supply chain optimization initiative | — | 2,263 | 13 | 1,124 | ||||||||||||||||
Less: CARES Act benefit | (5,219 | ) | — | (5,219 | ) | — | ||||||||||||||
Add back: Tax effect of CARES Act benefit | 1,261 | — | 1,261 | — | ||||||||||||||||
Add back: Investment impairment | — | 6,000 | — | 6,000 | ||||||||||||||||
Less: Tax effect of investment impairment | — | (1,558 | ) | — | (1,515 | ) | ||||||||||||||
Less: Pension termination refund | — | — | — | (1,900 | ) | |||||||||||||||
Add back: Tax effect of pension termination refund | — | — | — | 480 | ||||||||||||||||
Non-GAAP net income attributable to |
$ | 34,648 | $ | 33,573 | $ | 81,093 | $ | 78,277 | ||||||||||||
GAAP net income attributable to |
$ | 0.62 | $ | 0.74 | $ | 1.49 | $ | 1.60 | ||||||||||||
Add back: Purchase accounting charges, net of tax, per share | 0.20 | 0.02 | 0.27 | 0.07 | ||||||||||||||||
Add back: Business realignment charges, net of tax, per share | — | — | 0.07 | — | ||||||||||||||||
Less: Supply chain optimization initiative, net of tax, per share | — | (0.14 | ) | — | (0.07 | ) | ||||||||||||||
Less: CARES Act benefit, net of tax, per share | (0.08 | ) | — | (0.08 | ) | — | ||||||||||||||
Add back: Investment impairment, net of tax, per share | — | 0.10 | — | 0.10 | ||||||||||||||||
Less: Pension termination refund, net of tax, per share | — | — | — | (0.03 | ) | |||||||||||||||
Non-GAAP net income attributable to |
$ | 0.74 | $ | 0.72 | $ | 1.75 | $ | 1.67 |
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
SEGMENT INFORMATION
Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||||
(Amounts in thousands) | % of sales | % of sales | % of sales | % of sales | ||||||||||||||||||||||||
GAAP operating income (loss) | ||||||||||||||||||||||||||||
Wholesale segment | $ | 35,686 | 10.2% | $ | 49,046 | 13.4% | $ | 95,309 | 10.4% | $ | 112,195 | 10.8% | ||||||||||||||||
Retail segment | 14,707 | 8.9% | 16,383 | 9.8% | 23,173 | 5.5% | 33,272 | 7.3% | ||||||||||||||||||||
Corporate and Other | (15,979 | ) | N/M | (13,116 | ) | N/M | (31,804 | ) | N/M | (40,131 | ) | N/M | ||||||||||||||||
Consolidated GAAP operating income | $ | 34,414 | 7.3% | $ | 52,313 | 11.0% | $ | 86,678 | 7.1% | $ | 105,336 | 7.9% | ||||||||||||||||
Non-GAAP items affecting operating income | ||||||||||||||||||||||||||||
Wholesale segment | $ | 56 | $ | (8,659 | ) | $ | 3,286 | $ | (4,288 | ) | ||||||||||||||||||
Retail segment | — | 88 | 613 | 403 | ||||||||||||||||||||||||
Corporate and Other | 10,199 | 1,137 | 14,099 | 3,411 | ||||||||||||||||||||||||
Consolidated Non-GAAP items affecting operating income | $ | 10,255 | $ | (7,434 | ) | $ | 17,998 | $ | (474 | ) | ||||||||||||||||||
Non-GAAP operating income (loss) | ||||||||||||||||||||||||||||
Wholesale segment | $ | 35,742 | 10.2% | $ | 40,387 | 11.1% | $ | 98,595 | 10.7% | $ | 107,907 | 10.4% | ||||||||||||||||
Retail segment | 14,707 | 8.9% | 16,471 | 9.8% | 23,786 | 5.7% | 33,675 | 7.3% | ||||||||||||||||||||
Corporate and Other | (5,780 | ) | N/M | (11,979 | ) | N/M | (17,705 | ) | N/M | (36,720 | ) | N/M | ||||||||||||||||
Consolidated Non-GAAP operating income | $ | 44,669 | 9.5% | $ | 44,879 | 9.4% | $ | 104,676 | 8.6% | $ | 104,862 | 7.8% | ||||||||||||||||
N/M - Not Meaningful |
Contact: Kathy Liebmann (734) 241-2438 kathy.liebmann@la-z-boy.com
Source: La-Z-Boy Incorporated