La-Z-Boy Reports Fiscal 2008 Third-Quarter Results
Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said: "We continue to go through a difficult macroeconomic period which is impacting the housing and home furnishings markets. In this environment, we have worked to sustain the performance of our wholesale operations through various cost- reduction programs. Given the higher fixed-cost nature of the retail business, the performance of our company-owned retail segment has been particularly impacted by external conditions, with the progress made on the cost side overshadowed by the effect of lower volumes. We continue to work to position La-Z-Boy to emerge from this difficult period as a stronger and leaner manufacturer and distributor with a solid integrated retail platform."
Upholstery
For the fiscal 2008 third quarter, sales in the company's upholstery segment decreased 3.8% to $282.5 million compared with $293.7 million in the prior year's third quarter. The segment's operating margin was 6.9%. Darrow stated, "Despite lower volume, we continue to maintain our operating margins in the wholesale upholstery business. In addition to lowering our cost structure with projects such as our plant cellular conversion across our branded facilities, we are driving business through creative merchandising and selective promotions."
For the quarter, the La-Z-Boy Furniture Galleries(R) store system, which includes both company-owned and independent-licensed stores, opened three new stores, relocated and/or remodeled six and closed five, bringing the total store count to 336, of which 213 are in the New Generation format. For the fiscal fourth quarter 2008, the network plans to open four New Generation format La-Z-Boy Furniture Galleries(R) stores (one will be a new store and three will be store remodels or relocations) and will close one.
System-wide, for the fourth calendar quarter ended December 31, 2007, including company-owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were down 6.0%. Total written sales, which include new stores, were down 4.8%.
Casegoods
For the 2008 third quarter, casegoods sales were $52.7 million, down 16.6% from the prior year's third quarter and, as a result, the segment's quarterly operating margin decreased to 4.2%. During the quarter, La-Z-Boy received $7.1 million in funds, net of legal expenses, under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA) in connection with the case involving wooden bedroom furniture imported from China. This compares with $3.4 million in the third quarter of fiscal 2007. This income is reported in Other Income, Net rather than in the operating segment's results.
Darrow commented, "While the high variable cost structure associated with our casegoods business, which has transitioned to primarily an import model, allows us to run our business profitably on significantly lower volume, the segment's overall results continue to be impacted by the decline in sales. We are managing our cost structure and have reduced headcount in this segment in line with the decline in sales. Importantly, we maintained our high service levels to our customers while managing our inventories concurrent with the decline in sales."
Retail
For the quarter, retail sales were $49.9 million, down 18.4% compared with the prior-year period. The retail group posted an operating loss for the quarter and its operating margin was (17.1%). Approximately 6% of the sales decline was the result of exiting the Pittsburgh, Pennsylvania market which was operating during last year's third quarter. With the state of the economy and its effect on the home furnishings market, La-Z-Boy continued to experience negative same store sales comparisons across its markets, making it difficult to absorb fixed costs, particularly the increased occupancy costs associated with the company's new stores.
Darrow stated, "In addition to improving our operating cost structure through the consolidation of systems and operations, we are working to increase our top-line performance through various initiatives on the front side of our business. We continue to refine our merchandising programs and expand our In-Home Design Service while further developing our sales associates to assist them in improving the average transaction per client."
During the third quarter, the company's retail segment opened one new company-owned store and closed two. At the end of the third quarter, the company owned 69 stores, including 51 in the New Generation format, or about 74% versus 72 company-owned stores last year at this time, of which 44, or 61%, were in the new format.
New Credit Facility
La-Z-Boy Incorporated entered into a new secured credit agreement in early February, giving it greater flexibility to operate its business. The new arrangement is an asset-based lending facility secured by inventories and trade receivables. The financial covenant, which is a fixed-charge coverage ratio, is only applicable if the company's availability goes below $30 million. As of February 18, 2008, the availability on the revolving line of credit was $63.9 million. As part of the refinancing, the company's private placement notes were paid off and the company will take a charge of $6.0 million in the fourth quarter as a result of a make-whole provision with the company's note holders.
Balance Sheet
At the end of the fiscal 2008 third quarter, La-Z-Boy's debt to capitalization ratio was 24.8% and net cash provided by operating activities was $41.6 million, which included an $8.6 million decline in inventory during the current quarter. La-Z-Boy had cash on its balance sheet of $63 million, which included the cash generated from operations as well as proceeds from anti-dumping monies.
Business Outlook
Commenting on the company's business outlook, Darrow said: "The furniture industry continues to be impacted by the overall macroeconomic environment. As we guided at the end of our second quarter, we expect sales for the second half of fiscal year 2008 to be down 4% to 8% and earnings per share to be in the range of $0.06 to $0.14. The second-half 2008 estimate does not include the $6 million make-whole provision related to our credit refinancing, restructuring charges, income from anti-dumping monies, or any further effect from discontinued operations. This expectation compares with $0.30 per share from continuing operations in the second half of fiscal 2007, which included an $0.11 per share charge for restructuring, a $0.14 per share gain on property sales and $0.04 per share in income from anti-dumping monies."
Forward-looking Information
Any forward-looking statements contained in this news release are based on current information and assumptions and represent management's best judgment at the present time. Actual results could differ materially from those anticipated or projected due to a number of factors. These factors include, but are not limited to: (a) changes in consumer confidence; (b) changes in demographics; (c) changes in housing sales; (d) the impact of terrorism or war; (e) continued energy price changes; (f) the impact of logistics on imports; (g) the impact of interest rate changes; (h) changes in currency exchange rates; (i) competitive factors; (j) operating factors, such as supply, labor or distribution disruptions including changes in operating conditions or costs; (k) effects of restructuring actions; (l) changes in the domestic or international regulatory environment; (m) ability to implement global sourcing organization strategies; (n) fair value changes to our intangible assets due to actual results differing from projected; (o) the impact of adopting new accounting principles; (p) the impact from natural events such as hurricanes, earthquakes and tornadoes; (q) the impact of retail store relocation costs, the success of new stores or the timing of converting stores to the New Generation format; (r) the ability to procure fabric rolls or cut and sewn fabric sets domestically or abroad; (s) those matters discussed under "Risk Factors" in our most recent Annual Report of Form 10-K and subsequent Quarterly Reports on Form 10-Q and factors relating to acquisitions 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, either to reflect 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://www.la-z-boy.com/about/investorRelations/sec_filings.aspx. 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://www.la-z-boy.com/about/investorRelations/IR_email_alerts.aspx.
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 Group companies are Bauhaus, England, La-Z-Boy and La-Z-Boy, U.K. The La-Z-Boy Casegoods Group companies are American Drew, Hammary, Kincaid and Lea.
The corporation's proprietary distribution network is dedicated exclusively to selling La-Z-Boy Incorporated products and brands, and includes 336 stand-alone La-Z-Boy Furniture Galleries(R) stores, 168 La-Z-Boy In-Store Galleries and 186 Comfort Studios, in addition to in-store gallery programs at the company's Kincaid, England and Lea operating units. According to industry trade publication In Furniture, the La-Z-Boy Furniture Galleries retail network is North America's largest single-brand furniture retailer. Additional information is available at http://www.la-z-boy.com/.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
Third Quarter Ended
Percent of Sales
(Unaudited, amounts in
thousands, except per % Over
share data) 01/26/08 01/27/07 (Under) 01/26/08 01/27/07
Sales $373,081 $404,845 -7.8% 100% 100%
Cost of sales
Cost of goods sold 265,078 291,322 -9.0% 71.1% 72.0%
Restructuring (632) - - -0.2% -
Total cost of sales 264,446 291,322 -9.2% 70.9% 72.0%
Gross profit 108,635 113,523 -4.3% 29.1% 28.0%
Selling, general and
administrative 104,672 101,213 3.4% 28.1% 25.0%
Restructuring 877 2,855 -69.3% 0.2% 0.7%
Operating income 3,086 9,455 -67.4% 0.8% 2.3%
Interest expense 2,148 2,750 -21.9% 0.6% 0.7%
Income from Continued
Dumping and Subsidy
Offset Act, net 7,147 3,430 108.4% 1.9% 0.8%
Other income, net 4,919 1,633 201.2% 1.3% 0.4%
Income from continuing
operations before income
taxes 13,004 11,768 10.5% 3.5% 2.9%
Income tax expense 3,876 4,823 -19.6% 29.8%* 41.0%*
Income from continuing
operations 9,128 6,945 31.4% 2.4% 1.7%
Income (loss) from
discontinued operations
(net of tax) 384 (14,766) 102.6% 0.1% -3.6%
Net income (loss) $9,512 $(7,821) 221.6% 2.5% -1.9%
Basic average shares 51,417 51,367
Basic income from
continuing operations
per share $0.18 $0.14
Discontinued operations
per share (net of tax) $0.01 $(0.29)
Basic net income (loss)
per share $0.19 $(0.15)
Diluted average shares 51,590 51,609
Diluted income from
continuing operations
per share $0.18 $0.14
Discontinued operations
per share (net of tax) $- $(0.29)
Diluted net income (loss)
per share $0.18 $(0.15)
Dividends paid per share $0.12 $0.12
*As a percent of pretax income, not sales.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended
Percent of Sales
(Unaudited, amounts
in thousands, except % Over
per share data) 01/26/08 01/27/07 (Under) 01/26/08 01/27/07
Sales $1,082,911 $1,213,382 -10.8% 100% 100%
Cost of sales
Cost of goods sold 790,879 893,681 -11.5% 73.0% 73.7%
Restructuring 2,447 (400) 711.8% 0.2% -
Total cost of sales 793,326 893,281 -11.2% 73.3% 73.6%
Gross profit 289,585 320,101 -9.5% 26.7% 26.4%
Selling, general and
administrative 297,278 295,783 0.5% 27.5% 24.4%
Write-down of
intangibles 5,809 - - 0.5% -
Restructuring 2,446 5,120 -52.2% 0.2% 0.4%
Operating income
(loss) (15,948) 19,198 -183.1% -1.5% 1.6%
Interest expense 6,365 7,890 -19.3% 0.6% 0.7%
Income from
Continued Dumping
and Subsidy Offset
Act, net 7,147 3,430 108.4% 0.7% 0.3%
Other income, net 7,740 3,252 138.0% 0.7% 0.3%
Income (loss) from
continuing
operations before
income taxes (7,426) 17,990 -141.3% -0.7% 1.5%
Income tax expense
(benefit) (4,359) 6,658 -165.5% 58.7%* 37.0%*
Income (loss) from
continuing
operations (3,067) 11,332 -127.1% -0.3 % 0.9%
Loss from
discontinued
operations
(net of tax) (6,050) (14,904) 59.4% -0.6% -1.2%
Net Loss $(9,117) $(3,572) -155.2% -0.8% -0.3%
Basic average shares 51,402 51,509
Basic income (loss)
from continuing
operations per share $(0.06) $0.22
Discontinued
operations per
share (net of tax) $(0.12) $(0.29)
Basic net loss per
share $(0.18) $(0.07)
Diluted average shares 51,402 51,743
Diluted income (loss)
from continuing
operations per share $(0.06) $0.22
Discontinued operations
per share (net of tax) $(0.12) $(0.29)
Diluted net loss per
share $(0.18) $(0.07)
Dividends paid per
share $0.36 $0.36
*As a percent of pretax income, not sales.
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
Increase/(Decrease)
(Unaudited, amounts in
thousands) 01/26/08 01/27/07 Dollars Percent 04/28/07
Current assets
Cash and equivalents $63,175 $17,484 $45,691 261.3% $51,721
Receivables, net 214,088 217,103 (3,015) -1.4% 230,399
Inventories, net 183,935 214,151 (30,216) -14.1% 197,790
Deferred income
taxes-current 16,696 31,369 (14,673) -46.8% 17,283
Assets of discontinued
operations 278 39,354 (39,076) -99.3% 24,278
Other current assets 23,309 24,847 (1,538) -6.2% 19,327
Total current assets 501,481 544,308 (42,827) -7.9% 540,798
Property, plant and
equipment, net 179,282 192,382 (13,100) -6.8% 183,218
Deferred income
taxes-long term 24,574 - 24,574 - 15,380
Goodwill 49,850 55,409 (5,559) -10.0% 55,659
Trade names 9,006 9,472 (466) -4.9% 9,472
Other long-term assets 74,585 87,339 (12,754) -14.6% 74,164
Total assets $838,778 $888,910 $(50,132) -5.6% $878,691
Current liabilities
Short-term borrowings $- $15,702 $(15,702) -100% $-
Current portion of long-
term debt 4,154 3,487 667 19.1% 38,076
Accounts payable 61,683 58,405 3,278 5.6% 66,242
Liabilities of
discontinued operations 916 5,681 (4,765) -83.9% 3,843
Accrued expenses and
other current
liabilities 103,387 105,636 (2,249) -2.1% 118,591
Deferred income taxes 669 - 669 - -
Total current
liabilities 170,809 188,911 (18,102) -9.6% 226,752
Long-term debt 146,415 148,773 (2,358) -1.6% 113,172
Income taxes payable -
long term 4,332 9,605 (5,273) -54.9% -
Other long-term
liabilities 61,609 54,961 6,648 12.1% 53,419
Contingencies and
commitments - - - - -
Shareholders' equity
Common shares, $1 par
value 51,417 51,372 45 0.1% 51,377
Capital in excess of par
value 207,954 207,184 770 0.4% 208,283
Retained earnings 196,935 222,601 (25,666) -11.5% 223,896
Accumulated other
comprehensive income
(loss) (693) 5,503 (6,196) -112.6% 1,792
Total shareholders'
equity 455,613 486,660 (31,047) -6.4% 485,348
Total liabilities
and shareholders'
equity $838,778 $888,910 $(50,132) -5.6% $878,691
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in Third Quarter Ended Nine Months Ended
thousands) 01/26/08 01/27/07 01/26/08 01/27/07
Cash flows from operating
activities
Net income (loss) $9,512 $(7,821) $(9,117) $(3,572)
Adjustments to reconcile
net income (loss) to cash
used for operating
activities
Gain (loss) on sale of
discontinued operations
(net of tax) (96) - 3,894 (1,280)
Write-down of assets of
businesses held for sale
(net of tax) - 13,674 2,159 13,674
Write-down of intangibles
(net of tax) - - 3,689 -
Restructuring 245 2,855 4,893 4,720
Provision for doubtful
accounts 2,754 84 6,373 2,891
Depreciation and amortization 6,193 6,233 18,506 20,122
Stock-based compensation
expense 1,303 479 3,165 3,211
Change in receivables 53 22,633 9,241 19,688
Change in inventories 8,645 2,808 17,897 (14,309)
Change in payables 9,161 (9,849) (5,107) (19,228)
Change in other assets and
liabilities 147 106 (16,530) (15,464)
Change in deferred taxes 3,676 (2,270) (2,470) (9,036)
Total adjustments 32,081 36,753 45,710 4,989
Net cash provided by operating
activities 41,593 28,932 36,593 1,417
Cash flows from investing
activities
Proceeds from disposals of
assets 456 314 7,738 25,276
Proceeds from sale of
discontinued operations 150 - 4,169 33,166
Capital expenditures (5,239) (5,984) (20,838) (20,994)
Purchases of investments (15,807) (5,069) (29,077) (13,461)
Proceeds from sales of
investments 15,649 3,817 30,242 11,834
Change in other long-term
assets 1,701 539 2,086 343
Net cash provided by (used
for) investing activities (3,090) (6,383) (5,680) 36,164
Cash flows from financing
activities
Proceeds from debt 574 12,577 1,391 91,252
Payments on debt (974) (32,540) (2,212) (111,220)
Stock issued for stock and
employee benefit plans (13) 567 (129) 1,333
Repurchases of common stock - - - (6,947)
Dividends paid (6,229) (6,212) (18,670) (18,674)
Net cash used for financing
activities (6,642) (25,608) (19,620) (44,256)
Effect of exchange rate changes
on cash and equivalents (1,378) 14 161 70
Change in cash and equivalents 30,483 (3,045) 11,454 (6,605)
Cash and equivalents at
beginning of period 32,692 20,529 51,721 24,089
Cash and equivalents at end of
period $63,175 $17,484 $63,175 $17,484
Cash paid (net of refunds)
during period - income taxes $(4,336) $558 $(443) $17,655
Cash paid during period -
interest $2,652 $2,911 $6,057 $7,769
LA-Z-BOY INCORPORATED
Segment Information
(Unaudited, amounts in thousands)
Third Quarter Ended Nine Months Ended
01/26/08 01/27/07 01/26/08 01/27/07
(Unaudited, amounts in
thousands) (13 weeks) (13 weeks) (39 weeks) (39 weeks)
Sales
Upholstery Group $282,453 $293,709 $806,959 $893,704
Casegoods Group 52,660 63,127 165,126 198,317
Retail Group 49,884 61,149 141,278 165,838
VIEs/Eliminations (11,916) (13,140) (30,452) (44,477)
Consolidated $373,081 $404,845 $1,082,911 $1,213,382
Operating income (loss)
Upholstery Group $19,467 $22,651 $47,370 $60,438
Casegoods Group 2,222 5,721 8,399 15,163
Retail Group (8,507) (6,738) (27,700) (23,222)
Corporate and Other* (9,851) (9,324) (33,315) (28,461)
Intangible write-down - - (5,809) -
Restructuring (245) (2,855) (4,893) (4,720)
$3,086 $9,455 $(15,948) $19,198
*Variable Interest Entities ("VIEs") are included in corporate and other.
SOURCE La-Z-Boy Incorporated
http://www.la-z-boy.com