La-Z-Boy Reports Fiscal 2008 Second-Quarter Results
MONROE, Mich., Nov. 13 /PRNewswire-FirstCall/ -- La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the second fiscal quarter ended October 27, 2007. Net sales for the quarter were $365.4 million, down 12% compared with the prior-year period. The company posted an after-tax loss of $9.9 million, or $0.19 per share, which included a $0.07 per-share charge for a write-down of goodwill, a $0.12 per-share charge from discontinued operations, a large portion of which was attributable to intangible assets and liquidating inventory of businesses held for sale, and a $0.01 restructuring charge. La-Z-Boy posted an after-tax loss of $3.7 million from continuing operations, or a loss of $0.07 per share, which included the $0.01 per share restructuring charge and the $0.07 per share for the goodwill write-down.
Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said: "While we are disappointed that, due to industry headwinds, the improvements we have made in our business model are not clearly evident in our results, we posted reasonable operating margins in each of our wholesale businesses on significantly lower volume. In the midst of what continues to be a challenging environment across the furniture sector, we are executing against our strategy and making the necessary changes to our business model to ensure we remain both a leading and competitive manufacturer, distributor and retailer. During the quarter, we sold our two remaining businesses held for sale and are pleased to have the announced portfolio rationalization process behind us. Going forward, we will continue to address our manufacturing processes, structure our retail operation to run as an integrated entity with increased efficiencies and remain committed to working on the areas of the business we can control and improve given this environment."
Upholstery
For the fiscal 2008 second quarter, sales in the company's upholstery segment decreased 11.4% to $269.7 million compared with $304.6 million in the prior year's second quarter while the segment's operating margin increased to 7.1% from 6.6% in the year-ago period. Darrow stated, "Our operating margin results this quarter reflect increased capacity utilization at our remaining facilities as well as the benefit we are attaining through the conversion of our La-Z-Boy branded facilities to the cellular production process, which will be completed by the end of this fiscal year. We are confident that when retail conditions improve, the lower operating cost structure we have achieved across our enterprise will position us to improve our financial results."
For the quarter, the La-Z-Boy Furniture Galleries(R) store system, which includes both company-owned and independent-licensed stores, opened 6 new stores, relocated and/or remodeled 4 and closed 1, bringing the total store count to 338, of which 205 are in the New Generation format. For the third quarter 2008, the network plans to open 10 New Generation format La-Z-Boy Furniture Galleries(R) stores, of which 3 will be new stores and 7 will be store remodels or relocations, and will close 3.
System-wide, for the third calendar quarter, including company-owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were down 9.1%. Total written sales, which includes new stores, were down 9.6%.
Casegoods
For the 2008 second quarter, casegoods sales were $58.9 million, down 20.6% from the prior year's second quarter and, as a result, the segment's quarterly operating margin decreased to 6.1% from 8.4% in last year's comparable period.
Darrow commented, "The high variable cost structure associated with our casegoods business, which has transitioned to primarily an import model, allowed us to post a 6.1% operating margin on a significant decrease in sales year over year. Furthermore, we moved and downsized the office facilities for our casegoods operations at the end of the quarter, which will further reduce our fixed costs. Going forward, we are focused on increasing revenues in the segment and are pleased our casegoods companies received positive reviews for their new product introductions at the recent High Point Market."
Retail
For the quarter, retail sales were $46.2 million, down 12% compared with the prior-year period. The retail group posted an operating loss for the quarter and its operating margin was (19.8%). A portion of the sales decline was the result of exiting the Pittsburgh, Pennsylvania and Rochester, New York markets in the second half of fiscal 2007. Additionally, the retail segment did not achieve the anticipated sales increases from opening 10 stores over the past twelve months in its ongoing markets. With the slowing economy and its effect on the home furnishings market, the company continues to experience negative same store sales comparisons across all of its markets. As a result of the decreased volume, the company's operating results were impacted as it was more difficult to absorb fixed costs, particularly the higher occupancy costs associated with the company's new stores.
Given the continued depressed housing market in southeastern Florida and its impact on La-Z-Boy's retail operations, the company has delayed its new store plans for the near term. The downturn in business and the company's decision to delay its expansion has triggered a significant change in its valuation of the southeastern Florida market, resulting in a $0.07 per share write-down on the goodwill associated with that market.
Darrow stated, "We continue to make substantial changes to our retail model and are reducing costs through the consolidation of systems and operations. These changes did, indeed, improve our cost structure and overall competitiveness; however, that improvement is not clearly demonstrable in an environment of significantly lower volume."
During the second quarter, the company's retail segment opened 2 new company-owned stores and closed 1. At the end of the second quarter, the company owned 70 stores, including 50 in the New Generation format, or about 71% versus 68 company-owned stores last year at this time, of which 37, or 54%, were in the new format.
Restructuring
During the quarter, a pre-tax restructuring charge of approximately $1 million was recorded. The charge is primarily related to transition costs associated with the closure of the company's Lincolnton plant as well as charges in the company's retail operation. These charges were partially offset by a gain from the sale of a small manufacturing facility.
Businesses Held for Sale
In the second quarter, the company completed the sales of its Clayton- Marcus and Pennsylvania House operations. The company recorded a $5.8 million pre-tax loss in relation to the sale of Clayton-Marcus, a $0.6 million pre-tax loss for the sale of the Pennsylvania House trade name and wrote down an additional $3.0 million to mark its remaining Pennsylvania House inventory to market.
Balance Sheet
At the end of the fiscal 2008 second quarter, the company's debt to capitalization ratio was 24.7%. Inventories decreased to $191.0 million at the end of the second quarter. Cash generated from operations was $14.3 million, primarily the result of a reduction in working capital.
The company received an amendment from its bank group for a one-quarter adjustment to its fixed charge coverage ratio requirements, but was in compliance with its covenants for its private placement notes. The company is working to finalize an arrangement to renegotiate its bank agreements, refinancing its debt with an asset-based lending arrangement. Darrow stated, "There are a number of moves we are making to improve our business model, including the consolidations in our retail business, our store build out program and the conversion to cellular production at our branded facilities. Our proposed new arrangement, with longer term financing options, will give us the additional flexibility we need to make the necessary adjustments to our business in the short term."
Business Outlook
Commenting on the company's business outlook, Darrow said: "With the continued weak demand at retail for furniture, the decline in consumer confidence and the overall uncertain economic environment, our previously reported annual guidance will not be attainable. Since there are a number of unusual items in the first half of the year, the company feels that updated guidance for the second half of the year would be more prudent at this time and would give investors better perspective for the remainder of the year. At this point, 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 per share compared with $0.30 per share from continuing operations in the second half of 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. The 2008 estimate does not include restructuring charges, potential income from anti-dumping monies, or any further effect from discontinued operations."
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) the ability to sell the remaining assets of our discontinued operations for their recorded fair value; (t) 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 338 stand-alone La-Z-Boy Furniture Galleries(R) stores and 215 La-Z-Boy In- Store Galleries, 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
(Unaudited, amounts
in thousands, except Second Quarter Ended
per share data) Percent of Sales
10/27/07 10/28/06 % Over 10/27/07 10/28/06
(Under)
Sales $365,434 $414,614 -11.9% 100.0% 100.0%
Cost of sales
Cost of goods
sold 266,658 306,351 -13.0% 73.0% 73.9%
Restructuring 518 (400) -229.5% 0.1% -0.1%
Total cost of
sales 267,176 305,951 -12.7% 73.1% 73.8%
Gross profit 98,258 108,663 -9.6% 26.9% 26.2%
Selling,
general and
administrative 98,098 99,887 -1.8% 26.8% 24.1%
Write-down of
intangibles 5,809 -- N/M 1.6% --
Restructuring 449 2,265 -80.2% 0.1% 0.5%
Operating income
(loss) (6,098) 6,511 -193.7% -1.7% 1.6%
Interest expense 2,120 2,614 -18.9% 0.6% 0.6%
Other income, net 1,374 1,348 1.9% 0.4% 0.3%
Income (loss)
from continuing
operations before
income taxes (6,844) 5,245 -230.5% -1.9% 1.3%
Income tax expense
(benefit) (3,192) 1,949 -263.8% 46.6%* 37.2%*
Income (loss)
from continuing
operations (3,652) 3,296 -210.8% -1.0% 0.8%
Loss from
discontinued
operations
(net of tax) (6,282) (1,342) -368.1% -1.7% -0.3%
Net income
(loss) $(9,934) $1,954 -608.4% -2.7% 0.5%
Basic average
shares 51,410 51,373
Basic income
(loss) from
continuing
operations
per share $(0.07) $0.06
Discontinued
operations
per share
(net of tax) $(0.12) $(0.02)
Basic net income
(loss) per share $(0.19) $0.04
Diluted average
shares 51,410 51,639
Diluted income
(loss) from
continuing
operations
per share $(0.07) $0.06
Discontinued
operations per
share
(net of tax) $(0.12) $(0.02)
Diluted net income
(loss) per share $(0.19) $0.04
Dividends paid
per share $0.12 $0.12
*As a percent of pretax income, not sales.
N/M = not meaningful
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited, amounts
in thousands, Six Months Ended
except per Percent of Sales
share data) 10/27/07 10/28/06 % Over 10/27/07 10/28/06
(Under)
Sales $709,830 $808,537 -12.2% 100.0% 100.0%
Cost of sales
Cost of goods
sold 525,801 602,359 -12.7% 74.1% 74.5%
Restructuring 3,079 (400) -869.8% 0.4% --
Total cost
of sales 528,880 601,959 -12.1% 74.5% 74.5%
Gross profit 180,950 206,578 -12.4% 25.5% 25.5%
Selling, general
and
administrative 192,606 194,570 -1.0% 27.1% 24.1%
Write-down
of intangibles 5,809 -- N/M 0.8% --
Restructuring 1,569 2,265 -30.7% 0.2% 0.3%
Operating income
(loss) (19,034) 9,743 -295.4% -2.7% 1.2%
Interest expense 4,217 5,140 -18.0% 0.6% 0.6%
Other income, net 2,822 1,618 74.4% 0.4% 0.2%
Income (loss)
from continuing
operations
before income
taxes (20,429) 6,221 -428.4% -2.9% 0.8%
Income tax
expense
(benefit) (8,235) 1,833 -549.3% 40.3%* 29.5%*
Income (loss)
from continuing
operations (12,194) 4,388 -377.9% -1.7% 0.5%
Loss from
discontinued
operations
(net of tax) (6,434) (139) N/M% -0.9% --
Net income
(loss) $(18,628) $4,249 -538.4% -2.6% 0.5%
Basic average
shares 51,395 51,580
Basic income
(loss) from
continuing
operations
per share $(0.24) $0.08
Discontinued
operations
per share
(net of tax) $(0.12) --
Basic net
income (loss)
per share $(0.36) $0.08
Diluted average
shares 51,395 51,806
Diluted income
(loss) from
continuing
operations
per share $(0.24) $0.08
Discontinued
operations per
share
(net of tax) $(0.12) --
Diluted net
income (loss)
per share $(0.36) $0.08
Dividends paid
per share $0.24 $0.24
*As a percent of pretax income, not sales.
N/M = not meaningful
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts
in thousands) Increase/(Decrease)
10/27/07 10/28/06 Dollars Percent 4/28/07
Current assets
Cash and
equivalents $32,692 $20,529 $12,163 59.2% $51,721
Receivables,
net 215,275 253,519 (38,244) -15.1% 230,399
Inventories,
net 190,985 237,885 (46,900) -19.7% 197,790
Deferred
income taxes--
current 14,337 16,043 (1,706) -10.6% 17,283
Assets of
discontinued
operations 3,634 -- 3,634 N/M 24,278
Other current
assets 27,073 29,076 (2,003) -6.9% 19,327
Total current
assets 483,996 557,052 (73,056) -13.1% 540,798
Property,
plant and
equipment,
net 180,912 204,904 (23,992) -11.7% 183,218
Deferred income
taxes --
long term 25,608 3,451 22,157 N/M 15,380
Goodwill 49,850 62,736 (12,886) -20.5% 55,659
Trade names 9,006 18,794 (9,788) -52.1% 9,472
Other long-term
assets 76,545 80,166 (3,621) -4.5% 74,164
Total assets $825,917 $927,103 $(101,186) -10.9% $878,691
Current liabilities
Short-term
borrowings $-- $35,000 $(35,000) -100.0% $--
Current portion
of long-term
debt 38,353 3,295 35,058 N/M 37,688
Accounts
payable 54,194 72,308 (18,114) -25.1% 68,089
Liabilities of
discontinued
operations 1,664 -- 1,664 N/M 3,843
Accrued expenses
and other
current
liabilities 103,130 114,762 (11,632) -10.1% 118,590
Total current
liabil-
ities 197,341 225,365 (28,024) -12.4% 228,210
Long-term
debt 110,774 147,799 (37,025) -25.1% 111,714
Income taxes
payable --
long term 7,084 -- 7,084 N/M --
Other long-term
liabilities 56,474 54,920 1,554 2.8% 53,419
Contingencies
and commitments -- -- -- -- --
Shareholders' equity
Common shares,
$1 par value 51,416 51,364 52 0.1% 51,377
Capital in
excess of
par value 206,636 206,145 491 0.2% 208,283
Retained
earnings 193,681 236,635 (42,954) -18.2% 223,896
Accumulated
other
comprehensive
income 2,511 4,875 (2,364) -48.5% 1,792
Total
shareholders'
equity 454,244 499,019 (44,775) -9.0% 485,348
Total
liabilities
and shareholders'
equity $825,917 $927,103 $(101,186) -10.9% $878,691
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts Second Quarter Ended Six Months Ended
in thousands) 10/27/07 10/28/06 10/27/07 10/28/06
Cash flows from
operating activities
Net income (loss) $(9,934) $1,954 $(18,628) $4,249
Adjustments to
reconcile net income
(loss) to cash used
for operating activities
Loss (gain) on sale
of discontinued
operations
(net of tax) 3,990 -- 3,990 (1,280)
Write-down of
businesses
held for sale
(net of tax) 2,159 -- 2,159 --
Write-down of
intangibles
(net of tax) 3,689 -- 3,689 --
Restructuring 967 1,865 4,648 1,865
Provision for
doubtful accounts 1,505 1,643 3,619 2,807
Depreciation and
amortization 6,093 6,809 12,313 13,889
Stock-based
compensation expense 1,001 1,861 1,862 2,732
Change in
receivables (13,409) (24,228) 9,188 (2,945)
Change in inventories 15,323 873 9,252 (17,117)
Change in payables 1,000 (2,060) (14,414) (9,379)
Change in other assets
and liabilities 6,568 (8,623) (16,678) (15,570)
Change in deferred
taxes (4,671) (3,110) (6,146) (6,766)
Total adjustments 24,215 (24,970) 13,482 (31,764)
Net cash provided by
(used for) operating
activities 14,281 (23,016) (5,146) (27,515)
Cash flows from
investing activities
Proceeds from disposals
of assets 867 3,633 7,282 24,962
Proceeds from sale
of discontinued
operations 4,019 3,184 4,019 33,166
Capital expenditures (5,970) (5,767) (15,599) (15,010)
Purchases of
investments (6,648) (2,760) (13,270) (8,392)
Proceeds from sales of
investments 7,801 2,320 14,593 8,017
Change in other
long-term assets 365 (701) 385 (196)
Net cash provided by
(used for) investing
activities 434 (91) (2,590) 42,547
Cash flows from financing
activities
Proceeds from debt 171 56,276 817 78,675
Payments on debt (192) (31,266) (1,092) (78,680)
Stock issued for stock
and employee benefit
plans (94) (342) (116) 766
Repurchases of common
stock -- (3,261) -- (6,947)
Dividends paid (6,232) (6,213) (12,441) (12,462)
Net cash provided by
(used for) financing
activities (6,347) 15,194 (12,832) (18,648)
Effect of exchange
rate changes on
cash and equivalents 538 49 1,539 56
Change in cash and
equivalents 8,906 (7,864) (19,029) (3,560)
Cash and equivalents at
beginning of period 23,786 28,393 51,721 24,089
Cash and equivalents
at end of period $32,692 $20,529 $32,692 $20,529
Cash paid
(net of refunds)
during period - -
income taxes $758 $16,889 $3,893 $17,097
Cash paid during
period -- interest $1,495 $1,748 $3,405 $4,660
LA-Z-BOY INCORPORATED
SEGMENT INFORMATION
(Amounts in Second Quarter Ended Six Months Ended
thousands) 10/27/07 10/28/06 10/27/07 10/28/06
(13 weeks) (13 weeks) (26 weeks) (26 weeks)
Sales
Upholstery Group $269,749 $304,598 $524,506 $599,995
Casegoods Group 58,892 74,164 112,466 135,190
Retail Group 46,163 52,485 91,394 104,689
VIEs/Eliminations (9,370) (16,633) (18,536) (31,337)
Consolidated $365,434 $414,614 $709,830 $808,537
Operating income (loss)
Upholstery Group $19,036 $20,162 $27,903 $37,787
Casegoods Group 3,577 6,200 6,177 9,442
Retail Group (9,119) (8,769) (19,193) (16,484)
Corporate and Other* (12,816) (9,217) (23,464) (19,137)
Intangible write-down (5,809) -- (5,809) --
Restructuring (967) (1,865) (4,648) (1,865)
$(6,098) $6,511 $(19,034) $9,743
*Variable Interest Entities ("VIEs") are included in corporate and other.
SOURCE La-Z-Boy Incorporated
-0- 11/13/2007
/CONTACT: Kathy Liebmann of La-Z-Boy Incorporated, +1-734-241-2438,
kathy.liebmann@la-z-boy.com /
/Web site: http://www.la-z-boy.com/
(LZB)
CO: La-Z-Boy Incorporated
ST: Michigan
IN: HOU REA
SU: ERN ERP
CB-JK
-- CLTU115 --
9933 11/13/2007 16:14 EST http://www.prnewswire.com