La-Z-Boy Q4 sales down 19% Amid Store Closures

Furniture World News Desk on 6/24/2020

La-Z-Boy Incorporated, a global leader in residential furniture, recently reported its operating results for the fiscal 2020 fourth quarter and full year ended April 25, 2020.

Kurt L. Darrow, Chairman, President and Chief Executive Officer of La-Z-Boy, said, "La-Z-Boy delivered strong performance for 10 months of fiscal 2020 through February.  The iconic La-Z-Boy brand, excellent Retail performance, great product introductions and supply chain strength translated to solid sales and earnings growth for those 10 months.  Our fourth quarter started with a 20.4% increase in written same-store sales for the entire La-Z-Boy Furniture Galleries® network in February, and we experienced other examples of strength across our vast network of distribution.  However, the trajectory of sales and earnings growth for the last two months of the year were significantly impacted by COVID-19 and mandated retail closures across North America.  With the health, safety and well-being of our employees, customers and the communities in which we operate of paramount importance, we responded to the pandemic swiftly, with a decisive Action Plan announced March 29, 2020. The majority of retailers, including our company-owned La-Z-Boy Furniture Galleries® stores, closed for at least the last four weeks of our quarter, and most closures extended into the first quarter of fiscal 2021. We temporarily closed the majority of our manufacturing operations, and managed all other expenses, including temporarily furloughing 70% of our workforce and dramatically reducing all other cash expenditures to preserve liquidity."

Darrow added, "As we have moved through this uncertain period and look to the future, we have remained  agile and continued to make tough choices to align and strengthen our business with the new operating environment.  We are pleased to have called back some 6,000 furloughed workers, who have eagerly returned or will return to work by July 1st.  However, we also made the decision to permanently close our Newton, Mississippi manufacturing facility and reduce our global workforce by approximately 10%.  We deeply regret the impact of our actions on affected employees, but these moves are in the best long-term interest of the company."

Darrow concluded, "Moving forward, furniture retailers and La-Z-Boy Furniture Galleries® stores have reopened and we are seeing strong early demand. Our manufacturing facilities have ramped from zero production at the end of April and are moving toward 80% of prior-year production as we head into July. While time will tell how these trends continue to evolve, with the inherent strengths of the La-Z-Boy brand and our broad base of retail customers, I have every confidence we will emerge with strength and have the potential for market share gains as the demand environment improves. I am proud of our company's performance for the year, including our quick response to the pandemic and the aggressive ramp up we have achieved since re-starting operations.  With a philosophy of fiscal conservatism, we entered the pandemic period with a solid cash position, managed through the early stages of the crisis well, and still generated $164.2 million in cash from operations and returned $68.4 million to shareholders through dividends and share purchases."

Consolidated sales in the fourth quarter of fiscal 2020 decreased 19.1% to $367.3 million, due to the impact of COVID-19 on the last two months of the quarter. Consolidated GAAP operating margin decreased to 3.7% versus 8.2% in the prior-year quarter.  Non-GAAP operating margin was 9.3% in the current-year quarter versus 8.6% in last year’s fourth quarter, reflecting increases in the Upholstery and Retail segments offset by a decline in the Casegoods segment. GAAP and Non-GAAP results for the fourth quarter include a 440 basis point benefit related to a rebate of previously paid China tariffs, partially offset by higher bad debt expense. The fiscal 2019 fourth-quarter GAAP and Non-GAAP results include a 40 basis point charge related to changes in employee benefit policies.

For the entire La-Z-Boy Furniture Galleries® network, after nine months of written same-store sales up 6.4%, written same-store sales for the La-Z-Boy Furniture Galleries® network decreased 35.0% in the fourth quarter as a result of the COVID-19 pandemic and related store closures.

For the quarter, sales in the company’s Upholstery segment decreased 21.7% to $253.3 million and GAAP operating margin increased to 11.8% from 11.5% in last year’s fourth quarter.  Non-GAAP operating margin increased to 11.8% versus 11.6%.  Operating margin increased primarily as a result of a one-time rebate of previously paid tariffs, mostly offset by higher bad debt expense, including a write-off for the Art Van bankruptcy and a provision for potential credit losses in the COVID-19 environment. Also, during the quarter, SG&A spending was lower due to the company's COVID-19 Action Plan, but higher as a percent of sales due to the decline in sales related to the pandemic. In the Casegoods segment, sales decreased 19.7% to $21.4 million and operating margin was 1.9% compared with 9.1% in the prior-year period, primarily reflecting the impact of COVID-19.

Sales in the Retail segment decreased 8.0% to $139.7 million in the fourth quarter of fiscal 2020.  GAAP operating margin for the Retail segment improved to 10.7% from 8.4% in last year’s fourth quarter.  Non-GAAP operating margin increased to 10.8% in the current-year quarter from 8.5% in last year’s fourth quarter. Operating margin improvement was driven primarily by prior-period written sales delivered in the current quarter, and lower operating expenses related to the company's COVID-19 Action Plan, including compensation and advertising, due to closed stores. After a strong February start, on the core base of 152 company-owned stores in last year’s fourth quarter, delivered same-store sales declined 10.0% with the majority of stores closed for the last four weeks of the quarter, and many remaining closed into the first quarter of fiscal 2021.

Fiscal 2020 fourth-quarter sales for Joybird (reported in the Corporate & Other segment) decreased 29.6% to $15.4 million. Joybird posted a larger GAAP loss versus the prior-year quarter, primarily due to a $26.9 million non-cash pre-tax goodwill impairment charge, partially offset by the reversal of the Joybird contingent consideration liability valued at $7.9 million.  La-Z-Boy continues to make improvements across the Joybird business model with the objective to balance investments in growth with bottom-line performance.  However, the negative impact of COVID-19 tempered financial projections and the company concluded the fair value of future earn-out payments is zero and the carrying value of goodwill was partially impaired.  As Joybird continues to hone its business model, it is expected to deliver value to the La-Z-Boy enterprise over the long term.

Read the entire Fiscal 2020 Report here.

About La- Z- Boy: Headquartered in Monroe, Mich., La- Z- Boy has been producing some of the world’s most comfortable furniture for over 90 years. The company manufactures a full line of comfortable products for the living room and family room, including the company’s world-famous recliners, reclining sofas and love seats, sleep sofas, modular furniture and leather upholstery, as well as stationary sofas, love seats and chairs. It is a division of La- Z- Boy Incorporated (NYSE: LZB), one of the world’s leading residential furniture producers, marketing furniture for every room of the home. "Live Life Comfortably."