La-Z-Boy Reports First Quarter Sales Decline

Furniture World Magazine

La-Z-Boy Incorporated announced its operating results for the fourth fiscal quarter and full year ended April 28, 2007. Net sales for the quarter were $406.9 million, down 9.4% compared with the prior-year period. The company posted earnings per share from continuing operations of $0.16. This includes a restructuring charge of $0.08 per share, related to the announced closure and consolidation of facilities as well as a reduction in employment, and a gain of $0.14 per share from the sale of various properties. For the full year ended April 28, 2007, net sales were $1.62 billion, down 4.6% from the prior year. The company posted earnings per share from continuing operations of $0.38 for the full year. The earnings-per-share figure includes: - a $0.17 per share gain on the sale of properties; - income per share of $0.04 related to anti-dumping duties received on bedroom furniture imported from China; - a restructuring charge of $0.13 per share; and - a non-cash stock option expense of $0.03 per share. These results compare with a loss per share of $0.11 last year, which included: - a $0.04 per share gain on the sale of properties; - a restructuring charge of $0.10 per share; and - a $0.44 per share loss from the write-down of intangible assets. Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said: "We continue to operate in an environment marked by extremely difficult retail conditions across the industry and have remained focused on running our operations with efficiency and ensuring our cost structure is in line with our revenue stream. Despite significantly lower volume in both of our wholesale businesses, we maintained our operating margins this quarter, reflecting the disciplines established throughout our business. Additionally, we continued to concentrate on managing our balance sheet by reducing our debt and inventory levels while generating cash. In our retail segment, we are applying the same operating disciplines as we have in our wholesale operations and expect to make incremental progress throughout fiscal 2008 even though the external environment will undoubtedly remain challenging." Upholstery For the fiscal 2007 fourth quarter, sales in the company's upholstery segment were $303.5 million compared with $341.8 million in the prior year's fourth quarter. For the full year, sales were $1.2 billion compared with $1.3 billion last year. Darrow stated, "On a double-digit sales decline in the fourth quarter, we were able to operate with a 6.0% margin, reflecting our focus on lean manufacturing and global sourcing. For the year, on a 5.7% sales decrease, we maintained our operating margin at 6.6%. " During the quarter, La-Z-Boy finalized the sale of its Sam Moore upholstered chair company to Hooker Furniture for $9.9 million. Additionally, the company announced it would close its Lincolnton, North Carolina and Iuka, Mississippi upholstery manufacturing facilities and consolidate three operations into one at its Taylorsville, North Carolina facility. Darrow stated, "The sale of Sam Moore is part of our strategy to realign our portfolio of companies while the closures of facilities reflect the necessity to right size our company in the current business environment. These moves will allow us to be more competitive going forward." The company continues to make progress in the expansion of the La-Z-Boy Furniture Galleries(R) system into the New Generation format. For the quarter, the La-Z-Boy Furniture Galleries(R) store system, which includes both company-owned and independent-licensed stores, opened four new stores, relocated and/or remodeled four and closed eight, bringing the total store count to 336, of which 194 are in the New Generation format. For the full year, the system opened, relocated or remodeled 42 New Generation stores in the overall network. For fiscal 2008, the network plans to open 25 to 30 New Generation format La-Z-Boy Furniture Galleries(R) stores, of which 10 to 15 will be new stores and the remainder will be store remodels or relocations. System-wide, for the first four months of 2007, including company-owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were down 9.0% and total sales, which includes new stores decreased 5.2%. Casegoods For the fourth quarter, casegoods sales were $64.4 million, down 13.3% from the prior year's fourth quarter. For the full year, sales in the segment were off 10.2% at $262.7 million. The segment's quarterly operating margin was 8.0% versus 5.6% in last year's comparable period and, for the year, the operating margin was 7.7%, an increase from 5.9% in the prior year. The operating margin improvement demonstrates the success of the business's transition to primarily an import model with a much greater variable cost structure as well as more efficient domestic manufacturing operations. Over the course of fiscal 2007, La-Z-Boy continued to evaluate its portfolio of companies and sold American of Martinsville, its hospitality furniture business, and has committed to a plan to sell its Pennsylvania House and Clayton Marcus operation. La-Z-Boy also closed a rough mill lumber operation in North Wilkesboro, North Carolina during the fourth quarter. Darrow stated, "Going forward, we will continue to focus on increasing the top line through new product introductions, the expansion of channels of distribution and increased service levels to our customers." Retail For the quarter, retail sales were $54.5 million, essentially flat against the comparable quarter in fiscal 2006 and, for the full year, sales increased 3.2% to $220.3 million, primarily the result of additional stores. The retail group posted an operating loss for the quarter and full year, with a (14.6%) and (14.1%) margin, respectively. The losses were primarily the result of the difficult retail environment and consolidation costs associated with the markets acquired over the past several years. Darrow stated, "We continue to make changes to our retail model to ensure the business operates with the efficiency necessary for profitability. In addition to reducing costs through the consolidation of individual market operations, we are opening new stores to garner better penetration and economies of scale in the markets in which we operate and are relocating and/or converting stores to the New Generation format. However, with the challenging retail environment, it has been difficult to achieve top-line traction and we continue to experience negative same-store comps." During the fourth quarter, the company's retail segment opened two new company-owned stores, relocated one, and converted one store into the New Generation format while closing five. For the full year, the company opened nine new stores, acquired seven, relocated and/or converted 10 stores into the New Generation format and closed nine, including exiting the Rochester, New York and Pittsburgh, Pennsylvania markets. At the end of fiscal 2007, the company owned 70 stores, including 47 in the New Generation format, or 67%, versus 63 company-owned stores at the end of fiscal 2006, of which 28, or 44%, were in the new format. For fiscal 2008, La-Z-Boy plans to add six to ten New Generation stores to its company-owned retail segment, which includes new stores as well as relocations and remodels. Restructuring During the quarter, a pre-tax restructuring charge of $6.3 million was taken, net of a $1.6 million gain on previously written-down idled assets. The restructuring charge primarily related to expenses associated with the closure and consolidation of facilities as well as the reduction in employment. The balance of the restructuring charge for the full year relates primarily to store closings in the Rochester and Pittsburgh markets and related contract termination costs for leases, severance and benefits and the write-off of certain leasehold improvements. Balance Sheet During the year, the company reduced its debt by $35 million and, at fiscal year end, the company's debt to capitalization ratio was 23.5%, a decrease from last quarter's ratio of 25.4% and the fiscal 2006 year-end ratio of 26.5%. Inventories stood at $197.8 million, down from $238.8 million in the prior year, and receivables decreased to $230.4 million, down from $270.6 million last year, with a portion of the reductions relating to the sale and reclassification of discontinued operations. Cash generated from operations during the quarter was $32 million and the company generated $21.7 million in cash from the disposal of assets. For the year, the company generated more than $120 million in cash from operating activities and the sale of assets and discontinued operations. The company did not repurchase any shares in the fourth quarter and has authorization to purchase approximately 5.4 million additional shares. Business Outlook Commenting on the company's business outlook, Darrow said: "The external environment for home furnishings remains very difficult and the first quarter is typically the company's slowest period due to seasonal factors. While we have made progress in managing the cost structure of our wholesale businesses, we believe challenging conditions in the marketplace will prevail and, we will continue to focus on matching costs to our revenue stream. In a move consistent with recent trends among other public companies, we are moving to yearly guidance for sales and earnings and will no longer provide quarterly projections. We expect sales for the fiscal 2008 year to be down 5% to 10% compared with fiscal 2007 and expect earnings per share to be in the range of $0.45 to $0.60 per share compared with $0.38 per share from continuing operations in fiscal 2007. This estimated range does not include restructuring charges, potential income from any anti-dumping monies or gains/losses on the sale of discontinued operations. About La-Z-Boy: 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 and 304 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/.