La-Z-Boy Reports Fiscal 2009 First-Quarter Results

Furniture World Magazine

La-Z-Boy Incorporated reported its operating results for the fiscal first quarter ended July 26, 2008. Net sales for the quarter were $322 million, down 6.6% compared with the prior-year period. The company reported a loss from continuing operations of $8.5 million, or a loss of $0.17 per share. For the same period last year, the company posted a loss from continuing operations of $8.5 million, or $0.17 per share. The fiscal 2009 first-quarter results include a $0.09 per share restructuring charge, primarily related to the closure of the company's Tremonton, Utah and United Kingdom operations and a $0.03 per share intangible write-down related to the goodwill associated with the company's U.K. operation. Last year's first quarter included a restructuring charge of $0.04 related to the closure of various manufacturing facilities and retail locations. Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said: "In what remains a difficult environment for the home furnishings industry, due to significant macroeconomic pressures, we continue to be diligent in improving the efficiencies of our operations. Although our fiscal first quarter is historically our weakest, we strengthened our operating performance during the period and expanded our margins on a 6.6% decline in sales. While we anticipate it being some time before we see an across-the-board industry improvement, we believe our balance sheet and the strength of our business model will carry us through this period." Upholstery For the fiscal 2009 first quarter, sales in the company's upholstery segment decreased 6.9% to $237.1 million compared with $254.8 million in the prior year's first quarter. The operating margin, however, increased to 4.2% from 3.5% in last year's comparable quarter. Darrow stated, "With the cellular conversion at our La-Z-Boy manufacturing facilities complete, we are realizing the anticipated efficiencies throughout our production process. In addition to the overall decline in volume, the furniture industry, including La-Z-Boy, typically takes a one-week plant shutdown for vacation in July, which hampers the ability to absorb fixed overhead costs comparable to other quarters." The decline in sales volume was positively impacted by a change in contractual relationships with some third-party freight carriers that resulted in the recognition of revenue at the shipping point rather than at delivery (see reference in the company's fiscal 2008 Form 10-K). During the quarter, the company incurred restructuring charges related to the closure of its Tremonton, Utah facility and began the liquidation of its United Kingdom import and distribution operation, as it transitions to a licensing agreement with a new partner. There was also an intangible write- down of goodwill associated with the company's U.K. operation. The company's new Mexico cut-and-sewn operation is on schedule to be completed in time for production to begin in February 2009. For the fiscal 2009 first quarter, the La-Z-Boy Furniture Galleries(R) store system, which includes both company-owned and independent-licensed stores, opened one new store, relocated and/or remodeled two and closed three, bringing the total store count to 333, of which 217 are in the New Generation format. For the remainder of fiscal 2009, the network plans to open 12 New Generation format La-Z-Boy Furniture Galleries(R) stores (four new stores and eight will be either remodels or relocations) and will close nine to 12. In the second quarter of fiscal 2009, the network plans to open one new store, relocate one and close three stores. System-wide, for the second calendar quarter of 2008, including company- owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were down 1.9%. Total written sales, which include new stores, were down 1.6%. Casegoods For the 2009 first quarter, casegoods sales were $48.1 million, down 10.2% from $53.6 million in the prior year's first quarter. The segment's operating margin decreased to 2.9% from 4.9% in last year's fiscal first quarter. Darrow commented, "Our casegoods business continues to face significant challenges in this environment. With bedroom and dining room group purchases typically higher-ticket transactions than upholstered furniture, it is apparent the consumer is postponing these purchases to a greater extent than they are other furniture categories. Our team remains committed to running the business with a cost structure aligned with the current lower-volume environment and is focused on expanding its distribution to other channels." Retail For the quarter, retail sales were $42.4 million, down 6.2% compared with the prior-year period. The retail group posted an operating loss for the quarter, and its operating margin was (23.6%). Darrow stated, "On a decline in sales, our operating loss was flat against last year as we improved our gross margin in the segment. With the costs of consolidating our warehouse and IT systems behind us, we have the ability to operate more efficiently throughout the year, although we remain concerned about weaker consumer discretionary spending impacting our volume. We continue to examine all aspects of the segment's cost structure and are focused on improving its performance." During the first quarter, the company's retail segment did not open, remodel or relocate any company-owned stores and it closed one store. At the end of the first quarter, the company owned 69 stores, including 56 in the New Generation format, or 81% versus 69 company-owned stores last year at this time, of which 48, or 70%, were in the new format. For the second quarter of fiscal 2009, the company-owned segment plans to open one new store and relocate one. Balance Sheet The company's debt-to-capitalization ratio stood at 18.5% at the end of the first quarter compared with 24.4% a year ago. Additionally, the company reduced its inventories and receivables by $31 million since the end of fiscal 2008, which was offset by a decline in other current liabilities. Business Outlook Commenting on the company's business outlook, Darrow said: "The overall macroeconomic environment continues to be challenging. Increased oil prices, higher interest rates and a depressed housing market, combined with low consumer confidence levels, are having an effect on the home furnishings industry across the board. We remain committed to running our business with the greatest efficiency possible and believe we have the opportunity to improve our performance. As we announced last quarter, due to seasonality issues and the way in which our fiscal year (May through April) rolls out, we anticipate the second half of our fiscal year to be operationally stronger than the first half." 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 and La-Z-Boy. The La-Z-Boy Casegoods Group companies are American Drew/Lea, Hammary and Kincaid. The corporation's proprietary distribution network is dedicated exclusively to selling La-Z-Boy Incorporated products and brands, and includes 333 stand-alone La-Z-Boy Furniture Galleries(R) stores, 21 La-Z-Boy In-Store Galleries and 387 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/.