MONROE, Mich., Feb. 19 /PRNewswire-FirstCall/ -- La-Z-Boy Incorporated today reported its operating results for the fiscal third quarter ended January 26, 2008. Net sales for the period were $373.1 million, down 7.8% compared with the prior year's third quarter. The company reported net income of $9.5 million compared with a loss of $7.8 million for the same period last year. Earnings per share for the fiscal third quarter were $0.18, which included income per share of $0.09 after tax related to anti-dumping duties received on bedroom furniture imported from China. In last year's third quarter, the company posted a per-share loss of $0.15, which included an after-tax $0.29 per-share loss from discontinued operations, most of which was attributable to the non-cash write-down of intangible assets of businesses held for sale and income per share of $0.04 after tax related to anti-dumping duties. Income from continuing operations in the fiscal 2008 third quarter was $9.1 million compared with $6.9 million in the fiscal 2007 third quarter.
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.
