La-Z-Boy Reports Fiscal 2014 Third-Quarter Results

18 Feb, 2014, 16:13 ET from La-Z-Boy Incorporated

MONROE, Mich., Feb. 18, 2014 /PRNewswire/ -- La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal 2014 third quarter ended January 25, 2014.

Fiscal 2014 third-quarter:

  • Consolidated sales for the third quarter increased 3.0% compared with the fiscal 2013 third quarter (results have been reclassified to reflect the treatment of Bauhaus, a component of La‑Z‑Boy's Upholstery Segment, as a discontinued operation);
  • Same-store written sales for the La-Z-Boy Furniture Galleries® store network increased 3.6% for the third quarter, on top of an 11.8% increase in last year's third quarter;
  • Consolidated operating income increased to $25.4 million from $22.8 million;
  • The upholstery segment posted an 11.3% operating margin versus 10.3% in last year's third quarter;
  • The retail segment posted an operating margin of 3.8% compared with 3.7% in last year's third quarter; and
  • The company generated cash from operating activities of $30.4 million during the quarter.

Sales for the fiscal 2014 third quarter were $350.4 million, up 3.0% compared with the prior year's third quarter.  The company reported net income from continuing operations attributable to La-Z-Boy Incorporated of $17.2 million, or $0.32 per diluted share, compared with last year's third-quarter results of $16.8 million, or $0.31 per diluted share, which included $0.04 relating to gains on the sale of investments and a related tax benefit. 

Kurt L. Darrow, Chairman, President and Chief Executive Officer of La-Z-Boy, said, "We believe the fundamental pace of our business and ability to improve our profitability on sales growth remains steady and unchanged.  During the third quarter, however, weather conditions did have some impact on sales, production and deliveries.   Moving forward, we are confident we have the right plan in place to grow the company through our 4-4-5 store strategy while enjoying the benefits of our lean manufacturing structure.  At the same time, our integrated retail model is delivering results and our sales, merchandising and marketing teams are driving market share gains." 

Wholesale Segments

For the fiscal 2014 third quarter, sales in the company's upholstery segment increased 3.4% to $280.3 million from $271.1 million in the prior year's third quarter.  The operating margin for the quarter increased to 11.3% compared with 10.3% in last year's third quarter.  Due to the company's agreement in principle to sell its Bauhaus operating unit during the third quarter of fiscal 2014, the reported results reflect the treatment of Bauhaus as a discontinued operation.  Sales in the casegoods segment for the fiscal 2014 third quarter were $29.6 million, down 9.1% from $32.6 million in the fiscal 2013 third quarter, and the operating margin for the segment declined to (0.1%) from 0.6% in last year's third quarter. 

Darrow commented, "During the period, we increased our investment in the Live life comfortably marketing campaign, particularly before the holiday season.  The advertising platform continues to expand consumers' perceptions of what the brand has to offer in terms of a broad and stylish product line.  Growth for our stationary product category remains at a faster pace than our core recliner business, although we experienced a solid increase in recliner sales this quarter, as well as sales of our power offering.   This month, we are beginning to deliver the Urban Attitudes collection, which we introduced at the October Furniture Market.  It was well received by dealers and we look forward to it making its way onto retail floors.  On the manufacturing side, our production facilities are operating efficiently and we are realizing solid productivity gains." 

Darrow continued, "Our casegoods business remains challenged in this macroeconomic environment as consumers postpone large wood room group purchases, particularly formal collections.  To address this, we are refreshing both the Kincaid and American Drew product lines with more transitional and casual room groups to appeal to a broader demographic.  These groups are beginning to ship this quarter.  Additionally, the Direct Container Program, which was introduced at the October Furniture Market, will begin product deliveries in our fourth quarter.  It will allow dealers to mix Kincaid, American Drew and Lea product into one container, and will reduce delivery times while improving transportation costs, especially to the West Coast."

Retail Segment

For the fiscal 2014 third quarter, retail delivered sales were $80.2 million, up 10.2% compared with the third quarter of last year. On the core base of 90 stores included in last year's third quarter, sales for the segment increased 2.3% versus the prior-year quarter. The retail segment posted an operating profit of $3.1 million, or an operating margin of 3.8% for the quarter.  This compares with an operating profit of $2.7 million, or an operating margin of 3.7% in last year's third quarter. 

Darrow stated, "Our retail segment continues to strengthen its performance and recorded its 20th consecutive quarterly improvement over prior-year results, despite the effect of weather issues, mostly in January, along the east coast and throughout the Midwest, where the majority of the company-owned stores are located.   During the quarter, we closed on the acquisition of two stores in Youngstown, Ohio.  Much of our sales growth for the quarter was driven by recently acquired and new stores with operating and other associated start-up costs impacting our profitability in the segment for the period."

La-Z-Boy Furniture Galleries® Stores Network

System-wide, for the third quarter of fiscal 2014, including company-owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were up 3.6% versus last year's third quarter. 

Total written sales, which include new and closed stores, were up 3.9% for the third quarter.   At the end of the third quarter, the La-Z-Boy Furniture Galleries® store system was composed of 312 stand-alone stores.

Darrow stated, "We believe the overall cadence of our business has not changed.  While markets in the northeast and Midwest were challenged during the period, written sales in warmer climates and in those markets not impacted by severe weather conditions continued to exhibit strength.  Accordingly, we are continuing to invest in our business to drive growth, with a focus on the execution of our 4-4-5 store strategy, where we aim to have 400 La‑Z‑Boy Furniture Galleries® stores, averaging $4 million in revenue per store, in five years.  Given the strength of our brand and our strong network of La-Z-Boy Furniture Galleries® stores, we believe our best strategy to grow both sales and profit lies in fully penetrating North America with La-Z-Boy stores.  We expect that the company and our independent dealers will close fiscal 2014 with 20 to 25 projects executed.  In fiscal 2015, we expect to complete 30 to 35 projects, which will include new stores, remodels and relocations.  The speed with which we execute this strategy will be governed by our ability to find the right locations with financially appropriate lease rates. We estimate that it will take five years to build out the store network, although we are building momentum with the strategy." 

In the fiscal 2014 third quarter, the La-Z-Boy Furniture Galleries® store network, including company-owned and independent-licensed stores, opened three new stores, and closed five.  At the end of the quarter, 26 of the total 312 stores were in the new concept design format introduced in 2011.

Balance Sheet and Cash Flow

For the quarter, the company generated $30.4 million in cash flows from operating activities and ended the period with $140.1 million in cash and cash equivalents, $37.9 million in investments to enhance returns on cash and $12.6 million in restricted cash.  The company purchased approximately 0.2 million shares of stock in the open market under its existing authorized share purchase program.  The company has 3.3 million shares remaining to purchase. 

Dividend

The company's Board of Directors declared a regular quarterly cash dividend of $0.06 per share on the company's common stock.  The dividend will be paid on March 10, 2014, to shareholders of record as of February 28, 2014.

Business Outlook

Darrow stated, "We remain optimistic about our ability to continue to grow profitably in the future.  The cadence of our business remains strong, particularly as we head into the fourth quarter, which is historically our largest volume period, and roll out our Urban Attitudes collections.  Our integrated retail strategy has proven to be the right one, and we are building on it with our store expansion program. We will continue to make investments in the enterprise to grow, prosper and return value to shareholders."

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, February 19, 2014, at 8:30 a.m. eastern time.  The toll-free dial-in number is 877.407.0778; international callers may use 201.689.8565. 

Forward-looking Information

This news release contains, and oral statements made from time to time by representatives of La‑Z‑Boy may contain, "forward-looking statements." With respect to all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 

Actual results could differ materially from those we anticipate or project due to a number of factors, including: (a) changes in consumer confidence and demographics; (b) speed of economic recovery or the possibility of another recession; (c) changes in the real estate and credit markets and their effects on our customers and suppliers; (d) international political unrest, terrorism or war; (e) volatility in energy and other commodities prices; (f) the impact of logistics on imports; (g) interest rate and currency exchange rate changes; (h) operating factors, such as supply, labor or distribution disruptions; (i) any court actions requiring us to return any of the Continued Dumping and Subsidy Offset Act distributions we have received; (j) changes in the domestic or international regulatory environment; (k) adoption of new accounting principles; (l) severe weather or other natural events such as hurricanes, earthquakes, flooding, tornadoes and tsunamis; (m) our ability to procure fabric rolls and leather hides or cut-and-sewn fabric and leather sets domestically or abroad; (n) information technology conversions or system failures; (o) effects of our brand awareness and marketing programs; (p) the discovery of defects in our products resulting in delays in manufacturing, recall campaigns, reputational damage, or increased warranty costs; (q) litigation arising out of alleged defects in our products; (r) our ability to locate new La-Z-Boy Furniture Galleries® stores (or store owners) and negotiate favorable lease terms for new or existing locations; (s) our ability to integrate acquired businesses and realize the benefit of anticipated synergies; and (t) those matters discussed in Item 1A of our fiscal 2013 Annual Report on Form 10-K 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, whether to reflect new information or 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://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-sec.  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://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-alerts&t=&id=&.

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 segment companies are La-Z-Boy and England. The Casegoods segment consists of four brands: American Drew, Lea, Hammary and Kincaid. The company-owned Retail segment includes 100 of the 312 La-Z-Boy Furniture Galleries® stores.

The corporation's branded distribution network is dedicated to selling La-Z-Boy Incorporated products and brands, and includes 312 stand-alone La-Z-Boy Furniture Galleries® stores and 564 independent Comfort Studios® locations, in addition to in-store gallery programs for Kincaid, England and Lea.   Additional information is available at http://www.la-z-boy.com/.  

 

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

Third Quarter Ended

(Unaudited, amounts in thousands, except per share data)

1/25/14

1/26/13

Sales

$350,375

$340,211

Cost of sales

228,186

227,956

   Gross profit

122,189

112,255

Selling, general and administrative expense

96,740

89,443

Operating income

25,449

22,812

Interest expense

142

148

Interest income

183

198

Other income (expense), net

849

2,401

Income from continuing operations before income taxes

26,339

25,263

Income tax expense

8,751

8,391

Income from continuing operations

17,588

16,872

Income (loss) from discontinued operations, net of tax

(717)

291

   Net income

16,871

17,163

Net income attributable to noncontrolling interests

(388)

(99)

Net income attributable to La-Z-Boy Incorporated

$16,483

$17,064

Net income attributable to La-Z-Boy Incorporated:

   Income from continuing operations attributable to La-Z-Boy

      Incorporated

$17,200

$16,773

   Income (loss) from discontinued operations

(717)

291

      Net income attributable to La-Z-Boy Incorporated

$16,483

$17,064

Basic average shares

52,516

52,431

Basic net income attributable to La-Z-Boy Incorporated per share:

   Income from continuing operations attributable to La-Z-Boy

      Incorporated

$0.33

$0.31

   Income (loss) from discontinued operations

(0.02)

0.01

      Basic net income attributable to La-Z-Boy Incorporated per share

$0.31

$0.32

Diluted average shares

53,226

53,401

Diluted net income attributable to La-Z-Boy Incorporated per share:

   Income from continuing operations attributable to La-Z-Boy

      Incorporated

$0.32

$0.31

   Income (loss) from discontinued operations

(0.01)

0.01

      Diluted net income attributable to La-Z-Boy Incorporated per  

         share

$0.31

$0.32

Dividends declared per share               

$0.06

$0.04

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

Nine Months Ended

(Unaudited, amounts in thousands, except per share data)

1/25/14

1/26/13

Sales

$1,017,692

$945,848

Cost of sales

670,011

646,038

   Gross profit

347,681

299,810

Selling, general and administrative expense

281,767

259,111

Operating income

65,914

40,699

Interest expense

411

512

Interest income

539

435

Other income (expense), net

1,107

2,515

Income from continuing operations before income taxes

67,149

43,137

Income tax expense

22,462

14,912

Income from continuing operations

44,687

28,225

Income (loss) from discontinued operations, net of tax

(864)

465

   Net income

43,823

28,690

Net income attributable to noncontrolling interests

(1,006)

(609)

Net income attributable to La-Z-Boy Incorporated

$42,817

$28,081

Net income attributable to La-Z-Boy Incorporated:

   Income from continuing operations attributable to La-Z-Boy

      Incorporated

$43,681

$27,616

   Income (loss) from discontinued operations

(864)

465

      Net income attributable to La-Z-Boy Incorporated

$42,817

$28,081

Basic average shares

52,465

52,327

Basic net income attributable to La-Z-Boy Incorporated per share:

   Income from continuing operations attributable to La-Z-Boy

      Incorporated

$0.83

$0.52

   Income (loss) from discontinued operations

(0.02)

0.01

      Basic net income attributable to La-Z-Boy Incorporated per

         share

$0.81

$0.53

Diluted average shares

53,379

53,201

Diluted net income attributable to La-Z-Boy Incorporated per share:

   Income from continuing operations attributable to La-Z-Boy

      Incorporated

$0.81

$0.51

   Income (loss) from discontinued operations

(0.01)

0.01

      Diluted net income attributable to La-Z-Boy Incorporated per  

         share

$0.80

$0.52

Dividends declared per share

$0.14

$0.04

 

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)

1/25/14

4/27/13

Current assets

Cash and equivalents

$140,112

$131,085

Restricted cash

12,566

12,686

Receivables, net of allowance of $12,706 at 1/25/14 and $21,607 at 4/27/13

151,917

160,005

Inventories, net

159,586

146,343

Deferred income taxes – current

19,174

20,640

Business held for sale

8,923

Other current assets

27,797

30,121

Total current assets

520,075

500,880

Property, plant and equipment, net

122,422

118,060

Goodwill

13,923

12,837

Other intangible assets

5,931

4,838

Deferred income taxes – long-term

33,927

30,572

Other long-term assets, net

67,923

53,184

Total assets

$764,201

$720,371

Current liabilities

Current portion of long-term debt

$7,574

$513

Accounts payable

53,814

50,542

Business held for sale

2,653

Accrued expenses and other current liabilities

99,841

99,108

Total current liabilities

163,882

150,163

Long-term debt

345

7,576

Other long-term liabilities

80,652

70,664

Contingencies and commitments

Shareholders' equity

Preferred shares – 5,000 authorized; none issued

Common shares, $1 par value – 150,000 authorized; 52,419 outstanding

    at 1/25/14 and 52,392 outstanding at 4/27/13

52,419

52,392

Capital in excess of par value

254,403

241,888

Retained earnings

240,628

226,044

Accumulated other comprehensive loss

(35,512)

(35,496)

Total La-Z-Boy Incorporated shareholders' equity

511,938

484,828

Noncontrolling interests

7,384

7,140

Total equity

519,322

491,968

Total liabilities and equity

$764,201

$720,371

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended

(Unaudited, amounts in thousands)

1/25/14

1/26/13

Cash flows from operating activities

Net income

$43,823

$28,690

Adjustments to reconcile net income to cash provided by

   (used for) operating activities

Gain on sale of investments

(282)

(2,866)

Impairment of business held for sale

1,149

Deferred income tax benefit

(2,929)

(745)

Restructuring

(115)

2,716

Provision for doubtful accounts

(2,494)

1,009

Depreciation and amortization

17,529

17,111

Stock-based compensation expense

7,371

8,198

Pension plan contributions

(3,480)

Change in receivables

4,865

2,457

Change in inventories

(15,166)

(12,355)

Change in other assets

2,980

(5,432)

Change in payables

2,865

(6,261)

Change in other liabilities

3,193

4,410

     Net cash provided by operating activities

62,789

33,452

Cash flows from investing activities

Proceeds from disposal of assets

2,248

1,484

Capital expenditures

(23,078)

(21,792)

Purchases of investments

(40,796)

(36,353)

Proceeds from sales of investments

27,974

12,658

Acquisitions, net of cash acquired

(801)

(15,832)

Change in restricted cash

120

(6,937)

Net cash used for investing activities

(34,333)

(66,772)

Cash flows from financing activities

Payments on debt

(434)

(2,372)

Stock issued for stock and employee benefit plans

3,526

1,528

Excess tax benefit on stock option exercises

5,805

1,117

Purchases of common stock

(20,276)

(5,217)

Dividends paid

(7,375)

(2,119)

Net cash used for financing activities

(18,754)

(7,063)

Effect of exchange rate changes on cash and equivalents

(675)

(6)

Change in cash and equivalents

9,027

(40,389)

Cash and equivalents at beginning of period

131,085

152,370

Cash and equivalents at end of period

$140,112

$111,981

Supplemental disclosure of non-cash investing activities

   Capital expenditures included in payables

$2,183

$—

 

LA-Z-BOY INCORPORATED

SEGMENT INFORMATION

Third Quarter Ended

Nine Months Ended

 (Unaudited, amounts in thousands)

1/25/14

1/26/13

1/25/14

1/26/13

Sales

Upholstery segment:

          Sales to external customers

$242,492

$236,428

$710,162

$657,073

          Intersegment sales

37,780

34,622

103,183

93,401

Upholstery segment sales

280,272

271,050

813,345

750,474

Casegoods segment:

          Sales to external customers

27,267

30,496

85,733

95,841

          Intersegment sales

2,367

2,115

7,269

5,907

Casegoods segment sales

29,634

32,611

93,002

101,748

Retail segment sales

80,212

72,772

219,845

191,089

Corporate and Other

404

515

1,952

1,845

Eliminations

(40,147)

(36,737)

(110,452)

(99,308)

    Consolidated sales

$350,375

$340,211

$1,017,692

$945,848

Operating Income (Loss)

Upholstery segment

$31,560

$27,909

$86,547

$64,892

Casegoods segment

(41)

200

1,161

2,381

Retail segment

3,087

2,668

8,264

105

Restructuring

60

(30)

115

(2,633)

Corporate and Other

(9,217)

(7,935)

(30,173)

(24,046)

    Consolidated operating income

$25,449

$22,812

$65,914

$40,699

 

SOURCE La-Z-Boy Incorporated



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