La-Z-Boy Reports Fiscal 2016 Second-Quarter Results

Increases Earnings Per Share by 14%

Nov 17, 2015, 16:10 ET from La-Z-Boy Incorporated

MONROE, Mich., Nov. 17, 2015 /PRNewswire/ -- La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal 2016 second quarter ended October 24, 2015.

Fiscal 2016 second-quarter highlights for continuing operations:

  • The company reported earnings per diluted share of $0.41 from continuing operations attributable to La-Z-Boy Incorporated compared with $0.36 in the prior year's second quarter, an increase of 14%;
  • Consolidated operating income for the fiscal 2016 second quarter increased 10.6% to $33.4 million, with consolidated operating margin increasing to 8.7% from 8.3% in the fiscal 2015 second quarter;
  • Operating margin for the upholstery segment was 12.1% compared with 11.0% in last year's second quarter;
  • Operating margin for the retail segment was 5.9% compared with 4.4% in last year's second quarter;
  • Same-store written sales for the La-Z-Boy Furniture Galleries® store network increased 3.6%; and
  • The company increased its quarterly dividend 25%.

Sales for the fiscal 2016 second quarter were $382.9 million, up 4.7% compared with the prior year's second quarter.  The company reported income from continuing operations attributable to La-Z-Boy Incorporated of $21.0 million, or $0.41 per diluted share, versus $19.2 million, or $0.36 per diluted share, in last year's second quarter.

Kurt L. Darrow, Chairman, President and Chief Executive Officer, of La-Z-Boy, said, "For the quarter, we improved our overall performance and achieved a consolidated operating margin of 8.7%, driven primarily by efficiencies within our manufacturing facilities and supply chain, as well as strong retail execution.  With sales trends accelerating throughout the period, we are pleased to enter the third quarter with momentum.  As part of our multi-faceted growth strategy, during the period, we increased the size of our company-owned retail segment with the acquisition of 10 La-Z-Boy Furniture Galleries® stores from independent dealers.  Additionally, three new stores were opened across the network as part of our 4-4-5 initiative.  Simultaneously, we are working to expand our share of the stationary upholstery market and increase our business through distribution channels beyond the La-Z-Boy Furniture Galleries® store network.  We are confident our growth initiatives coupled with a continued focus on driving efficiencies throughout our operations will deliver improved performance across the entire enterprise."

Wholesale Segments

For the fiscal 2016 second quarter, sales in the company's upholstery segment increased 2.9% to $305.8 million versus the prior year's second quarter.  In the casegoods segment, sales for the fiscal 2016 second quarter were $28.2 million, down 2.3% from last year's second quarter.

Darrow commented, "We are beginning to see the benefits of the new ERP system in our La-Z-Boy branded facilities which helped us achieve a 12.1% operating margin in our upholstery segment.  During the period, our performance was also fueled by efficiencies in our supply chain and solid sales and operating margin performance from England, Inc., our sister upholstery company.  At the recent High Point Furniture Market, we expanded our Urban Attitudes collection and also offered power in several new styles.  The Urban Attitudes collection and the power option have been strong performers over the past year."

Darrow added, "Earlier this month, we launched our new web-site and eCommerce platform, which is designed to provide our consumers a best-in-class digital experience while driving more traffic to our site.  In addition to offering a wealth of information to make both the on-line and in-store shopping process easier and faster, the site also provides inspirational design ideas, solutions and tools.  While we believe most people still ultimately prefer a retail store experience so they are able to touch and feel the furniture and view our wide array of fabrics and leathers before making a purchase, a significant majority visit our desktop or mobile web-sites before or during their shopping process.  It is therefore essential we make it easy for them to find us on-line, research our products and buy through the site if that is what they prefer." 

Darrow continued, "We are making solid progress in our casegoods business, and our performance reflects the many changes made to our operating platform. During the period, the casegoods segment achieved a 9.3% operating margin versus 10.4% in the prior year's quarter, which included the benefit of a $2.0 million reduction to the LIFO reserve for domestically manufactured inventory.  Additionally, in last year's second quarter, we had sales of $1.2 million of hospitality furniture, which represented approximately 4% of the quarter's sales in the segment.  Hospitality is no longer part of our product offering since we ceased domestic production of casegoods in September 2014.  As we move forward, we believe that we will be able to drive growth in the segment through a stronger and more relevant product offering and that the business's performance will be more consistent as a result of our new operating structure."

Retail Segment

For the fiscal 2016 second quarter, sales in the company's retail segment increased 14.1% to $96.5 million versus the prior year's second quarter.  On the core 96 stores included in last year's comparable quarter, delivered sales for the segment increased 1.3%.

Darrow stated, "We are very pleased with the 5.9% operating margin achieved in the retail segment.  As we continue to increase sales volume, we are benefiting from the ability to leverage our fixed-cost structure.  For the period, we also increased the gross margin in the segment and enjoyed increases in our in-home design sales and average ticket as well as strong performance of our wide selection of power furniture."     

During the quarter, the company acquired 10 La-Z-Boy Furniture Galleries® stores from independent dealers: two in Wisconsin, two in the Carolinas and six in Ohio.  Darrow added, "An integral part of our 4-4-5 strategy is increasing the size of the company-owned retail segment through new and acquired stores so that we benefit from the blended wholesale/retail margin associated with our integrated retail model."

La-Z-Boy Furniture Galleries® Store Network

System-wide, for the second quarter of fiscal 2016, 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 second quarter.  Same-store written sales for the fiscal 2016 year-to-date period (May through October) were up 4.2%.

For the second quarter, total written sales, which include new and closed stores, increased 6.2% compared with the fiscal 2015 comparable period.  At the end of the second quarter, the La-Z-Boy Furniture Galleries® store system was composed of 330 stand-alone stores, with 75 in the new concept design format.

Darrow commented, "During fiscal 2016, we plan to execute more than 30 projects, including new stores, remodels and relocations, resulting in 15 net new stores.  We are also beginning to fill the pipeline for fiscal 2017. During the second quarter, the network opened three new stores and remodeled eight.  In the third quarter of fiscal 2016, we are planning for seven new stores, four remodels and three closures throughout the network."

Balance Sheet and Cash Flow

During the quarter, the company generated $20.2 million in cash from operating activities.  La-Z-Boy ended the quarter with $74.6 million in cash and cash equivalents, $31.8 million in investments to enhance returns on cash, and $9.0 million in restricted cash.  During the quarter, the company invested $19.2 million acquiring 10 La-Z-Boy Furniture Galleries® stores.  The company also had $7.4 million in capital expenditures, paid $4.1 million in dividends, and spent $9.3 million purchasing 0.3 million shares of stock in the open market under its existing authorized share purchase program, with remaining authorization to purchase 5.0 million shares.

Dividend

The board of directors increased the company's regular quarterly dividend to shareholders by 25% to $0.10 per share.  The dividend will be paid on December 10, 2015, to shareholders of record as of November 30, 2015.

Business Outlook

Darrow concluded, "We are optimistic about our ability to drive growth in this economic environment based on the strength of our brand, our marketing initiatives and our product offering.  We will continue to make strategic investments in the business as we execute our four-pronged growth strategy, which includes the 4-4-5 store build out initiative, the acquisition of independent La-Z-Boy Furniture Galleries® stores, the growth of sales through our multi-channel distribution network and the expansion of our market share in stationary upholstery.  We believe the combination of these initiatives will continue to drive improved performance and results."

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, November 18, 2015, at 8:30 a.m. eastern time.  The toll-free dial-in number is 877.407.0778; international callers may use 201.689.8565. 

The call will be webcast live, with corresponding slides, and archived on the Internet.  It will be available at http://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-calendar. A telephone replay will be available for a week following the call. This replay will be accessible to callers from the U.S. and Canada at 877.660.6853 and to international callers at 201.612.7415. Enter Conference ID #13621631.

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) the possibility of another recession; (c) changes in the real estate and credit markets and their effects on our customers, consumers and suppliers; (d) international political unrest, terrorism or war; (e) volatility in energy and other commodities prices; (f) the impact of logistics on imports and exports; (g) interest rate and currency exchange rate changes; (h) operating factors, such as supply, labor or distribution disruptions (e.g. port strikes); (i) changes in the domestic or international regulatory environment; (j) adoption of new accounting principles; (k) severe weather or other natural events such as hurricanes, earthquakes, flooding, tornadoes and tsunamis; (l) our ability to procure fabric rolls and leather hides or cut-and-sewn fabric and leather sets domestically or abroad; (m) information technology conversions or system failures and our ability to recover from a system failure; (n) effects of our brand awareness and marketing programs; (o) the discovery of defects in our products resulting in delays in manufacturing, recall campaigns, reputational damage, or increased warranty costs; (p) litigation arising out of alleged defects in our products; (q) unusual or significant litigation; (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) the results of our restructuring actions; (t) the impact of potential goodwill or intangible asset impairments; and (u) those matters discussed in Item 1A of our fiscal 2015 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 England and La-Z-Boy. The Casegoods segment consists of three brands: American Drew, Hammary, and Kincaid. The company-owned Retail segment includes 123 of the 330 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 123 stand-alone La-Z-Boy Furniture Galleries® stores and 573 independent Comfort Studio® locations, in addition to in-store gallery programs for the company's Kincaid and England operating units. Additional information is available at http://www.la-z-boy.com/.

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

Quarter Ended

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

10/24/15

10/25/14

Sales

$382,891

$365,601

Cost of sales

237,085

235,706

  Gross profit

145,806

129,895

Selling, general and administrative expense

112,412

99,703

  Operating income

33,394

30,192

Interest expense

133

145

Interest income

164

233

Other income, net

512

152

  Income from continuing operations before income taxes

33,937

30,432

Income tax expense

12,278

10,743

  Income from continuing operations

21,659

19,689

Income from discontinued operations, net of tax

285

  Net income

21,659

19,974

Net income attributable to noncontrolling interests

(707)

(445)

  Net income attributable to La-Z-Boy Incorporated

$20,952

$19,529

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$20,952

$19,244

  Income from discontinued operations

285

    Net income attributable to La-Z-Boy Incorporated

$20,952

$19,529

Basic weighted average common shares

50,493

52,279

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

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$0.41

$0.37

  Income from discontinued operations

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

$0.41

$0.37

Diluted weighted average common shares

51,039

52,723

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

  Income from continuing operations attributable to La-Z-Boy

    Incorporated

$0.41

$0.36

  Income from discontinued operations

0.01

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

      share

$0.41

$0.37

Dividends declared per share            

$0.08

$0.06

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

Six Months Ended

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

10/24/15

10/25/14

Sales

$724,314

$692,581

Cost of sales

454,276

451,180

  Gross profit

270,038

241,401

Selling, general and administrative expense

216,678

194,718

  Operating income

53,360

46,683

Interest expense

245

277

Interest income

369

435

Other income (expense), net

2,480

(106)

  Income from continuing operations before income taxes

55,964

46,735

Income tax expense

20,182

16,498

  Income from continuing operations

35,782

30,237

Income from discontinued operations, net of tax

2,782

  Net income

35,782

33,019

Net income attributable to noncontrolling interests

(1,154)

(409)

  Net income attributable to La-Z-Boy Incorporated

$34,628

$32,610

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$34,628

$29,828

  Income from discontinued operations

2,782

    Net income attributable to La-Z-Boy Incorporated

$34,628

$32,610

Basic weighted average common shares

50,538

52,235

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

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$0.68

$0.57

  Income from discontinued operations

0.05

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

$0.68

$0.62

Diluted weighted average common shares

51,076

52,662

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

  Income from continuing operations attributable to La-Z-Boy

    Incorporated

$0.67

$0.56

  Income from discontinued operations

0.06

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

      share

$0.67

$0.62

Dividends declared per share            

$0.16

$0.12

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)

10/24/15

4/25/15

Current assets

  Cash and equivalents

$74,566

$98,302

  Restricted cash

8,976

9,636

  Receivables, net of allowance of $3,389 at 10/24/15 and $4,622 at 4/25/15

152,857

158,548

  Inventories, net

181,625

156,789

  Deferred income taxes – current

11,623

11,255

  Other current assets

44,265

41,921

    Total current assets

473,912

476,451

Property, plant and equipment, net

173,138

174,036

Goodwill

33,423

15,164

Other intangible assets

7,958

5,458

Deferred income taxes – long-term

34,136

35,072

Other long-term assets, net

63,457

68,423

      Total assets

$786,024

$774,604

Current liabilities

  Short-term borrowings

$4,000

$—

  Current portion of long-term debt

344

397

  Accounts payable

45,040

46,168

  Accrued expenses and other current liabilities

112,923

108,326

    Total current liabilities

162,307

154,891

Long-term debt

622

433

Other long-term liabilities

79,724

86,180

Contingencies and commitments

Shareholders' equity

  Preferred shares – 5,000 authorized; none issued

  Common shares, $1 par value – 150,000 authorized; 50,289 outstanding

    at 10/24/15 and 50,747 outstanding at 4/25/15

50,289

50,747

  Capital in excess of par value

275,301

270,032

  Retained earnings

242,392

235,506

  Accumulated other comprehensive loss

(33,929)

(32,139)

    Total La-Z-Boy Incorporated shareholders' equity

534,053

524,146

Noncontrolling interests

9,318

8,954

    Total equity

543,371

533,100

      Total liabilities and equity

$786,024

$774,604

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

Six Months Ended

(Unaudited, amounts in thousands)

10/24/15

10/25/14

Cash flows from operating activities

  Net income

$35,782

$33,019

  Adjustments to reconcile net income to cash provided by 

      (used for) operating activities

    Restructuring

352

(332)

    Deferred income tax expense (benefit)

138

(1,799)

    Provision for doubtful accounts

(426)

(1,113)

    Depreciation and amortization

12,679

10,996

    Equity-based compensation expense

5,123

5,047

    Pension plan contributions

(7,000)

    Change in receivables

4,980

(2,135)

    Change in inventories

(21,501)

(11,006)

    Change in other assets

(5,656)

6,253

    Change in payables

(628)

(785)

    Change in other liabilities

(2,120)

(6,377)

      Net cash provided by operating activities

21,723

31,768

Cash flows from investing activities

  Proceeds from disposal of assets

2,491

6,534

  Capital expenditures

(13,949)

(40,580)

  Purchases of investments

(11,693)

(24,224)

  Proceeds from sales of investments

19,409

17,827

  Acquisitions, net of cash acquired

(19,232)

  Change in restricted cash

660

7,287

    Net cash used for investing activities

(22,314)

(33,156)

Cash flows from financing activities

  Net proceeds from credit facility

4,000

  Payments on debt

(283)

(7,358)

  Stock issued for stock and employee benefit plans

253

161

  Excess tax benefit on stock option exercises

392

252

  Purchases of common stock

(18,461)

(19,654)

  Dividends paid

(8,112)

(6,274)

    Net cash used for financing activities

(22,211)

(32,873)

Effect of exchange rate changes on cash and equivalents

(934)

(75)

Change in cash and equivalents

(23,736)

(34,336)

Cash and equivalents at beginning of period

98,302

149,661

Cash and equivalents at end of period

$74,566

$115,325

Supplemental disclosure of non-cash investing activities

  Capital expenditures included in payables

$—

$5,339

 

 

LA-Z-BOY INCORPORATED

SEGMENT INFORMATION

Quarter Ended

Six Months Ended

 (Unaudited, amounts in thousands)

10/24/15

10/25/14

10/24/15

10/25/14

Sales

Upholstery segment:

     Sales to external customers

$260,080

$255,044

$492,564

$482,200

     Intersegment sales

45,737

42,223

85,929

77,926

Upholstery segment sales

305,817

297,267

578,493

560,126

Casegoods segment:

     Sales to external customers

25,787

25,455

46,989

51,408

     Intersegment sales

2,432

3,433

4,623

6,403

Casegoods segment sales

28,219

28,888

51,612

57,811

Retail segment sales

96,480

84,589

183,131

157,494

Corporate and Other:

     Sales to external customers

544

513

1,630

1,479

     Intersegment sales

750

1,266

Corporate and Other sales

1,294

513

2,896

1,479

Eliminations

(48,919)

(45,656)

(91,818)

(84,329)

  Consolidated sales

$382,891

$365,601

$724,314

$692,581

Operating Income (Loss)

Upholstery segment

$37,040

$32,607

$61,634

$54,624

Casegoods segment

2,634

2,995

4,324

4,520

Retail segment

5,716

3,682

10,445

3,997

Restructuring

(187)

(10)

(352)

347

Corporate and Other

(11,809)

(9,082)

(22,691)

(16,805)

  Consolidated operating income

$33,394

$30,192

$53,360

$46,683

 

SOURCE La-Z-Boy Incorporated



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