La-Z-Boy Reports Fiscal 2016 Third-quarter Results

Consolidated operating income increases 29%

17 Feb, 2016, 16:15 ET from La-Z-Boy Incorporated

MONROE, Mich., Feb. 17, 2016 /PRNewswire/ -- La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal 2016 third quarter ended January 23, 2016.

Fiscal 2016 third-quarter highlights for continuing operations:

  • Sales increased 7.3% to $384.0 million compared with the prior-year third quarter;
  • The company reported earnings per diluted share of $0.43 from continuing operations attributable to La-Z-Boy Incorporated, an increase of 26.5% over last year's third quarter;
  • Consolidated operating income for the fiscal 2016 third quarter increased 29.2% to $34.8 million, with consolidated operating margin increasing to 9.1%;
  • Operating margin for the upholstery segment was 10.9%;
  • Operating margin for the retail segment was 8.0% versus 4.7% in the prior-year quarter;
  • Operating margin for the casegoods segment was 7.2% compared with 3.3% in last year's third quarter; and
  • The company generated $48.0 million in cash from operating activities.

Sales for the fiscal 2016 third quarter were $384.0 million, up 7.3% compared with the prior year's third quarter.  The company reported net income from continuing operations attributable to La-Z-Boy Incorporated of $21.9 million, or $0.43 per diluted share, versus $17.8 million, or $0.34 per diluted share, in last year's third quarter.

Kurt L. Darrow, Chairman, President and Chief Executive Officer, of La-Z-Boy, said, "We are very pleased with our results for the quarter.  Across the business, we experienced a 7.3% increase in sales which translated to strong operating margin performance in all three business segments.  Our consolidated operating margin was 9.1%, the highest the company has achieved in any quarter in more than 12 years. These results demonstrate solid execution across the business, including supply chain optimization, improved forecasting and planning, and more consistent service and delivery. Additionally, we are particularly pleased that just halfway through our 4-4-5 store build out initiative, we reached our $4 million average-revenue-per-store objective, which, we believe, bodes well for future performance.  During the quarter, we generated $48.0 million in operating cash flow, more than double the operating cash flow generated in last year's comparable quarter.  I am confident we have the right strategies in place to continue to grow our business and deliver consistent performance and value to shareholders."

Wholesale Segments

For the fiscal 2016 third quarter, sales in the company's upholstery segment increased 5.6% versus the prior year's third quarter to $302.4 million.  In the casegoods segment, sales for the fiscal 2016 third quarter were $24.6 million, down 5.3% from last year's third quarter.

Darrow commented, "Our upholstery segment's operating margin performance of 10.9% was strong, particularly as last year's third quarter included a benefit of two percentage points to the gross margin resulting from legal settlements.  During the period, our operating margin was driven by supply chain efficiencies relating to procurement and plant optimization. Additionally, the ERP system, which is operational across all branded facilities, is contributing to the improvement in our results, while the increased volume allows us to leverage the fixed-cost structure of our facilities.  A positive product mix shift, driven primarily by the power category, also helped drive the gross margin improvement for the quarter."

Darrow added, "Our marketing programs are resonating with the consumer and she is reacting positively to our product offering.  During the quarter, we experienced growth across a number of distribution channels. While branded distribution is our primary vehicle for growth, principally through our 4-4-5 store build-out strategy, we are planning on continued growth with our other retail partners and this quarter demonstrated the potential we have in this area.  Moving forward, we see a lot of opportunity for our upholstery business.  Our brand platform is strong, we are increasing our share in the stationary category, we continue to innovate with great product, and we have potential for expanding sales throughout all distribution outlets."  

Darrow continued, "England, our other upholstery company, is expanding its product line and growing its customer base as it widens its geographical footprint, all while maintaining its best-in-class delivery performance.  The restructuring undertaken in our casegoods business is also delivering results. For the quarter, we more than doubled our operating margin, reflecting the success of our move to a pure-import model.  The majority of the casegoods sales decline for the period related to a higher percentage of sales of discounted products and collections sold in last year's third quarter following the closure of the Kincaid manufacturing facility in Hudson, North Carolina.  Moving forward, we are continuing to work on shifting our product lines to include more lifestyle collections to appeal to today's consumer."

Retail Segment

For the fiscal 2016 third quarter, sales in the company's retail segment increased 22.7% to $110.2 million versus the prior year's third quarter.  On the core 101 stores included in last year's comparable quarter, delivered sales for the segment increased 6.6%, or $5.6 million.  The business posted an 8.0% operating margin, a milestone for the business.

Darrow stated, "Our retail segment is continuing to grow and perform at a high level.  Excellent planning and promotional cadence throughout the period drove sales, and the increased volume allowed us to leverage the fixed-cost structure of the business, which consists primarily of occupancy and distribution-related costs.  We also improved the segment's gross margin, fueled by an increase in In Home Design and custom orders as well as strong performance in the power category."

Darrow added, "Expanding the size of the company-owned retail segment is one of our key strategies.  As we increase the number of company-owned stores, we will further benefit from the stacked wholesale/retail margin associated with our integrated retail model.  We are opening new stores as part of the 4-4-5 store build-out strategy and growing the company-owned retail business through strategic acquisitions of independent dealer stores. We quickly integrated into our portfolio the 10 stores we acquired in the fiscal 2016 second quarter, and they have been accretive from the start."

La-Z-Boy Furniture Galleries® Store Network

For the third quarter of fiscal 2016, the La-Z-Boy store network, including both company-owned and independent-licensed stores, saw same-store written sales, which the company tracks as an indicator of retail activity, decrease 1.8% versus last year's third quarter, when the company experienced a 6.5% increase over the prior year's comparable quarter. Same-store written sales for the calendar 2015 period increased 2.9% over calendar 2014.

For the third quarter in fiscal 2016, total written sales, which include new and closed stores, decreased 0.3% compared with the fiscal 2015 comparable period.  At the end of the third quarter, the La-Z-Boy Furniture Galleries® store system was composed of 331 stand-alone stores, with 82 in the new concept design format.

Darrow commented, "We are maintaining a steady cadence of store activity and plan to open more than 20 new stores over the next 12-month period.  For fiscal 2016, we are on track to execute approximately 30 projects, including new stores, remodels and relocations, resulting in 13 net new stores.  During the third quarter, the network opened four new stores, remodeled three and closed three. For the fourth quarter of fiscal 2016, we are planning for eight new stores and one closure throughout the network."

FISCAL 2016 PROJECTED* STORE ACTIVITY

Total FY15

New

Closed

Acquired

Total FY16

Remodel

Relocation

Company-owned

110

5

(2)

10

123

2

-

Dealer-owned

215

12

(2)

(10)

215

10

-

Total

325

17

(4)

-

338

12

-

 

*Projects anticipated to be completed.

Balance Sheet and Cash Flow

During the quarter, the company generated $48.0 million in cash from operating activities.  La-Z-Boy ended the fiscal 2016 third quarter with $97.7 million in cash and cash equivalents, $31.4 million in investments to enhance returns on cash, and $9.0 million in restricted cash.  During the quarter, the company had $5.9 million in capital expenditures, paid $5.0 million in dividends, and spent $10.6 million purchasing 0.4 million shares of stock in the open market under its existing authorized share purchase program, with remaining authorization to purchase 4.6 million shares.

Dividend

The board of directors declared a regular quarterly cash dividend of $0.10 per share on the company's stock.  The dividend will be paid on March 10, 2016, to shareholders of record as of February 29, 2016.

Business Outlook

Darrow concluded, "We remain optimistic about our positioning in the marketplace and about our prospects.  Although the macroeconomic environment remains somewhat volatile, we believe we have solid strategies in place to deliver ongoing profitable growth throughout the enterprise.  With a strong brand, relevant product offering, lean operating structure and vast distribution network, we are confident we will continue to return long-term value to shareholders."

Conference Call

La-Z-Boy will hold a conference call with the investment community on Thursday, February 18, 2016, 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 #13629938.

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 331 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 331 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)

1/23/16

1/24/15

Sales

$384,014

$357,876

Cost of sales

236,024

228,317

  Gross profit

147,990

129,559

Selling, general and administrative expense

113,206

102,631

  Operating income

34,784

26,928

Interest expense

120

131

Interest income

204

232

Income from Continued Dumping and Subsidy Offset Act, net

102

Other income (expense), net

(93)

805

  Income from continuing operations before income taxes

34,877

27,834

Income tax expense

12,643

9,477

  Income from continuing operations

22,234

18,357

Income from discontinued operations, net of tax

115

  Net income

22,234

18,472

Net income attributable to noncontrolling interests

(328)

(524)

  Net income attributable to La-Z-Boy Incorporated

$21,906

$17,948

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$21,906

$17,833

  Income from discontinued operations

115

    Net income attributable to La-Z-Boy Incorporated

$21,906

$17,948

Basic weighted average common shares

50,038

51,576

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

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$0.44

$0.35

  Income from discontinued operations

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

$0.44

$0.35

Diluted weighted average common shares

50,539

52,139

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

  Income from continuing operations attributable to La-Z-Boy

    Incorporated

$0.43

$0.34

  Income from discontinued operations

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

      share

$0.43

$0.34

Dividends declared per share               

$0.10

$0.08

 

 

LA-Z-BOY INCORPORATED CONSOLIDATED STATEMENT OF INCOME

Nine Months Ended

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

1/23/16

1/24/15

Sales

$1,108,328

$1,050,457

Cost of sales

690,300

679,497

  Gross profit

418,028

370,960

Selling, general and administrative expense

329,884

297,349

  Operating income

88,144

73,611

Interest expense

365

408

Interest income

573

667

Income from Continued Dumping and Subsidy Offset Act, net

102

Other income, net

2,387

699

  Income from continuing operations before income taxes

90,841

74,569

Income tax expense

32,825

25,975

  Income from continuing operations

58,016

48,594

Income from discontinued operations, net of tax

2,897

  Net income

58,016

51,491

Net income attributable to noncontrolling interests

(1,482)

(933)

  Net income attributable to La-Z-Boy Incorporated

$56,534

$50,558

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$56,534

$47,661

  Income from discontinued operations

2,897

    Net income attributable to La-Z-Boy Incorporated

$56,534

$50,558

Basic weighted average common shares

50,371

52,015

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

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$1.12

$0.91

  Income from discontinued operations

0.06

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

$1.12

$0.97

Diluted weighted average common shares

50,880

52,540

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

  Income from continuing operations attributable to La-Z-Boy

    Incorporated

$1.11

$0.90

  Income from discontinued operations

0.06

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

      share

$1.11

$0.96

Dividends declared per share               

$0.26

$0.20

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)

1/23/16

4/25/15

Current assets

  Cash and equivalents

$97,698

$98,302

  Restricted cash

8,976

9,636

  Receivables, net of allowance of $3,118 at 1/23/16 and $4,622 at 4/25/15

142,802

158,548

  Inventories, net

183,245

156,789

  Deferred income taxes – current

9,853

11,255

  Other current assets

38,377

41,921

    Total current assets

480,951

476,451

Property, plant and equipment, net

173,103

174,036

Goodwill

33,423

15,164

Other intangible assets

7,958

5,458

Deferred income taxes – long-term

31,594

35,072

Other long-term assets, net

60,173

68,423

      Total assets

$787,202

$774,604

Current liabilities

  Current portion of long-term debt

$300

$397

  Accounts payable

46,017

46,168

  Accrued expenses and other current liabilities

108,683

108,326

    Total current liabilities

155,000

154,891

Long-term debt

555

433

Other long-term liabilities

80,442

86,180

Contingencies and commitments

Shareholders' equity

  Preferred shares – 5,000 authorized; none issued

  Common shares, $1 par value – 150,000 authorized; 49,891 outstanding

    at 1/23/16 and 50,747 outstanding at 4/25/15

49,891

50,747

  Capital in excess of par value

277,428

270,032

  Retained earnings

249,036

235,506

  Accumulated other comprehensive loss

(34,664)

(32,139)

    Total La-Z-Boy Incorporated shareholders' equity

541,691

524,146

Noncontrolling interests

9,514

8,954

    Total equity

551,205

533,100

      Total liabilities and equity

$787,202

$774,604

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended

(Unaudited, amounts in thousands)

1/23/16

1/24/15

Cash flows from operating activities

  Net income

$58,016

$51,491

  Adjustments to reconcile net income to cash provided by 

      (used for) operating activities

    Restructuring

430

(1,106)

    Deferred income tax expense (benefit)

5,000

(3,987)

    Provision for doubtful accounts

(675)

(2,060)

    Depreciation and amortization

19,308

16,297

    Equity-based compensation expense

6,868

6,094

    Pension plan contributions

(7,000)

    Change in receivables

15,284

7,011

    Change in inventories

(23,121)

(11,913)

    Change in other assets

1,991

5,794

    Change in payables

349

(7,659)

    Change in other liabilities

(6,736)

(4,898)

      Net cash provided by operating activities

69,714

55,064

Cash flows from investing activities

  Proceeds from disposal of assets

2,506

8,940

  Capital expenditures

(19,825)

(56,512)

  Purchases of investments

(15,816)

(30,544)

  Proceeds from sales of investments

23,896

23,987

  Acquisitions, net of cash acquired

(19,232)

(1,774)

  Change in restricted cash

660

2,935

    Net cash used for investing activities

(27,811)

(52,968)

Cash flows from financing activities

  Payments on debt

(415)

(7,413)

  Payments for debt issuance costs

(164)

  Stock issued for stock and employee benefit plans

253

496

  Excess tax benefit on stock option exercises

774

234

  Purchases of common stock

(29,096)

(35,752)

  Dividends paid

(13,137)

(10,416)

    Net cash used for financing activities

(41,621)

(53,015)

Effect of exchange rate changes on cash and equivalents

(886)

(332)

Change in cash and equivalents

(604)

(51,251)

Cash and equivalents at beginning of period

98,302

149,661

Cash and equivalents at end of period

$97,698

$98,410

Supplemental disclosure of non-cash investing activities

  Capital expenditures included in payables

$—

$6,275

 

 

LA-Z-BOY INCORPORATED

SEGMENT INFORMATION

Quarter Ended

Nine Months Ended

 (Unaudited, amounts in thousands)

1/23/16

1/24/15

1/23/16

1/24/15

Sales

Upholstery segment:

     Sales to external customers

$250,740

$243,390

$743,304

$725,590

     Intersegment sales

51,652

42,946

137,581

120,872

Upholstery segment sales

302,392

286,336

880,885

846,462

Casegoods segment:

     Sales to external customers

22,528

24,134

69,517

75,542

     Intersegment sales

2,091

1,866

6,714

8,269

Casegoods segment sales

24,619

26,000

76,231

83,811

Retail segment sales

110,160

89,791

293,291

247,285

Corporate and Other:

     Sales to external customers

586

561

2,216

2,040

     Intersegment sales

1,328

2,594

Corporate and Other sales

1,914

561

4,810

2,040

Eliminations

(55,071)

(44,812)

(146,889)

(129,141)

  Consolidated sales

$384,014

$357,876

$1,108,328

$1,050,457

Operating Income (Loss)

Upholstery segment

$33,022

$31,479

$94,656

$86,103

Casegoods segment

1,768

860

6,092

5,380

Retail segment

8,834

4,202

19,279

8,199

Restructuring

(78)

771

(430)

1,118

Corporate and Other

(8,762)

(10,384)

(31,453)

(27,189)

  Consolidated operating income

$34,784

$26,928

$88,144

$73,611

 

 

SOURCE La-Z-Boy Incorporated



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