La-Z-Boy Reports Improved Fiscal 2016 First-Quarter Results

Aug 18, 2015, 16:10 ET from La-Z-Boy Incorporated

MONROE, Mich., Aug. 18, 2015 /PRNewswire/ -- La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal 2016 first quarter ended July 25, 2015.

Fiscal 2016 first-quarter highlights for continuing operations:

  • The company reported earnings per share of $0.27 from continuing operations attributable to La-Z-Boy Incorporated, a 35% increase from the fiscal 2015 first quarter;
  • Operating margin for all three segments increased during the quarter, including the retail segment posting a 5.5% operating margin compared with 0.4% in last year's first quarter;
  • Consolidated operating income for the fiscal 2016 first quarter increased 21% to $20.0 million, with consolidated operating margin increasing to 5.8% from 5.0% in the fiscal 2015 first quarter;
  • Same-store written sales for the La-Z-Boy Furniture Galleries® store network increased 5.3%; and
  • Consolidated sales for the first quarter increased 4.4% compared with the fiscal 2015 first quarter.

Sales for the fiscal 2016 first quarter were $341.4 million, up 4.4% compared with the prior year's first quarter.  The company reported income from continuing operations attributable to La-Z-Boy Incorporated of $13.7 million, or $0.27 per share, versus $10.6 million, or $0.20 per share, in last year's first quarter.

Kurt L. Darrow, Chairman, President and Chief Executive Officer, of La-Z-Boy, said, "We are pleased with our strong performance for the start of the year, particularly our retail segment whose operating profit was $4.4 million more in the fiscal 2016 first quarter compared with last year's first quarter.  Additionally, all three business segments experienced increases in gross margin and operating margin and written same-store sales for the La-Z-Boy Furniture Galleries® network increased 5.3% for the quarter.  As we move forward, we believe our various growth strategies – the 4-4-5 store growth 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 – will continue to drive performance and long-term results."

Wholesale Segments

For the fiscal 2016 first quarter, sales in the company's upholstery segment increased 3.7% to $272.7 million versus the prior year's first quarter.  In the casegoods segment, sales for the fiscal 2016 first quarter were $23.4 million, down 19.1% from last year's first quarter.

Darrow commented, "During the period, we achieved a 9.0% operating margin in the upholstery segment, demonstrating the efficiencies of our supply chain and plant operations, in what is typically our lowest-volume quarter.  Higher sales volume and favorable changes in product mix also helped fuel the improved operating margin for the quarter.  In June, we completed the implementation of the new ERP system throughout our La-Z-Boy branded facilities, with our largest plant, in Dayton, Tennessee, coming on line. It was a smooth process and our team is now working on the sales order management component of the system which we will implement over the course of fiscal 2016."

Darrow added, "We are continuing to introduce new product and expand our offering in areas we believe present the most growth opportunities.  Currently, that is in the power and stationary categories and we have great product introductions scheduled for the October furniture market in High Point. We are also excited about the capabilities our new web and eCommerce platform, which we expect to launch in early fall, will offer to consumers through both mobile and desktop. 

Darrow continued, "In our casegoods segment, the operating margin for the quarter was 7.2%, versus 5.3% in last year's comparable quarter, reflecting our transition to a pure-import model.  As we move forward, we believe this platform will provide for more stable performance in the segment.  Our sales were off during the quarter versus last year's comparable period due primarily to two factors.  First, last year's first-quarter results included $2.1 million in sales of hospitality furniture, which is no longer part of our product offering since we ceased domestic production of casegoods last September.  Second, sales exceeded our expectations on some of our best sellers in our newer transitional category, creating a temporary out-of-stock position.  We expect this situation to rectify itself and will service our existing backlog and achieve a higher in-stock position in the second quarter."

Retail Segment

For the fiscal 2016 first quarter, sales in the company's retail segment increased 18.9% to $86.7 million versus the prior year's first quarter.  On the core base of 95 stores included in last year's comparable quarter, delivered sales for the segment increased 7.2%.

Darrow stated, "We are very pleased with the performance of our retail segment.  Increased sales volume enabled us to leverage fixed costs, and our operating margin for the period was 5.5% versus 0.4% in last year's first quarter.  On traffic that was slightly down from the prior year, we had a higher average ticket driven by a better mix and increased sales through our In Home Design program."

Darrow added, "Early in the second quarter, we acquired two stores in Wisconsin from an independent dealer, and we have an agreement to acquire two stores from another licensee in the Carolinas in September.  Our plan is to continue to buy independent-dealer stores when the opportunity is mutually beneficial for the company and the licensee.  As we increase the size of our company-owned retail business through opening new stores as part of our 4-4-5 program and acquiring other stores, the benefit of our integrated retail strategy will become more evident as sales through the company-owned La-Z-Boy Furniture Galleries® stores provide the company with the greatest level of profitability through the benefit of a blended wholesale/retail margin."

La-Z-Boy Furniture Galleries® Store Network

System-wide, for the first 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 5.3% versus last year's first quarter.

For the first quarter, total written sales, which include new and closed stores, increased 8.5% compared with the fiscal 2015 comparable period.  At the end of the first quarter, the La-Z-Boy Furniture Galleries® store system was composed of 327 stand-alone stores, with 64 in the new concept design format.

Darrow commented, "For fiscal 2016, we are planning for 35 to 40 projects, including 17 net new stores.  As part of the activity related to our 4-4-5 strategy, we are changing out old-format stores into the new concept design format, which is performing at the highest level of our three store formats. During the first quarter, the network opened two new stores and remodeled one.  In the second quarter of fiscal 2016, we are planning for three new stores and eight remodels throughout the network."

Balance Sheet and Cash Flow

During the quarter, the company generated $1.5 million in cash from operating activities.  La-Z-Boy ended the quarter with $87.5 million in cash and cash equivalents, $37.0 million in investments to enhance returns on cash, and $9.6 million in restricted cash.  During the quarter, the company had $6.5 million in capital expenditures, paid $4.1 million in dividends, and spent $9.2 million purchasing 0.3 million shares of stock in the open market under its existing authorized share purchase program, with remaining authorization to purchase 5.4 million shares.

Business Outlook

Darrow concluded, "We are optimistic that our multi-faceted strategy to drive growth and profitability throughout fiscal 2016 will deliver results in this economic environment.  Our investments in the business are strategic and are strengthening the relevance of our brand, our distribution system and operating platform.  As we move through the year, we will continue to fine tune our initiatives as conditions and results warrant.  We believe the combination of our growth and marketing initiatives coupled with our efficient operating platform will allow us to gain market share and drive improved performance."

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, August 19, 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 #13616832.

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; (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 111 of the 327 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 327 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

 

Unaudited

For the Fiscal Quarter Ended

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

7/25/15

7/26/14

Sales

$341,423

$326,980

Cost of sales

217,191

215,474

  Gross profit

124,232

111,506

Selling, general and administrative expense

104,266

95,015

  Operating income

19,966

16,491

Interest expense

112

132

Interest income

205

202

Other income (expense), net

1,968

(258)

  Income from continuing operations before income taxes

22,027

16,303

Income tax expense

7,904

5,755

  Income from continuing operations

14,123

10,548

Income from discontinued operations, net of tax

2,497

  Net income

14,123

13,045

Net (income) loss attributable to noncontrolling interests

(447)

36

  Net income attributable to La-Z-Boy Incorporated

$13,676

$13,081

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$13,676

$10,584

  Income from discontinued operations

2,497

    Net income attributable to La-Z-Boy Incorporated

$13,676

$13,081

Basic weighted average common shares

50,583

52,191

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

  Income from continuing operations attributable to La-Z-Boy 

    Incorporated

$0.27

$0.20

  Income from discontinued operations

0.05

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

$0.27

$0.25

Diluted weighted average common shares

51,043

52,627

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

  Income from continuing operations attributable to La-Z-Boy

    Incorporated

$0.27

$0.20

  Income from discontinued operations

0.05

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

      share

$0.27

$0.25

Dividends declared per share               

$0.08

$0.06

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

 

Unaudited As of

(Unaudited, amounts in thousands)

7/25/15

4/25/15

Current assets

  Cash and equivalents

$87,519

$98,302

  Restricted cash

9,636

9,636

  Receivables, net of allowance of $4,251 at 7/25/15 and $4,622 at 4/25/15

135,700

158,548

  Inventories, net

178,948

156,789

  Deferred income taxes – current

11,229

11,255

  Other current assets

43,307

41,921

    Total current assets

466,339

476,451

Property, plant and equipment, net

173,700

174,036

Goodwill

15,164

15,164

Other intangible assets

5,458

5,458

Deferred income taxes – long-term

34,942

35,072

Other long-term assets, net

65,994

68,423

      Total assets

$761,597

$774,604

Current liabilities

  Current portion of long-term debt

$432

$397

  Accounts payable

48,189

46,168

  Accrued expenses and other current liabilities

96,563

108,326

    Total current liabilities

145,184

154,891

Long-term debt

662

433

Other long-term liabilities

83,167

86,180

Contingencies and commitments

Shareholders' equity

  Preferred shares – 5,000 authorized; none issued

  Common shares, $1 par value – 150,000 authorized; 50,562 outstanding

    at 7/25/15 and 50,747 outstanding at 4/25/15

50,562

50,747

  Capital in excess of par value

273,185

270,032

  Retained earnings

234,406

235,506

  Accumulated other comprehensive loss

(34,339)

(32,139)

    Total La-Z-Boy Incorporated shareholders' equity

523,814

524,146

Noncontrolling interests

8,770

8,954

    Total equity

532,584

533,100

      Total liabilities and equity

$761,597

$774,604

 

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

 

Unaudited For the Fiscal Quarter Ended

(Unaudited, amounts in thousands)

7/25/15

7/26/14

Cash flows from operating activities

  Net income

$14,123

$13,045

  Adjustments to reconcile net income to cash provided by 

      (used for) operating activities

    Deferred income tax expense (benefit)

148

(1,342)

    Provision for doubtful accounts

(340)

(618)

    Depreciation and amortization

6,271

5,379

    Equity-based compensation expense

3,012

3,010

    Change in receivables

24,610

12,441

    Change in inventories

(22,159)

(15,874)

    Change in other assets

(6,933)

2,985

    Change in payables

2,021

(255)

    Change in other liabilities

(19,223)

(19,993)

      Net cash provided by (used for) operating activities

1,530

(1,222)

Cash flows from investing activities

  Proceeds from disposal of assets

279

1,348

  Capital expenditures

(6,506)

(19,406)

  Purchases of investments

(5,422)

(15,941)

  Proceeds from sales of investments

12,983

10,422

  Change in restricted cash

7,289

    Net cash provided by (used for) investing activities

1,334

(16,288)

Cash flows from financing activities

  Payments on debt

(122)

(7,212)

  Stock issued for stock and employee benefit plans

145

131

  Excess tax benefit on stock option exercises

363

249

  Purchases of common stock

(9,171)

(6,062)

  Dividends paid

(4,055)

(3,119)

    Net cash used for financing activities

(12,840)

(16,013)

Effect of exchange rate changes on cash and equivalents

(807)

171

Change in cash and equivalents

(10,783)

(33,352)

Cash and equivalents at beginning of period

98,302

149,661

Cash and equivalents at end of period

$87,519

$116,309

Supplemental disclosure of non-cash investing activities

  Capital expenditures included in payables

$500

$8,024

 

 

 

LA-Z-BOY INCORPORATED

SEGMENT INFORMATION

 

Unaudited For the Fiscal

Quarter Ended

 (Unaudited, amounts in thousands)

7/25/15

7/26/14

Sales

Upholstery segment:

  Sales to external customers

$232,484

$227,156

  Intersegment sales

40,192

35,703

Upholstery segment sales

272,676

262,859

Casegoods segment:

  Sales to external customers

21,202

25,953

  Intersegment sales

2,191

2,970

Casegoods segment sales

23,393

28,923

Retail segment sales

86,651

72,905

Corporate and Other:

  Sales to external customers

1,086

966

  Intersegment sales

516

Corporate and Other sales

1,602

966

Eliminations

(42,899)

(38,673)

 Consolidated sales

$341,423

$326,980

Operating Income (Loss)

Upholstery segment

$24,594

$22,017

Casegoods segment

1,690

1,525

Retail segment

4,729

315

Restructuring

(165)

357

Corporate and Other

(10,882)

(7,723)

  Consolidated operating income

$19,966

$16,491

 

 

 

SOURCE La-Z-Boy Incorporated



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