La-Z-Boy Reports Fourth-Quarter and Full-Year Profit

Jun 14, 2010, 16:20 ET from La-Z-Boy Incorporated

MONROE, Mich., June 14 /PRNewswire-FirstCall/ -- La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal fourth quarter and full year ended April 24, 2010.

Fiscal 2010 fourth-quarter highlights:

  • Net income attributable to La-Z-Boy Incorporated was $0.26 per share, including a $0.01 per share restructuring charge and income of $0.04 related to a reversal of valuation reserves on deferred taxes;
  • Consolidated sales increased 9.2%, led by a double-digit increase in the company’s upholstery group;
  • The upholstery segment posted an 11.9% operating margin;
  • The retail segment’s performance continued to improve, with the operating loss reduced by 36%, or $2.6 million; and
  • The company generated $31 million in cash from operating activities.

Fiscal 2010 full-year highlights:

  • Net income attributable to La-Z-Boy Incorporated was $0.62 per share, including a $0.04 per share restructuring charge, income of $0.04 related to a reversal of valuation reserves on deferred taxes, and income of $0.05 per share in anti-dumping duties received on wood bedroom furniture imported from China;
  • Consolidated sales decreased by 3.9% compared with fiscal 2009;
  • The upholstery segment posted a 10.7% operating margin;
  • The retail segment’s performance improved, with the operating loss reduced by 43%, or $15 million from last year’s level;
  • The company generated $89.7 million in cash from operating activities; and
  • The company increased its cash position to $108.4 million and reduced its total debt by $12.9 million to $48.0 million at year end.

Net sales for the fourth quarter were $310.7 million, up 9.2% compared with the prior year’s fourth quarter.  The company reported income attributable to La-Z-Boy Incorporated of $13.7 million, or $0.26 per share, compared with $5.2 million, or $0.10 per share, in the fourth quarter of fiscal 2009.  The fiscal 2010 fourth-quarter results include a $0.01 per share restructuring charge, primarily related to costs associated with the consolidation of the company’s casegoods facilities, and income of $0.04 related to a reversal of valuation reserves on deferred taxes.  The company’s 2009 fourth-quarter results include a $0.01 per share impairment of long-lived assets related to the company’s retail operation, a $0.01 restructuring charge, primarily related to store closures within the company’s retail segment and a $0.05 tax benefit.  

For the full fiscal 2010 year, La-Z-Boy Incorporated reported sales of $1.2 billion, down 3.9% from the prior-year period.  The company reported income attributable to La-Z-Boy Incorporated of $32.5 million, or $0.62 per share, versus a loss of $122.7 million, or a loss of $2.39 per share.  The 2010 full-year results include a $0.04 per-share restructuring charge related to the consolidation of the company’s casegoods facility as well as costs associated with the previously announced store closures in the company’s retail segment, income of $0.04 per share related to a reversal of valuation reserves on deferred taxes and income of $0.05 per share in anti-dumping duties received on wood bedroom furniture imported from China.  

The 2009 full-year results were impacted negatively by charges totaling $1.08 per share for asset impairments and restructuring net of $0.16 per share in income related to anti-dumping monies received on bedroom furniture imported from China. The company’s fiscal 2009 full-year results also include a non-cash $0.74 per-share charge recognized in the second quarter for a valuation allowance against the company’s deferred tax assets.

Kurt L. Darrow, President and Chief Executive Officer of La-Z-Boy, said, “Our results for the quarter and full year reflect the success of the many strategic initiatives implemented over the course of the last several years combined with a focus to ensure our cost structure is in line with order flow.  Our manufacturing operations are governed by lean principles, we are focused on building the La-Z-Boy brand, the core growth engine of the company, and are working to strengthen the performance of our retail segment.  Additionally, we have managed our balance sheet aggressively, by reducing our total debt to $48 million while increasing our cash position to $108.4 million, to ensure we have the greatest financial flexibility.  While challenges still remain, we believe that today La-Z-Boy Incorporated is well positioned to not only compete in this environment, but to grow profitably.”

Wholesale Segments

For the fiscal 2010 fourth quarter, sales in the company’s upholstery segment increased 12.2% to $241.1 million compared with $215.0 million in the prior year’s fourth quarter.   The segment’s operating margin increased to 11.9% for the quarter and, for the year, on relatively flat volume, the operating margin was 10.7%.  Sales in the casegoods segment for the fourth quarter decreased 4.5% to $37.5 million and the segment’s operating margin was (0.6%).  For the year, the casegoods operation posted a small operating loss, with a margin of (0.2%), on a 17.6% sales decline.

Darrow stated, “The performance in our upholstery segment was largely fueled by the cellular production process that we implemented throughout our La-Z-Boy branded facilities.  Although a capital-intensive and lengthy undertaking over a three-year period, it has enhanced the efficiencies of our operations, even in the lower volume environment in which we are operating.   In addition to the lower cost structure associated with the cellular production process, our throughput and quality are better, enabling us to deliver custom furniture to the consumer more quickly, a key differentiator for our company in the marketplace.  Further, we have substantially completed the transition of our cutting-and-sewing operations to our Mexico Cut-and-Sew facility and we will realize significant cost savings from this initiative throughout fiscal 2011, particularly in the second half of the year as the rate of savings accelerates.  We have also implemented lean practices throughout our other two upholstery companies and both contributed positively to our results.”

Darrow continued, “Although our casegoods segment continues to be challenged in this macroeconomic environment, with consumers postponing larger ticket purchases of dining room and bedroom groups, the structural changes implemented throughout the segment enabled us to operate at a near breakeven point for both the quarter and year on lower volume.  During the year, we consolidated our two remaining casegoods manufacturing operations into one and, during the fourth quarter, we vacated a leased warehouse facility, moving the operation to a company-owned building.  The result of these consolidations is an anticipated annual cost savings of approximately $5 million, a portion of which we realized in fiscal 2010.  Also, during the fourth quarter, we consolidated our American Drew/Lea operation with Hammary and believe the newly combined organization will not only allow us to offer our customers a one-stop solution for bedroom, dining room, youth, home office and occasional, but will strengthen our sales, marketing and merchandising groups under one umbrella.  Our team is continuing to find ways to strengthen our product offering while ensuring we provide excellent service to our customers.”

System-wide, for the fiscal 2010 fourth quarter (February 2010 through April 2010), including company-owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were up 2.5% compared with the fiscal 2009 fourth quarter.  Total written sales, which include new and closed stores, were down 1.5%.  

Retail Segment

For the fourth quarter, retail sales were $39.2 million, up 2.1% compared with the prior-year period.  The retail group posted an operating loss for the quarter, and its operating margin was (12.0%), an improvement from last year’s fourth quarter margin of (19.1%).  For the year, sales in the retail segment declined 4.5%.  Darrow stated, “Our retail team continues to make progress in improving the performance of the segment.  For the quarter, we stemmed the loss from the comparable prior-year period by $2.6 million, or 36%.  For the full year, we decreased our loss by $15 million, or 43%.  Our marketing platform continues to drive traffic to our store base.  We have lowered our cost structure, increased our margins, increased the average ticket and improved our profitability.  These metrics bode well for ongoing improvement and the segment’s potential to contribute to the overall results of the La-Z-Boy Incorporated, particularly when evaluating the blended margin between the wholesale and retail components.”

Balance Sheet

During the fiscal 2010 fourth quarter, La-Z-Boy generated $31 million in cash from operating activities and, for the year, generated $90 million.  La-Z-Boy’s debt-to-capitalization ratio was 12.2%, down from 16.6% a year ago.  During the quarter, the company continued to strengthen its balance sheet and closed the year with $108.4 million in cash, up from $17.4 million at the end of fiscal 2009.  Darrow stated, “Financial flexibility remains of paramount importance to our company and we worked diligently during the year to ensure the strength of our balance sheet, through a low debt structure and strong cash position.  We also have $90.6 million of availability under our revolving line of credit.”

Business Outlook

Darrow stated, “While our results and other public data points indicate the beginning of improved industry conditions, we remain cautious going into fiscal 2011.  Sales growth and cost-savings initiatives will need to be balanced against various macroeconomic factors, including relatively low consumer confidence levels, ongoing high unemployment and volatility within the housing market, as well as headwinds relating to raw material price increases versus last year.  Against this backdrop, we will continue to manage our business aggressively. We believe our company is well positioned to compete in this environment and we are focused on improving our operations across all business segments.”

Darrow continued, “As it relates to the first quarter, we are experiencing a significant delta in raw material costs when compared with the year-ago period, and we expect cost savings initiatives, including efficiencies from the Mexico Cut and Sew Center, to accelerate as we move through the year as volumes increase and projects are completed.  Additionally, as a result of normal seasonality factors, our first quarter, which ends in July, is typically the weakest in terms of sales and profits as the furniture industry, in general, experiences weaker demand throughout the summer.  Accordingly, our plants shut down for one week for vacation, yielding 12 weeks of shipping versus the normal 13 weeks.”

Conference Call

La-Z-Boy will hold a conference call with the investment community on Tuesday, June 15, 2010, 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

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 and demographics; (b) continued economic recession; (c) changes in the real estate and credit markets and the potential impacts on our customers and suppliers; (d) the impact of political unrest internationally, terrorism or war; (e) continued energy and other commodity price changes; (f) the impact of logistics on imports; (g) the impact of interest rate and currency exchange rate changes; (h) operating factors, such as supply, labor or distribution disruptions including changes in operating conditions, product recalls or costs; (i) effects of restructuring actions; (j) changes in the domestic or international regulatory environment; (k) the impact of adopting new accounting principles; (l) the impact from severe weather or other natural events such as hurricanes, earthquakes and tornadoes; (m) the ability to procure fabric rolls and leather hides or cut and sewn fabric and leather sets domestically or abroad; (n) fluctuations in our stock price; (o) impact of IT system failures; and (p) those matters discussed in Item 1A of our fiscal 2010 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, 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/Investor-Relations/Sec-Filings/.  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/Investor-Relations/Email-Alerts/

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 and La-Z-Boy. The operating units in the Casegoods Group consist of two groups, one including American Drew, Lea and Hammary, and the second being Kincaid. 

The corporation’s proprietary distribution network is dedicated exclusively to selling La-Z-Boy Incorporated products and brands, and includes 306 stand-alone La-Z-Boy Furniture Galleries® stores and 510 independent Comfort Studios®, in addition to in-store gallery programs for the company’s Kincaid, England and Lea operating units. Additional information is available at http://www.la-z-boy.com/.

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF OPERATIONS

Unaudited

For the Quarter Ended

Unaudited

For the Year Ended

(Amounts in thousands, except per share data)

4/24/2010 (13 weeks)

4/25/2009 (13 weeks)

4/24/2010 (52 weeks)

4/25/2009 (52 weeks)

Sales

$310,740

$284,498

$1,179,212

$1,226,674

Cost of sales

Cost of goods sold

208,938

193,394

802,344

$879,889

Restructuring

350

123

2,141

9,818

Total cost of sales

209,288

193,517

804,485

889,707

Gross profit

101,452

90,981

374,727

336,967

Selling, general and administrative

85,480

86,901

331,491

373,502

Restructuring

271

433

1,293

2,642

Write-down of long-lived assets

467

7,503

Write-down of trade names

5,541

Write-down of goodwill

42,136

Operating income (loss)

15,701

3,180

41,943

(94,357)

Interest expense

584

1,049

2,972

5,581

Interest income

109

619

724

2,504

Income from Continued Dumping and Subsidy Offset Act, net

4,436

8,124

Other income (expense), net

236

(23)

590

(7,998)

Earnings (loss) before income taxes

15,462

2,727

44,721

(97,308)

Income tax expense (benefit)

1,922

(2,275)

12,670

25,112

Net income (loss)

13,540

5,002

32,051

(122,420)

Net (income) loss attributable to noncontrolling interests

132

155

487

(252)

Net income (loss) attributable to La-Z-Boy Incorporated

$13,672

$5,157

$32,538

$(122,672)

Diluted weighted average shares

52,101

51,478

51,732

51,460

Diluted net income (loss) attributable to La-Z-Boy Incorporated per share

$0.26

$0.10

$0.62

$(2.39)

Dividends paid per share

$—

$—

$—

$0.10

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

Unaudited As of

(Amounts in thousands, except par value)

4/24/2010

4/25/2009

Current assets

Cash and equivalents

$108,421

$17,364

Restricted cash

18,713

Receivables, net of allowance of $20,258 in 2010 and $28,385 in 2009

165,038

147,858

Inventories, net

134,187

140,178

Deferred income taxes – current

2,305

795

Other current assets

18,159

22,872

Total current assets

428,110

347,780

Property, plant and equipment, net

138,857

146,896

Trade names

3,100

3,100

Deferred income taxes – long term

458

Other long-term assets, net of allowance of $942 in 2010 and $4,309 in 2009

38,293

51,431

Total assets

$608,818

$549,207

Current liabilities

Current portion of long-term debt

$1,066

$8,724

Accounts payable

54,718

41,571

Accrued expenses and other current liabilities

91,496

75,733

Total current liabilities

147,280

126,028

Long-term debt

46,917

52,148

Deferred income taxes

724

Other long-term liabilities

68,381

63,875

Contingencies and commitments

Shareholders' equity

Common shares, $1 par value – 150,000 authorized; 51,770 outstanding in 2010 and 51,478 outstanding in 2009

51,770

51,478

Capital in excess of par value

201,873

205,945

Retained earnings

108,707

67,431

Accumulated other comprehensive loss

(20,251)

(22,559)

Total La-Z-Boy Incorporated shareholders' equity

342,099

302,295

Noncontrolling interests

4,141

4,137

Total equity

346,240

306,432

Total liabilities and equity

$608,818

$549,207

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited Quarter Ended

Unaudited Year Ended

(Amounts in thousands)

4/24/2010

4/25/2009

4/24/2010

4/25/2009

Cash flows from operating activities

Net income (loss)

$13,540

$5,002

$32,051

$(122,420)

Adjustments to reconcile net income (loss) to cash provided by operating activities

Gain on sale of assets

(488)

(106)

(538)

(2,813)

Write-down of long-lived assets

467

7,503

Write-down of trade names

5,541

Write-down of goodwill

42,136

Write-down of investments

5,140

Restructuring

621

556

3,434

12,460

Provision for doubtful accounts

942

6,815

6,535

25,254

Depreciation and amortization

6,060

5,875

25,246

24,142

Stock-based compensation expense

1,154

952

5,236

3,819

Change in receivables

(3,114)

3,909

(17,287)

27,223

Change in inventories

10,858

29,615

5,991

36,995

Change in other assets

(2,784)

992

4,187

2,946

Change in payables

6,471

(8,120)

13,147

(14,544)

Change in other liabilities

91

(12,914)

14,349

(41,160)

Change in deferred taxes

(2,391)

624

(2,692)

39,466

Total adjustments

17,420

28,665

57,608

174,108

Net cash provided by operating activities

30,960

33,667

89,659

51,688

Cash flows from investing activities

Proceeds from disposals of assets

1,413

1,229

3,338

9,060

Capital expenditures

(5,278)

(1,546)

(10,986)

(15,625)

Purchases of investments

(999)

(735)

(4,933)

(11,330)

Proceeds from sales of investments

3,040

12,794

8,833

34,675

Change in restricted cash

(10,543)

17,507

(18,207)

Change in other long-term assets

121

(235)

250

(581)

Net cash provided by (used for) investing activities

(1,703)

964

14,009

(2,008)

Cash flows from financing activities

Proceeds from debt

10,426

(4,664)

41,817

50,794

Payments on debt

(10,971)

(23,100)

(54,707)

(92,139)

Stock issued/(canceled) for stock and employee benefit plans

1,035

1,035

Dividends paid

11

(5,177)

Net cash provided by (used for) financing activities

490

(27,753)

(11,855)

(46,522)

Effect of exchange rate changes on cash and equivalents

(837)

(30)

(756)

(901)

Change in cash and equivalents

28,910

6,848

91,057

2,257

Cash acquired from consolidation of VIEs

631

Cash and equivalents at beginning of period

79,511

10,516

17,364

14,476

Cash and equivalents at end of period

$108,421

$17,364

$108,421

$17,364

LA-Z-BOY INCORPORATED

Segment Information

Unaudited

For the Quarter Ended

Unaudited

For the Year Ended

4/24/2010

4/25/2009

4/24/2010

4/25/2009

(Amounts in thousands)

(13 weeks)

(13 weeks)

(52 weeks)

(52 weeks)

Sales

Upholstery Group

$241,137

$214,952

$904,871

$899,204

Casegoods Group

37,510

39,290

146,706

178,000

Retail Group

39,233

38,430

153,620

160,838

VIEs

13,557

11,555

53,173

50,856

Corporate and Other

440

1,413

4,583

4,775

Eliminations

(21,137)

(21,142)

(83,741)

(66,999)

Consolidated Sales

$310,740

$284,498

$1,179,212

$1,226,674

Operating income (loss)

Upholstery Group

$28,641

$19,405

$96,392

$35,947

Casegoods Group

(230)

(1,265)

(243)

554

Retail Group

(4,721)

(7,332)

(19,825)

(34,841)

VIEs

222

(349)

104

(5,771)

Corporate and Other

(7,590)

(6,256)

(31,051)

(22,606)

Restructuring

(621)

(556)

(3,434)

(12,460)

Write-down of long-lived assets

(467)

(7,503)

Write-down of trade names

(5,541)

Write-down of goodwill

(42,136)

Consolidated Operating Income (Loss)

$15,701

$3,180

$41,943

$(94,357)

LA-Z-BOY INCORPORATED

Unaudited Quarterly Financial Data

(Dollar amounts in thousands, except per share data)

(13 weeks)

(13 weeks)

(13 weeks)

(13 weeks)

Fiscal Quarter Ended

7/25/2009

10/24/2009

1/23/2010

4/24/2010

Sales

$262,671

$300,707

$305,094

$310,740

Cost of sales

Cost of goods sold

181,549

204,962

206,895

208,938

Restructuring

736

663

392

350

 Total cost of sales

182,285

205,625

207,287

209,288

    Gross profit

80,386

95,082

97,807

101,452

Selling, general and administrative

77,622

84,862

83,527

85,480

Restructuring

301

520

201

271

Operating income

2,463

9,700

14,079

15,701

Interest expense

980

831

577

584

Interest income

276

199

140

109

Income from Continued Dumping and Subsidy Offset Act, net

4,436

Other income (expense), net

711

236

(593)

236

Earnings before income taxes

2,470

9,304

17,485

15,462

Income tax expense

439

3,762

6,547

1,922

Net income

2,031

5,542

10,938

13,540

Net (income) loss attributable to noncontrolling interest

(48)

365

38

132

  Net income attributable to La-Z-Boy Incorporated

$1,983

$5,907

$10,976

$13,672

Diluted weighted average shares

51,479

51,755

51,845

52,101

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

$0.04

$0.11

$0.21

$0.26

LA-Z-BOY INCORPORATED

Unaudited Quarterly Financial Data

(Dollar amounts in thousands, except per share data)

(13 weeks)

(13 weeks)

(13 weeks)

(13 weeks)

Fiscal Quarter Ended

7/26/2008

10/25/2008

1/24/2009

4/25/2009

Sales

$321,652

$331,948

$288,576

$284,498

Cost of sales

Cost of goods sold

235,596

243,090

207,809

193,394

Restructuring

5,795

2,236

1,664

123

 Total cost of sales

241,391

245,326

209,473

193,517

    Gross profit

80,261

86,622

79,103

90,981

Selling, general and administrative

91,435

101,665

93,501

86,901

Restructuring

781

687

741

433

Write-down of long-lived assets

7,036

467

Write-down of trade names

5,541

Write-down of goodwill

1,292

408

40,436

Operating income (loss)

(13,247)

(16,138)

(68,152)

3,180

Interest expense

1,495

1,651

1,386

1,049

Interest income

932

630

323

619

Income from Continued Dumping and Subsidy Offset Act, net

8,124

Other income (expense), net

143

(685)

(7,433)

(23)

Earnings (loss) before income taxes

(13,667)

(17,844)

(68,524)

2,727

Income tax expense (benefit)

(5,107)

36,757

(4,263)

(2,275)

Net income (loss)

(8,560)

(54,601)

(64,261)

5,002

Net (income) loss attributable to noncontrolling interest

(86)

(34)

(287)

155

Net income (loss) attributable to La-Z-Boy Incorporated

$(8,646)

$(54,635)

$(64,548)

$5,157

Diluted weighted average shares

51,428

51,458

51,475

51,478

Diluted net income (loss) attributable to La-Z-Boy Incorporated per share

$(0.17)

$(1.06)

$(1.25)

$0.10

SOURCE La-Z-Boy Incorporated



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