Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said:
"We continue to go through a difficult macroeconomic period which is impacting
the housing and home furnishings markets. In this environment, we have worked
to sustain the performance of our wholesale operations through various cost-
reduction programs. Given the higher fixed-cost nature of the retail
business, the performance of our company-owned retail segment has been
particularly impacted by external conditions, with the progress made on the
cost side overshadowed by the effect of lower volumes. We continue to work to
position La-Z-Boy to emerge from this difficult period as a stronger and
leaner manufacturer and distributor with a solid integrated retail platform."
Upholstery
For the fiscal 2008 third quarter, sales in the company's upholstery
segment decreased 3.8% to $282.5 million compared with $293.7 million in the
prior year's third quarter. The segment's operating margin was 6.9%. Darrow
stated, "Despite lower volume, we continue to maintain our operating margins
in the wholesale upholstery business. In addition to lowering our cost
structure with projects such as our plant cellular conversion across our
branded facilities, we are driving business through creative merchandising and
selective promotions."
For the quarter, the La-Z-Boy Furniture Galleries® store system, which
includes both company-owned and independent-licensed stores, opened three new
stores, relocated and/or remodeled six and closed five, bringing the total
store count to 336, of which 213 are in the New Generation format. For the
fiscal fourth quarter 2008, the network plans to open four New Generation
format La-Z-Boy Furniture Galleries® stores (one will be a new store and
three will be store remodels or relocations) and will close one.
System-wide, for the fourth calendar quarter ended December 31, 2007,
including company-owned and independent-licensed stores, same-store written
sales, which the company tracks as an indicator of retail activity, were down
6.0%. Total written sales, which include new stores, were down 4.8%.
Casegoods
For the 2008 third quarter, casegoods sales were $52.7 million, down 16.6%
from the prior year's third quarter and, as a result, the segment's quarterly
operating margin decreased to 4.2%. During the quarter, La-Z-Boy received
$7.1 million in funds, net of legal expenses, under the Continued Dumping and
Subsidy Offset Act of 2000 (CDSOA) in connection with the case involving
wooden bedroom furniture imported from China. This compares with $3.4 million
in the third quarter of fiscal 2007. This income is reported in Other Income,
Net rather than in the operating segment's results.
Darrow commented, "While the high variable cost structure associated with
our casegoods business, which has transitioned to primarily an import model,
allows us to run our business profitably on significantly lower volume, the
segment's overall results continue to be impacted by the decline in sales. We
are managing our cost structure and have reduced headcount in this segment in
line with the decline in sales. Importantly, we maintained our high service
levels to our customers while managing our inventories concurrent with the
decline in sales."
Retail
For the quarter, retail sales were $49.9 million, down 18.4% compared with
the prior-year period. The retail group posted an operating loss for the
quarter and its operating margin was (17.1%). Approximately 6% of the sales
decline was the result of exiting the Pittsburgh, Pennsylvania market which
was operating during last year's third quarter. With the state of the economy
and its effect on the home furnishings market, La-Z-Boy continued to
experience negative same store sales comparisons across its markets, making it
difficult to absorb fixed costs, particularly the increased occupancy costs
associated with the company's new stores.
Darrow stated, "In addition to improving our operating cost structure
through the consolidation of systems and operations, we are working to
increase our top-line performance through various initiatives on the front
side of our business. We continue to refine our merchandising programs and
expand our In-Home Design Service while further developing our sales
associates to assist them in improving the average transaction per client."
During the third quarter, the company's retail segment opened one new
company-owned store and closed two. At the end of the third quarter, the
company owned 69 stores, including 51 in the New Generation format, or about
74% versus 72 company-owned stores last year at this time, of which 44, or
61%, were in the new format.
New Credit Facility
La-Z-Boy Incorporated entered into a new secured credit agreement in early
February, giving it greater flexibility to operate its business. The new
arrangement is an asset-based lending facility secured by inventories and
trade receivables. The financial covenant, which is a fixed-charge coverage
ratio, is only applicable if the company's availability goes below $30
million. As of February 18, 2008, the availability on the revolving line of
credit was $63.9 million. As part of the refinancing, the company's private
placement notes were paid off and the company will take a charge of $6.0
million in the fourth quarter as a result of a make-whole provision with the
company's note holders.
Balance Sheet
At the end of the fiscal 2008 third quarter, La-Z-Boy's debt to
capitalization ratio was 24.8% and net cash provided by operating activities
was $41.6 million, which included an $8.6 million decline in inventory during
the current quarter. La-Z-Boy had cash on its balance sheet of $63 million,
which included the cash generated from operations as well as proceeds from
anti-dumping monies.
Business Outlook
Commenting on the company's business outlook, Darrow said: "The furniture
industry continues to be impacted by the overall macroeconomic environment. As
we guided at the end of our second quarter, we expect sales for the second
half of fiscal year 2008 to be down 4% to 8% and earnings per share to be in
the range of $0.06 to $0.14. The second-half 2008 estimate does not include
the $6 million make-whole provision related to our credit refinancing,
restructuring charges, income from anti-dumping monies, or any further effect
from discontinued operations. This expectation compares with $0.30 per share
from continuing operations in the second half of fiscal 2007, which included
an $0.11 per share charge for restructuring, a $0.14 per share gain on
property sales and $0.04 per share in income from anti-dumping monies."
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; (b) changes in
demographics; (c) changes in housing sales; (d) the impact of terrorism or
war; (e) continued energy price changes; (f) the impact of logistics on
imports; (g) the impact of interest rate changes; (h) changes in currency
exchange rates; (i) competitive factors; (j) operating factors, such as
supply, labor or distribution disruptions including changes in operating
conditions or costs; (k) effects of restructuring actions; (l) changes in the
domestic or international regulatory environment; (m) ability to implement
global sourcing organization strategies; (n) fair value changes to our
intangible assets due to actual results differing from projected; (o) the
impact of adopting new accounting principles; (p) the impact from natural
events such as hurricanes, earthquakes and tornadoes; (q) the impact of retail
store relocation costs, the success of new stores or the timing of converting
stores to the New Generation format; (r) the ability to procure fabric rolls
or cut and sewn fabric sets domestically or abroad; (s) those matters
discussed under "Risk Factors" in our most recent Annual Report of Form 10-K
and subsequent Quarterly Reports on Form 10-Q and factors relating to
acquisitions 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/investorRelations/sec_filings.aspx. 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/investorRelations/IR_email_alerts.aspx.
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, La-Z-Boy and La-Z-Boy, U.K.
The La-Z-Boy Casegoods Group companies are American Drew, Hammary, Kincaid and
Lea.
The corporation's proprietary distribution network is dedicated
exclusively to selling La-Z-Boy Incorporated products and brands, and includes
336 stand-alone La-Z-Boy Furniture Galleries® stores, 168 La-Z-Boy In-Store
Galleries and 186 Comfort Studios, in addition to in-store gallery programs at
the company's Kincaid, England and Lea operating units. According to industry
trade publication In Furniture, the La-Z-Boy Furniture Galleries retail
network is North America's largest single-brand furniture retailer. Additional
information is available at http://www.la-z-boy.com/.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
Third Quarter Ended
Percent of Sales
(Unaudited, amounts in
thousands, except per % Over
share data) 01/26/08 01/27/07 (Under) 01/26/08 01/27/07
Sales $373,081 $404,845 -7.8% 100% 100%
Cost of sales
Cost of goods sold 265,078 291,322 -9.0% 71.1% 72.0%
Restructuring (632) - - -0.2% -
Total cost of sales 264,446 291,322 -9.2% 70.9% 72.0%
Gross profit 108,635 113,523 -4.3% 29.1% 28.0%
Selling, general and
administrative 104,672 101,213 3.4% 28.1% 25.0%
Restructuring 877 2,855 -69.3% 0.2% 0.7%
Operating income 3,086 9,455 -67.4% 0.8% 2.3%
Interest expense 2,148 2,750 -21.9% 0.6% 0.7%
Income from Continued
Dumping and Subsidy
Offset Act, net 7,147 3,430 108.4% 1.9% 0.8%
Other income, net 4,919 1,633 201.2% 1.3% 0.4%
Income from continuing
operations before income
taxes 13,004 11,768 10.5% 3.5% 2.9%
Income tax expense 3,876 4,823 -19.6% 29.8%* 41.0%*
Income from continuing
operations 9,128 6,945 31.4% 2.4% 1.7%
Income (loss) from
discontinued operations
(net of tax) 384 (14,766) 102.6% 0.1% -3.6%
Net income (loss) $9,512 $(7,821) 221.6% 2.5% -1.9%
Basic average shares 51,417 51,367
Basic income from
continuing operations
per share $0.18 $0.14
Discontinued operations
per share (net of tax) $0.01 $(0.29)
Basic net income (loss)
per share $0.19 $(0.15)
Diluted average shares 51,590 51,609
Diluted income from
continuing operations
per share $0.18 $0.14
Discontinued operations
per share (net of tax) $- $(0.29)
Diluted net income (loss)
per share $0.18 $(0.15)
Dividends paid per share $0.12 $0.12
*As a percent of pretax income, not sales.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended
Percent of Sales
(Unaudited, amounts
in thousands, except % Over
per share data) 01/26/08 01/27/07 (Under) 01/26/08 01/27/07
Sales $1,082,911 $1,213,382 -10.8% 100% 100%
Cost of sales
Cost of goods sold 790,879 893,681 -11.5% 73.0% 73.7%
Restructuring 2,447 (400) 711.8% 0.2% -
Total cost of sales 793,326 893,281 -11.2% 73.3% 73.6%
Gross profit 289,585 320,101 -9.5% 26.7% 26.4%
Selling, general and
administrative 297,278 295,783 0.5% 27.5% 24.4%
Write-down of
intangibles 5,809 - - 0.5% -
Restructuring 2,446 5,120 -52.2% 0.2% 0.4%
Operating income
(loss) (15,948) 19,198 -183.1% -1.5% 1.6%
Interest expense 6,365 7,890 -19.3% 0.6% 0.7%
Income from
Continued Dumping
and Subsidy Offset
Act, net 7,147 3,430 108.4% 0.7% 0.3%
Other income, net 7,740 3,252 138.0% 0.7% 0.3%
Income (loss) from
continuing
operations before
income taxes (7,426) 17,990 -141.3% -0.7% 1.5%
Income tax expense
(benefit) (4,359) 6,658 -165.5% 58.7%* 37.0%*
Income (loss) from
continuing
operations (3,067) 11,332 -127.1% -0.3 % 0.9%
Loss from
discontinued
operations
(net of tax) (6,050) (14,904) 59.4% -0.6% -1.2%
Net Loss $(9,117) $(3,572) -155.2% -0.8% -0.3%
Basic average shares 51,402 51,509
Basic income (loss)
from continuing
operations per share $(0.06) $0.22
Discontinued
operations per
share (net of tax) $(0.12) $(0.29)
Basic net loss per
share $(0.18) $(0.07)
Diluted average shares 51,402 51,743
Diluted income (loss)
from continuing
operations per share $(0.06) $0.22
Discontinued operations
per share (net of tax) $(0.12) $(0.29)
Diluted net loss per
share $(0.18) $(0.07)
Dividends paid per
share $0.36 $0.36
*As a percent of pretax income, not sales.
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
Increase/(Decrease)
(Unaudited, amounts in
thousands) 01/26/08 01/27/07 Dollars Percent 04/28/07
Current assets
Cash and equivalents $63,175 $17,484 $45,691 261.3% $51,721
Receivables, net 214,088 217,103 (3,015) -1.4% 230,399
Inventories, net 183,935 214,151 (30,216) -14.1% 197,790
Deferred income
taxes-current 16,696 31,369 (14,673) -46.8% 17,283
Assets of discontinued
operations 278 39,354 (39,076) -99.3% 24,278
Other current assets 23,309 24,847 (1,538) -6.2% 19,327
Total current assets 501,481 544,308 (42,827) -7.9% 540,798
Property, plant and
equipment, net 179,282 192,382 (13,100) -6.8% 183,218
Deferred income
taxes-long term 24,574 - 24,574 - 15,380
Goodwill 49,850 55,409 (5,559) -10.0% 55,659
Trade names 9,006 9,472 (466) -4.9% 9,472
Other long-term assets 74,585 87,339 (12,754) -14.6% 74,164
Total assets $838,778 $888,910 $(50,132) -5.6% $878,691
Current liabilities
Short-term borrowings $- $15,702 $(15,702) -100% $-
Current portion of long-
term debt 4,154 3,487 667 19.1% 38,076
Accounts payable 61,683 58,405 3,278 5.6% 66,242
Liabilities of
discontinued operations 916 5,681 (4,765) -83.9% 3,843
Accrued expenses and
other current
liabilities 103,387 105,636 (2,249) -2.1% 118,591
Deferred income taxes 669 - 669 - -
Total current
liabilities 170,809 188,911 (18,102) -9.6% 226,752
Long-term debt 146,415 148,773 (2,358) -1.6% 113,172
Income taxes payable -
long term 4,332 9,605 (5,273) -54.9% -
Other long-term
liabilities 61,609 54,961 6,648 12.1% 53,419
Contingencies and
commitments - - - - -
Shareholders' equity
Common shares, $1 par
value 51,417 51,372 45 0.1% 51,377
Capital in excess of par
value 207,954 207,184 770 0.4% 208,283
Retained earnings 196,935 222,601 (25,666) -11.5% 223,896
Accumulated other
comprehensive income
(loss) (693) 5,503 (6,196) -112.6% 1,792
Total shareholders'
equity 455,613 486,660 (31,047) -6.4% 485,348
Total liabilities
and shareholders'
equity $838,778 $888,910 $(50,132) -5.6% $878,691
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in Third Quarter Ended Nine Months Ended
thousands) 01/26/08 01/27/07 01/26/08 01/27/07
Cash flows from operating
activities
Net income (loss) $9,512 $(7,821) $(9,117) $(3,572)
Adjustments to reconcile
net income (loss) to cash
used for operating
activities
Gain (loss) on sale of
discontinued operations
(net of tax) (96) - 3,894 (1,280)
Write-down of assets of
businesses held for sale
(net of tax) - 13,674 2,159 13,674
Write-down of intangibles
(net of tax) - - 3,689 -
Restructuring 245 2,855 4,893 4,720
Provision for doubtful
accounts 2,754 84 6,373 2,891
Depreciation and amortization 6,193 6,233 18,506 20,122
Stock-based compensation
expense 1,303 479 3,165 3,211
Change in receivables 53 22,633 9,241 19,688
Change in inventories 8,645 2,808 17,897 (14,309)
Change in payables 9,161 (9,849) (5,107) (19,228)
Change in other assets and
liabilities 147 106 (16,530) (15,464)
Change in deferred taxes 3,676 (2,270) (2,470) (9,036)
Total adjustments 32,081 36,753 45,710 4,989
Net cash provided by operating
activities 41,593 28,932 36,593 1,417
Cash flows from investing
activities
Proceeds from disposals of
assets 456 314 7,738 25,276
Proceeds from sale of
discontinued operations 150 - 4,169 33,166
Capital expenditures (5,239) (5,984) (20,838) (20,994)
Purchases of investments (15,807) (5,069) (29,077) (13,461)
Proceeds from sales of
investments 15,649 3,817 30,242 11,834
Change in other long-term
assets 1,701 539 2,086 343
Net cash provided by (used
for) investing activities (3,090) (6,383) (5,680) 36,164
Cash flows from financing
activities
Proceeds from debt 574 12,577 1,391 91,252
Payments on debt (974) (32,540) (2,212) (111,220)
Stock issued for stock and
employee benefit plans (13) 567 (129) 1,333
Repurchases of common stock - - - (6,947)
Dividends paid (6,229) (6,212) (18,670) (18,674)
Net cash used for financing
activities (6,642) (25,608) (19,620) (44,256)
Effect of exchange rate changes
on cash and equivalents (1,378) 14 161 70
Change in cash and equivalents 30,483 (3,045) 11,454 (6,605)
Cash and equivalents at
beginning of period 32,692 20,529 51,721 24,089
Cash and equivalents at end of
period $63,175 $17,484 $63,175 $17,484
Cash paid (net of refunds)
during period - income taxes $(4,336) $558 $(443) $17,655
Cash paid during period -
interest $2,652 $2,911 $6,057 $7,769
LA-Z-BOY INCORPORATED
Segment Information
(Unaudited, amounts in thousands)
Third Quarter Ended Nine Months Ended
01/26/08 01/27/07 01/26/08 01/27/07
(Unaudited, amounts in
thousands) (13 weeks) (13 weeks) (39 weeks) (39 weeks)
Sales
Upholstery Group $282,453 $293,709 $806,959 $893,704
Casegoods Group 52,660 63,127 165,126 198,317
Retail Group 49,884 61,149 141,278 165,838
VIEs/Eliminations (11,916) (13,140) (30,452) (44,477)
Consolidated $373,081 $404,845 $1,082,911 $1,213,382
Operating income (loss)
Upholstery Group $19,467 $22,651 $47,370 $60,438
Casegoods Group 2,222 5,721 8,399 15,163
Retail Group (8,507) (6,738) (27,700) (23,222)
Corporate and Other* (9,851) (9,324) (33,315) (28,461)
Intangible write-down - - (5,809) -
Restructuring (245) (2,855) (4,893) (4,720)
$3,086 $9,455 $(15,948) $19,198
*Variable Interest Entities ("VIEs") are included in corporate and other.
