MONROE, Mich., Aug. 22 -- La-Z-Boy Incorporated
(NYSE: LZB; PCX) today reported its operating results for the first quarter
ended July 30, 2005. Net sales for the quarter were $451 million, compared
with $455 million in the prior fiscal year's first quarter. Net income for
the quarter was $3.2 million, or $0.06 per share, versus a loss of $3.5
million, or $0.07 per share, in the comparable period last year. The
operating margin for the first quarter was 1.7% compared with a loss of 0.9%
last year, which included 2.3% of restructuring charges.
Kurt L. Darrow, President and CEO, said, "Year over year, we are
encouraged with the profitability improvement we achieved at the wholesale
level. However, our results for the quarter were impacted primarily by two
factors, as detailed in our July 28, 2005 release: a weaker-than-expected
retail environment in what is typically the slowest quarter of the year; and,
greater-than-expected expenses and costs from the additional 21 La-Z-Boy
Furniture Galleries® stores acquired in the fourth quarter of fiscal 2005.
Although momentum slowed due to seasonal factors, we look forward to the
stronger Fall selling season with a solid business model in place."
Darrow added, "Now that our company-owned La-Z-Boy Furniture Galleries®
stores represent a more significant portion of our overall business, we have
aligned our management reporting structure, accordingly. Beginning with this
quarter's results, we have broadened our segment reporting to include three
business lines -- upholstery, casegoods and retail -- and have restated last
year's numbers to reflect the three segments. This will give investors better
visibility and transparency."
Upholstery Segment
For the fiscal 2006 first quarter, upholstery sales were flat compared
with the prior-year period while the operating margin improved year over year
from 4.2% to 4.9%. Darrow noted, "We are transforming our manufacturing and
sourcing process into an efficient and lean globally integrated system, and
when combined with the strength of our La-Z-Boy brand, our platform from which
to grow will be inevitably stronger."
Darrow continued, "Noteworthy in the quarter was our La-Z-Boy Furniture
Galleries dealer meeting, held in Las Vegas, where we rolled out our Furniture
Galleries Excellence Program, a tool designed to assist dealers in operating
their stores with best practices across a multiple of disciplines, including:
marketing; sales; merchandising; operations; and administration. The program
will give dealers several benchmarks and metrics to evaluate their
performance, training and tools to achieve those benchmarks. We are confident
this new program will continue to strengthen our dealer network.
"During the first quarter, we continued to expand the La-Z-Boy Furniture
Galleries® store system, which includes both company-owned and independent
licensed stores. Our system opened four additional stores, closed two and
remodeled and/or relocated five stores, bringing our total store count to 336,
of which 61 are company owned, and 118 are in the new format. Since rolling
out the 'New Generation' format program, we have seen a significant increase
in traffic levels, greater total sales volumes and higher average sales per
square foot. For the full fiscal year, we plan to open 45 to 50 new format
stores, with at least 20 of those being new stores and the remainder being
store remodels or relocations. Increasing the quality and focus of our
proprietary store program is of paramount importance."
System-wide, including company-owned and independent licensee stores,
same-store written sales, which the company tracks as an indicator of retail
activity, for the second calendar quarter, were down 1.3%, and total sales,
which include new stores, increased 2.9%.
Casegoods Segment
Casegoods sales were $105 million for the fiscal 2006 first quarter.
Darrow said, "Although our sales were relatively flat year over year after two
quarters of increases, we are pleased that our operating margin in this
segment of the business continues to improve. For this quarter, the operating
margin was 4.1% compared with 0.5% in the prior-year period and 2.1% last
quarter as our residential business has moved primarily to an import model.
Our sales in the hospitality portion of this segment continue to strengthen
with a concurrent increase in operating margin. Overall, we are beginning to
achieve the type of results in the casegoods segment that we expected when we
changed our business model."
Retail Segment
For the quarter, retail sales were up $14.2 million to $52.7 million, a
36.9% increase from last year's first quarter. The increase was due primarily
to the acquisition of stores in several markets, which the company will build
out, including two unprofitable VIEs and the Chicagoland market. On an
operating basis, the segment incurred a loss as a result of slower retail
sales throughout all the company's markets and greater-than-anticipated
expenses and transition costs from the 21 stores acquired in the fiscal 2005
fourth quarter.
Darrow noted, "Refreshing merchandise on the floor and moving out older
inventory adversely impacted the gross margin. Longer term, we will need to
invest in updating information systems as well as relocating and refurbishing
a number of stores. Same-store company-owned written sales for the second
calendar quarter were down 1.7% while total sales increased 2.0%. It is
important to note that last year the unprofitable VIEs were consolidated in
'Corporate and Other,' while this year, the two acquired VIEs are included in
our Retail Segment's income statement. We recorded a $0.04 loss in last
year's first quarter for VIEs and $0.11 for the full year. For the first
quarter of fiscal 2006, we recorded a loss of $0.02 for VIEs."
Darrow continued, "Our overall retail volume was weaker than anticipated
during the period. Although it was a challenging quarter, we are excited
about the future of this business and are committed to it as a core element of
our three-part business strategy. Our company-owned stores are in larger
urban markets where we can build out our store program to achieve significant
market penetration and distribution efficiencies. Our proprietary retail
system helps to differentiate La-Z-Boy from commodity products and it is a
natural extension to broaden and strengthen the power of our brand.
Additionally, it positions us to better understand the market firsthand so
that we can help all dealers be successful. The retail business is an
offensive move for us and we are assembling the right team to build this
segment of our business profitably."
Variable Interest Entities (VIEs)
Last year, VIEs were included in "Corporate and Other;" this year, those
now owned by the company are included in the Retail Segment, with those not
owned by the company remaining in "Corporate and Other."
Performance by the company's VIEs impacted results for the period. A
fourth VIE was added during the quarter and the three that were expected to
report breakeven results for the period, were slightly unprofitable. Darrow
said, "While we fully expect these four VIEs to be profitable for the full
year, we understand, due to seasonality, there may be quarters when they will
lose money and they, too, were hurt by the unusually slower retail environment
this Summer."
Balance Sheet
For the quarter, cash flow from operations was $19.8 million. Total debt
for the quarter was down to $219 million. The debt-to-capitalization ratio
was 29.7% at quarter end, down slightly from last quarter. Darrow commented,
"Although our target for debt to total capital is in the mid 20s, given our
share price, we were opportunistic during the quarter and repurchased 500,000
shares at an average price of $14.49. We have 6.2 million shares remaining in
our program."
Business Outlook
Darrow explained, "While we have continued to make steady progress in the
evolution of our business model, we remain concerned with several macro
economic factors, including continued rising energy prices and interest rates,
which could impact the industry's growth prospects and dampen consumer
confidence. Additionally, there has been fierce competition for consumers'
discretionary income, with employee pricing offers from the automotive
industry, which is contributing to weak retail furniture demand."
Darrow continued, "With the current tepid view on our industry, we expect
our second quarter sales to decrease in the low single-digit range compared
with last year's second quarter sales of $521 million. Reported earnings for
the second fiscal quarter are forecasted to be in the range of $0.17 - $0.21
per share. This compares to earnings of $0.17 per share in fiscal 2005's
second quarter, which included an after-tax restructuring charge of $0.01 per
share and an extraordinary gain of $0.01 per share."
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: changes in consumer confidence, changes in
demographics, changes in housing sales, the impact of terrorism or war, energy
price changes, the impact of logistics on imports, the impact of interest rate
changes, the effects of the ruling on tariffs by the U.S. Department of
Commerce and potential disruptions from Chinese imports, the availability and
cost of capital, the impact of imports as it relates to continued domestic
production, raw material price changes, changes in currency rates, competitive
factors, operating factors, such as supply, labor, or distribution disruptions
including changes in operating conditions or costs, effects of restructuring
actions, changes in the domestic or international regulatory environment, not
fully realizing cost reductions through restructurings, ability to implement
global sourcing organization strategies, the future financial performance and
condition of independently owned dealers that we are required to consolidate
into our financial statements or changes requiring us to consolidate
additional independently owned dealers, the impact of new manufacturing
technologies, the impact of adopting new accounting principles, fair value
changes to our intangible assets due to actual results differing from
projected, the impact of severe weather, factors relating to acquisitions and
other factors identified from time to time in the company's reports filed with
the Securities and Exchange Commission.
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
With annual sales of over $2 billion, La-Z-Boy Incorporated is one of the
world's leading residential furniture producers, marketing furniture for every
room of the home, as well as for the hospitality, health care and assisted-
living industries. The La-Z-Boy Upholstery Group companies are Bauhaus,
Centurion, Clayton Marcus, England, La-Z-Boy, and Sam Moore. The La-Z-Boy
Casegoods Group companies are American Drew, American of Martinsville,
Hammary, Kincaid, Lea and Pennsylvania House.
The corporation's vast 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 and 340 La-Z-Boy In-
Store Galleries, in addition to in-store gallery programs at the company's
Kincaid, Pennsylvania House, Clayton Marcus, 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
(Unaudited, amounts in thousands, except per share data)
First Quarter Ended
% Over Percent of Sales
7/30/05 7/24/04 (Under) 7/30/05 7/24/04
Sales $451,487 $455,107 -0.8% 100.0% 100.0%
Cost of sales
Cost of goods
sold 345,018 351,716 -1.9% 76.4% 77.3%
Restructuring -- 10,400 -100.0% -- 2.3%
Total cost of
sales 345,018 362,116 -4.7% 76.4% 79.6%
Gross profit 106,469 92,991 14.5% 23.6% 20.4%
Selling, general
and administrative 98,568 97,045 1.6% 21.8% 21.3%
Operating income
(loss) 7,901 (4,054) 294.9% 1.7% -0.9%
Interest expense 2,741 2,209 24.1% 0.6% 0.5%
Other income, net 15 373 -96.0% 0.0% 0.1%
Income (loss) from
from continuing
operations before
income taxes 5,175 (5,890) 187.9% 1.1% -1.3%
Income tax expense
(benefit) 1,967 (2,238) 187.9% 38.0%* 38.0%*
Income (loss)
from continuing
operations 3,208 (3,652) 187.8% 0.7% -0.8%
Income from
discontinued
operations
(net of tax) -- 129 -100.0% -- 0.0%
Net income (loss) $3,208 $(3,523) 191.1% 0.7% -0.8%
Basic average
shares 52,129 51,967
Basic income (loss)
from continuing
operations per share $0.06 $(0.07)
Basic net income
(loss) per share $0.06 $(0.07)
Diluted average
shares 52,195 51,967
Diluted income (loss)
from continuing
operations
per share $0.06 $(0.07)
Diluted net income
(loss) per share $0.06 $(0.07)
Dividends paid per
share $0.11 $0.11
*As a percent of pretax income, not sales.
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands)
Increase/(Decrease)
7/30/05 7/24/04 Dollars Percent 4/30/05
Current assets
Cash and
equivalents $19,011 $28,965 $(9,954) -34.4% $37,705
Receivables,
net 248,677 250,081 (1,404) -0.6% 283,915
Inventories,
net 264,739 275,852 (11,113) -4.0% 260,556
Deferred
income taxes 26,048 42,707 (16,659) -39.0% 22,779
Other current
assets 21,195 27,316 (6,121) -22.4% 33,410
Total
current
assets 579,670 624,921 (45,251) -7.2% 638,365
Property, plant
and equipment,
net 213,287 206,622 6,665 3.2% 210,565
Goodwill 79,770 68,116 11,654 17.1% 79,362
Trade names 21,484 27,889 (6,405) -23.0% 21,484
Other long-term
assets 86,284 83,651 2,633 3.1% 76,581
Total
assets $980,495 $1,011,199 $(30,704) -3.0% $1,026,357
Current liabilities
Short-term
borrowings $22,000 $6,000 $16,000 266.7% $9,700
Current portion
of long-
term debt 2,801 1,864 937 50.3% 3,060
Accounts
payable 69,342 85,186 (15,844) -18.6% 82,792
Accrued expenses
and other
current
liabilities 112,587 113,317 (730) -0.6% 133,172
Total current
liabilities 206,730 206,367 363 0.2% 228,724
Long-term debt 194,687 232,833 (38,146) -16.4% 213,549
Deferred income
taxes 5,420 20,030 (14,610) -72.9% 5,389
Other long-term
liabilities 54,965 39,585 15,380 38.9% 51,409
Contingencies and
commitments
Shareholders' equity
Common shares,
$1 par value 51,806 52,003 (197) -0.4% 52,225
Capital in
excess of
par value 213,578 215,822 (2,244) -1.0% 214,087
Retained
earnings 265,274 243,208 22,066 9.1% 273,143
Unearned
compensation (1,367) -- (1,367) N/M (1,536)
Accumulated
other
comprehensive
income (loss) (10,598) 1,351 (11,949) -884.5% (10,633)
Total
shareholders'
equity 518,693 512,384 6,309 1.2% 527,286
Total liabilities
and shareholders'
equity $980,495 $1,011,199 $(30,704) -3.0% $1,026,357
N/M = not meaningful
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in thousands)
First Quarter Ended
7/30/05 7/24/04
Cash flows from operating activities
Net income (loss) $3,208 $(3,523)
Adjustments to reconcile net income (loss)
to cash provided by (used for) operating activities
Restructuring -- 10,400
Depreciation and amortization 6,998 6,908
Change in receivables 34,842 51,440
Change in inventories (781) (27,284)
Change in payables (13,959) (8,112)
Change in other assets and liabilities (7,301) (29,843)
Change in deferred taxes (3,238) (4,927)
Total adjustments 16,561 (1,418)
Net cash provided by (used for)
operating activities 19,769 (4,941)
Cash flows from investing activities
Proceeds from disposals of assets 2 268
Purchases of investments (11,938) (1,506)
Proceeds from sale of investments 2,143 2,539
Capital expenditures (6,713) (9,474)
Change in other long-term assets (2,065) (1,828)
Net cash used for investing activities (18,571) (10,001)
Cash flows from financing activities
Proceeds from debt 46,079 69,743
Payments on debt (53,905) (53,416)
Stock issued for stock and employee benefit plans 1,000 1,482
Repurchase of common stock (7,247) (2,476)
Dividends paid (5,758) (5,649)
Net cash provided by (used for)
financing activities (19,831) 9,684
Effect of exchange rate changes on cash
and equivalents (61) 341
Net decrease in cash and equivalents (18,694) (4,917)
Cash and equivalents at beginning of period 37,705 33,882
Cash and equivalents at end of period $19,011 $28,965
Cash paid (net of refunds) during period
- Income taxes $(5,633) $7,414
- Interest $3,222 $2,552
LA-Z-BOY INCORPORATED
Impact of FIN46 on Consolidation
VIEs
(Unaudited, amounts in thousands) 7/30/2005 4/30/2005
Assets
Cash and cash equivalents $2,933 $1,699
Accounts receivable, net (9,397) (1) (9,131) (1)
Inventories, net 9,399 7,211
Deferred income taxes 7,681 7,199
Other current assets 1,268 1,226
Total current assets 11,884 8,204
Property, plant and equipment, net 9,692 8,431
Intangibles 8,122 7,714
Other long-term assets (18,535) (1) (14,169) (1)
Total assets $11,163 $10,180
Liabilities and shareholders' equity
Short-term borrowings $ - $ -
Current portion of long-term debt 1,573 1,934
Accounts payable 596 329
Other current liabilities 4,152 3,523
Total current liabilities 6,321 5,786
Long-term debt 7,311 6,256
Deferred income taxes 196 -
Other long-term liabilities (1,300) (1,300)
Shareholders' equity (deficit) (1,365) (562)
Total liabilities and
shareholders' equity $11,163 $10,180
(1) Reflects the elimination of intercompany accounts and notes
receivable.
(Unaudited, amounts in thousands) 7/30/2005 7/24/2004
Sales $8,586 (2) $13,641 (2)
Cost of sales 2,466 942
Gross profit 6,120 12,699
Selling, general and administrative 6,801 14,676
Operating income (loss) (681) (1,977)
Interest expense 108 167
Other expense, net (480) (3) (1,294) (3)
Pre-tax loss (1,269) (3,438)
Income tax benefit (482) (1,306)
Net loss from continuing operations $(787) $(2,132)
(2) Includes the elimination of intercompany sales and cost of sales.(3) Includes the elimination of intercompany interest income and interest
expense.
La-Z-Boy Furniture Galleries® stores that are not operated by us are
operated by 118 independent dealers. These stores sell La-Z-Boy manufactured
product as well as various accessories purchased from approved La-Z-Boy
vendors. In some cases we have extended credit beyond normal trade terms to
the independent dealers, made direct loans and/or guaranteed certain loans or
leases. Most of these independent dealers have sufficient equity to carry out
their principal operating activities without subordinated financial support;
however, there are certain independent dealers that we have determined may not
have sufficient equity. In accordance with Financial Accounting Standards
Board Interpretation No. 46R, we began to consolidate variable interest
entities of which we were deemed the primary beneficiary as of April 24, 2004.
The table below shows the impact on our consolidated balance sheet at July 30,
2005 and April 30, 2005 and statement of operations for the quarters ended
July 30, 2005 and July 24, 2004. The amounts reflected in the table include
the elimination of related payables, receivables, sales, cost of sales, and
interest as well as profit in inventory.
LA-Z-BOY INCORPORATED
Segment Information
Our reportable operating segments are the Upholstery Group, the Retail
Group and the Casegoods Group.
First Quarter
Ended Quarters Ended in Fiscal 2005
(Unaudited amounts 7/30/05 7/24/04 10/23/04 1/22/05 4/30/05
in thousands) (13 Weeks) (13 Weeks) (13 Weeks) (13 Weeks) (14 Weeks)
Sales
Upholstery
Group $314,481 $316,838 $380,726 $356,507 $413,240
Casegoods Group 104,997 105,714 114,169 111,918 123,542
Retail Group 52,655 38,456 40,960 44,298 49,385
VIEs/Eliminations (20,646) (5,901) (15,095) (5,764) (20,612)
Consolidated $451,487 $455,107 $520,760 $506,959 $565,555
Operating income (loss)
Upholstery Group $15,254 $13,198 $27,475 $22,253 $38,930
Casegoods Group 4,344 500 80 2,152 2,638
Retail Group (5,408) 515 510 (183) (3,701)
Corporate and
Other* (6,289) (7,867) (12,013) (2,236) (8,306)
Restructuring -- (10,400) (749) (2,252) 3,107
Consolidated $7,901 $(4,054) $15,303 $19,734 $32,668
* VIEs are included in corporate and other.
