La-Z-Boy Reports First Quarter Operating Results
MONROE, Mich., Aug. 12 /PRNewswire-FirstCall/ -- La-Z-Boy Incorporated (NYSE: LZB; PCX) today reported its operating results for the first fiscal quarter ended July 26, 2003. Net sales for the quarter declined 9.2% from a year earlier, to $451 million, while diluted earnings per share were $0.11 after a previously-announced $0.07 per share restructuring charge, or $0.18 per share before the charge. The quarter's per share earnings were in line with management's recent guidance, and compare against $0.32 per fully diluted share earned in the July 2002 first quarter, before the cumulative effect of a change in accounting principle for goodwill and intangible assets.
La-Z-Boy Incorporated president and CEO Jerry Kiser said, "This quarter is always seasonally challenging and our comparisons were made more difficult by the fact that our July quarter last year was unusually strong because of a larger than normal beginning backlog. As previously reported, our upholstery sales in last year's first quarter rose 19.0%, driven in part by very strong sales gains for our La-Z-Boy Furniture Galleries(R) store system, and our total sales for that quarter were up 8.9%. This year, in contrast, upholstery and casegoods segment sales were both down, in the context of very lackluster consumer demand for furniture."
Gross margin for the quarter fell from 23.1% to 20.5%, primarily due to the $6.3 million restructuring charge. It was also negatively impacted by reduced sales volume and additional plant shutdown time. Although selling, general & administrative expense for the quarter was slightly lower in dollar amount than in the comparable year-earlier period, it increased to 18.0% of sales in this year's first quarter, from 16.5% a year ago primarily due to the lower sales level in conjunction with a higher portion of fixed expense.
Kiser continued, "Operating margin in this year's first quarter fell to 2.5% as reported, or 3.9% before the restructuring charge, from 6.6% a year earlier, as we took a substantial number of additional plant shutdown days to avoid building inventories. The unabsorbed costs resulting from this higher than normal downtime had a substantial negative impact on the quarter's operating margin. Additionally, pricing pressure continues to impact our margins."
Upholstery segment
Upholstery segment sales declined by 8.5% for the July quarter from the prior year's quarter. Kiser said, "This segment was the beneficiary of an unprecedented strong demand last year. However, retail business was very soft this year relative to last and when combined with our lower beginning backlog, magnified our sales decline." First quarter operating margin for the upholstery segment was 6.8%, down from 8.5% in last year's quarter, primarily as a result of a combination of lower sales volumes and extended plant shutdown time which lead to higher unabsorbed costs during the quarter.
Kiser noted that four new free-standing La-Z-Boy Furniture Galleries(R) stores were opened during the quarter, another two relocated to higher profile locations and one older format store closed. The total Furniture Galleries store count at quarter-end was 317, including 52 stores featuring the larger, more productive, New Generation format. "Our current plans call for the opening or conversion to New Generation format stores at an average rate of 10-12 quarterly, including relocations and remodels," Kiser said, adding that older, less productive stores will continue to be selectively closed or relocated at the same time.
Casegoods Segment
Casegoods segment sales declined 11.2% from a year earlier for the July quarter. The casegoods segment operating margin for the quarter fell sharply, to (4.5%), from 5.8% a year earlier, due to the $6.3 million restructuring charge, and the extensive plant downtime taken this year. On a normalized basis to exclude restructuring, the operating margin was 0.9% for the first quarter of fiscal 2004.
Kiser said, "The casegoods restructuring actions we announced in early June will result in the closure of three plants by the end of calendar 2003. We will continue our blended strategy of outsourcing certain products and shift some of this production to other La-Z-Boy casegoods facilities. Once the transition is fully implemented, by the beginning of our fiscal fourth quarter, we expect this plant rationalization to produce annual savings in the range of $5 - $6 million. In the meantime, there will be some disruptions as the shutdowns are implemented and production is shifted. This will likely also put some pressure on our casegoods margins during the second and third fiscal quarters of this year."
Casegoods Group reorganization charge
As previously reported, the reorganization of the La-Z-Boy Casegoods Group -- including a realignment of several key management responsibilities, the establishment of a new global sourcing organization and the closure of three casegoods manufacturing facilities -- will result in a total pre-tax charge of approximately $10 million, or $0.11 per diluted share on an after-tax basis. During the current fiscal quarter a largely non-cash charge of $6.3 million was taken to cover the write-down of certain fixed assets and inventories. Most of the balance of the charge, representing severance and relocation costs, will be incurred in the following two quarters of fiscal 2004.
Balance sheet
Inventories decreased approximately $11 million for the July quarter, with virtually all of the decline occurring in finished goods. This was the direct result of our efforts to bring inventories in line with current sales and demand trends and was accomplished largely through extended plant downtimes. Total debt remained at $224 million for the quarter, and our debt to total capitalization ratio was at 27.1% at quarter-end.
During the first quarter, the company repurchased an additional 629,000 shares of its outstanding common stock for a total of $13.4 million, and at quarter-end, 3.5 million shares remained available under the company's existing stock repurchase authorization.
Business outlook
Commenting on the current business outlook, Kiser said, "Not surprisingly, the U.S. furniture retailing environment has remained relatively sluggish this summer. Despite the conclusion of the war in Iraq, a modest rebound in consumer confidence and some scattered recent indications that the U.S. economy is attempting to gather strength, there is little evidence at this point of a consistent consumer follow-through. We are inclined to think the recent child care tax credit checks will provide some stimulus to the economy and our business, but are concerned that the recent increases in long-term interest rates may have an offsetting dampening affect on consumer spending. So, while we continue to believe that the normal seasonal pickup in our business will begin to materialize during the important fall selling season, our guidance for the current quarter has been tempered accordingly."
He concluded, "We are currently expecting sales for the October quarter to be down in the mid-single digit percentage range compared to last year's second quarter, and we anticipate reported earnings for the quarter to be in the range of $0.38 - $0.43 per diluted share, or $0.40 - $0.45 per diluted share, when normalized to exclude restructuring charges, versus the $0.50 we earned per diluted share in the same quarter of fiscal 2003." (A reconciliation of GAAP to non-GAAP normalized results follows.)
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 sentiment or demand, 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, potential impact of anti-dumping actions, the availability and cost of capital, the impact of imports, 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 regulatory environment, the impact of new manufacturing technologies, factors relating to acquisitions and other factors identified from time to time in the company's reports filed with the Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason.
Conference Call Information
The dial-in phone number for tomorrow's conference call at 11 a.m. E.T. will be (800) 374-1298 for persons calling from within the U.S. or Canada, and (706) 634-5855 for international callers. The call will also be webcast live and archived on the Internet, with both accessible at http://www.la-z-boy.com/about/ir_confcalls.asp . A telephone replay will be available for a week following the live call to callers from the U.S. and Canada at (800) 642-1687 and to international callers at (706) 645-9291. The replay passcode is 191820.
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/ir_sec.asp. 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://my.lazboy.com/mygallery/investor_relations.cfm .
Background Information
With annual sales in excess of $2 billion, La-Z-Boy Incorporated is one of the world's leading residential furniture producers, marketing furniture for every room of the home and office, 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, La-Z-Boy Contract Furniture Group and Sam Moore, and the La-Z-Boy Casegoods Group companies are Alexvale, 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 317 stand-alone La-Z-Boy Furniture Galleries(R) stores and 320 La-Z-Boy In- Store Gallerys, 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 Furniture/Today, the La-Z-Boy Furniture Galleries retail network by itself represents the industry's fifth largest U.S. furniture retailer and the second largest single source furniture retailer. Additional information is available at http://www.la-z-boy.com /
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, amounts in thousands, except per share data)
First Quarter Ended
% Over Percent of Sales
7/26/03 7/27/02 (Under) 7/26/03 7/27/02
Sales $451,472 $497,375 -9.2% 100.0% 100.0%
Cost of sales 358,754 382,552 -6.2% 79.5% 76.9%
Gross profit 92,718 114,823 -19.3% 20.5% 23.1%
Selling, general
and administrative 81,419 81,936 -0.6% 18.0% 16.5%
Operating profit 11,299 32,887 -65.6% 2.5% 6.6%
Interest expense 3,213 2,027 58.5% 0.7% 0.4%
Other income, net 1,272 116 996.6% 0.3% 0.0%
Pre-tax income 9,358 30,976 -69.8% 2.1% 6.2%
Income tax expense 3,555 11,848 -70.0% 38.0% * 38.2% *
Income before
cumulative effect
of accounting change 5,803 19,128 -69.7% 1.3% 3.8%
Cumulative effect of
accounting change
(net of tax of
$17,920) - 59,782 -100.0% 0.0% 12.0%
Net income (loss) $5,803 ($40,654) N/M 1.3% -8.2%
Basic average shares 54,729 59,125
Basic net income per
share before cumulative
effect of
accounting change $0.11 $0.32
Cumulative effect of
accounting change
per share - (1.01)
Basic net income
(loss) per share $0.11 ($0.69)
Diluted average
shares 54,916 59,667
Diluted net income
per share before
cumulative effect
of accounting change $0.11 $0.32
Cumulative effect of
accounting change
per share - (1.00)
Diluted net income
(loss) per share $0.11 ($0.68)
Dividends paid
per share $0.10 $0.10
* As a percent of pretax income, not sales. N/M = not meaningful
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands)
Increase/(Decrease)
7/26/03 7/27/02 Dollars Percent 4/26/03
Current assets
Cash and equivalents $28,422 $25,550 $2,872 11.2% $28,817
Receivables, net 297,341 324,687 (27,346) -8.4% 340,467
Inventories, net 242,018 233,525 8,493 3.6% 252,537
Deferred income taxes 37,709 35,648 2,061 5.8% 37,734
Other current assets 17,282 15,821 1,461 9.2% 19,939
Total current assets 622,772 635,231 (12,459) -2.0% 679,494
Property, plant and
equipment, net 205,392 207,426 (2,034) -1.0% 209,411
Goodwill 78,807 78,833 (26) 0.0% 78,807
Trade names 71,144 68,454 2,690 3.9% 71,144
Other long-term assets 80,055 53,486 26,569 49.7% 84,210
Total assets $1,058,170 $1,043,430 $14,740 1.4% $1,123,066
Current liabilities
Lines of credit $290 $ - $290 N/M $ -
Current portion of
long-term debt and
capital leases 992 2,276 (1,284) -56.4% 1,619
Accounts payable 48,011 77,986 (29,975) -38.4% 78,931
Accrued expenses and
other current
liabilities 106,734 127,890 (21,156) -16.5% 134,037
Total current
liabilities 156,027 208,152 (52,125) -25.0% 214,587
Long-term debt 221,611 147,917 73,694 49.8% 221,099
Capital leases 1,151 1,801 (650) -36.1% 1,272
Deferred income taxes 37,111 28,364 8,747 30.8% 36,928
Other long-term
liabilities 39,039 36,856 2,183 5.9% 39,241
Contingencies and commitments
Shareholders' equity
Common shares, $1
par value 54,645 58,326 (3,681) -6.3% 55,027
Capital in excess of
par value 215,905 215,585 320 0.1% 216,081
Retained earnings 334,532 351,885 (17,353) -4.9% 342,628
Accumulated other
comprehensive loss (1,851) (5,456) 3,605 66.1% (3,797)
Total shareholders'
equity 603,231 620,340 (17,109) -2.8% 609,939
Total liabilities
and shareholders'
equity $1,058,170 $1,043,430 $14,740 1.4% $1,123,066
N/M = not meaningful
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in thousands)
First Quarter Ended
7/26/03 7/27/02
Cash flows from operating activities
Net income (loss) $5,803 ($40,654)
Adjustments to reconcile net income (loss)
to cash provided by operating activities
Cumulative effect of accounting change -
net of income taxes - 59,782
Depreciation and amortization 7,311 7,066
Change in receivables 43,955 58,156
Change in inventories 10,519 (23,474)
Change in payables (30,920) 9,345
Change in other assets and liabilities (20,347) (22,516)
Change in deferred taxes 208 (448)
Total adjustments 10,726 87,911
Net cash provided by operating activities 16,529 47,257
Cash flows from investing activities
Proceeds from disposals of assets 174 63
Capital expenditures (6,853) (8,945)
Acquisitions, net of cash acquired - (1,166)
Change in other long-term assets 3,557 4,128
Net cash used for investing activities (3,122) (5,920)
Cash flows from financing activities
Proceeds from debt 319 10,608
Payments on debt (120) (133)
Capital leases (146) (141)
Stock issued for stock option and
employee benefit plans 4,446 693
Repurchase of common stock (13,417) (47,454)
Dividends paid (5,486) (5,973)
Net cash used for financing activities (14,404) (42,400)
Effect of exchange rate changes on
cash and equivalents 602 (158)
Net decrease in cash and equivalents (395) (1,221)
Cash and equivalents at beginning of period 28,817 26,771
Cash and equivalents at end of period $28,422 $25,550
Cash paid during period - Income taxes $1,358 $12,645
- Interest $3,792 $971
Reconciliation of Non-GAAP Normalized Financial Information
to GAAP Financial Information
(Unaudited, amounts in thousands except per share data)
Upholstery Group Casegoods Group
7/26/03 7/27/02 7/26/03 7/27/02
Operating income
as reported $22,932 $31,219 ($5,198) $7,593
Restructuring (1) - - 6,273 -
Normalized operating
income 22,932 31,219 1,075 7,593
Operating margin
as reported 6.8% 8.5% (4.5%) 5.8%
Normalized operating
margin 6.8% 8.5% 0.9% 5.8%
Diluted net income
per share as reported
Restructuring (1)
Cumulative effect of
accounting change
Normalized diluted net
income per share
Eliminations,
Corporate & Other Consolidated
7/26/03 7/27/02 7/26/03 7/27/02
Operating income
as reported ($6,435) ($5,925) $11,299 $32,887
Restructuring (1) - - 6,273 -
Normalized operating
income (6,435) (5,925) 17,572 32,887
Operating margin
as reported N/M N/M 2.5% 6.6%
Normalized operating
margin N/M N/M 3.9% 6.6%
Diluted net income
per share as reported $0.11 ($0.68)
Restructuring (1) 0.07 -
Cumulative effect of
accounting change - 1.00
Normalized diluted net
income per share $0.18 $0.32
(1) Excludes the fiscal 2004 restructuring charges.
N/M = not meaningful
SOURCE La-Z-Boy Incorporated
-0- 08/12/2003
/CONTACT: Mark Stegeman of La-Z-Boy Incorporated, +1-734-241-4418,
mark.stegeman@la-z-boy.com /
/Web site: http://www.la-z-boy.com /
(LZB)
CO: La-Z-Boy Incorporated
ST: Michigan
IN: HOU REA
SU: ERN CCA MAV ERP
TH-KN
-- DETU008A --
7754 08/12/2003 05:30 EDT http://www.prnewswire.com