La-Z-Boy Reports Second Quarter Results
MONROE, Mich., Nov. 11 /PRNewswire-FirstCall/ -- La-Z-Boy Incorporated (NYSE: LZB; PCX) today reported results for its second fiscal quarter ended October 26, 2002. Net sales for the quarter were $564 million, a 1.1% increase over the prior year. Net sales for the six months rose 4.6% compared to the same period of fiscal 2002. On a comparable basis, excluding the impact of the divestiture of Pilliod last November, the cessation of operations by HickoryMark announced in August, and the acquisition of five retail stores in Boston and Kansas City, net sales for the second quarter and first half would have risen from year earlier levels by 3.6% and 8.0%, respectively.
Diluted earnings per share for this year's second quarter totaled $0.50 -- at the top of management's guidance range. This compares to $0.33 earned per diluted share in the same quarter of fiscal 2002, prior to a $0.13 per share restructuring charge taken that quarter. First half earnings for fiscal 2003 totaled $0.81 per diluted share before the cumulative effect of a change in accounting principle for goodwill and intangible assets resulting from the company's recent adoption of Statement of Financial Accounting Standards No. 142 ("SFAS 142"). In the first six months of fiscal 2002, the company earned $0.38 per diluted share before the previously-mentioned $0.13 restructuring charge. The elimination of goodwill and trade name amortization under SFAS 142 added $0.03 and $0.06, respectively, to diluted earnings per share for this year's second quarter and first half, and would have added the same amounts to earnings per share for the prior year periods, had SFAS 142 been in effect at that time. Including the cumulative effect of the change in accounting principle, the net loss for the six months ended October 26, 2002 was $0.20 per diluted share.
Operating margin for the October quarter rose to 8.4%, from 6.6% in the previous quarter and 6.7% in the year-earlier quarter, adjusted for amortization and restructuring expenses. This represented the company's fourth consecutive quarter of year-over-year improvement in operating margin, as "normalized" to exclude amortization expense and the various restructuring and divestiture expenses recorded during fiscal year 2002.
President and CEO Jerry Kiser said, "The relatively slower revenue growth in the most recent quarter reflected weak and tenuous U.S. consumer confidence which strongly correlates with furniture sales. Also impacting the industry were the volatile equity markets and spotty demand trends, especially for higher price point products. Fortunately, our mix of business is dominated by the middle price point upholstered product which is currently being less impacted by these factors."
La-Z-Boy's upholstery group continues to outpace the industry at large. Same store sales in the predominately independently owned La-Z-Boy Furniture Galleries(R) store system continue to show year over year improvement. Additionally, newly opened stores in the "new generation" format are adding significantly to the volume increases. Other upholstery brands within the portfolio also experienced increases. This sales performance offset weaker casegoods sales and the minor impact from the West Coast dock strike on our casegoods business.
Kiser continued, "Particularly encouraging this quarter was the continued improvement in gross profit and operating profit margins as our casegoods sourcing initiatives, capacity rationalizations and other management initiatives have proven successful. We continue to see opportunities for continuous improvements and are striving to further expand our margins."
Business segments
Second quarter upholstery sales rose 8.5% from a year earlier, or 9.7% excluding the phase-out of the HickoryMark brand and the company's acquisition of the five retail stores mentioned earlier and operating margin for the quarter was 10.1%, compared to a normalized 9.4% a year earlier. For the first six months of fiscal 2003, upholstery sales were up 13.1%, with an operating margin of 9.3%, compared to a normalized margin of 7.1% in the first half of fiscal 2002. Overall, the upholstery segment has continued to benefit from the fact that the product lines are predominantly at the middle price point ranges where consumer demand has held up relatively well.
Kiser noted, "La-Z-Boy also remains strongly committed to its dedicated store program, with 12 more "new generation" La-Z-Boy Furniture Galleries(R) stores opening for business during the October fiscal quarter. In addition, the first remodel of an older format La-Z-Boy Furniture Galleries(R) store was completed in Greensboro, NC. Many of our dealers toured this store during the recent High Point Furniture Market and expressed enthusiasm for the new format and committed to reformatting their existing stores. Current plans call for us to add another 10 "new generation" La-Z-Boy Furniture Galleries(R) stores over the next two quarters."
Casegoods remained weaker than upholstery during the quarter, with sales declining 15.2% from a year earlier. Excluding Pilliod, second quarter casegoods sales were down 10.0%. Through the first six months, casegoods segment sales were off 13.6% in total, and down 7.5% after excluding Pilliod. The hospitality market remains particularly weak and is not expected to rebound until late calendar 2003. Despite this revenue softness, casegoods operating margins moved up to 7.9% in the most recent quarter from a "normalized" 3.5% in the year earlier period, due to previous restructuring and cost-cutting efforts and a growing mix of imported products augmenting domestic production. First half operating margin for the casegoods segment rose to 6.9% this year from a normalized 2.3% in the same period of fiscal 2002.
Kiser stated, "We were disappointed with the lower than anticipated level of sales in our casegoods group. We will continue to place emphasis on increasing dedicated distribution in that group similar to the emphasis in our upholstery group. The Pennsylvania House in-store Collectors' Gallery program, in addition to focusing on increasing its dedicated distribution, is beginning to benefit from a revamped and very successful product line. Kincaid Furniture continues to expand its proprietary distribution and opened two more stand-alone stores during the second quarter. Lea continues to have strong demand from dealers for its in-store La-Z-Boy Youth Collection(SM) by Lea displays."
Balance sheet
Inventories increased by 5% during the October quarter as the result of a normal seasonal pickup and additional import inventories. The company also repurchased 1.9 million shares for $45 million and, through the first six months, has repurchased a total of 3.7 million shares, or about 6% of the total shares outstanding, for $92 million. The company has 6 million shares remaining under its stock repurchase authorization. Total debt rose by $62 million during the quarter, and the debt-to-capitalization ratio stood at 26.1% as of quarter-end.
Kiser said, "Our second fiscal quarter is historically our lowest cash generation period, due to the normal seasonal sales trends of our business. When combined with our stock repurchase program, we intentionally engineered an increase in our leverage. As we have noted in the past, we've been an underleveraged company; however, we do not expect our debt-to-capitalization ratio to exceed 30%. The last half of the year is anticipated to generate cash and our stock repurchase program will remain an opportunistic effort."
Business outlook
Commenting on the current business outlook, Kiser said, "While we have experienced an upswing in business through the first half of our current fiscal year, our comparables become much more difficult over the next six months. This same period last year was the beginning of a pickup which now appears to be leveling off. Recent consumer confidence measurements hit nine- year lows, and numerous U.S. retail sales projections are currently flat-to- down. Accordingly, we expect our third fiscal quarter and second fiscal half sales volumes to be flat to slightly up -- excluding the impact of Pilliod and HickoryMark."
He concluded, "We do believe, nevertheless, that La-Z-Boy's profit improvement momentum will continue, and our guidance for the January 2003 third fiscal quarter calls for diluted per share earnings in the $0.40 - $0.45 range. For the full fiscal year ending next April, we continue to believe we can reach the $1.70 - $1.80 range per diluted share, excluding the cumulative effect of our adoption of SFAS 142. This would compare with fiscal 2002's normalized earnings of $1.35 per diluted share, excluding amortization and restructuring expenses."
Conference Call Information
The dial-in phone number for tomorrow's live conference call at 8 a.m. ET is (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 www.la-z-boy.com . A telephone replay will be available from approximately noon tomorrow, November 12, through noon on November 19. This replay will be available to callers from the U.S. and Canada at (800) 642-1687 and to international callers at (706) 645-9291, with a passcode of 6158197.
Forward-looking Information
Any forward-looking statements contained in this report 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 housing sales, the impact of terrorism or war, the impact of logistics on imports, the impact of interest rate changes, the impact of imports, changes in currency rates, competitive factors, operating factors, 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.
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. Tomorrow we plan on filing a Form 10-Q report which includes a condensed balance sheet, income and cash flow statements, for the fiscal quarter and six-months ended October 26, 2002, and will be available at http://www.la-z-boy.com . Investors and others wishing to be notified of future news releases, SEC filings and conference calls may sign up at: http://my.lazboy.com/mygallery/investor_relations.htm .
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 308 stand-alone La-Z-Boy Furniture Galleries(R) and 319 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. Additional information is available at www.la-z-boy.com .
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, amounts in thousands, except per share data)
Second Quarter Ended
% Over Percent of Sales
10/26/02 10/27/01 (Under) 10/26/02 10/27/01
Sales $563,587 $557,408 1.1% 100.0% 100.0%
Cost of sales 429,161 446,105 -3.8% 76.1% 80.0%
Gross profit 134,426 111,303 20.8% 23.9% 20.0%
Selling, General
and Administrative 87,190 89,697 -2.8% 15.5% 16.1%
Operating income 47,236 21,606 118.6% 8.4% 3.9%
Interest expense 2,153 2,044 5.3% 0.4% 0.4%
Other income
(expense), net 1,394 750 85.9% 0.2% 0.1%
Pretax income 46,477 20,312 128.8% 8.2% 3.6%
Tax expense 17,777 7,921 124.4% 38.2%* 39.0%*
Net income $28,700 $12,391 131.6% 5.1% 2.2%
Basic average
shares 57,388 60,914
Basic net income
per share $0.50 $0.20
Diluted average
shares 57,760 61,052
Diluted net income
per share $0.50 $0.20
Dividends paid per
share $0.10 $0.09
-
As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, amounts in thousands, except per share data)
Six Months Ended
% Over Percent of Sales
10/26/02 10/27/01 (Under) 10/26/02 10/27/01
Sales $1,060,962 $1,014,343 4.6% 100.0% 100.0%
Cost of sales 811,713 815,834 -0.5% 76.5% 80.4%
Gross profit 249,249 198,509 25.6% 23.5% 19.6%
Selling, General and
Administrative 169,126 169,926 -0.5% 15.9% 16.8%
Operating income 80,123 28,583 180.3% 7.6% 2.8%
Interest expense 4,180 5,000 -16.4% 0.4% 0.5%
Other income
(expense), net 1,510 1,371 10.1% 0.1% 0.2%
Pretax income 77,453 24,954 210.4% 7.3% 2.5%
Tax expense 29,625 9,732 204.4% 38.2%* 39.0%*
Income before
cumulative effect
of accounting
change 47,828 15,222 214.2% 4.5% 1.5%
Cumulative effect
of accounting
change (net of tax
of $17,920) (59,782) - N/M -5.6% -
Net income (loss) ($11,954) $15,222 -178.5% -1.1% 1.5%
Basic average
shares 58,257 60,842
Basic net income per
share before
cumulative effect
of accounting
change $0.82 $0.25
Cumulative effect of
accounting change
per share (1.03) -
Basic net income
(loss) per share ($0.21) $0.25
Diluted average
shares 58,726 60,994
Diluted net income
per share before
cumulative effect
of accounting
change $0.81 $0.25
Cumulative effect of
accounting change
per share (1.01) -
Diluted net income
(loss) per share ($0.20) $0.25
Dividends paid per
share $0.20 $0.18
-
As a percent of pretax income, not sales.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands)
Increase/(Decrease)
10/26/02 10/27/01 Dollars Percent 4/27/02
Current assets
Cash and equivalents $23,723 $24,797 ($1,074) -4.3% $26,771
Receivables, net 358,939 377,744 (18,805) -5.0% 382,843
Inventories, net 246,352 244,455 1,897 0.8% 208,657
Deferred income taxes 32,159 19,771 12,388 62.7% 35,035
Other current assets 17,953 19,077 (1,124) -5.9% 18,386
Total current assets 679,126 685,844 (6,718) -1.0% 671,692
Property, plant and
equipment, net 212,305 219,656 (7,351) -3.3% 205,463
Goodwill 78,807 110,497 (31,690) -28.7% 108,244
Trade names 71,144 118,876 (47,432) -40.2% 116,745
Other long-term assets 68,490 55,503 12,987 23.4% 58,632
Total assets $1,109,872 $1,190,376 ($80,504) -6.8% $1,160,776
Current liabilities
Lines of credit $22,100 $- $22,100 N/M $-
Current portion of
long-term debt and
capital leases 2,277 7,047 (4,770) -67.7% 2,276
Accounts payable 85,904 88,604 (2,700) -3.0% 68,497
Accrued expenses and
other current
liabilities 137,941 136,933 1,008 0.7% 156,120
Total current
liabilities 248,222 232,584 15,638 6.7% 226,893
Long-term debt 187,784 171,477 16,307 9.5% 137,444
Capital leases 1,658 2,278 (620) -27.2% 1,942
Deferred income taxes 28,513 46,236 (17,723) -38.3% 46,145
Other long-term
liabilities 37,745 39,380 (1,635) -4.2% 34,830
Contingencies and
commitments
Shareholders' equity
Common shares, $1 par
value 56,717 60,763 (4,046) -6.7% 59,953
Capital in excess of
par value 215,561 211,138 4,423 2.1% 215,060
Retained earnings 339,532 434,348 (94,816) -21.8% 444,173
Accumulated other
comprehensive loss (5,860) (7,828) 1,968 25.1% (5,664)
Total shareholders'
equity 605,950 698,421 (92,471) -13.2% 713,522
Total liabilities
and shareholders'
equity $1,109,872 $1,190,376 ($80,504) -6.8% $1,160,776
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, amounts in thousands)
Second Quarter Ended Six Months Ended
10/26/02 10/27/01 10/26/02 10/27/01
Cash flows from operating
activities
Net income (loss) $28,700 $12,391 ($11,954) $15,222
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 8,060 10,700 15,126 21,621
Change in receivables (34,252) (72,396) 23,904 3,602
Change in inventories (11,452) 15,723 (34,926) 13,432
Change in payables 7,555 11,759 16,900 (4,226)
Change in other assets
and liabilities 8,193 33,257 (14,323) 77
Change in deferred taxes 3,639 3,465 3,191 6,924
Total adjustments (18,257) 2,508 69,654 41,430
Net cash provided by
operating activities 10,443 14,899 57,700 56,652
Cash flows from investing
activities
Proceeds from disposals
of assets 1,084 304 1,147 843
Capital expenditures (9,821) (5,871) (18,766) (11,956)
Acquisitions, net of cash
acquired (1,923) - (3,089) -
Change in other long-term
assets (18,407) (3,973) (14,279) (737)
Net cash used for
investing activities (29,067) (9,540) (34,987) (11,850)
Cash flows from financing
activities
Proceeds from debt 67,119 6,206 77,727 41,576
Payments on debt (7,494) (21,050) (7,627) (76,147)
Capital leases (143) (134) (284) (271)
Stock issued for stock
option & 401(k) plans 7,873 4,580 8,566 9,528
Repurchase of common stock (44,850) (6,586) (92,304) (6,586)
Dividends paid (5,712) (5,492) (11,685) (10,956)
Net cash provided by
(used for) financing
activities 16,793 (22,476) (25,607) (42,856)
Effect of exchange rate
changes on cash and
equivalents 4 (533) (154) (714)
Net increase (decrease) in
cash and equivalents (1,827) (17,650) (3,048) 1,232
Cash and equivalents at
beginning of period 25,550 42,447 26,771 23,565
Cash and equivalents at
end of period $23,723 $24,797 $23,723 $24,797
Cash paid during period
-Income taxes $20,774 $5,437 $33,419 $8,500
-Interest $2,191 $2,954 $3,162 $5,216
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
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SOURCE La-Z-Boy Incorporated
-0- 11/11/2002
/CONTACT: Mark Stegeman of La-Z-Boy Incorporated, +1-734-241-4418, or mark.stegeman@la-z-boy.com /
/Web site: http://my.lazboy.com/mygallery/investor_relations.htm /