La-Z-Boy Reports First Quarter Results
The revenue strength was primarily due to better than expected sales growth in the company's upholstery segment, paced by the continued above-average sales performance from the La-Z-Boy Furniture Galleries(R) network of mostly independently-owned stand-alone stores. Operating margin for the quarter was 6.6%, up sharply from a depressed 1.5% in the year-earlier quarter and was the third consecutive quarter in which the company's operating margin, "normalized" to exclude restructuring and divestiture expenses recorded in fiscal years 2002 and 2001, increased over the year-earlier level.
President and CEO Jerry Kiser said he was particularly pleased with the healthy sales gains recorded by the company's upholstery businesses during the quarter and with the continuing year-over-year comparative margin improvement. "Our margins are benefiting from the strong growth in volume combined with the aggressive restructuring actions we implemented last year," Kiser said. He pointed out that this restructuring, primarily on the casegoods (wood furniture) side, has reduced the company's cost structure and enabled it to successfully blend a growing volume of imports with its domestic production. He continued, "While margins were below the previous quarter this was the result of the seasonality of our business. Our July quarter is our lowest volume quarter and a significant number of our plants shut down for summer vacations."
Business segments
First quarter upholstery sales rose 19.0% with an operating margin of 8.5%, sharply above the 3.9% margin of 2001's first quarter, which represented last year's quarterly sales low point. The La-Z-Boy Furniture Galleries(R) store system enjoyed an overall same store sales gain of 6.0% for the three months ended July 2002, well ahead of observable industry trends and resulted in a record quarter for La-Z-Boy. Overall this segment benefited from the broad price point range of the product lines and the proprietary distribution programs of most of the companies.
Casegoods remained substantially weaker than upholstery during the quarter, with sales declining 11.7% from a year earlier. Excluding Pilliod, first quarter year-over-year casegoods sales were down 4.7% attributable principally to the commercial hospitality market which remains in a slump. But despite this softness, casegoods operating margins continued to strengthen, rising to 5.8% in the most recent quarter. This reflects a combination of benefits from 2001's restructuring efforts and a growing mix of imported products.
Change in accounting principle
During the first quarter, the company adopted as required Statement of Financial Accounting Standards No. 142 ("SFAS 142"). The adoption of this new Statement is considered a change in accounting principle and affects the financial results in several ways. The amortization of goodwill and trade names is eliminated. The elimination of goodwill and trade name amortization under SFAS 142 added $0.03 to this year's first quarter diluted EPS, and would have added $0.03 to the year-earlier quarter's diluted EPS had SFAS 142 been in effect at that time. The Statement requires initial and subsequent periodic tests of recorded goodwill and indefinite-lived intangible assets to determine if the carrying values of such assets exceed their implied fair values as calculated under the new Standard. The cumulative effect of the adoption of SFAS 142 resulted in a non-operating non-cash pretax charge of $77.7 million and an after-tax charge of $59.8 million, or $1.00 per diluted share.
Balance sheet
Kiser continued, "During the July quarter, we generated $47 million in free cash flow, which was used to repurchase 1.8 million shares of the company's stock, reducing shares outstanding to 58.3 million. Under the authorization the company has 1.9 million shares remaining available for repurchase. Inventories during the quarter increased reflecting the higher sales volumes and additional import volume, which requires higher inventory levels."
Business outlook
Commenting on the current business outlook, president and CEO Kiser said, "Assuming that consumer confidence is currently near a cyclical low point, prior to stabilizing and then regaining momentum later this year and on into 2003, we expect the coming year to be fairly strong. Our casegoods business remains sluggish, but we anticipate that continuing growth in the upholstery segment will produce an overall mid-single digit sales increase for our seasonally strong October quarter, and we expect earnings for the quarter to be in the range of $0.45-$0.50 per diluted share, compared with $0.33 a year ago, excluding restructuring charges of $0.13 per diluted share. When casegoods demand rebounds even somewhat, as we believe it will, in the second half of our April 2003 fiscal year, we would expect sales gains for the full year in the mid-single digit range, with earnings in the area of $1.70 - $1.80 per diluted share excluding the cumulative effect of the adoption of SFAS 142."
Kiser also noted that he and La-Z-Boy Incorporated's Senior Vice President and Chief Financial Officer, David M. Risley, are today filing with the Securities and Exchange Commission their statements under oath to the effect that, to the best of their knowledge, the corporation's Annual Report on Form 10-K for the 2002 fiscal year and its reports and proxy materials filed after the filing of Form 10-K do not contain any material misstatements, or omit any material facts. Kiser said, "We want to publicly demonstrate our strong belief in the integrity and accuracy of our accounting and financial reporting procedures."
Conference Call Information
The dial-in phone number for tomorrow's live conference call (August 15, 2002 at 11 a.m. EDT) 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, both at http://www.la-z-boy.com. A telephone replay will be available from approximately 2 p.m. tomorrow, August 15th, through noon on August 22nd. 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 replay passcode of 5014429.
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, 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. Today we plan on filing a Form 10-Q report which includes a condensed balance sheet, income statement and cash flow statement for the fiscal quarter ending July 27, 2002, and, will be available at http://www.la-z-boy.com. Investors and others wishing to be notified via e-mail of future La-Z-Boy news releases, SEC filings and conference calls may do so 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, HickoryMark, 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 299 stand-alone La-Z-Boy Furniture Galleries(R) and 313 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 http://www.la-z-boy.com.
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
First Quarter Ended
% Over Percent of Sales
7/27/02 7/28/01 (Under) 7/27/02 7/28/01
Sales $497,375 $456,935 8.9% 100.0% 100.0%
Cost of sales 382,552 369,729 3.5% 76.9% 80.9%
Gross profit 114,823 87,206 31.7% 23.1% 19.1%
S, G & A 81,936 80,229 2.1% 16.5% 17.6%
Operating profit 32,887 6,977 371.4% 6.6% 1.5%
Interest expense 2,027 2,956 -31.4% 0.4% 0.6%
Interest income 602 358 68.2% 0.1% 0.0%
Other income
(expense), net (486) 263 -284.8% -0.1% 0.1%
Pretax income 30,976 4,642 567.3% 6.2% 1.0%
Tax expense 11,848 1,811 554.2% 38.2%* 39.0%*
Income before
cumulative
effect of
accounting change 19,128 2,831 575.7% 3.8% 0.6%
Cumulative effect
of accounting
change (net of
tax of $17,920) 59,782 -- 100.0% 12.0% --
Net income (loss) (40,654) $2,831 N/M -8.2% 0.6%
Basic average shares 59,125 60,772
Basic net income per
share before
cumulative effect
of accounting change $0.32 $0.05
Cumulative effect of
accounting change
per share (1.01) --
Basic net income
(loss) per share ($0.69) $0.05
Diluted average Shares 59,667 61,021
Diluted net income
per share before
cumulative effect of
accounting change $0.32 $0.05
Cumulative effect
of accounting
change per share (1.00) --
Diluted net income
(loss) per share ($0.68) $0.05
Dividends paid
per share $0.10 $0.09
* As a percent of pretax income, not sales.
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Amounts in thousands)
(Unaudited)
Increase/(Decrease)
7/27/02 7/28/01 Dollars Percent 4/27/02
Current assets
Cash and equivalents $25,550
$42,447 ($16,897) -39.8% $26,771
Receivables, net 324,687 306,005 18,682 6.1% 382,843
Inventories, net 233,525 260,178 (26,653) -10.2% 208,657
Deferred income taxes 35,648 23,281 12,367 53.1% 35,035
Income taxes 2,517 2,944 (427) -14.5% 2,490
Other current assets 13,304 19,612 (6,308) -32.2% 15,896
Total current assets 635,231
654,467 (19,236) -2.9% 671,692
Property, plant and
equipment, net 207,426 227,672 (20,246) -8.9% 205,463
Goodwill 78,833 111,624 (32,791) -29.4% 108,244
Trade names 68,454 119,928 (51,474) -42.9% 116,745
Other long-term assets 53,486 52,602 884 1.7% 58,632
Total assets $1,043,430 $1,166,293 ($122,863) -10.5% $1,160,776
Current liabilities
Lines of credit $-- $20,750 ($20,750) -100.0% $--
Current portion of
long-term debt and
capital leases 2,276 3,695 (1,419) -38.4% 2,276
Accounts payable 77,986 76,845 1,141 1.5% 68,497
Accrued expenses and
other current
liabilities 127,890 116,367 11,523 9.9% 156,120
Total current
liabilities 208,152 217,657 (9,505) -4.4% 226,893
Long-term debt 147,917 168,976 (21,059) -12.5% 137,444
Capital leases 1,801 2,359 (558) -23.7% 1,942
Deferred income taxes 28,364 46,281 (17,917) -38.7% 46,145
Other long-term
liabilities 36,856 36,724 132 0.4% 34,830
Contingencies
and commitments
Shareholders' equity
Common shares,
$1 par value 58,326 60,898 (2,572) -4.2% 59,953
Capital in excess
of par value 215,585 210,559 5,026 2.4% 215,060
Retained earnings 351,885 429,899 (78,014) -18.1% 444,173
Accumulated other
comprehensive loss (5,456) (7,060) 1,604 -22.7% (5,664)
Total shareholders'
equity 620,340 694,296 (73,956) -10.7% 713,522
Total liabilities
and shareholders'
equity $1,043,430 $1,166,293 ($122,863) -10.5% $1,160,776
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
First Quarter Ended
7/27/02 7/28/01
Cash flows from operating activities
Net income (loss) ($40,654) $2,831
Adjustments to reconcile net income
to cash provided by operating activities
Cumulative effect of accounting
change - net of income taxes 59,782 --
Depreciation and amortization 7,066 10,921
Change in receivables 58,156 75,998
Change in inventories (23,474) (2,291)
Change in payables 9,345 (15,985)
Change in other assets and liabilities (22,516) (33,180)
Change in deferred taxes (448) 3,459
Total adjustments 87,911 38,922
Net cash provided by operating activities 47,257 41,753
Cash flows from investing activities
Proceeds from disposals of assets 63 539
Capital expenditures (8,945) (6,085)
Acquisitions, net of cash acquired (1,166) --
Change in other long-term assets 4,128 3,236
Net cash used for investing activities (5,920) (2,310)
Cash flows from financing activities
Proceeds from debt 10,608 35,370
Payments on debt (133) (55,097)
Capital leases (141) (137)
Stock issued for stock option & 401(k) plans 693 4,948
Repurchase of common stock (47,454) --
Dividends paid (5,973) (5,464)
Net cash used for financing activities (42,400) (20,380)
Effect of exchange rate changes
on cash and equivalents (158) (181)
Net increase (decrease) in cash and equivalents (1,221) 18,882
Cash and equivalents at beginning of period 26,771 23,565
Cash and equivalents at end of period $25,550 $42,447
Cash paid during period - Income taxes $12,645 $3,063
- Interest $971 $2,262
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SOURCE La-Z-Boy Incorporated
CONTACT: Mark Stegeman of La-Z-Boy Incorporated, +1-734-241-4418, or
mark.stegeman@la-z-boy.com
URL: http://www.la-z-boy.com
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