-- La-Z-Boy Inc. (NYSE: LZB) says a move to factory cells improved operating margins, even as overall sales fell 4.3 percent to $292 million during the third quarter ended Jan. 22.

Almost half the decline resulted from a change in accounting for "variable interest entrepreneurs" begun in August. The rest stemmed from "ongoing macroeconomic challenges relating to housing and consumer confidence," according to La-Z-Boy.

The furniture maker and retailer said Brooke Shields' new role as La-Z-Boy  "brand ambassador," launched in November, has been well received. "While still too early to quantify the results of the campaign, anecdotal evidence suggests it is bearing fruit and we are optimistic the campaign will drive additional traffic to all our retailers," said La-Z-Boy  CEO Kurt L. Darrow.

Sales for the third quarter declined 4.3%, of which 2.1% was due to the change in the VIE accounting, with the remainder reflecting ongoing macroeconomic challenges relating to housing and consumer confidence, said La-Z-Boy.

Net income of $0.19 per share included $900,000, or $0.01 per-share in anti-dumping duties; last year's third quarter included $0.05 per share in anti-dumping duties, mostly from penalties paid by China's furniture manufacturers.

La-Z-Boy is structured in two segments: casegoods, and retail. The Casegoods Group consist of two groups - one including American Drew, Lea and Hammary, and the second being Kincaid. The corporation's proprietary distribution network is dedicated exclusively to selling La-Z-Boy Incorporated products and brands, and includes 305 stand-alone La-Z-Boy Furniture Galleries stores and 536 independent Comfort Studios, in addition to in-store gallery programs for the company's Kincaid, England and Lea operating units.

La-Z-Boy says its casegoods segment sales fell 1.7 percent, but its operating margin was 4.7 percent, resulting from more efficient cell-style manufacturing. The margin was 0.8 percent in the year prior quarter. The retail segment's sales increased 9.2 percent, its eighth consecutive quarterly improvement of operating margin performance.

Darrow said he is "encouraged by the improvement of the La-Z-Boy Furniture Galleries store network's same-store sales comparison after last quarter's negative 7.1 percent performance and this quarter's increase of 4.7 percent. Although macroeconomic challenges continue to impact our overall business, we are cautiously optimistic the consumer is more confident in returning to the marketplace." 

Darrow cited the benefit of the cellular production process throughout the La-Z-Boy branded facilities. "We are also continuing to make efficiency gains at our Mexico cut-and-sew facility." And while raw material pricing remains higher quarter over quarter, Darrow said the magnitude of change is somewhat lower compared to the first half of the year.

"The launch in November of our new marketing platform, featuring Brooke Shields as the La-Z-Boy brand ambassador, has met with positive reaction," said Darrow, stating while it was "still too early to quantify the results of the campaign, anecdotal evidence suggests it is bearing fruit and we are optimistic the campaign will drive additional traffic to all our retailers."

On the casegoods side of the business, the consolidation last year of two manufacturing facilities and the transitions from a leased warehouse to a company-owned building, and combining American Drew/Lea and Hammary operations "has enabled us to run the business with much greater efficiencies, contributing to the 4.7% operating margin on reduced sales," Darrow said. "We are gaining floor space among retailers who do not want to warehouse significant quantities of casegoods inventory."

Retail sales were $44.1 million, up 9.2% compared with the prior-year period.  A dealer retirement added 15 La-Z-Boy Furniture Galleries stores to the company-owned roster in Los Angeles, San Diego and Orange County. These stories previously operated under its variable interest entrepreneur (VIE). La-Z-Boy said in its earnings releases the 15 stores bring its retail furniture store count up to 83. For the third quarter of fiscal 2011, including company-owned and independent-licensed stores, same-store written sales were up 4.7%. At the end of the quarter, 305 stand-alone stores comprised the La-Z-Boy Furniture Galleries store system.

"It appears the consumer is more comfortable making larger ticket furniture purchase," said Darrow. 

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