MONROE, MI - La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal 2015 second quarter ended October 25, 2014.

Fiscal 2015 second-quarter highlights for continuing operations:

  • Consolidated sales for the quarter increased 3.8% after a 14.9% increase in last year's second quarter;
  • Consolidated operating income increased to $30.2 million, and consolidated operating margin increased to 8.3% in the quarter;
  • Upholstery segment achieved an 11.0% operating margin;
  • Retail segment achieved a 4.4% operating margin;
  • Same-store written sales for the La-Z-Boy Furniture Galleries® store network increased 3.4% for the quarter after a 9.8% increase in last year's comparable quarter;
  • The company generated cash from operations of $33.0 million; and
  • The company increased its quarterly dividend 33%.

Sales for the fiscal 2015 second quarter were $365.6 million, up 3.8% compared with the prior year's second quarter.  The company reported income from continuing operations attributable to La-Z-Boy Incorporated of $19.2 million, or $0.36 per diluted share.  This compares with $17.2 million, or $0.32 per diluted share, which included $0.01 per share attributable to the reduction of certain valuation reserves against the company's state deferred tax assets, in last year's second quarter.  Adjusted income from continuing operations attributable to La-Z-Boy Incorporated per share was $0.36 in the second quarter of fiscal 2015, versus $0.31 in the second quarter of fiscal 2014.

The following table provides a reconciliation of our income from continuing operations attributable to La-Z-Boy Incorporated to adjusted income from continuing operations attributable to La-Z-Boy Incorporated.

 

Reconciliation of Non-GAAP Financial Information

Quarter Ended

Six Months Ended

 (Amounts in thousands, except per share data)

10/25/2014

10/26/2013

10/25/2014

10/26/2013

Income from continuing operations attributable to La-Z-Boy Incorporated

$19,244

 

$17,184

$29,828

 

$26,740

   Adjustment for special items (after-tax impact):

      Restructuring

6

(96)

(225)

(37)

      Tax benefit - deferred tax valuation allowance reversal

-

(881)

-

(881)

Adjusted income from continuing operations  attributable to

   La-Z-Boy Incorporated

 

$19,250

 

$16,207

 

$29,603

 

$25,822

Diluted net income attributable to La-Z-Boy Incorporated per

share:

   Income from continuing operations attributable to

      La-Z-Boy Incorporated

$0.36

$0.32

$0.56

$0.50

         Adjustment for special items:

            Restructuring

-

-

-

-

            Tax benefit - deferred tax valuation allowance reversal

-

(0.01)

-

(0.02)

   Adjusted income from continuing operations attributable to

      La-Z-Boy Incorporated

 

$0.36

 

$0.31

 

$0.56

 

$0.48

 

Kurt L. Darrow, Chairman, President and Chief Executive Officer, of La-Z-Boy, said, "Overall, we are pleased with the results for the quarter.  We increased sales and posted an 8.3% consolidated operating margin for the period.  Additionally, we experienced an increase in same-store written sales for the La‑Z‑Boy Furniture Galleries® network, generated strong operating cash flow, raised our quarterly dividend and purchased $13.6 million of our stock.  With a strong balance sheet, we continue to make strategic investments in the business to strengthen our capabilities in many areas, including technology, additional stores and supply chain optimization.  Moving forward, we are confident we have a solid strategy in place to deliver long-term profitable growth while returning value to our shareholders."

Wholesale Segments

For the fiscal 2015 second quarter, sales in the company's upholstery segment increased 3.6% to $297.3 million from $287.0 million in the prior year's second quarter.  Sales in the casegoods segment were $28.9 million, down 0.2% from $29.0 million in the fiscal 2014 second quarter.

Darrow commented, "We are making progress in the execution of our strategy to drive growth through our '4-4-5' plan, where we are building out the La-Z-Boy Furniture Galleries® store system to fully penetrate North America.  This initiative is complemented by a strong product line up and an effective marketing campaign to attract more consumers to the La-Z-Boy brand. The double-digit operating margin posted in our wholesale upholstery segment demonstrates the efficiencies with which we are running our operations as we concurrently implement our ERP system through our domestic manufacturing facilities.  Our other upholstery company, England, also continues to make solid contributions to our results in terms of sales and earnings."

Darrow continued, "At the October High Point Furniture Market, La-Z-Boy introduced exciting new product, including an expansion of the Urban Attitudes collection, and a new power offering.  With power becoming a more popular and growing option on motion furniture, we believe our line with dual motors will have vast appeal among consumers.  In our casegoods business, Hammary had an expansive assortment of on-trend and stylish occasional pieces introduced at Market,  while several new collections for Kincaid and American Drew were launched as we continue to refresh our offerings on the casegoods side with more transitional product to appeal to a wider consumer base."

Darrow noted, "We are substantially through the restructuring in the casegoods segment.  In September, we ceased manufacturing at our Hudson, North Carolina facility, and, as a result, we are now operating the wood business with a full-import model, which we believe will produce improved results.  We also are in the final process of consolidating and transitioning our warehouse and repair functions, which we expect to be complete by the end of the third quarter."

For the period, written same-store sales for the La-Z-Boy Furniture Galleries® network increased 3.4% following an average increase of 10.8% over the last three years' second quarters.

Retail Segment

In the second quarter of fiscal 2015, retail delivered sales were $84.6 million, up 15.3% compared with the second quarter of last year. On the core base of 88 stores included in last year's second quarter, delivered sales for the segment were up 4.6% compared with the year-ago period. 

Darrow stated, "With our integrated retail model as a cornerstone of our strategy to improve the overall profitability of La-Z-Boy Incorporated, we made significant progress during the period in building out our store network and are continuing to identify locations and projects for the next fiscal year.  During the quarter, we opened five new stores – Liberty, MO; Royal Palm Beach, FL; Doral, FL; Brookfield, CT; and Canton, MI – in the company-owned retail segment as part of our 4-4-5 store growth initiative.  Additionally, we entered into an agreement to purchase one store in Mishawaka, IN and closed on the acquisition in early November.  The start-up costs associated with opening the new stores, including labor, pre-opening rent, advertising and technology, were approximately $1.2 million for the quarter, and represented an investment in our business to drive long-term growth and further garner the benefit of the blended wholesale/retail margin inherent in our integrated retail model." 

La-Z-Boy Furniture Galleries® Store Network

System-wide, for the second quarter of fiscal 2015, including company-owned and independent-licensed stores, same-store written sales, which the company tracks as an indicator of retail activity, were up 3.4% versus last year's second quarter.  

Total written sales, which include new and closed stores, were up 7.1% for the second quarter.    At the end of the second quarter, the La-Z-Boy Furniture Galleries® store system was composed of 325 stand-alone stores.

In addition to the five stores opened in the company-owned retail segment, our dealer network opened three stores, remodeled five stores and relocated one store during the second quarter.  Darrow commented, "This year, our 4-4-5 activity will include 30 to 35 projects across the network, reflecting openings, remodels and relocations.  Although our net new store count will increase by 3% to 4%, we expect to nearly double the number of new concept design stores over last year's level and will substantially upgrade the quality of the store system as we change out old-format stores into the new concept design format, and relocate and close certain locations.  For the year, we expect to replace approximately 15 of the old-concept stores, and we have as many projects in that category slated for next year.  At the end of the second quarter, 52 of the total 325 stores were in the new concept design format." 

For the third quarter of 2015, plans are for the network (the company-owned stores and independent dealer base) to open four new stores, remodel one, relocate three and close three.  Of this store activity, the company will open two stores, relocate one, remodel one and close two.

Balance Sheet and Cash Flow

During the quarter, the company generated $33 million in cash from operating activities.  It ended the second quarter with $115.3 million in cash and cash equivalents, $45.2 million in investments to enhance returns on cash, and $5.3 million in restricted cash.  During the quarter, the company had $21.2 million in capital expenditures, paid $3.2 million in dividends, and spent $13.6 million purchasing 0.6 million shares of stock in the open market under its existing authorized share purchase program, leaving 6.9 million shares remaining in the program.

Dividend

The Board of Directors increased the company's regular quarterly dividend to shareholders by 33% to $0.08 per share.  The dividend will be paid on December 10, 2014, to shareholders of record as of November 28, 2014.

Business Outlook

Darrow concluded, "As we move into the back half of fiscal 2015, we believe we are well positioned to drive growth across our various product categories and dealer organization while benefitting from the efficiencies of our manufacturing platform and the blended margin inherent in our integrated retail model.  We will continue to make investments in the business to support growth initiatives and believe we will capture market share with our brand strength, vast network of distribution, compelling on-trend product and an effective marketing campaign that is expanding our consumer base and their perceptions of the La-Z-Boy brand."

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://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-sec.  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://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-alerts&t=&id=&.

Non-GAAP Financial Information

The information contained in this press release is intended to supplement, rather than to supersede, our consolidated financial statements.  We report our financial results in accordance with accounting principles generally accepted in the United States ("GAAP").  However, management believes that certain non-GAAP financial measures provide users with additional meaningful financial information that should be considered when assessing our ongoing performance.  This press release contains references to income from continuing operations attributable to La-Z-Boy Incorporated and income from continuing operations attributable to La-Z-Boy Incorporated per share, both adjusted to exclude restructuring and the reversal of valuation allowances relating to our deferred tax assets.  This press release includes a table reconciling these adjusted measures to the most directly comparable financial measures reported in accordance with GAAP.

Management does not expect the excluded items to significantly affect future operating results and believes that presenting income from continuing operations attributable to La-Z-Boy Incorporated and income from continuing operations attributable to La-Z-Boy Incorporated per share with those items excluded will help investors better understand our operating results for different periods on a comparable basis.  The Reconciliation of Non-GAAP Financial Information table included in this press release presents the excluded items net of tax calculated using the effective tax rate from operations for the period in which the adjustment is presented. 

Background Information

La-Z-Boy Incorporated is one of the world's leading residential furniture producers, marketing furniture for every room of the home. The La-Z-Boy Upholstery segment companies are England and La-Z-Boy. The Casegoods segment consists of three brands: American Drew, Hammary, and Kincaid. The company-owned Retail segment includes 107 of the 325 La-Z-Boy Furniture Galleries® stores.

The corporation's branded distribution network is dedicated to selling La-Z-Boy Incorporated products and brands, and includes 325 stand-alone La-Z-Boy Furniture Galleries® stores and 564 independent Comfort Studio® locations, in addition to in-store gallery programs for the company's Kincaid and England operating units. Additional information is available at http://www.la-z-boy.com/.

 

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME

Quarter Ended

(Unaudited, amounts in thousands, except per share data)

10/25/14

10/26/13

Sales

$365,601

$352,271

Cost of sales

  Cost of goods sold

235,716

229,727

  Restructuring

(10)

(142)

Total cost of sales

235,706

229,585

  Gross profit

129,895

122,686

Selling, general and administrative expense

99,683

96,568

Restructuring

20

Operating income

30,192

26,118

Interest expense

145

133

Interest income

233

176

Other income (expense), net

152

(279)

Income from continuing operations before income taxes

30,432

25,882

Income tax expense

10,743

8,425

Income from continuing operations

19,689

17,457

Income (loss) from discontinued operations, net of tax

285

(440)

  Net income

19,974

17,017

Net income attributable to noncontrolling interests

(445)

(273)

Net income attributable to La-Z-Boy Incorporated

$19,529

$16,744

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy

   Incorporated

$19,244

$17,184

  Income (loss) from discontinued operations

285

(440)

   Net income attributable to La-Z-Boy Incorporated

$19,529

$16,744

Basic average shares

52,279

52,537

Basic net income attributable to La-Z-Boy Incorporated per share:

  Income from continuing operations attributable to La-Z-Boy

   Incorporated

$0.37

$0.33

  Income (loss) from discontinued operations

(0.01)

   Basic net income attributable to La-Z-Boy Incorporated per share

$0.37

$0.32

Diluted average shares

52,723

53,261

Diluted net income attributable to La-Z-Boy Incorporated per share:

  Income from continuing operations attributable to La-Z-Boy

   Incorporated

$0.36

$0.32

  Income (loss) from discontinued operations

0.01

(0.01)

   Diluted net income attributable to La-Z-Boy Incorporated per  

     share

$0.37

$0.31

Dividends declared per share               

$0.06

$0.04

 

 

LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME

Six Months Ended

(Unaudited, amounts in thousands, except per share data)

10/25/14

10/26/13

Sales

$692,581

$657,773

Cost of sales

  Cost of goods sold

451,547

433,676

  Restructuring

(367)

(55)

Total cost of sales

451,180

433,621

  Gross profit

241,401

224,152

Selling, general and administrative expense

194,698

183,269

Restructuring

20

Operating income

46,683

40,883

Interest expense

277

269

Interest income

435

356

Other income (expense), net

(106)

258

Income from continuing operations before income taxes

46,735

41,228

Income tax expense

16,498

13,870

Income from continuing operations

30,237

27,358

Income (loss) from discontinued operations, net of tax

2,782

(406)

  Net income

33,019

26,952

Net income attributable to noncontrolling interests

(409)

(618)

Net income attributable to La-Z-Boy Incorporated

$32,610

$26,334

Net income attributable to La-Z-Boy Incorporated:

  Income from continuing operations attributable to La-Z-Boy

   Incorporated

$29,828

$26,740

  Income (loss) from discontinued operations

2,782

(406)

   Net income attributable to La-Z-Boy Incorporated

$32,610

$26,334

Basic average shares

52,235

52,440

Basic net income attributable to La-Z-Boy Incorporated per share:

  Income from continuing operations attributable to La-Z-Boy

   Incorporated

$0.57

$0.51

  Income (loss) from discontinued operations

0.05

(0.01)

   Basic net income attributable to La-Z-Boy Incorporated per share

$0.62

$0.50

Diluted average shares

52,662

53,176

Diluted net income attributable to La-Z-Boy Incorporated per share:

  Income from continuing operations attributable to La-Z-Boy

   Incorporated

$0.56

$0.50

  Income (loss) from discontinued operations

0.06

(0.01)

   Diluted net income attributable to La-Z-Boy Incorporated per  

     share

$0.62

$0.49

Dividends declared per share               

$0.12

$0.08

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)

10/25/14

4/26/14

Current assets

Cash and equivalents

$115,325

$149,661

Restricted cash

5,285

12,572

Receivables, net of allowance of $11,288 at 10/25/14 and $12,368 at 4/26/14

156,403

152,614

Inventories, net

158,326

147,009

Deferred income taxes – current

15,566

15,037

Business held for sale

1,407

4,290

Other current assets

43,117

41,490

Total current assets

495,429

522,673

Property, plant and equipment, net

158,596

127,535

Goodwill

13,923

13,923

Other intangible assets

4,544

4,544

Deferred income taxes – long-term

33,227

32,430

Other long-term assets, net

65,007

70,190

Total assets

$770,726

$771,295

Current liabilities

Current portion of long-term debt

$353

$7,497

Accounts payable

55,419

56,177

Business held for sale

442

832

Accrued expenses and other current liabilities

103,198

102,876

Total current liabilities

159,412

167,382

Long-term debt

85

277

Other long-term liabilities

79,303

73,918

Contingencies and commitments

Shareholders' equity

Preferred shares – 5,000 authorized; none issued

Common shares, $1 par value – 150,000 authorized; 51,892 outstanding
    at 10/25/14 and 51,981 outstanding at 4/26/14

51,892

51,981

Capital in excess of par value

266,959

262,901

Retained earnings

235,400

238,384

Accumulated other comprehensive loss

(30,544)

(31,380)

Total La-Z-Boy Incorporated shareholders' equity

523,707

521,886

Noncontrolling interests

8,219

7,832

Total equity

531,926

529,718

Total liabilities and equity

$770,726

$771,295

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

Six Months Ended

(Unaudited, amounts in thousands)

10/25/14

10/26/13

Cash flows from operating activities

Net income

$33,019

$26,952

Adjustments to reconcile net income to cash provided by
   (used for) operating activities

Restructuring

(332)

(55)

Deferred income tax benefit

(1,799)

(391)

Provision for doubtful accounts

(1,113)

(1,994)

Depreciation and amortization

10,996

11,661

Equity-based compensation expense

5,047

5,671

Change in receivables

(2,135)

1,298

Change in inventories

(11,006)

(10,561)

Change in other assets

6,253

(1,920)

Change in payables

(785)

3,772

Change in other liabilities

(6,377)

(2,020)

   Net cash provided by operating activities

31,768

32,413

Cash flows from investing activities

Proceeds from disposal of assets

6,534

2,241

Capital expenditures

(40,580)

(14,323)

Purchases of investments

(24,224)

(23,180)

Proceeds from sales of investments

17,827

18,196

Change in restricted cash

7,287

120

Net cash used for investing activities

(33,156)

(16,946)

Cash flows from financing activities

Payments on debt

(7,358)

(263)

Stock issued for stock and employee benefit plans

161

2,983

Excess tax benefit on stock option exercises

252

5,228

Purchases of common stock

(19,654)

(13,681)

Dividends paid

(6,274)

(4,214)

Net cash used for financing activities

(32,873)

(9,947)

Effect of exchange rate changes on cash and equivalents

(75)

(360)

Change in cash and equivalents

(34,336)

5,160

Cash and equivalents at beginning of period

149,661

131,085

Cash and equivalents at end of period

$115,325

$136,245

Supplemental disclosure of non-cash investing activities

  Capital expenditures included in payables

$5,339

$—

 

 

LA-Z-BOY INCORPORATED

SEGMENT INFORMATION

Quarter Ended

Six Months Ended

 (Unaudited, amounts in thousands)

10/25/14

10/26/13

10/25/14

10/26/13

Sales

Upholstery segment:

     Sales to external customers

$255,044

$252,123

$482,200

$467,670

     Intersegment sales

42,223

34,881

77,926

65,403

Upholstery segment sales

297,267

287,004

560,126

533,073

Casegoods segment:

     Sales to external customers

25,455

26,252

51,408

48,922

     Intersegment sales

3,433

2,705

6,403

4,834

Casegoods segment sales

28,888

28,957

57,811

53,756

Retail segment sales

84,589

73,359

157,494

139,633

Corporate and Other

513

537

1,479

1,548

Eliminations

(45,656)

(37,586)

(84,329)

(70,237)

  Consolidated sales

$365,601

$352,271

$692,581

$657,773

Operating Income (Loss)

Upholstery segment

$32,607

$32,701

$54,624

$54,987

Casegoods segment

2,995

1,170

4,520

1,620

Retail segment

3,682

3,251

3,997

5,177

Restructuring

(10)

142

347

55

Corporate and Other

(9,082)

(11,146)

(16,805)

(20,956)

  Consolidated operating income

$30,192

$26,118

$46,683

$40,883

 

Source: La-Z-Boy Incorporated

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