MONROE, MI - La-Z-Boy Incorporated (NYSE: LZB) today reported its operating results for the fiscal 2015 third quarter ended January 24, 2015.

Fiscal 2015 third-quarter highlights for continuing operations:

  • Consolidated sales for the quarter increased 3.3%
  • Consolidated operating income increased to $26.9 million
  • Upholstery segment posted an 11.0% operating margin
  • Retail segment posted a 4.7% operating margin
  • Same-store written sales for the La-Z-Boy Furniture Galleries® store network increased 6.5%
  • The company generated cash from operating activities of $23.3 million

For the fiscal 2015 third quarter, sales were $357.9 million, up 3.3% compared with the prior year's third quarter, and income from continuing operations attributable to La-Z-Boy Incorporated was $17.8 million, or $0.34 per diluted share, which included a $0.01 per share after-tax gain related to restructuring.  This compares with $17.5 million, or $0.33 per diluted share, in last year's third quarter.  Adjusted income from continuing operations attributable to La-Z-Boy Incorporated per share was $0.33 in the third quarter of fiscal 2015, versus $0.33 in the third 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

Nine Months Ended

 (Amounts in thousands, except per share data)

1/24/2015

1/25/2014

1/24/2015

1/25/2014

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

$17,833

 

$17,470

$47,661

 

$44,210

   Adjustment for special items (after-tax impact):

      Restructuring

(509)

(40)

(729)

(77)

      Tax benefit - deferred tax valuation allowance reversal

-

-

-

(881)

Adjusted income from continuing operations  attributable to

   La-Z-Boy Incorporated

 

$17,324

 

$17,430

 

$46,932

 

$43,252

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

share:

   Income from continuing operations attributable to

      La-Z-Boy Incorporated

$0.34

$0.33

$0.90

$0.82

         Adjustment for special items:

            Restructuring

(0.01)

-

(0.01)

-

            Tax benefit - deferred tax valuation allowance reversal

-

-

-

(0.02)

   Adjusted income from continuing operations attributable to

      La-Z-Boy Incorporated

 

$0.33

 

$0.33

 

$0.89

 

$0.80

 

Kurt L. Darrow, Chairman, President and Chief Executive Officer, of La-Z-Boy, said, "We are continuing to make progress in all three segments of our business to deliver long-term profitable growth.  We are increasing our penetration throughout North America with the build out of the La‑Z‑Boy Furniture Galleries® network through our 4-4-5 expansion strategy.  In addition to fueling top-line growth, the additional volume associated with an increased store count will allow us to leverage the fixed-cost structure of our manufacturing facilities and bolster our earnings power.  At the same time, our company-owned retail segment is delivering improved performance, and we have strengthened our casegoods business by making numerous changes to our business model.  During the third quarter, we generated $23 million in cash from operations and our balance sheet remains strong, giving us the flexibility to continue to make strategic investments throughout the enterprise to deliver growth and operational efficiencies."

Wholesale Segments

For the fiscal 2015 third quarter, sales in the company's upholstery segment increased 2.2% to $286.3 million from $280.3 million in the prior year's third quarter.  Sales in the casegoods segment were $26.0 million, up 1.0% from $25.8 million in the fiscal 2014 third quarter.

Darrow commented, "Within our upholstery segment, we were pleased with the written volume increases experienced across the La-Z-Boy Furniture Galleries® network and wholesale upholstery businesses for the quarter.  Same-store sales for the Furniture Galleries® network increased 6.5% for the period.  Additionally, our wholesale upholstery written business grew 10.3%, with the pace of business accelerating in the second half of the quarter.  With a business model that emphasizes customization, coupled with a four-to-six-week lead time for deliveries, many orders were not scheduled during the period and will roll into delivered sales for the fourth quarter.  The improvement in written sales during and after the holiday season was experienced across all regions and distribution channels."

Darrow added, "We achieved an 11% operating margin for the quarter while continuing to invest in our business to strengthen it for the long term.  While having a short-term impact on earnings, we believe these investments are necessary building blocks for the future.  Among these initiatives was the ongoing implementation throughout our La-Z-Boy branded facilities of our new ERP system, which causes temporary manufacturing inefficiencies.  We are in the final stages of the plant implementation and plan for the process to be complete by the end of the fiscal 2016 first quarter.  During the period, we also had additional spending related to the replacement of our website and e-Commerce technology platform,  which will provide a 'best-in-class' mobile and desktop site experience, making it much easier and more inspiring for consumers to explore and shop for our products.  We expect the new platform to go live in August.  Also, during the quarter, our warranty expense increased compared with last year's third quarter due to a favorable adjustment to our warranty liability in the prior-year period coupled with higher parts and labor costs for this year's quarter.  Offsetting some of these factors were proceeds from a legal settlement."   

Darrow added, "On the casegoods side of the business, we improved profitability on essentially flat sales, reflecting the successful transition to an all-import model.  On the merchandising side, we continue to make progress in refreshing the product offering to more transitional and casual styles to appeal to a wider consumer base.  To date, the new assortment has been well received, and five new collections introduced in October are expected to arrive on retail floors this spring." 

Retail Segment

In the third quarter of fiscal 2015, retail delivered sales were $89.8 million, up 11.9% compared with the third quarter of last year. On the core base of 92 stores included in last year's third quarter, delivered sales for the segment were up 4.7% compared with the year-ago period. 

Darrow stated, "Our company-owned retail segment continues to make progress.  Increased sales in our core base of stores allowed us to leverage the fixed-cost structure associated with the business and compensate for approximately $700,000 of expense associated with start-up costs of new stores, including labor, pre-opening rent, advertising and technology.  During the period, the company opened two stores, remodeled one and closed two.  With fourth-quarter activity factored in, we plan to end the year with 111 company-owned stores."

Darrow added, "Early in the fourth quarter, we acquired four stores from an independent dealer in Southern California, bringing our company-owned store count in the market to 19.  With complete ownership of the Southern California market now, we have the potential for additional stores and to enhance our growth opportunities in what is one of the company-owned retail segment's two largest markets in the country.  As part of our 4-4-5 strategy, we believe as we move toward the 400-store target, the percent of company-owned stores will increase, allowing us to further benefit from the blended operating margin associated with our integrated retail strategy.  With the objective of earning a double-digit margin in our wholesale upholstery segment and a mid-single-digit margin in our retail segment, we believe the combined wholesale/retail operating margin has the potential to approach the mid-to-high teens." 

La-Z-Boy Furniture Galleries® Store Network

System-wide, for the third 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 6.5% versus last year's third quarter.  

Total written sales, which include new and closed stores, were up 10.7% for the third quarter.  At the end of the third quarter, the La-Z-Boy Furniture Galleries® store system was composed of 326 stand-alone stores.

In addition to the two stores opened in the company-owned retail segment, our dealer network opened two stores, relocated two and closed one during the third quarter.  Darrow commented, "We believe we will end fiscal 2015 with approximately 31 projects completed, including new stores, relocations and remodels, and plan to stay on a pace of between 30 to 35 projects annually for the next three years to reach our 400-store pinnacle.  Our net new store count will increase by 11 this year.  In addition, we will have reduced our "old" store count by 15 and will double the number of new concept design stores which are performing at a higher level than stores in the other formats.  At the end of the third quarter, 59 of the 326 stores were in the new concept design."

Balance Sheet and Cash Flow

During the quarter, the company generated $23.3 million in cash from operating activities.  It ended the third quarter with $98.4 million in cash and cash equivalents, $45.3 million in investments to enhance returns on cash, and $9.6 million in restricted cash.  In the period, the company had $15.9 million in capital expenditures, paid $4.1 million in dividends, and spent $16.1 million purchasing 640,000 shares of stock in the open market under its existing authorized share purchase program, leaving 6.3 million shares remaining in the program.

Dividend

The Board of Directors declared a regular quarterly cash dividend of $0.08 per share on the company's stock.  The dividend will be paid on March 10, 2015 to shareholders of record as of February 27, 2015.

Business Outlook

Darrow concluded, "We are encouraged by our business opportunities moving forward.  Our brand remains the strongest in the industry, and our marketing initiatives continue to resonate with consumers. We are introducing compelling new product and are making a series of moves to drive growth while strengthening our manufacturing and retail platforms.  At the same time, consumer confidence remains strong, and we believe we will continue to capture market share as we build out our store system throughout North America.  With all these initiatives in place, I am confident we have the correct strategic plan in place to deliver long-term profitable growth to our shareholders."

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 108 of the 326 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 326 stand-alone La-Z-Boy Furniture Galleries® stores and 567 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)

1/24/15

1/25/14

Sales

$357,876

$346,525

Cost of sales

 Cost of goods sold

228,326

224,786

 Restructuring

(9)

(60)

Total cost of sales

228,317

224,726

 Gross profit

129,559

121,799

Selling, general and administrative expense

103,393

95,915

Restructuring

(762)

Operating income

26,928

25,884

Interest expense

131

142

Interest income

232

183

Other income, net

805

849

Income from continuing operations before income taxes

27,834

26,774

Income tax expense

9,477

8,916

Income from continuing operations

18,357

17,858

Income (loss) from discontinued operations, net of tax

115

(987)

 Net income

18,472

16,871

Net income attributable to noncontrolling interests

(524)

(388)

Net income attributable to La-Z-Boy Incorporated

$17,948

$16,483

Net income attributable to La-Z-Boy Incorporated:

 Income from continuing operations attributable to La-Z-Boy

 Incorporated

$17,833

$17,470

 Income (loss) from discontinued operations

115

(987)

 Net income attributable to La-Z-Boy Incorporated

$17,948

$16,483

Basic weighted average common shares

51,576

52,516

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

 Income from continuing operations attributable to La-Z-Boy

 Incorporated

$0.35

$0.33

 Income (loss) from discontinued operations

(0.02)

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

$0.35

$0.31

Diluted weighted average common shares

52,139

53,226

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

 Income from continuing operations attributable to La-Z-Boy

 Incorporated

$0.34

$0.33

 Income (loss) from discontinued operations

(0.02)

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

  share

$0.34

$0.31

Dividends declared per share               

$0.08

$0.06

 

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF INCOME

Nine Months Ended

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

1/24/15

1/25/14

Sales

$1,050,457

$1,004,298

Cost of sales

 Cost of goods sold

679,873

658,462

 Restructuring

(376)

(115)

Total cost of sales

679,497

658,347

 Gross profit

370,960

345,951

Selling, general and administrative expense

298,091

279,184

Restructuring

(742)

Operating income

73,611

66,767

Interest expense

408

411

Interest income

667

539

Other income, net

699

1,107

Income from continuing operations before income taxes

74,569

68,002

Income tax expense

25,975

22,786

Income from continuing operations

48,594

45,216

Income (loss) from discontinued operations, net of tax

2,897

(1,393)

 Net income

51,491

43,823

Net income attributable to noncontrolling interests

(933)

(1,006)

Net income attributable to La-Z-Boy Incorporated

$50,558

$42,817

Net income attributable to La-Z-Boy Incorporated:

 Income from continuing operations attributable to La-Z-Boy

 Incorporated

$47,661

$44,210

 Income (loss) from discontinued operations

2,897

(1,393)

 Net income attributable to La-Z-Boy Incorporated

$50,558

$42,817

Basic weighted average common shares

52,015

52,465

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

 Income from continuing operations attributable to La-Z-Boy

 Incorporated

$0.91

$0.84

 Income (loss) from discontinued operations

0.06

(0.03)

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

$0.97

$0.81

Diluted weighted average common shares

52,540

53,379

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

 Income from continuing operations attributable to La-Z-Boy

 Incorporated

$0.90

$0.82

 Income (loss) from discontinued operations

0.06

(0.02)

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

  share

$0.96

$0.80

Dividends declared per share               

$0.20

$0.14

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED BALANCE SHEET

(Unaudited, amounts in thousands)

1/24/15

4/26/14

Current assets

Cash and equivalents

$98,410

$149,661

Restricted cash

9,637

12,572

Receivables, net of allowance of $10,336 at 1/24/15 and $12,368 at 4/26/14

149,090

152,614

Inventories, net

160,133

147,009

Deferred income taxes – current

15,782

15,037

Business held for sale

4,290

Other current assets

42,017

41,490

Total current assets

475,069

522,673

Property, plant and equipment, net

170,880

127,535

Goodwill

15,164

13,923

Other intangible assets

5,094

4,544

Deferred income taxes – long-term

35,077

32,430

Other long-term assets, net

65,529

70,190

Total assets

$766,813

$771,295

Current liabilities

Current portion of long-term debt

$331

$7,497

Accounts payable

49,490

56,177

Business held for sale

832

Accrued expenses and other current liabilities

103,250

102,876

Total current liabilities

153,071

167,382

Long-term debt

51

277

Other long-term liabilities

82,732

73,918

Contingencies and commitments

Shareholders' equity

Preferred shares – 5,000 authorized; none issued

Common shares, $1 par value – 150,000 authorized; 51,266 outstanding

 at 1/24/15 and 51,981 outstanding at 4/26/14

51,266

51,981

Capital in excess of par value

267,988

262,901

Retained earnings

234,069

238,384

Accumulated other comprehensive loss

(31,057)

(31,380)

Total La-Z-Boy Incorporated shareholders' equity

522,266

521,886

Noncontrolling interests

8,693

7,832

Total equity

530,959

529,718

Total liabilities and equity

$766,813

$771,295

 

 

LA-Z-BOY INCORPORATED

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended

(Unaudited, amounts in thousands)

1/24/15

1/25/14

Cash flows from operating activities

Net income

$51,491

$43,823

Adjustments to reconcile net income to cash provided by

 (used for) operating activities

Restructuring

(1,106)

(115)

Impairment of business held for sale

1,149

Deferred income tax benefit

(3,987)

(2,929)

Provision for doubtful accounts

(2,060)

(2,494)

Depreciation and amortization

16,297

17,529

Equity-based compensation expense

6,094

7,371

Change in receivables

7,011

4,865

Change in inventories

(11,913)

(15,166)

Change in other assets

5,794

2,698

Change in payables

(7,659)

2,865

Change in other liabilities

(4,898)

3,193

 Net cash provided by operating activities

55,064

62,789

Cash flows from investing activities

Proceeds from disposal of assets

8,940

2,248

Capital expenditures

(56,512)

(23,078)

Purchases of investments

(30,544)

(40,796)

Proceeds from sales of investments

23,987

27,974

Acquisitions, net of cash acquired

(1,774)

(801)

Change in restricted cash

2,935

120

Net cash used for investing activities

(52,968)

(34,333)

Cash flows from financing activities

Payments on debt

(7,413)

(434)

Payments for debt issuance costs

(164)

Stock issued for stock and employee benefit plans

496

3,526

Excess tax benefit on stock option exercises

234

5,805

Purchases of common stock

(35,752)

(20,276)

Dividends paid

(10,416)

(7,375)

Net cash used for financing activities

(53,015)

(18,754)

Effect of exchange rate changes on cash and equivalents

(332)

(675)

Change in cash and equivalents

(51,251)

9,027

Cash and equivalents at beginning of period

149,661

131,085

Cash and equivalents at end of period

$98,410

$140,112

Supplemental disclosure of non-cash investing activities

 Capital expenditures included in payables

$6,275

$2,183

 

 

 

LA-Z-BOY INCORPORATED

SEGMENT INFORMATION

Quarter Ended

Nine Months Ended

 (Unaudited, amounts in thousands)

1/24/15

1/25/14

1/24/15

1/25/14

Sales

Upholstery segment:

  Sales to external customers

$243,390

$242,492

$725,590

$710,162

  Intersegment sales

42,946

37,780

120,872

103,183

Upholstery segment sales

286,336

280,272

846,462

813,345

Casegoods segment:

  Sales to external customers

24,134

23,417

75,542

72,339

  Intersegment sales

1,866

2,337

8,269

7,171

Casegoods segment sales

26,000

25,754

83,811

79,510

Retail segment sales

89,791

80,212

247,285

219,845

Corporate and Other

561

404

2,040

1,952

Eliminations

(44,812)

(40,117)

(129,141)

(110,354)

 Consolidated sales

$357,876

$346,525

$1,050,457

$1,004,298

Operating Income (Loss)

Upholstery segment

$31,479

$31,560

$86,103

$86,547

Casegoods segment

860

394

5,380

2,014

Retail segment

4,202

3,087

8,199

8,264

Restructuring

771

60

1,118

115

Corporate and Other

(10,384)

(9,217)

(27,189)

(30,173)

 Consolidated operating income

$26,928

$25,884

$73,611

$66,767

Source: La-Z-Boy Incorporated

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