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La-Z-Boy Reports Fiscal 2018 First-Quarter Results

MONROE, Mich., Aug. 22, 2017 -- La-Z-Boy Incorporated (NYSE:LZB) today reported its operating results for the fiscal 2018 first quarter ended July 29, 2017.

  • Consolidated sales increased 4.8% to $357.1 million versus $340.8 million in last year’s first quarter;
  • Same-store written sales for the La-Z-Boy Furniture Galleries® network increased 0.7%;  
  • Cash flow from operations was $19.5 million;
  • The company returned $16.8 million to shareholders through dividends and share purchases; and
  • Earnings per share for the quarter were $0.24 versus $0.28 in last year’s first quarter.

Sales for the fiscal 2018 first quarter were $357.1 million, compared with $340.8 million in the prior year’s first quarter.  The company reported net income attributable to La-Z-Boy Incorporated of $11.7 million, or $0.24 per share, versus $13.8 million, or $0.28 per share, in last year’s first quarter.  The fiscal 2018 first quarter’s results included a $0.03 per share benefit in other income for an investment gain, and last year’s first quarter included a $0.03 per share benefit for a legal settlement.

Sales in the company’s upholstery segment increased 2.6% to $274.4 million and the operating margin declined to 8.5% from 11.4% in last year’s first quarter, which included a 0.9 percentage point benefit from a legal settlement.  In the casegoods segment, sales increased 1.9% to $25.5 million and the operating margin increased to 10.7% from 8.6%. Sales in the retail segment increased 15.5% to $110.5 million.  On the core base of 122 stores included in last year’s first quarter, delivered sales declined 1.1% versus the prior year and the segment’s operating margin decreased to 1.6% from 2.3%.

Kurt L. Darrow, Chairman, President and Chief Executive Officer of La-Z-Boy, said, “After a strong finish to fiscal 2017, we are disappointed with our start to this fiscal year.  Although we posted a consolidated sales increase for the quarter, much of it related to acquired sales which did not add volume to our upholstery manufacturing operations which is our most profitable segment.  Lower volume throughout our plants made it difficult to absorb fixed costs and this, combined with the normal seasonal slowdown and continued investments across the business, impacted our upholstery operating margin for the period. Additionally, due to acquisitions and growth in our retail segment, SG&A expenses increased during the quarter.  As we move forward, we intend to manage our SG&A appropriately given various levels of volume.  Our casegoods business performed well for the quarter as we continue to improve our product offering, value proposition and service levels to our customers.  We believe this business is well positioned for continued growth moving forward.”

Darrow continued, “Over the past year, we have developed a comprehensive e-commerce strategy to address the evolution in furniture sales through this channel and are pursuing three opportunities:  increasing online sales of La-Z-Boy furniture through la-z-boy.com and other digital players; leveraging the strength of our world-class global supply chain to support other e-commerce brands; and investing in new online companies.  One such investment that converted to preferred shares in a recent round of financing, has already increased in value and contributed to our earnings this quarter.”

Darrow added, “During the period, we continued to grow our retail segment.  The company opened two La-Z-Boy Furniture Galleries® stores as part of our 4-4-5 strategy and further integrated recently acquired stores.  For the quarter, we achieved a written same-store sales increase of 0.7% throughout the La-Z-Boy Furniture Galleries® store network during the summer period and look forward to moving into the traditionally stronger fall selling season. We are in an excellent service position and as we have demonstrated, we are able to drive increased profitability throughout our manufacturing operations with adequate volume. We remain optimistic about our business for the remainder of the fiscal year, particularly as we capitalize on a dual strategy to reach core La-Z-Boy consumers through our vibrant store program and our independent dealer network while attracting a new and younger consumer through our multi-faceted e-commerce approach.”

FISCAL 2018 PROJECTED* STORE ACTIVITY

   Total FY17  New  Closed  Total FY18  Remodel  Relocation
Company-owned  143   7  (2)  148  -  -
Dealer-owned  204   7  (4)  207  8  5
Total  347  14  (6)  355  8  5

*Projects anticipated to be completed.

Balance Sheet and Cash Flow

During the quarter, the company generated $19.5 million in cash from operating activities.  La-Z-Boy ended the quarter with $119.6 million in cash and cash equivalents, $33.4 million in investments to enhance returns on cash, and $6.0 million in restricted cash.  During the quarter, the company had $9.1 million in capital expenditures, used $15.9 million to pay for the U.K. acquisition that closed in January, paid $5.3 million in dividends, and spent $11.5 million purchasing 0.4 million shares of stock in the open market under its existing authorized share purchase program, leaving 8.3 million shares of purchase availability in the program.

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, August 23, 2017, at 8:30 a.m. eastern time.  The toll-free dial-in number is 877.407.0778; international callers may use 201.689.8565. 

The call will be webcast live, with corresponding slides, and archived on the Internet.  It will be available at http://investors.la-z-boy.com/phoenix.zhtml?c=92596&p=irol-calendar. A telephone replay will be available for a week following the call. This replay will be accessible to callers from the U.S. and Canada at 877.481.4010 and to international callers at 919.882.2331. Enter Conference ID #10425.

Forward-looking Information

This news release contains, and oral statements made from time to time by representatives of La‑Z‑Boy may contain, “forward-looking statements.” With respect to all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. 

Actual results could differ materially from those we anticipate or project due to a number of factors, including: (a) changes in consumer confidence and demographics; (b) the possibility of a recession; (c) changes in the real estate and credit markets and their effects on our customers, consumers and suppliers; (d) international political unrest, terrorism or war; (e) volatility in energy and other commodities prices; (f) the impact of logistics on imports and exports; (g) tax rate, interest rate, and currency exchange rate changes; (h) operating factors, such as supply, labor or distribution disruptions (e.g. port strikes); (i) changes in legislation or changes in the domestic or international regulatory environment  (including new or increased duties); (j) adoption of new accounting principles; (k) fires, severe weather or other natural events such as hurricanes, earthquakes, flooding, tornadoes and tsunamis; (l) our ability to procure or transport fabric rolls, leather hides or cut-and-sewn fabric and leather sets domestically or abroad; (m) information technology conversions or system failures and our ability to recover from a system failure; (n) effects of our brand awareness and marketing programs; (o) the discovery of defects in our products resulting in delays in manufacturing, recall campaigns, reputational damage, or increased warranty costs; (p) litigation arising out of alleged defects in our products; (q) unusual or significant litigation; (r) our ability to locate new La-Z-Boy Furniture Galleries® stores (or store owners) and negotiate favorable lease terms for new or existing locations; (s) the ability to increase volume through our e-commerce initiatives; (t) the impact of potential goodwill or intangible asset impairments; and (u) those matters discussed in Item 1A of our fiscal 2017 Annual Report on Form 10-K and other factors identified from time to time in our reports filed with the Securities and Exchange Commission. We undertake no obligation to update or revise any forward-looking statements, whether to reflect new information or 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, 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=&.

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 145 of the 348 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 348 stand-alone La-Z-Boy Furniture Galleries® stores and 551 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)  7/29/17   7/30/16 
Sales  $357,079   $340,783 
Cost of sales   217,976    206,562 
Gross profit   139,103    134,221 
Selling, general and administrative expense   122,805    111,763 
Operating income   16,298    22,458 
Interest expense   157    115 
Interest income   343    204 
Other income (expense), net   1,749    (762)
Income before income taxes   18,233    21,785 
Income tax expense   6,489    7,777 
Net income   11,744    14,008 
Net income attributable to noncontrolling interests   (93)   (202)
Net income attributable to La-Z-Boy Incorporated  $11,651   $13,806 
         
Basic weighted average common shares   48,357    49,105 
Basic net income attributable to La-Z-Boy Incorporated per share  $0.24   $0.28 
         
Diluted weighted average common shares   48,846    49,594 
Diluted net income attributable to La-Z-Boy Incorporated per share  $0.24   $0.28 
         
Dividends declared per share  $0.11   $0.10 


        
LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
        
(Unaudited, amounts in thousands, except par value) 7/29/17   4/29/17 
Current assets       
Cash and equivalents $119,628   $141,860 
Restricted cash  5,963    8,999 
Receivables, net of allowance of $2,557 at 7/29/17 and $2,563 at 4/29/17  134,904    150,846 
Inventories, net  178,508    175,114 
Other current assets  49,882    40,603 
Total current assets  488,885    517,422 
Property, plant and equipment, net  171,078    169,132 
Goodwill  74,766    74,245 
Other intangible assets, net  18,438    18,489 
Deferred income taxes – long-term  38,372    40,131 
Other long-term assets, net  76,982    69,436 
Total assets $868,521   $888,855 
        
Current liabilities       
Current portion of long-term debt $206   $219 
Accounts payable  47,352    51,282 
Accrued expenses and other current liabilities  126,948    147,175 
Total current liabilities  174,506    198,676 
Long-term debt  242    296 
Other long-term liabilities  90,777    88,778 
Contingencies and commitments       
Shareholders’ equity       
Preferred shares – 5,000 authorized; none issued       
Common shares, $1 par value – 150,000 authorized; 48,268 outstanding at 7/29/17 and 48,472 outstanding at 4/29/17  48,268    48,472 
Capital in excess of par value  293,041    289,632 
Retained earnings  280,251    284,698 
Accumulated other comprehensive loss  (30,248)   (32,883)
Total La-Z-Boy Incorporated shareholders’ equity  591,312    589,919 
Noncontrolling interests  11,684    11,186 
Total equity  602,996    601,105 
Total liabilities and equity $868,521   $888,855 


     
LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
     
   Quarter Ended 
(Unaudited, amounts in thousands)  7/29/17   7/30/16 
Cash flows from operating activities        
Net income  $11,744   $14,008 
Adjustments to reconcile net income to cash provided by (used for) operating activities        
Deferred income tax expense   1,344    (1,076)
Provision for doubtful accounts   (22)   (77)
Depreciation and amortization   7,758    6,800 
Equity-based compensation expense   3,558    3,329 
Change in receivables   15,753    17,664 
Change in inventories   (2,477)   510 
Change in other assets   (10,837)   (1,467)
Change in payables   (3,974)   403 
Change in other liabilities   (3,339)   (4,341)
Net cash provided by operating activities   19,508    35,753 
         
Cash flows from investing activities        
Proceeds from disposals of assets   459    35 
Proceeds from property insurance   450     
Capital expenditures   (9,146)   (5,209)
Purchases of investments   (10,851)   (7,695)
Proceeds from sales of investments   5,857    3,670 
Acquisitions, net of cash acquired   (15,879)   (5,281)
Net cash used for investing activities   (29,110)   (14,480)
         
Cash flows from financing activities        
Payments on debt   (66)   (89)
Stock issued for stock and employee benefit plans, net of shares withheld for taxes   377    860 
Excess tax benefit on stock option exercises       1,137 
Purchases of common stock   (11,491)   (13,567)
Dividends paid   (5,337)   (4,923)
Net cash used for financing activities   (16,517)   (16,582)
         
Effect of exchange rate changes on cash and equivalents   851    116 
Change in cash, cash equivalents and restricted cash   (25,268)   4,807 
Cash, cash equivalents and restricted cash at beginning of period   150,859    121,335 
Cash, cash equivalents and restricted cash at end of period  $125,591   $126,142 
         
Supplemental disclosure of non-cash investing activities        
Capital expenditures included in payables  $1,671   $ 


     
LA-Z-BOY INCORPORATED
SEGMENT INFORMATION
     

 
  Quarter Ended 
 (Unaudited, amounts in thousands)  7/29/17   7/30/16 
Sales        
Upholstery segment:        
Sales to external customers  $224,814   $223,809 
Intersegment sales   49,593    43,607 
Upholstery segment sales   274,407    267,416 
         
Casegoods segment:        
Sales to external customers   21,019    20,585 
Intersegment sales   4,491    4,453 
Casegoods segment sales   25,510    25,038 
         
Retail segment sales   110,516    95,720 
         
Corporate and Other:        
Sales to external customers   730    669 
Intersegment sales   1,930    1,210 
Corporate and Other sales   2,660    1,879 
         
Eliminations   (56,014)   (49,270)
Consolidated sales  $357,079   $340,783 
         
Operating Income (Loss)        
Upholstery segment  $23,299   $30,499 
Casegoods segment   2,739    2,147 
Retail segment   1,767    2,183 
Corporate and Other   (11,507)   (12,371)
Consolidated operating income  $16,298   $22,458 
           

LA-Z-BOY INCORPORATED
UNAUDITED FISCAL 2017 QUARTERLY FINANCIAL DATA (AS ADJUSTED)

In the first quarter of fiscal 2018, we early adopted the provisions of ASU 2017-07, which reclassified certain pension costs out of cost of sales and into other income (expense), net. This change required retrospective application to the prior year. To aid in the understanding of our financial results, the table below presents our fiscal 2017 quarterly financial results, as adjusted to conform to current year presentation.

(Unaudited, amounts in thousands, except per share data)                
Fiscal Quarter Ended  7/30/16   10/29/16   1/28/17   4/29/17 
Sales  $340,783   $376,579   $389,992   $412,706 
Cost of sales   206,562    227,195    233,185    243,815 
Gross profit   134,221    149,384    156,807    168,891 
Selling, general and administrative expense   111,763    115,526    123,235    125,437 
Operating income   22,458    33,858    33,572    43,454 
Interest expense   115    117    562    279 
Interest income   204    234    241    302 
Income from Continued Dumping and Subsidy Offset Act, net           273     
Other income (expense), net   (762)   (969)   (52)   (1,000)
Income before income taxes   21,785    33,006    33,472    42,477 
Income tax expense   7,777    11,901    9,830    14,248 
Net income   14,008    21,105    23,642    28,229 
Net income attributable to noncontrolling interests   (202)   (272)   (356)   (232)
Net income attributable to La-Z-Boy Incorporated  $13,806   $20,833   $23,286   $27,997 
                 
Diluted weighted average common shares   49,594    49,511    49,384    49,181 
Diluted net income attributable to La-Z-Boy Incorporated per share  $0.28   $0.42   $0.47   $0.57 
                 
Dividends declared per share  $0.10   $0.10   $0.11   $0.11 


Contact:
Kathy Liebmann
(734) 241-2438
[email protected]

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