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

MONROE, Mich., Feb. 20, 2018 (GLOBE NEWSWIRE) -- La-Z-Boy Incorporated (NYSE:LZB) today reported its operating results for the fiscal 2018 third quarter ended January 27, 2018.

  • Consolidated sales increased 6.1% to $413.6 million;
  • Same-store written sales for the La-Z-Boy Furniture Galleries® network increased 2.6%;
  • Cash flow from operations was $40.0 million;
  • The company returned $21.1 million to shareholders through dividends and share purchases; and
  • Earnings per diluted share for the quarter were $0.25, including a $0.20 per share net charge related to tax reform and a $0.06 per share charge related to a previously announced legal settlement.

Sales for the fiscal 2018 third quarter were $413.6 million, up 6.1% compared with the prior year’s third quarter. Operating margin was 8.0% in the third quarter of fiscal 2018 versus 8.6% in the fiscal 2017 third quarter. The fiscal 2018 third quarter’s operating margin was reduced by 1.0% as a result of the charge for the previously announced settlement of a lawsuit regarding certain power products.

The company reported net income attributable to La-Z-Boy Incorporated of $12.1 million, or $0.25 per diluted share, which included a $0.20 per share net charge related to the 2017 Tax Cut and Jobs Act (tax reform) and a $0.06 per share charge related to the previously announced legal settlement, versus $23.3 million, or $0.47 per diluted share in the fiscal 2017 third quarter.

Sales in the company’s upholstery segment increased 6.0% to $321.0 million and the operating margin declined to 9.9% from 11.8% in last year’s third quarter. The charge for the settlement of a lawsuit regarding certain power products reduced operating margin in the segment by 1.3% in the fiscal 2018 third quarter. In the casegoods segment, sales increased 17.0% to $27.2 million and the operating margin increased to 10.3% from 6.8%. Sales in the retail segment increased 3.0% to $125.8 million for the third quarter and the segment’s operating margin increased to 5.6% from 5.2% in the prior-year period. On the core base of 138 stores included in last year’s third quarter, delivered sales declined 1.1% versus the prior-year quarter.

Kurt L. Darrow, Chairman, President and Chief Executive Officer of La-Z-Boy, said, “We experienced positive sales momentum for the quarter and, in addition to posting a 6.1% increase, each of our business segments operated at a high level during the period. Additionally, the La-Z-Boy Furniture Galleries® store network posted its fourth consecutive quarterly written same-store sales increase. The company also generated strong cash flow from operations enabling us to make the necessary strategic investments to grow our business in the dynamic marketplace and return value to shareholders.”

Darrow added, “In our upholstery segment, we are very pleased with the performance of our new duo product line which, thus far, is exceeding our expectations in the short time it has been on retail floors and is a testament to the innovative spirit that is the hallmark of our brand. During the period, ongoing inflationary pressures for raw materials impacted the upholstery segment’s operating margin in November and December until our price increase became effective on delivered orders in January. For the fourth quarter, raw material prices are not anticipated to be a drag on our margin as the full benefit of the price increase will be in effect on all sales.”

Darrow said, “Our casegoods business continues on an upward trajectory, with increased sales and earnings performance as the group expands floor space with retailers. New, on-trend product collections are resonating with consumers and our supply chain is providing excellent service to customers with quick shipping on our best-selling groups. In our retail segment, we opened one new La-Z-Boy Furniture Galleries® store during the quarter and acquired one store in Grand Rapids, Michigan, as part of our store build-out strategy. For the quarter, the retail segment’s operating margin improved, resulting from an increase in the average ticket primarily driven by increased design services and custom orders.”

Darrow continued, “With a strong brand, a vast distribution system, including the vibrant and growing La-Z-Boy Furniture Galleries® store network, a best-in-class global supply chain and a healthy balance sheet to support new initiatives, La-Z-Boy is pursuing a dual growth strategy to drive organic growth with our core consumer while attracting a new and younger consumer through our multi-faceted e-commerce approach. We are optimistic about the many opportunities that exist through our comprehensive strategy and look forward to growing our business with a new consumer group that exhibits different buying characteristics than the core La-Z-Boy consumer. La-Z-Boy will continue to evolve as we make strategic investments to drive growth and profitability in an ever-changing environment.”

FISCAL 2018 PROJECTED* STORE ACTIVITY

Total FY17NewClosedAcquiredTotal FY18RemodelRelocation
Company-owned143 6(4)1146--
Dealer-owned2044(3)(1)20474
Total34710(7)-35074

2017 Tax Cuts and Jobs Act

Our results for the third quarter of fiscal 2018 included a $0.20 per share net charge related to tax reform, or $9.5 million. This included a $9.8 million charge for the provisional re-measurement of certain deferred taxes and related amounts, a provisional $1.9 million of income tax expense for the estimated effects of the transition tax on the deemed repatriation of foreign earnings, and a benefit of $2.2 million primarily related to the lower blended federal tax rate. Based on our current interpretation of the tax reform legislation, we made reasonable estimates to record provisional adjustments during the third quarter of fiscal 2018. Since we are still accumulating and processing data to finalize the underlying calculations and expect regulators to issue further guidance, among other things, we believe our estimates may change. We will continue to refine such amounts within the measurement period allowed, which is not to extend beyond one year of the enactment date.

Balance Sheet and Cash Flow

During the quarter, the company generated $40.0 million in cash from operating activities. La-Z-Boy ended the quarter with $135.3 million in cash and cash equivalents, $35.4 million in investments to enhance returns on cash, and $2.4 million in restricted cash. During the quarter, the company had $7.8 million in capital expenditures, paid $5.7 million in dividends, and spent $15.4 million purchasing 0.5 million shares of stock in the open market under its existing authorized share purchase program, leaving 7.0 million shares of purchase availability in the program.

Conference Call

La-Z-Boy will hold a conference call with the investment community on Wednesday, February 21, 2018, 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 https://lazboy.gcs-web.com/. 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 #10442.

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, including the tax code, or changes in the domestic or international regulatory environment, including new or increased duties and termination or renegotiation of the North American Free Trade Agreement; (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: https://lazboy.gcs-web.com/financial-information/sec-filings . 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: https://lazboy.gcs-web.com/.

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 147 of the 350 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 350 stand-alone La-Z-Boy Furniture Galleries® stores and 532 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) 1/27/18 1/28/17
Sales $413,638 $389,992
Cost of sales 251,140 233,185
Gross profit 162,498 156,807
Selling, general and administrative expense 129,403 123,235
Operating income 33,095 33,572
Interest expense 113 562
Interest income 444 241
Income from Continued Dumping and Subsidy Offset Act, net 273
Other income (expense), net (1,094) (52)
Income before income taxes 32,332 33,472
Income tax expense 20,047 9,830
Net income 12,285 23,642
Net income attributable to noncontrolling interests (176) (356)
Net income attributable to La-Z-Boy Incorporated $12,109 $23,286
Basic weighted average common shares 47,234 48,914
Basic net income attributable to La-Z-Boy Incorporated per share $0.26 $0.47
Diluted weighted average common shares 47,757 49,384
Diluted net income attributable to La-Z-Boy Incorporated per share $0.25 $0.47
Dividends declared per share $0.12 $0.11



LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended
(Unaudited, amounts in thousands, except per share data) 1/27/18 1/28/17
Sales $1,163,922 $1,107,354
Cost of sales 707,369 666,942
Gross profit 456,553 440,412
Selling, general and administrative expense 372,891 350,524
Operating income 83,662 89,888
Interest expense 430 794
Interest income 1,163 679
Income from Continued Dumping and Subsidy Offset Act, net 273
Gain on conversion of investment 2,204
Other income (expense), net (2,475) (1,783)
Income before income taxes 84,124 88,263
Income tax expense 36,889 29,508
Net income 47,235 58,755
Net income attributable to noncontrolling interests (579) (830)
Net income attributable to La-Z-Boy Incorporated $46,656 $57,925
Basic weighted average common shares 47,852 49,057
Basic net income attributable to La-Z-Boy Incorporated per share $0.97 $1.17
Diluted weighted average common shares 48,325 49,532
Diluted net income attributable to La-Z-Boy Incorporated per share $0.96 $1.16
Dividends declared per share $0.34 $0.31


LA-Z-BOY INCORPORATED
CONSOLIDATED BALANCE SHEET
(Unaudited, amounts in thousands, except par value) 1/27/18 4/29/17
Current assets
Cash and equivalents $135,266 $141,860
Restricted cash 2,354 8,999
Receivables, net of allowance of $2,665 at 1/27/18 and $2,563 at 4/29/17 146,498 150,846
Inventories, net 186,319 175,114
Other current assets 43,242 40,603
Total current assets 513,679 517,422
Property, plant and equipment, net 174,877 169,132
Goodwill 75,765 74,245
Other intangible assets, net 18,510 18,489
Deferred income taxes – long-term 28,823 40,131
Other long-term assets, net 81,848 69,436
Total assets $893,502 $888,855
Current liabilities
Current portion of long-term debt $231 $219
Accounts payable 66,672 51,282
Accrued expenses and other current liabilities 131,166 147,175
Total current liabilities 198,069 198,676
Long-term debt 249 296
Other long-term liabilities 92,346 88,778
Contingencies and commitments
Shareholders’ equity
Preferred shares – 5,000 authorized; none issued
Common shares, $1 par value – 150,000 authorized; 47,068 outstanding
at 1/27/18 and 48,472 outstanding at 4/29/17
47,068 48,472
Capital in excess of par value 297,408 289,632
Retained earnings 271,912 284,698
Accumulated other comprehensive loss (26,509) (32,883)
Total La-Z-Boy Incorporated shareholders’ equity 589,879 589,919
Noncontrolling interests 12,959 11,186
Total equity 602,838 601,105
Total liabilities and equity $893,502 $888,855


LA-Z-BOY INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
(Unaudited, amounts in thousands) 1/27/18 1/28/17
Cash flows from operating activities
Net income $47,235 $58,755
Adjustments to reconcile net income to cash provided by
(used for) operating activities
Gain on disposal of assets (1,849) (103)
Gain on conversion of investment (2,204)
Deferred income tax expense 10,543 3,214
Provision for doubtful accounts 198 (64)
Depreciation and amortization 23,671 21,311
Equity-based compensation expense 7,929 7,571
Pension plan contributions (2,000) (2,300)
Change in receivables 5,057 (576)
Change in inventories (9,142) (5,929)
Change in other assets (3,304) (4,415)
Change in payables 12,529 6,359
Change in other liabilities 2,537 9,191
Net cash provided by operating activities 91,200 93,014
Cash flows from investing activities
Proceeds from disposals of assets 620 273
Proceeds from property insurance 1,807
Capital expenditures (24,138) (15,529)
Purchases of investments (24,124) (20,778)
Proceeds from sales of investments 17,109 13,899
Acquisitions, net of cash acquired (16,495) (35,878)
Net cash used for investing activities (45,221) (58,013)
Cash flows from financing activities
Payments on debt (203) (217)
Payments for debt issuance costs (220)
Stock issued for stock and employee benefit plans, net of
shares withheld for taxes
1,418 1,739
Excess tax benefit on stock option exercises 1,924
Purchases of common stock (46,074) (25,062)
Dividends paid (16,343) (15,270)
Net cash used for financing activities (61,422) (36,886)
Effect of exchange rate changes on cash and equivalents 2,204 (139)
Change in cash, cash equivalents and restricted cash (13,239) (2,024)
Cash, cash equivalents and restricted cash at beginning of
period
150,859 121,335
Cash, cash equivalents and restricted cash at end of period $137,620 $119,311
Supplemental disclosure of non-cash investing activities
Capital expenditures included in payables
$3,926 $1,012



LA-Z-BOY INCORPORATED
SEGMENT INFORMATION
Quarter Ended Nine Months Ended
(Unaudited, amounts in thousands) 1/27/18 1/28/17 1/27/18 1/28/17
Sales
Upholstery segment:
Sales to external customers $262,874 $246,650 $739,429 $715,357
Intersegment sales 58,084 56,273 160,697 150,771
Upholstery segment sales 320,958 302,923 900,126 866,128
Casegoods segment:
Sales to external customers 23,887 20,499 68,821 64,651
Intersegment sales 3,328 2,760 11,969 9,534
Casegoods segment sales 27,215 23,259 80,790 74,185
Retail segment sales 125,815 122,121 353,068 325,206
Corporate and Other:
Sales to external customers 1,062 722 2,604 2,140
Intersegment sales 2,818 1,978 6,839 4,751
Corporate and Other sales 3,880 2,700 9,443 6,891
Eliminations (64,230) (61,011) (179,505) (165,056)
Consolidated sales $413,638 $389,992 $1,163,922 $1,107,354
Operating Income (Loss)
Upholstery segment $31,699 $35,669 $88,422 $104,388
Casegoods segment 2,792 1,593 8,833 6,587
Retail segment 7,076 6,325 12,746 11,515
Corporate and Other (8,472) (10,015) (26,339) (32,602)
Consolidated operating income $33,095 $33,572 $83,662 $89,888

Contact:
Kathy Liebmann
(734) 241-2438
kathy.liebmann@la-z-boy.com

Source:La-Z-Boy Incorporated