LZB: CEO Comments on Q2 Results and Provides Update on Restructuring Efforts
Submitted By Knobias ClipReport
By Fain Hughes, fhughes@knobias.com
Shares of La-Z-Boy Inc. (LZB) were weaker in Wednesday’s session after the Company reported its operating results for the fiscal second quarter ended October 25, 2008 on Tuesday.
Net sales for the quarter were $331.9 million, down 9.2% compared with the prior-year period. The Company reported a net loss of $53.7 million, or a loss of $1.04 per share, which included a non-cash $0.74 per-share charge for a valuation allowance against the company’s deferred tax assets and a $0.04 per-share restructuring charge. For the prior-year second quarter, the Company posted a net loss of $9.9 million, or $0.19 per share, which included a $0.11 per-share charge for a write-down of goodwill related to the Company’s stores in southeastern Florida, a $0.12 per-share charge from discontinued operations, a large portion of which was attributable to intangible assets and liquidating inventory of businesses held for sale, and a $0.01 restructuring charge.
Kurt L. Darrow, La-Z-Boy’s President and CEO, commented in a conference call, “Due to the inconsistency and lack of visibility of our incoming order rates and falling consumer confidence, we have deemed it prudent to suspend yearly guidance at this time.”
Mr. Darrow explained, “By any measure, the furniture industry is in the midst of one of the most difficult periods in its history. The turbulence in the financial and credit markets has exasperated the consumers’ willingess to make discretionary purchases. While the macro-economic issues are beyond our control, my mandate is to control the controllables and aggressively manage our way through this unprecedented period.”
He continued, “For the quarter, we experienced a notable and steady decline in sales, particularly in October. As a result of the rapid decline in order rates, we announced a series of initiatives earlier this month that included a 10% workforce reduction, significant reductions in capital spending and operating expenses and the anticipated closing of 15-20 primarily independent stores. We believe the economy will continue to falter, and it was necessary to take aggressive actions to align our operating structure with today’s order flow. We remain focused on projects to improve our operating structure and are scrutinizing each and every expenditure and decision to tightly manage this company in this environment.”
“The start-up of our cut-and-sew operations in Mexico are on schedule to come online in January. We have 75 employees working at a temporary facility in Mexico, and we have already begun to send cut-and-sew kits to our U.S.-based manufacturing plants. Once we have fully transitioned these operations, we should realize savings in excess of $20 million annually with a full benefit realized in 2011.”
“We will continue to invest in marketing, however, our advertising spend will be a decreased level commensurate with the change we have seen in volume. We will also maintain our commitment to enhancing our online presence.”
Mr Darrow added, “Another important initiative is the roll-out of our company-owned distribution centers to the entire network of La-Z-Boy Furniture Gallery dealers. By taking on the warehouse, inventory and delivery functions for the entire network, we are freeing them up to focus on the front side of the business to generate sales. Although it will take several years to consolidate all of the dealers into the warehouses due to existing lease obligations, we have already partnered with three dealers representing nine stores into our distribution system. By the end of the year, we anticipate having nine dealers with twenty stores in the corporate warehouse system. This initiative will make a significant positive change to our accounts receivable leverage. Once this project is complete, we will have a common IT platform throughout the retail network. This will enable us to react faster to real time trends.”
He concluded, “With the best known brand in the furniture industry, a large proprietary network of stores and a lean operating structure, we believe that we will emerge from this period with a stronger company operating in a very different environment. Everything we are doing today is with the intention of positioning us to be a leader in that new environment.”
