La-Z-Boy Incorporated (LZB)

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La-Z-Boy Incorporated (LZB)

Q3 2013 Earnings Call

February 20, 2013 8:30 am ET


Kathy Liebmann - Director of Investor Relations and Corporate Communications

Kurt L. Darrow - Chairman, Chief Executive officer and President

Louis M. Riccio - Chief Financial officer and Senior Vice President


Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Chad Bolen

Todd A. Schwartzman - Sidoti & Company, LLC

Matthew Schon McCall - BB&T Capital Markets, Research Division

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division



Good morning, ladies and gentlemen. Welcome to the La-Z-Boy Fiscal 2013 Third Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Kathy Liebmann, Director of Investor Relations of La-Z-Boy Incorporated. Ms. Liebmann, you may now begin.

Kathy Liebmann

Thank you, Melissa. Good morning, and thank you for joining us to discuss our fiscal 2013 third quarter results. With us today are Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer; and Mike Riccio, our Chief Financial Officer. Kurt will begin today's call and then Mike will speak about the financials before turning the call back to Kurt for his concluding remarks. We will then open the call to questions. A telephone replay of the call will be available for 1 week beginning this afternoon.

These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles to communicate with investors about the company's current operations and future prospects. We will make forward-looking statements during this call so I will repeat our usual Safe Harbor remarks. While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings, and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call.

And with that, let me turn over the call to Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer. Kurt?

Kurt L. Darrow

Thank you, Kathy. Good morning, everyone, and thanks for joining us today on our call.

Yesterday afternoon, we reported our third quarter results for fiscal 2013. It was a strong quarter across many fronts. Consolidated sales increased 10.3%, our operating income increased 37% and our retail segment turned profitable with same-store sales for the La-Z-Boy Furniture Galleries store network increasing 11.8%. We also generated almost $36 million in cash from operations and increased our cash position while buying back shares, paying a dividend and purchasing the property for our new World Headquarters, all in all, a very good quarter.

Turning our retail segment around has been a significant undertaking and quite frankly, took longer than expected, and I will address that in a few moments. But with the operation profitable, we will now be able to harness the earnings power of the integrated retail model and continue to make investments in our business to drive profitable growth and return to our shareholders.

Sales of our upholstery segment increased 12.3% on top of a 10.7% sales comp in last year's third quarter. The operating margin for the segment in this year's third quarter was 10.1% compared with 9.1% in last year's comparable period. Our manufacturing facilities are lean and we will continue to leverage the fixed cost structure associated with them to drive bottom-line results.

And while on the topic of manufactured, it was in indeed an honor for our Dayton, Tennessee, La-Z-Boy facility to be named by IndustryWeek magazine as one of the 10 Best Plants in North America for 2012. It is a competitive and coveted title to obtain and, in fact, the Dayton facility was a finalist for the prior 3 years before receiving the prestigious award last month.

Lean initiatives are part of our company's DNA and we worked hard for years to implement them, and we'll continue to do so. Part and parcel to being efficient is the objective to deliver the highest quality products to our customers. This award recognizes the world-class manufacturing operation at our Dayton facility, which totals 1.2 million square feet of manufacturing. I am quite proud of the some 1,300 associates in Dayton who earned this recognition and thank them for their hard work and dedication, as well as that of thousands of other associates who work tirelessly everyday and contribute at all of our other facilities.

We are continuing to invest in our Live Life Comfortably advertising campaign, and this quarter spent an additional $1.5 million compared with last year's third quarter towards that campaign. That said, as a percentage of sales, the spend was consistent with last year's quarter. As we have commented before, the campaign is driving a more qualified consumer to our stores, one who is looking for and finding on-trend furniture with a great value. Today's consumer better understands that La-Z-Boy is more than a recliner company and that we offer a wide array of stylish upholstered furniture. Our stationary product sales are growing at a much faster rate than motion, which is a key objective of the campaign given the size of the stationary market.

At the same time however, with innovation being one of La-Z-Boy's key attributes and the basis upon which the company was built, we continue to have a great success with our power business and are pleased to be gaining traction in both categories, recliners and motion.

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