La-Z-Boy Incorporated (LZB)

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La-Z-Boy (LZB)

F3Q11 Earnings Call

February 16, 2011 8:30 am ET


Kathy Liebmann - Director of Investor Relations and Corporate Communications

Louis Riccio - Chief Financial Officer and Senior Vice President

Kurt Darrow - Chief Executive Officer, President and Executive Director


John Baugh

Chad Bolen - Raymond James

Barry Vogel - Barry Vogel & Associates

Todd Schwartzman - Sidoti & Company, LLC

Bradley Thomas - KeyBanc Capital Markets Inc.

Matthew McCall - BB&T Capital Markets



Good morning, ladies and gentlemen, welcome to the La-Z-Boy Fiscal 2011 Third Quarter Conference Call. [Operator Instructions] It is now my pleasure to introduce Ms. Kathy Liebmann, Director of Investor Relations of La-Z-Boy Inc. Ms. Liebmann, you may now begin.

Kathy Liebmann

Thank you, Rob. Good morning, and thank you for joining us to discuss our fiscal 2011 third quarter results. Present on the call this morning are Kurt Darrow, La-Z-Boy's 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.

As is our custom, the time allotted for this call is one hour. A telephone replay of the call will be available for one 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 remark. 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 our 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 President and Chief Executive Officer. Kurt?

Kurt Darrow

Thank you, Kathy. And good morning, everyone, and thanks for joining us this morning. Yesterday afternoon, we reported our third quarter results for fiscal '11. Consolidated sales were down 4.3% for the quarter. And as we noted in our press release, approximately half of the decline or $6.6 million of $13.2 million volume decrease related to the deconsolidation of our Toronto VIE [Variable Interest Entities]. Net income for the quarter was $0.19 versus $0.21 in last year's third quarter, and Mike will speak about the difference in the anti-dumping monies received and the tax benefit in greater detail in just a few minutes.

Before getting into a discussion of our three business segments, I would like to take a moment to put things into context. Several years ago, we set upon a course to make strategic changes to our company. It was clear that to be competitive, we needed to be nimble and adapt to the current operating environment that both the industry and the overall economy presented us. The initiatives we undertook were designed to ensure our company would not only survive, but thrive in what was becoming a very new and different operating environment for the furniture industry.

A myriad of changes were put into place. And in addition to the success of the cellular production process throughout our La-Z-Boy branded facilities, the new operating structures of both our Casegoods and Retail segments are bearing fruit. Our Retail Group has posted eight consecutive quarters of improved operating results, and our Casegood Group has strengthened its performance as well even with the challenge in the current environment.

We are also encouraged that our La-Z-Boy Furniture Galleries same-store sales was up 4.7% for the quarter, reversing a negative five-month trend, including decreased same-store sales of 7% last quarter. We noted an increase in volume during the holiday period and into January. Although it may be too early to consider this activity a trend, we are indeed encouraged with what we are seeing.

As I mentioned in our conference call last quarter, La-Z-Boy is in an investment mode for growth. We've taken down our cost structure in all three business segments and are lean and efficient, allowing for a focus on positioning the company to increase its market share and to grow profitably. The initiatives in which we are investing, mainly our new brand platform, research and innovation, technology and customer care, will inevitably strengthen our company, and we are confident we'll be poised for growth when the overall macroeconomic environment strengthens, specifically as it relates to consumer confidence and housing.

Now let me turn to a brief discussion of our three business segments. First, Upholstery. For the quarter, Upholstery sales were off 3.9% compared with last year's third quarter. It should be noted, however, that we were going up against more difficult comparatives, as last year our Upholstery segment was up 17.5% for the third quarter over the prior year period. This puts into perspective the challenges our industry has faced over the last two years, reflecting overall lower volumes and the inconsistent and unpredictable sales environment.

With an 8.2% operating margin, it's clear, our cellular process is delivering results. Our margins for the quarter, however, continues to be impacted by higher raw material costs, and we expect a price increase will probably be necessary to help offset the cost going forward. Our Mexico Cut-and-Sew facility is making progress on a weekly basis. We realized a cost savings this quarter and expect ongoing improvements, so that we will benefit from the operation going forward, capturing most of the cost savings that we have outlined in fiscal 2012.

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