News Release
LA-Z-BOY'S THIRD QUARTER SALES IMPROVED; PROFITS DECLINED
MONROE, MI., February 15, 1995: La-Z-Boy Chair Company's 1995 fiscal third
quarter that ended January 28, 1995 set a third quarter record with sales up
9%. Net income per share was 9% lower than last year's third quarter. On
1/27/95 the company issued a press release estimating sales would increase 8%
and profits would be "equal to or somewhat less than last year".
Financial Details
- -----------------
1995 THIRD QUARTER sales grew to $211 million vs. $193 million, an increase
of 9%. 1994 third quarter sales were up 13% over the preceding year. Net
income for the 1995 third quarter was $7.2 million vs. $8.0 million last year
for a decline of 10%. On a per share basis, net income was $.40 vs. $.44
last year.
1995 NINE MONTHS sales were $616 million, 9% more than last year's $564
million. Excluding the effect of a year-earlier tax accounting change, net
income was $23.6 million, up 5% from the prior year's $22.4 million, or $1.30
per share vs. $1.23 last year.
After an accounting change, which was unrelated to operations but which raised
last year's nine months net income 15%, fiscal 1995 nine months net income of
$23.6 million compares to $25.7 million, or $1.30 per share vs. $1.41 last
year.
More
- ----
La-Z-Boy has electronically filed its third quarter Form 10-Q with the
Securities and Exchange Commission via their EDGAR system. Among other
things, this filing includes the balance sheet, income statement, cash flow
statement and more detailed management discussions.
Sales do not include any acquired companies, so the third quarter improvement
of 9% was all internally generated. Sales increased at all five operating
divisions with particular strength at Hammary.
See La-Z-Boy's 10-Q and 1/27/95 press release for details regarding the
cumulative impact of higher health-care costs, unfavorable Canadian exchange
rates & taxes and raw material cost increases on third quarter 1995 net
income.
Future
- ------
In general, incoming sales orders and backlogs as of press release date
continue to be good.
The costs and anticipated higher sales associated with La-Z-Boy's new TV
advertising campaign will affect the company's financial results in the fourth
quarter and beyond. The national campaign is part of a necessary long-term
effort to further expand the company's marketshare by repositioning La-Z-Boy
as a complete furniture resource.
NYSE & PSE: LZB Contact: Jim Korsnack (313) 241-4208
La-Z-Boy Chair Company Financial Information Release 1 of 5
CONSOLIDATED SUMMARY OF OPERATIONS 02/15/95
(Amounts in thousands, except per share data)
THIRD QUARTER ENDED (UNAUDITED)
----------------------------------------------
Amounts
------------------ Percent of Sales
Jan. 28, Jan. 22, % Over ----------------
1995 1994 (Under) 1995 1994
-------- -------- ------- ------- -------
Sales $210,814 $192,648 9% 100.0% 100.0%
Cost of sales 157,767 141,771 11% 74.8% 73.6%
-------- -------- ------- ------- -------
Gross profit 53,047 50,877 4% 25.2% 26.4%
S, G & A 39,357 36,877 7% 18.7% 19.1%
-------- -------- ------- ------- -------
Operating profit 13,690 14,000 -2% 6.5% 7.3%
Interest expense 1,041 682 53% 0.5% 0.4%
Other income 39 153 -75% 0.0% 0.1%
-------- -------- ------- ------- -------
Pretax income 12,688 13,471 -6% 6.0% 7.0%
Income taxes 5,467 5,483 -0% 43.1%** 40.7%**
-------- -------- ------- ------- -------
Net income $7,221 $7,988 -10% 3.4% 4.1%
======== ======== ======= ======= =======
Average shares 17,968 18,302 -2%
Earnings per share $0.40 $0.44 -9%
Dividends per share $0.17 $0.17 0%
** As a percent of pretax income, not sales.
La-Z-Boy Chair Company Financial Information Release 2 of 5
CONSOLIDATED SUMMARY OF OPERATIONS 02/15/95
(Amounts in thousands, except per share data)
NINE MONTHS ENDED (UNAUDITED)
----------------------------------------------
Amounts
------------------ Percent of Sales
Jan. 28, Jan. 22, % Over ----------------
1995 1994 (Under) 1995 1994
-------- -------- ------- ------- -------
Sales $615,787 $563,788 9% 100.0% 100.0%
Cost of sales 458,237 416,978 10% 74.4% 74.0%
-------- -------- ------- ------- -------
Gross profit 157,550 146,810 7% 25.6% 26.0%
S,G & A 115,408 108,330 7% 18.8% 19.2%
-------- -------- ------- ------- -------
Operating profit 42,142 38,480 10% 6.8% 6.8%
Interest expense 2,455 2,178 13% 0.4% 0.4%
Other income 926 1,021 -9% 0.2% 0.2%
-------- -------- ------- ------- -------
Pretax income 40,613 37,323 9% 6.6% 6.6%
Income taxes 17,044 14,946 14% 42.0%** 40.0%**
-------- -------- ------- ------- -------
Income before acctg. change 23,569 22,377 5% 3.8% 4.0%
Accounting change - 3,352 N/A - 0.6%
-------- -------- ------- ------- -------
Net income $23,569 $25,729 -8% 3.8% 4.6%
======== ======== ======= ======= =======
Average shares 18,083 18,257 -1%
Earnings per share:
- -------------------
Income before acctg. change $1.30 $1.23 6%
Accounting change - 0.18 N/A
-------- -------- -------
Net income $1.30 $1.41 -8%
======== ======== =======
Dividends per share $0.51 $0.47 9%
** As a percent of pretax income, not sales.
La-Z-Boy Chair Company Financial Information Release 3 of 5
CONSOLIDATED BALANCE SHEET 02/15/95
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
Jan. 28, Jan. 22, ---------------- April 30,
1995 1994 Dollars Percent 1994
-------- -------- ------- ------- ---------
Current Assets
Cash & equivalents $41,552 $32,402 $9,150 28% $25,926
Receivables 166,506 153,003 13,503 9% 183,115
Inventories
Raw materials 36,362 33,259 3,103 9% 31,867
Work-in-process 33,574 32,063 1,511 5% 29,325
Finished goods 26,732 29,698 (2,966) -10% 26,676
-------- -------- ------- ------- --------
FIFO inventories 96,668 95,020 1,648 2% 87,868
Excess of FIFO over LIFO (21,034) (18,170) (2,864) -16% (20,632)
-------- -------- ------- ------- ---------
Total inventories 75,634 76,850 (1,216) -2% 67,236
Deferred income taxes 17,820 13,720 4,100 30% 15,160
Other current assets 5,084 5,614 (530) -9% 4,148
-------- -------- ------- ------- ---------
Total Current Assets 306,596 281,589 25,007 9% 295,585
Property, plant & equipment 97,552 93,889 3,663 4% 94,277
Goodwill 20,085 20,991 (906) -4% 20,752
Other long-term assets 17,191 18,541 (1,350) -7% 19,639
-------- -------- ------- ------- ---------
Total Assets $441,424 $415,010 $26,414 6% $430,253
======== ======== ======= ======= =========
Certain prior year balance sheet items have been reclassed for comparability
to the current year.
La-Z-Boy Chair Company Financial Information Release 4 of 5
CONSOLIDATED BALANCE SHEET 02/15/95
(Dollars in thousands)
Unaudited Increase
------------------ (Decrease) Audited
Jan. 28, Jan. 22, ---------------- April 30,
1995 1994 Dollars Percent 1994
-------- -------- ------- ------- ---------
Current Liabilities
Current portion of L/T debt $1,875 $2,875 ($1,000) -35% 2,875
Accounts payable 29,761 22,740 7,021 31% 21,552
Payroll/benefits 26,750 23,283 3,467 15% 29,453
Estimated income taxes 803 3,148 (2,345) -74% 3,882
Other current liabilities 16,975 16,511 464 3% 13,701
-------- -------- ------- ------- ---------
Total Current Liabilities 76,164 68,557 7,607 11% 71,463
Long-term debt 56,245 52,495 3,750 7% 52,495
Deferred income taxes 6,424 6,455 (31) -0% 6,949
Other long-term liabilities 8,170 7,579 591 8% 8,435
Shareholders' Equity
17,968,660 shares, $1.00 par 17,969 18,320 (351) -2% 18,287
Capital in excess of par 10,464 9,596 868 9% 10,147
Retained earnings 267,014 252,550 14,464 6% 263,348
Currency translation (1,026) (542) (484) -89% (871)
-------- -------- ------- ------- ---------
Total Shareholders' Equity 294,421 279,924 14,497 5% 290,911
-------- -------- ------- ------- ---------
Total Liabilities and
Shareholders' Equity $441,424 $415,010 $26,414 6% $430,253
======== ======== ======= ======= =========
Certain prior year balance sheet items have been reclassed for comparability
to the current year.
La-Z-Boy Chair Company Financial Information Release 5 of 5
02/15/95
Overall: Refer to today's press release for additional comments.
- --------
Gross Profit Margins
- --------------------
Gross profit as a percent of sales (margins) dropped from 26.4% in last
year's third quarter to 25.2% primarily due to cost increases. The quarter's
health-care costs were about 30% higher that last year. Adverse selection,
provider cost shifting and faster claims turnaround are thought to cause the
25% jump. Fourth quarter health-care costs are expected to be roughly equal
to last year's quarter on a per week basis. (Last year's fourth quarter had
high health-care costs). Costs of leather, fabric, cartoning and premium
(not frame stock) woods were measurably up and are not expected to decline.
Cartoning is expected to further increase in cost in the near future months.
Factory wage costs were up but were within expectations. The next wage
increase is scheduled to occur in the residential division at 3/1/95 and is
expected to be moderate.
In addition to higher costs, 1995's third quarter margins were unfavorably
impacted by incentives & costs associated with the introduction of new
contract products as well as an unfavorable Canadian/U.S. dollar exchange
rate. The contract items are not expected to impact the upcoming fourth
quarter as much as the third quarter. Canadian exchange rate gross margin
impacts are expected to continue unless the Canadian dollar strengthens.
Other Income
- ------------
Other income for the third quarter was down from the prior year primarily due
to Canadian exchange impacts. This was partially offset by increased interest
income due to increased investments and higher interest rates. The Canadian
dollar impacts are due to revaluations of trade and other cash-type
intercompany balances at the end of each quarter and only change or cause P&L
impacts if the Canadian/U.S. dollar exchange rate changes from the end of one
quarter to the end of the next consecutive quarter. That is, unfavorable P&L
impacts will not occur in the fourth quarter if the rate stays the same or
strengthens (from Canada's perspective).
Income Taxes
- ------------
Income taxes as a percent of pretax profit was higher than last year for both
the quarter and nine months ended primarily due to unfavorable tax situations
at La-Z-Boy's Canadian operating division. The higher tax rates may continue
in the fourth quarter.
The estimated income taxes liability was $2.3 million less at the end of
January, 1995 compared to January, 1994. The January, 1994 balance was
overstated and corrected in the fourth quarter last year with the offsetting
adjustment to deferred taxes. Since last year, the company has also settled
several audits and tax disputes which resulted in a significant reduction in
the estimated income taxes liability.
The deferred income taxes asset was higher at the end of January, 1995
compared to January, 1994 due to the increase in expenses which were deducted
for book purposes but cannot currently be deducted for tax purposes like
accrued bad debts expenses.
Advertising
- -----------
As mentioned in the press release, a major new TV advertising program began
in February. This program is intended to increase sales over the longer term.
Effects on sales in the shorter term (the next few quarters) are difficult to
predict but sales increases and other related favorable management actions may
not be enough to cover the net additional costs of the TV program.
Inventories
- -----------
Raw materials were up 9% vs. last year. About half of the increase was in
fabric & leather; and although it was higher than desired, plans are in place
for a reduction by April, 1995. Lumber was planned to increase as part of
seasonal purchasing & should be declining soon.
Finished goods declined 10%, roughly as planned. On hand balances should be
leveling off although efforts are still underway to reduce balances longer
term.
Currency Translation Adjustment
- -------------------------------
The 89% decrease in the balance sheet currency translation adjustment from
1/22/94 to 1/28/95 was due to the decline in the Canadian exchange rate from
.7627 to .7069 (Canadian dollar to U.S. dollar ratio). This reduced the
present valuation of investments in the Canadian division.