News Release
LA-Z-BOY, INC. REPORTS STRONG FIRST QUARTER GAINS
NYSE & PCX: LZB Contact: Gene Hardy (734) 241-4306
MONROE, MI., August 4, 1998: La-Z-Boy Incorporated, one of the world's largest
producers of furniture, continued reaching record levels of quarterly sales and
profit.
Financial Details
For the first quarter of La-Z-Boy's 1999 fiscal year that ended 7/25/98, sales
reached $268.9 million, up 27% from last year's first quarter of $212.3 million.
Net income was up 316% to $7.2 million vs. $1.7 million. Diluted EPS (Earnings
Per Share) was up 300% to $0.40 vs. $0.10. (Last year's diluted EPS would have
been $0.20 without a one-time expense relating to Montgomery Ward's bankruptcy.)
President Comments
According to La-Z-Boy President and Chief Operating Officer, Gerald L. Kiser,
"Strong incoming orders during the spring of the year helped cause us to exceed
our internal sales and profit goals in the first quarter. We are on our way to
performing better than our publicly stated goal of annual sales growing at least
10% or greater than the industry rate. Based on our latest sales indicators, it
looks like August and September sales growth should continue to be strong;
although not as high on a percentage basis as in the first quarter."
Marketing
Retail furniture sales remained seasonally strong throughout the first quarter,
helping drive record results. Residential division dealers purchased a record
number of company-produced four-color free-standing newspaper inserts.
Newspaper insertions in support of Father's Day 1998 nearly doubled from 1997
levels. The ability for dealers to advertise the full range of La-Z-Boy
products has been enhanced by the company's move to CD-ROM technology.
In October of this year, the Residential division and the Kincaid division
will be introducing a joint collection of upholstered products and casegoods
inspired by the works of renowned artist Thomas Kinkade, the "Painter of Light".
The Thomas Kinkade name and product lines are strong forces at retail and hold
great appeal for women consumers in particular. Previously, the Kincaid
division has enjoyed success from its licensing venture with Ducks Unlimited.
This is the first licensing agreement signed by the Residential division and the
first time the two divisions will have introduced products jointly.
The Business Furniture division launched the third issue of its "All Products
Catalog" and initiated a new marketing partnership between La-Z-Boy Business
Furniture and its distributors. Key components of the program include direct
mail brochures, newspaper advertisements, radio/television commercials and
point-of-sale materials.
Dividend Increase and Stock Split
Both of the following items were previously announced on 7/27/98: La-Z-Boy
declared a 14% increase in dividends to $0.24 per share for shareholders of
record August 21, 1998, payable September 10, 1998. In addition La-Z-Boy plans
to split its common stock 3 for 1 (two additional shares will be issued for each
share held) to holders of record at the close of business on August 21, 1998,
with distribution to be made September 14, 1998.
More Information
La-Z-Boy Inc.'s first quarter 10-Q filing including an income statement, balance
sheet, cash flow statement and additional management discussion is available now
at the Company's internet site (lazboy.com/report/index.html). This press
release is just one part of La-Z-Boy Incorporated's disclosures and should be
read in conjunction with all other 10-Q information. About 48 hours after this
release, this first quarter 10-Q information should be available on the SEC's
internet site (sec.gov/cgi-bin/srch-edgar?la-z-boy).
8/4/98 Page 1 of 3
La-Z-Boy Incorporated Financial Information Release
CONSOLIDATED STATEMENT OF INCOME
(Amounts in thousands, except per share data)
FIRST QUARTER ENDED (UNAUDITED)
----------------------------------------------
July 25, July 26, % Over Percent of Sales
------------------
1998 1997 (Under) 1998 1997
-------- -------- -------- ------- ------
.................
Sales ............... $268,880 $212,326 27% 100.0% 100.0%
Cost of sales ....... 205,431 164,184 25% 76.4% 77.3%
-------- -------- -------- ------- -----
Gross profit ... 63,449 48,142 32% 23.6% 22.7%
S, G & A ............ 51,288 45,357 13% 19.1% 21.4%
-------- -------- -------- ------- -----
Operating profit 12,161 2,785 337% 4.5% 1.3%
Interest expense .... 1,187 1,024 16% 0.4% 0.5%
Interest income ..... 577 482 20% 0.2% 0.2%
Other income ........ 355 750 -53% 0.1% 0.4%
-------- -------- -------- ------- -----
Pretax income .. 11,906 2,993 298% 4.4% 1.4%
Income tax expense .. 4,722 1,267 273% 39.7%* 42.3%*
-------- -------- -------- ------- -----
Net income ..... $ 7,184 $ 1,726 316% 2.7% 0.8%
======== ======== ======== ======= =====
Basic EPS ......... $ 0.40 $ 0.10 300%
Diluted EPS ....... $ 0.40 $ 0.10 300%
Dividends per share $ 0.21 $ 0.21 0%
<FN>
* As a percent of pretax income, not sales.
</FN>
8/4/98 Page 2 of 3
La-Z-Boy Incorporated Financial Information Release
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
Unaudited Increase Audited
---------
July 25, July 26, (Decrease) Apr. 25,
----------
1998 1997 Dollars Percent 1998
--------- --------- --------- --------- ---------
Current assets
Cash & equivalents ................. $ 45,619 $ 39,610 $ 6,009 15% $ 28,700
Receivables ........................ 196,128 164,101 32,027 20% 238,260
Inventories
Raw materials .................... 45,706 40,455 5,251 13% 43,883
Work-in-process .................. 42,639 35,880 6,759 19% 40,640
Finished goods ................... 35,667 37,890 (2,223) -6% 30,193
--------- --------- --------- --------- ---------
FIFO inventories ............... 124,012 114,225 9,787 9% 114,716
Excess of FIFO over LIFO ....... (22,740) (21,297) (1,443) -7% (22,812)
--------- --------- --------- --------- ---------
Total inventories ........... 101,272 92,928 8,344 9% 91,904
Deferred income taxes .............. 16,627 20,950 (4,323) -21% 16,679
Income taxes ....................... -- -- N/M N/M 936
Other current assets ............... 5,282 1,706 3,576 210% 6,549
--------- --------- --------- --------- ---------
Total current assets ............. 364,928 319,295 45,633 14% 383,028
Property, plant & equipment .......... 120,685 115,610 5,075 4% 121,762
Goodwill ............................. 48,533 40,187 8,346 21% 49,413
Other long-term assets ............... 27,964 34,583 (6,619) -19% 26,148
--------- --------- --------- -------- ---------
Total assets ................... $ 562,110 $ 509,675 $ 52,435 10% $ 580,351
========= ========= ========= ========= =========
Current liabilities
Current portion - l/t debt ......... $4,805 $ 4,611 $ 194 4% $ 4,822
Current portion - capital leases ... 1,205 1,932 (727) -38% 1,383
Accounts payable ................... 35,613 29,959 5,654 19% 36,703
Payroll/other comp ................. 29,252 23,014 6,238 27% 39,617
Income taxes ....................... 1,613 5,105 (3,492) -68% --
Other current liabilities .......... 23,194 17,017 6,177 36% 25,764
--------- --------- --------- --------- ---------
Total current liabilities ........ 95,682 81,638 14,044 17% 108,289
Long-term debt ....................... 63,360 50,524 12,836 25% 66,434
Capital leases ....................... 555 1,760 (1,205) -68% 819
Deferred income taxes ................ 5,500 6,329 (829) -13% 5,478
Other long-term liabilities .......... 11,609 10,143 1,466 14% 11,122
Commitments & contingencies .......... -- -- N/M N/M --
Shareholders' equity
Common shares, $1 par .............. 17,748 17,975 (227) -1% 17,850
Capital in excess of par ........... 29,964 28,318 1,646 6% 29,262
Retained earnings .................. 339,214 313,893 25,321 8% 342,146
Currency translation ............... (1,522) (905) (617) -68% (1,049)
--------- --------- --------- --------- ---------
Total shareholders' equity ....... 385,404 359,281 26,123 7% 388,209
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity ........... $ 562,110 $ 509,675 $ 52,435 10% $ 580,351
========= ========= ========= ========= =========
8/4/98 Page 3 of 3
La-Z-Boy Incorporated Financial Information Release
Comments and Analysis
Overall:
Refer to today's press release for additional information.
Sales:
Sales in the first quarter of fiscal year 1999 were up 27% over the prior year's
quarter primarily due to a very strong month of May sales in the current year
compared to much weaker than normal sales in May last year. (Sales increases
for the months of June and July compared to prior year comparable months were
good but not nearly as strong as May.) In addition, sales were bolstered by
acquisitions of companies; a product mix which favored higher priced products
and selling price increases of 0.5% - 1.5%. Sales increases were not caused by
any new significant product line introductions or sales promotions. That is, a
"normal" amount of new styles, fabrics and promotional activity occurred in both
years' first quarter.
Gross profit margins:
Gross profit margins increased to 23.6% of sales from 22.7% in last year's first
quarter. Margins were favorably affected by a significant growth in unit sales
volume, which allowed fixed overhead costs to be absorbed more efficiently.
Also, the absence of a build-up in manufacturing costs due to positioning
residential upholstery plants for the fall selling season and raw material parts
delivery disruptions (which were present in the prior year) favorably impacted
gross profit margins. Margins were unfavorably impacted by a product mix which
favored lower margin products, higher inbound freight costs, higher indirect
labor expenses, higher overtime costs and higher utility expenses.
As mentioned in the press release, anticipated strong sales growth in August and
September should favorably affect fixed costs - although with not as much of a
percentage impact because unit growth isn't expected to be as high as in the
first quarter. Unfavorable gross margin impacts from product mix are expected
to continue in the short term. However; it is difficult to estimate whether the
other items that caused unfavorable margin impacts in the first quarter will
continue, get worse or get better in the second quarter.
S,G & A:
First quarter S,G & A decreased to 19.1% of sales vs. 21.4% last year. The
largest cause was due to a decrease in bad debts expense. The prior year had
$3.1 million of expense relating to the Chapter 11 declaration of bankruptcy by
Montgomery Ward Holding Corporation. As expected, performance bonus related
expenses increased due to higher sales & profits and Information Technology
(I.T.) expenses increased mainly due to Year 2000 related projects and work on
production tracking systems. La-Z-Boy held many other S,G & A expenses at a
growth rate much lower than the sales growth rate, thus somewhat offsetting the
higher performance bonus and I.T. related increases. Higher bonus and I.T.
related expenses are expected to continue throughout the year.
Income tax expense:
Income tax expense as a percent of pretax income declined to 39.7% from 42.3%
last year. With the traditionally lower income in the first quarter of the
year, rate fluctuations are common due to international and non-deductible
amortization effects being amplified.