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La-Z-Boy Inc (LZB)

F2Q11 (Qtr end 10/23/2010) Earnings Call

November 23, 2010 08:30 a.m. ET


Kathy Liebmann – Director, IR and Corporate Communications

Kurt Darrow – President and CEO

Mike Riccio – SVP and CFO


Budd Bugatch – Raymond James

Matt McCall – BB&T Capital Markets

Todd Schwartzman – Sidoti & Company

John Baugh – Stifel Nicolaus

Barry Vogel – Barry Vogel and Associates


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Good morning, ladies and gentlemen. Welcome to the La-Z-Boy’s Fiscal 2011 Second Quarter conference call. At this time, participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions)

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, Jackie. Good morning everyone, and thank you for joining us to discuss our Fiscal 2011 second quarter results. Present this morning on the call 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 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.

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. Good morning everyone, and happy Thanksgiving.

Yesterday afternoon we reported our second quarter results for Fiscal 2011. Our results were reported later than scheduled as the result of an accounting issue related to our VIE. While the issues did not impact our Fiscal 2011 second quarter earnings-per-share figure, we took extra time to close the books to insure that prior periods were properly revised, even though there was no material impact to each individual period.

Sales were down 2.6% for the quarter reflecting the challenging macroeconomic environment. Specifically, the ongoing weakness in the housing market coupled with consumer confidence remaining at low levels. These factors hinder the consumer’s desire to make discretionary big-ticket purchases.

On a per-share basis, we earned $0.07 for the second quarter versus $0.11 in last year’s second quarter. Our earnings were negatively impacted by lower overall sales, a decrease in the average selling price and higher raw material cost.

Against that backdrop, we’re addressing head on the issues within our control, and in doing so we are investing in our future.

Over the past few years we have lowered our cost structure considerably, across all three business segments, and the changes we have made have been demonstrable in our results, even in low-volume environment.

Today our focus is on driving sales and positioning the company for volume growth and market share gains when the consumer returns to the marketplace.

We are investing in our most important asset, our brand platform, and we’re investing in research, technology, and customer care. In short, we are proactively using the current period to make these investments and are confident they will strengthen our organization to fuel future growth and profitability.

First, let me talk about our investment in our brand platform. Last month at the furniture market in High Point we announce that Brooke Shields will be featured in a comprehensive new brand platform and advertizing campaign, which will be concentrated on convincing female consumers that La-Z-Boy comfort fits their lifestyles and that we have a wide range and selection of great-looking and high-quality furniture beyond our well-known recliner.

The campaign debuted last week across North America on national cable television, on local network, and local cable TV, and in print magazines, and will be prominently featured on our website.

The combined spend over the next 12-month period, between ourselves and our dealer organization, will be approximately $20 million. We believe Brooke, a well-known actress and style icon, will be a credible and inspiring brand ambassador and her message will resonate with our target audience.

The investment in our partnership with Brooke in the associated creative development, demonstrates our commitment to investing in the future with the objective of increasing traffic, driving sales growth, and increasing our market share.

We are also investing in research. Over the past six months we have been working with Boston Consulting Group to identify ways to strengthen various parts of our business from customer care to procurement, with specific emphasis on driving sales and making our retail operations profitable. Although a significant undertaking, our history with BCG has been fruitful, and we believe our recent work with them will yield demonstrable results, paying dividends for us in the future.

On the IT front, we are investing in systems that support operations to improve efficiencies and standardization across the wholesale organization. At the same time, we continue to upgrade our retail management system to virtually integrate retail outlets in distribution centers with the wholesale side of the business. These system upgrades will allow us for greater visibility across our enterprise, from supply chain to manufacturing to each retail market.

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