La-Z-Boy Incorporated (LZB)

Q1 2013 Earnings Call

August 22, 2012 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 S. McCall - BB&T Capital Markets, Research Division

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



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

Kathy Liebmann

Thank you, Rob, and good morning, everyone, and thank you for joining us to discuss our fiscal 2013 first 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 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 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 for this morning on our call. Yesterday afternoon, we reported our first quarter results for fiscal 2013. We posted a 7.6% consolidated sales increase for the quarter, a 9.2% same-store written sales comp for the La-Z-Boy Furniture Galleries store system and a delivered sales comp of 17% in our own company-owned retail segment.

We also continue to improve the performance of our retail operation, narrowing its loss for the 14th consecutive quarter. And in addition to increasing sales in all 3 business segments during the quarter, we more than doubled our operating income, reflecting our ability to leverage our lean cost structure.

We are pleased with our results, particularly given the seasonality that impacts the industry during the summer months. And as we noted in June when we reported strong written orders for the fourth quarter, the pace of delivered sales in our upholstery and retail segments accelerated during the first quarter as the strong written orders from the past several months flowed through to our delivered sales this period.

As we move into the fall, which -- we believe we are well positioned to capitalize on what is typically a stronger selling season. Our marketing initiative is driving more qualified consumers to our stores and dealers. Our operating structure is lean, and we are in good service position with respect to fabric and leather inventory.

Importantly, we are using our financial stability and resources to invest in the business at all levels, including our increased marketing spend, our infrastructure, inventory levels, new stores, as well as remodeling stores, to continue to drive growth while keeping a keen focus on retail profitability and conversion on our additional volume.

Let me take a few moments to discuss our 3 operating segments. Sales for the upholstery segment increased 9.5% for the quarter, and the operating margin for the period was 6.5% compared with 5.1% in the last year's first quarter.

Our brand platform marketing initiative, featuring Brooke Shields, continues to gain traction, and we believe it is driving a well-qualified consumer to our stores and our dealers, one who has become more knowledgeable about the breadth of our offering. We've seen the success of the marketing initiative with stationary furniture growing at a faster rate than our traditional motion business and consumers stepping up to buy more full room groups rather than one piece at a time.

Our advertising year technically begins in September, and we have already kicked it off with 1 of 4 new commercials, featuring Brooke, with another one about to begin airing just ahead of Labor Day. We also produced several new print ads and our digital content for the web.

As we reported last quarter, our plan is to be on the air for about 30 weeks during this coming year, which is more than double what we were when we initiated the campaign less than 2 years ago. The fact that La-Z-Boy and our dealer base are committing additional resources to the campaign speaks volume for our collective belief and success. Although we are increasing our advertising spend with the additional air time, as a percentage of sales, on an annual basis, it should remain fairly consistent.

We are also pleased with our Internet traffic, with unique visitors to our website up 20% during the quarter, and that is just to our core site. Our mobile site is also seeing very high traffic.

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