La-Z-Boy Management Discusses Q4 2012 Results - Earnings Call Transcript

La-Z-Boy (LZB)

Q4 2012 Earnings Call

June 20, 2012 8:30 am ET

Executives

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

Analysts

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Todd A. Schwartzman - Sidoti & Company, LLC

Matthew S. McCall - BB&T Capital Markets, Research Division

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

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to the La-Z-Boy Fiscal 2012 Fourth Quarter and Year End 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 begin.

Kathy Liebmann

Good morning, ladies and gentlemen. Thank you for joining us to discuss our fiscal 2012 fourth quarter and year end results. Present on the call 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, and good morning, everyone, and thank you for joining us on our call this morning. Yesterday afternoon, we reported our fourth quarter and full year results for fiscal 2012. Before talking about the quarter specifically, I would like to take a moment to recap some of the highlights for the year.

First, our growth initiatives. On a comparable 52-week basis, we increased our sales about 6%. As you will recall, fiscal 2011 was a 53-week year. For the year, same-store written sales for the 312 La-Z-Boy Furniture Galleries stores increased 9.4%. We developed and introduced a new concept store and opened 4 stores in that format. In total, across the La-Z-Boy Furniture Gallery network, we added 8 stores throughout the year and remodeled and relocated several others.

We continued to move our company-owned retail segment towards profitability and improved our operating results by about 50%. We increased our market share, we maintained our focus on innovation and introduced compelling, stylish and on-trend products that were well received by our customers, and we announced a strategic agreement with Kuka Home, one of China's largest upholstery producers and retailers, to develop the La-Z-Boy brand in mainland China.

On the operations side, our Mexico-based cut-and-sew facility is producing efficiently and we achieved our anticipated savings for the year. And with our lean journey permeating all facets of our operations and becoming a part of our corporate culture's DNA, our operations are running efficiently and continuing to reduce costs.

And finally, on the financial side, we posted a 92% increase in our operating income. We eliminated our final consolidated VIE, we generated strong cash flows and we strengthened our balance sheet by increasing our cash and paying off our revolving line of credit.

All in all, a good year. Clearly, the strategic initiatives and changes implemented throughout the past 5-plus years have gained traction and are increasingly evident in our results. Moving forward, with our brand strength, quest for operational excellence and vast network of proprietary distribution, we remain focused on 3 key objectives: sales growth, making our Retail segment profitable and positive conversion on that volume growth.

Now let me turn to a discussion of the fourth quarter. Our results for the period were impacted by a number of issues: The 13 versus 14-week comparison; a change in our effective tax rate; and $4.2 million in additional incentive compensation, which included a $1.6 million bonus to those employees who do not participate in the company's annual incentive program. We also had $2.6 million increase related to other incentive compensation, including both short-term and long-term stock compensation.

As a reminder, last year's fourth quarter included a minimal level of compensation overall, and this year, because our results improved significantly, we felt it important to reward each employee throughout the organization as our performance is a credit to every one of them.

Now on the wholesale side. Sales for the Upholstery segment increased 0.8% or about 8.5% on a comparable 13-week period. Mike will discuss the 53-week comparable year and the 14-week comparable quarter in a few minutes to help clarify any confusion that may exist with respect to the additional week in fiscal 2011. The operating margin for the period was 10.1%, demonstrating the efficiency of our operating structure across all 3 of our upholstery companies. As I mentioned a moment ago, our Mexican-based cut-and-sew facility is fully up to speed and is delivering the cost savings we anticipated.

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