La-Z-Boy to Move Case Goods Production Offshore, Sell Lea

April 16, 2014  by in Business Strategy, Casegoods, Industry, Product   

The move will result in all of La-Z-Boy's case goods being imported.

The company said it plans to cease production at its Hudson, N.C., factory where it currently manufacturers bedroom for the Kincaid and American Drew brands—representing about 12 percent of the company's case goods business. The closing will occur during the second quarter of 2015. La-Z-Boy will also exit the hospitality business, also manufactured in Hudson.

As for the sale of Lea, the company said it does not align with its long-term strategy.

"After careful analysis and much consideration, we made the difficult decision to transition our case goods operation to become solely an importer of wood furniture," said Kurt Darrow, chairman, president and CEO. "We have implemented many changes to our case goods manufacturing model over the past few years to be more competitive. However, in the final analysis, we determined we cannot generate enough domestic volume to support the size facility we operate in North Carolina and believe this move will strengthen our positioning and performance in the segment. With strong manufacturing partners and a global supply chain team on the ground in Asia managing quality and logistics, we will seamlessly transition our remaining domestic bedroom product offerings. We remain firmly committed to ensuring our dealers and their customers continue to receive the excellent service they have come to expect and depend on from La-Z-Boy Incorporated."

The news comes on the heels of a similar announcement recently by Stanley Furniture that it would shutter its Young America youth division, thereby, closing its last remaining U.S. factory.

As a result of the restructuring, La-Z-Boy will take pre-tax charges in the range of $13 million to $15 million, or $0.15 to $0.17 per share after tax, of which about 75 percent is expected to be non-cash. These charges will be principally for the impairment of certain long-lived assets and inventory and will also include severance, benefits and other associated costs. The majority of these charges will be incurred in the fourth quarter of the company's 2014 fiscal year and the remainder taken in the first half of fiscal 2015. In addition, the Lea business will be reported as discontinued operations commencing with the fourth quarter of fiscal 2014.

The closings will impact about 100 employees. The warehouse and repair facilities located in North Wilkesboro, N.C., will be idled and listed for sale by the end of this year.

"With respect to our youth business, Lea is not a strategic fit from a size perspective in terms of its revenue or earnings, and we believe our efforts would be enhanced by focusing our resources on the core case goods product lines, which include bedroom, dining room and occasional pieces, positioned in the mid to upper-mid price points of the market," Darrow said "As we market the Lea business for sale, we will continue to service our existing dealers while providing them with product until such time as a new owner is found."