From Home Furnishing Business
La-Z-Boy Earnings Tumble 15% on Lower Operating Margins
La-Z-Boy (NYSE: LZB) said sales rose 4.8% in the opening quarter of its fiscal year, but profits fell more than 15% due largely to lower operating margins in its upholstery segment.
Net sales for the quarter ended July 29 totaled $357.1 million, up from $340.8 million in last year’s first fiscal quarter.
Net income, however, fell to $11.7 million or 24 cents per share. That was down from $13.8 million or 28 cents per share in the same quarter last year.
The company said the sales gain was primarily due to retail stores that have been acquired in the past year. That didn’t add volume to La-Z-Boy’s upholstery manufacturing operations – its most profitable business – and factories were unable to fully absorb fixed costs.
Sales in the upholstery segment rose 2.6% to $274.4 million, but the segment’s operating margin fell to 8.5% from 11.4% in last year’s first fiscal quarter.
“After a strong finish to fiscal 2017, we are disappointed with our start to this fiscal year,” said Kurt Darrow, chairman, president and CEO. “Lower volume throughout our plants made it difficult to absorb fixed costs and this, combined with the normal seasonal slowdown and continued investments across the business, impacted our upholstery operating margin for the period.”
He said the casegoods segment had a 1.9% sales increase to $25.5 million, and its operating margin increased to 10.7% from 8.6% in the comparable quarter.
Sales from company-owned retail stores jumped 15.5% to $110.5 million, but same-store sales were down 1.1% and the segment’s operating margin fell to 1.6% from 2.3%.
Darrow said written same-store sales, which include merchandise sold but not delivered, rose 0.7% throughout the entire La-Z-Boy Furniture Galleries network.
The company ended the quarter with 145 company-owned and 205 dealer-owned retail stores, and expects to add three company-owned and two dealer-owned locations to the total by the end of the fiscal year in April.
“We are in an excellent service position and as we have demonstrated, we are able to drive increased profitability throughout our manufacturing operations with adequate volume,” said Darrow. “We remain optimistic about our business for the remainder of the fiscal year, particularly as we capitalize on a dual strategy to reach core La-Z-Boy consumers through our vibrant store program and our independent dealer network while attracting a new and younger consumer through our multi-faceted e-commerce approach.”