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Published: Sunday, 8/8/2004

Stressful times at La-Z-Boy

BY JON CHAVEZ
BLADE BUSINESS WRITER
Upholstered recliners are the products for which La-Z-Boy is best known. The company says cheap imports from China are cutting into its sales of wood furniture. Upholstered recliners are the products for which La-Z-Boy is best known. The company says cheap imports from China are cutting into its sales of wood furniture.
HIRES / BLADE Enlarge

MONROE Ordinarily, this month should be the best of times for Kurt L. Darrow.

Named nearly a year ago as president and chief executive of the nation s second-largest furniture maker, La-Z-Boy Inc., Mr. Darrow will make his debut Tuesday presiding over the annual shareholders meeting at the company where he has spent half his life.

During his presentation, the 49-year-old chief is expected to talk about the Michigan company s ongoing construction of furniture stores, the remarkable strength of the firm s brand name, and the splashy, ultra-successful debut of its alliance with trendy designer Todd Oldham.

But, this month is among the most challenging, if not the worst, of times for La-Z-Boy.

Sales, which had been flat for three fiscal years, slipped 5 percent to $2 billion in the fiscal year that ended in April. Worse, the company finished the year with its first annual loss $5.8 million in at least 30 years and perhaps ever.

The loss stemmed largely from the firm s requirement to devalue previously acquired business units that no longer were performing well, specifically the units making dinettes, bedroom sets, and other wooden furniture.

That segment is getting hammered, company executives said, by low-cost imports, primarily from China, and by hotels reluctance since the Sept. 11, 2001, terrorist attacks to buy more furniture, a key income source for La-Z-Boy. Some sectors of the hospitality industry continue to struggle, partly because the shaky economy has meant reduced travel.

In the last few years, the Fortune 1,000 firm known for its upholstered recliners has slashed jobs, closed factories, and made other moves to cut costs and improve sales.

Mr. Darrow told industry analysts in May that fiscal 2004 is a year that we are pleased to see behind us.

However, analysts are divided on whether the company s woes are past or just beginning.

I have a pretty negative outlook so far, said Laura Champine, of Morgan Keegan & Co. in Memphis. In June, she put a sell recommendation on La-Z-Boy s stock and said she doesn t expect good news on its quarterly earnings until after February.

Rick Aristotle Munarriz, an analyst with the Motley Fool Inc. online investor site in Alexandria, Va., said the firm s excuses are wearing thin. With borrowing rates low and people buying furniture, he said, This should be their gravy time. Instead, the company is stumbling and blaming wood furniture and low-cost imports.

But Joel Havard, of BB&T Capital Markets in Richmond, Va., said in May he expected the company s first fiscal quarter earnings to be about 14 cents a share, down from an earlier forecast of 25 cents.

That financial report will be released tomorrow. But, he added, the rest of the fiscal year should bring the firm modestly improved sales, better use of its factories, and lower prices for raw materials.

Wood products remain a drag, Mr. Havard wrote in an outlook report, but a June preliminary ruling by the U.S. Commerce Department should help La-Z-Boy.

The government found several Chinese manufactures guilty of dumping product in the United States at unfairly low prices. It imposed tariffs of up to nearly 200 percent on Chinese bedroom furniture imports, although the average is about 11 percent, far below the 440 percent sought by U.S. manufacturers.

Mark Stegeman, La-Z-Boy s treasurer, conceded that, dumping problems aside, the company has



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