La-Z-Boy to shift to import for most wood furniture

8/11/2004

MONROE, Mich. - Four years ago La-Z-Boy Inc. introduced a "New Look of Comfort" for its furniture lines. Yesterday, company executives unveiled a new look for the firm's business practices.

In a midmorning conference call with Wall Street analysts and later at the company's annual shareholders meeting here, Chief Executive Officer Kurt Darrow outlined a strategic shift in which the company will import from China most of its bedroom suites and other wood furniture rather than manufacture most of them as it does now.

Also, the nation's second-largest furniture maker plans to beef up retailing in the nation's 25 largest cities by strengthening its network of furniture gallery stores.

Over the last year, La-Z-Boy has begun "fundamentally changing our processes and business practices," explained Mr. Darrow, 49. The company can no longer sit back and let competitors continue to gain advantages, he added.

As a result, on Monday it announced the closing of three plants- two in Pennsylvania and one in Mississippi - and a warehouse complex in Pennsylvania, which will cut about 550 jobs and save La-Z-Boy $8 million to $10 million annually.

The firm also plans to mothball, until demand picks up, a fourth plant in Hudson, N.C., which employs 120.

At the half-hour annual meeting, La-Z-Boy chairman Patrick Norton, 81, called those moves and other changes "distasteful to us" but acknowledged that they are the reality of competing in a global economy.

In their exchange with analysts, executives said increased imports, expected sales growth, and plant closings should boost the company's bottom line in its fiscal second quarter, which began July 30.

After announcing a first-quarter loss Monday of $3.5 million, or 7 cents a share, La-Z-Boy officials told analysts yesterday they expect second-quarter earnings to be 29 to 33 cents a share minus 3 cents a share for more restructuring and other charges. The company is to announce second-quarter earnings in November.

Yesterday, La-Z-Boy's shares were unchanged at $16.66 in trading on the New York Stock Exchange. In addition, the company announced a quarterly dividend of 11 cents a share payable Sept. 10 to shareholders of record Aug. 30.

Explaining the firm's decision to boost imports from China, Mr. Darrow - who recently completed his third trip to that nation in as many years -said La-Z-Boy can't ignore economic realities such as cheaper raw materials and growing furniture manufacturing prowess in the Asian nation.

Mr. Darrow said La-Z-Boy wants to import 75 percent of its wood products, including dining room sets and bookcases, from Chinese manufacturers. That is up from 40 percent now.

The growth of imports has angered manufacturers and the U.S. Commerce Department, which recently found that some Chinese manufacturers dumped $1.2 billion worth of products in the United States at unfairly low prices.

The 25 percent of its wood products that La-Z-Boy will continue to make will include solid-wood pieces and children's furniture, which are not widely available from China.

The company plans to continue domestic production of sofas and other upholstered furniture, but will watch China intently for manufacturing improvements in that sector.

"If it does improve, we'd rather be on the front side of the curve this time rather than the backside of the curve," Mr. Darrow said in an interview after the shareholders meeting.

"In the upholstery business," he explained, "a large segment of consumers are interested in their choice of fabric on their choice of frame. There are serious hurdles to provide a 'have it your way' solution from offshore."

La-Z-Boy has the strongest brand name in the furniture industry, and the company said it intends to focus on opening new-format stores quickly in the nation's top 25 retail markets. Out of 325 La-Z-Boy Gallery stores, just 77 have the new format designed to encourage customers to buy rooms of furniture and accessories, rather than individual pieces.

The company is adding about 50 gallery stores a year, either by converting old stores or building new ones.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128