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Published: Thursday, 8/16/2007

Analysts, shareholders question executives on poor fiscal results

BY GARY T. PAKULSKI
BLADE BUSINESS WRITER

MONROE, Mich. - Nearly a decade after McMansions began sprouting across America, furniture makers like La-Z-Boy Inc. are still waiting for owners to fill those houses with couches and chairs.

The firm had reported Tuesday that it posted a loss for its fiscal first quarter and revenues had sunk 13 percent.

"Clearly we are not satisfied with the quarter's results," Kurt Darrow, chief executive officer, told financial analysts yesterday in a morning conference call.

Analysts surveyed by Thomson Financial had expected the firm to report operating earnings of two cents a share. But sales fell to $344 million for the three months ended July 28 from $394 million for the same period last year. The loss for the quarter was $8.7 million, or 17 cents a share.

As a result, executives faced pointed questions both from analysts during the conference call and later in the day from stockholders at La-Z-Boy's annual shareholder meeting at company headquarters in Monroe.

Shareholder John Boardman, who was chairman of Sam Moore Furniture when it was purchased by the Monroe company in 1998, said La-Z-Boy's officers and directors share responsibility for the company's poor performance in recent years.

He cited company-owned furniture stores, which he said have lost millions of dollars over the last two years.

"There have been a lot of bad decisions by management," agreed Ray Dushane, a shareholder from Monroe.

Investors also punished La-Z-Boy yesterday, sending its share price down 10 percent, or 95 cents, to $8.65 in trading on the New York Stock Exchange. Volume was heavy, with 1.4 million shares, or three times normal, changing hands.

The disappointing quarterly earnings followed a fiscal 2007 in which the furniture maker made $4.1 million on reduced sales of $1.6 billion. The firm's fiscal year ended April 28.

La-Z-Boy executives said the slump in furniture sales is industry-wide and blamed the nation's housing problems, rising gas prices, and inconsistent consumer confidence.

Mr. Darrow said sales have begun to pick up, and he predicted financial results will improve as the year goes on.

As part of its recovery plan, La-Z-Boy has closed factories and shed brands acquired during an acquisition spree in the late 1990s. Now, it has shifted emphasis to boosting sales of recliner chairs and other furniture in its original La-Z-Boy line.

As Americans began building ever bigger houses in the 1990s, furniture makers hoped for a windfall that never materialized.

Mr. Darrow speculated that owners whose homes have lost value in the current slump may not be in a mood to finish decorating. It is unclear when that will change, he added.

Mr. Darrow said the problems with La-Z-Boy's stores are fixable, and that free-standing La-Z-Boy Furniture Galleries are a key to the firm's future.

But he acknowledged that the retail chain left the Pittsburgh and Rochester, N.Y., markets and entered Florida just as market conditions began to sour. The company will try to boost sales with a new advertising campaign in mid-September emphasizing comfortable furniture in a fast-paced world.

Some shareholders were in a forgiving mood yesterday.

"It's the economy. I bought for the long run and I don't even look at the stock price," said Leonard Sanford, of Maybee, Mich.

Mr. Dushane's wife, Donna, was also in a mood to cut company executives some slack. "It's a local company and they've been good to the community," she said. "Now it's our time to support them."

Late yesterday the company declared a dividend of 12 cents a share, payable Sept. 10 to shareholders of record Aug. 29.

Contact Gary Pakulski at:

gpakulski@theblade.com

or 419-724-6082.



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