Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

La-Z-Boy Incorporated (NYSE:LZB)

Q4 2009 Earnings Call

June 16, 2009 8:30 am ET

Executives

Kathy Liebmann – Director IR

Kurt Darrow – President & CEO

Mike Riccio – SVP & CFO

Analysts

Budd Bugatch - Raymond James

John Baugh - Stifel Nicolaus

Matthew McCall - BB&T Capital Markets

Unspecified Analyst

Operator

Welcome to the La-Z-Boy Incorporated fiscal 2009 fourth quarter and year-end conference call. (Operator Instructions) It is now my pleasure to introduce your host, Kathy Liebmann, Director, Investor Relations of La-Z-Boy Incorporated.

Kathy Liebmann

Good morning everyone and thank you for joining us on this morning’s call to discuss our fiscal 2009 fourth quarter and full year results. Present on the call are Kurt Darrow, La-Z-Boy’s President and Chief Executive Officer and Mike Riccio our Chief Financial Officer.

Kurt will begin today’s call and then Mike will speak about the financials before turning the call back to Kurt for his concluding remarks. We will then open the call to questions. As is our custom the time allotted for this call is one hour. A telephone replay of the call will be available for one week beginning this afternoon.

These regular quarterly investor conference calls are one of La-Z-Boy’s primary vehicles to provide guidance and to communicate with investors about the company’s current operations and future prospects. We will make forward-looking statements during this call, so I will repeat our usual Safe Harbor remarks.

While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call.

And with that, let me turn over the call to Kurt Darrow, La-Z-Boy’s President, and CEO.

Kurt Darrow

Thank you Kathy, good morning everyone. Yesterday afternoon we reported our fourth quarter and full year results. While the furniture industry continues to go through a difficult period, fueled by ongoing macroeconomic challenges, we gained traction and overall are encouraged with our operating performance for the quarter.

On a 23% decline in sales, we reported net income from continuing operations of $0.10 per share. These results clearly demonstrate the effectiveness of the aggressive, and decisive actions we took beginning last fall when the financial and credit markets tumbled, combined with the many strategic changes we have made to our business structure over the last several years.

Today we are operating from a modern and efficient platform that will continue to carry us through this period and well into the future. In this economy, liquidity and cash generation remain paramount and important to our organization.

During the quarter we generated $34 million from operating activities, increased our cash position, and paid down debt by $28 million bringing our net debt at year-end to less then $44 million, the lowest level the company has experienced since the beginning of this decade.

In addition subsequent to quarter-end about $18 million of restricted cash became available for operating activities. Now let me take you through our results for our wholesale operating segment.

First our upholstery segment, for the quarter our operating margin increased to 9% from 8.3% while sales in the segment declined by 23% or $62.5 million. The 2.5-year conversion to cellular production across our La-Z-Boy branded facilities is certainly bearing fruit, particularly in this challenging environment.

And we’re quickly ramping up our Mexican cut-and-sew facility although with dual cut-and-sew operations running simultaneously, we are not yet realizing the cost benefits of Mexico. Today we have more then 400 people working at the new facility and we expect to be fully transitioned in Mexico by the end of the summer of 2010 with the expectation that we will begin to see some cost savings in early calendar 2010.

As we have reported previously the move to Mexico will save La-Z-Boy more then $20 million annually but we expect to realize its full benefit in fiscal 2011. And importantly it will allow us to deliver on our intended brand promise to the consumer, custom ordered furniture delivered to their home in 30 days or less.

I’m also pleased to report that our other two upholstery companies, Bauhaus and England, are running efficiently and England in particular has been a consistent performer throughout the year, a credit to Otis Sawyer and the whole England team.

On the casegood side of the business, our sales declined by over 19% to $39.3 million and the segment posted a loss. In April we made the decision to consolidate two manufacturing facilities into one and at the end of this month we’ll move the production from our North Wilkesboro, North Carolina facility to our Hudson, North Carolina facility.

We also vacated a leased facility in Statesville, North Carolina that by the of end of fiscal 2010 and will move that operation into the North Wilkesboro building. These combined moves based on current volume levels are estimated to save the company between $5 million and $6 million in annual costs.

We are working to reduce the number of collections we offer to focus on our core groups and best sellers. As a result we discontinued certain inventory at higher then usual rates to reduce our SKU count and this impacted our operating performance in this segment.

In addition to restructuring the cost side of the business, we are concentrating on revenue enhancement programs such as the innovative licensing and marketing agreement our Lea division recently entered into with Nickelodeon to develop youth furniture featuring some of their top rated and most popular characters.

Now let me make a few remarks on our retail business, in the company-owned retail segment we continued to make progress during the quarter reducing our loss by more then $5 million on a 21.5% sales decline compared with last year’s fourth quarter.

Over the course of the past six months our new management team has instituted a series of changes including structural changes within each store, changes to our advertising spend, improving the gross margins, and the shift in the warehouse structure we reported on last quarter.

Going forward we expect to make progress in stemming the segment’s losses but it will take an uptick in volume before we believe we can make this stand-alone business profitable. We are frequently asked about our integrated retail strategy, why we believe it is so important to the future of the company and how we look at the financial impact of the combined wholesale and retail blended margins, operating profit, and cash flow models.

Proprietary distribution plays an important role in our growth strategy. In major metropolitan markets where there is not one dominant retailer, the La-Z-Boy Furniture Gallery stores consistently demonstrate they can achieve higher levels of market penetration then any other distribution format.

Additionally the stores are one of the best avenues to expand and enhance the relevancy of our industry-leading brand. Based on the changing distribution landscape and our positioning within various markets, we believe pursuing an integrated retail strategy makes the most sense for our future.

Our due diligence tells us that the combined entity of wholesale and retail when both segments are contributing, is substantially better then the stand-alone businesses individually. We have analyzed the cash flows on the combined entity of wholesale and retail. Given the fact that we have made significant progress on the cost side of each business, we have narrowed the gap considerably based on current run rates.

In our retail business we have straight-line rents and depreciation that reduced our cash costs by $4 million to $5 million per year versus the operating loss. On the wholesale side we are earning a 6% to 9% operating margin on the sales we generate through our retail division and again, we have other noncash charges associated with the wholesale business.

Going forward even with current business trends, we believe the cash burn on the combined entities is about $7 million to $9 million per year. Obviously with any uptick in volume that level comes down on both sides of the business and we believe it will take a 10% to 15% increase in volume to be cash neutral on our integrated retail model.

We want to be sure that everyone understands this combined model and views it in the proper context. Integrated retail is indeed a proactive strategy for us and as the industry landscape remains fluid with distribution contracting and changing, it provides a strategic and distinct differentiation for La-Z-Boy in the marketplace.

I’m going to turn the call over to Mike now to discuss our financials for the quarter as well as a few of the major items for the year.

Mike Riccio

Thanks Kurt, for the quarter as Kurt mentioned earlier, we reported net sales of $284.5 million, down 23% from year ago levels and net income from continuing operations of $5.3 million, or $0.10 per share.

Our results for the quarter include a $0.01 per share impairment of long-lived assets related to our retail operation, a $0.01 restructuring charge primarily related to store closures within our retail segment, and a $0.05 tax benefit.

For the full year we reported sales of $1.2 billion, down 15.5% from prior year period and a loss from continuing operations of $121.3 million or $2.36 per share. Our results for the year include a number of charges. We had a restructuring charge of $0.24 per share related to various plant, warehouse, and retail store closures, a noncash intangible write-down of $0.85 per share related to goodwill and trade names and a $0.15 per share noncash impairment of long-lived assets relating to our retail segment.

We also had a $0.74 per share noncash charge for a valuation allowance against the company’s deferred tax assets which were recognized in the second quarter and we recorded income of $0.16 per share related to anti-dumping duties.

During the quarter we incurred an additional $4.6 million charge for bad debts compared with last year’s levels. As some of the store liquidations of our third party dealers ended we determined we needed a larger provision to cover our losses.

Also we tightened credit on a couple of other customers requiring additional reserves. The old 80/20 rule still holds true, customers representing 80% of our sales volume are doing fine and the other 20% are still challenged in this environment.

We are being very prudent in monitoring the credit worthiness of our dealers and will remain conservative in allocating appropriate reserves. Our VIE’s operated at break-even level in the fourth quarter and during the quarter we unwound our Cleveland VIE, so today we have three VIE’s representing 30 stores in the Toronto, Southern California and Atlanta markets.

We continue to be focused on liquidity as Kurt mentioned in his opening remarks. During the quarter we made significant progress in generating cash, paying down debt, and increasing our availability on our bank credit facility. We did have $18.7 million of restricted cash on our books at year-end, related to our Captive Insurance Company.

Subsequent to year-end, we will be transferring the Workers’ Compensation liability back to La-Z-Boy which will free up most of the restricted cash for operating purposes. We also reduced our inventory by almost 19% or by $32 million during the quarter.

Our excess availability under our credit facility at April 25, 2009 was $65 million. As we have discussed in past calls our excess availability fluctuates based on our outstanding borrowings, eligible receivables, and inventory, among other factors such as outstanding letters of credit.

Our tax benefit of $2.4 million on a $2.9 million pre-tax income relates mainly to some additional state tax refunds and better utilization of some of our foreign net operating losses especially in our UK division.

Since we have established valuation reserves on most of our deferred tax assets, the utilization of those assets in future periods could have a significant impact on our effective tax rate. Our capital expenditures for fiscal 2010 will be in the range of $12 million to $14 million primarily related to maintenance of our facilities, IT upgrades, and our cut-and-sew center in Mexico.

We estimate that depreciation and amortization will remain in the $22 million to $24 million range. I’ll now turn the call back over to Kurt for some closing remarks.

Kurt Darrow

Fiscal 2009 was indeed a difficult year but we persevered and are clearly on a path to improve performance. We made difficult decisions last fall and continued with additional cost cutting measures for the remainder of our fiscal year removing some $60 million of annual structural costs.

At the same time we executed on our major strategic initiatives and are on track to see their benefits to our operations in addition to those we are already realizing based on the work done to our operating structure over the past several years.

As we stated in our press release due to seasonality factors and plant shutdowns for vacation and maintenance, the summer period is usually the slowest for the furniture industry and historically our first quarter which ends in July is typically the weakest in terms of sales and profits.

Although we do not expect to have to make significant changes to our business structure in the near term without question we will be nimble and react swiftly to any major shifts in order flow making the necessary adjustments.

I am also confident that we will see continued improvement in our company-owned retail segment and when volume returns we expect that business to contribute to our results particularly when our integrated retail strategy is fully realized.

The road is still long but we have navigated our way through many hairpin turns and I’m proud of the work our team has done. Our employees have made many sacrifices throughout the year and our committed to building and leveraging the power of the La-Z-Boy brand and company.

We have built a lean and efficient platform from which to operate supplementing US production with lower cost, foreign sourced component parts, all of which enable our US facilities to deliver furniture to the consumers’ home quickly.

With little capital expenditures needed for the future, La-Z-Boy will emerge from this period as a stronger entity with a firm foundation. We would like to thank our customers, employees, and shareholders for their continued support and dedication throughout this period.

Thanks again for being on our call today and for your interest in La-Z-Boy. I will now turn the call over to begin the question-and-answer period.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Budd Bugatch - Raymond James

Budd Bugatch - Raymond James

Question, you talked about in casegoods narrowing the number of collections, is that sort of across the board or is it more concentrated in one brand or the other. How should we think about that.

Kurt Darrow

The answer there would be it was pretty much across the board. As your volume contracts the available dollars to flow the appropriate levels of inventory is impacted. We made the decision that we wanted to protect the inventory levels of our best sellers, or our top groups, and so we decided to aggressively move out some inventory in two fashions.

One our groups that we’re not going to go forward with and two, are some of the least productive SKUs in some of the major collections. So it was a combination of both approaches during the quarter.

Budd Bugatch - Raymond James

Could you quantify for us the impact of the discounting on some of those lines in the fourth quarter and is that pretty much done with at this point or do you think some of that will bleed over into Q1.

Kurt Darrow

I don’t want to quantify the amount other then to say it was higher then we’ve experienced in a long time and the difference in the operating margin from how the casegoods business has been flowing I think is evident by the amount of discounting and the selling process of getting through most of it is winding down although we did sell a number of discontinued groups at the April mark at which we delivered in May.

So there’ll be a little flow over into this quarter but it certainly won’t be as significant as the fourth quarter.

Budd Bugatch - Raymond James

And thinking about sort of the element of cash flow for 2010 you gave us CapEx of $12 to $14 million, D&A $22 to $4, you guys obviously did a great job in inventory this quarter, how do we think about working capital and how that plays into cash flow this year.

Mike Riccio

We’re still probably a little heavy on inventory so we’ll still be focused on bringing that inventory level down to levels that we feel comfortable with in the current production environment. And then we’ll have to deal with that in the future.

Our receivables are, our days are still about where our average is so we feel pretty comfortable with the receivables. They will fluctuate based on volume levels and shipments especially in July because of the shutdown we have for a week, that kind of contracts our receivables temporarily during that period of time.

But we don’t see much in the need of payables and accrued liabilities and the other liabilities fluctuating much so we feel between our operating results and our inventory and then of course the difference between the D&A and the CapEx will be the significant portion of our cash flow.

And then obviously we’ll bring back the restricted cash into availability so that we can either leave it in cash or pay down debt.

Budd Bugatch - Raymond James

Could you give us a sense of the benefit you saw from raw materials coming down in the quarter and maybe directionally are we getting near the peak of that or does it get better next quarter, how is the timing of that going to play out.

Kurt Darrow

Well 2009 was a volatile year and it took us most of the year to get our pricing caught up with the run up in raw material. It still had a negative effect on us for the entire year and certainly the price of steel and poly headed down since the first of the year.

But now with gas prices and some other commodity things starting to change here, we really don’t have a lot of visibility on where some of these commodity prices might be in three to six months so we’re watching it closely.

We’re in constant contact with our suppliers and while we got a small benefit in the fourth quarter we’re not counting on that to achieve our objectives in 2010.

Budd Bugatch - Raymond James

One last question, given all the actions that you’ve taken in retail on the cost side, do you care to hazard a guess as far as a break-even or a close to break-even level of sales that you would need to achieve.

Kurt Darrow

We tried to give you some insight into our thinking on our integrated model and I think because of the way we’re structured today, because of the way we’re organized, because of the way we look at things from end to end, I think we would rather talk about the integrated cash flows and the integrated break-even levels between the two entities and we gave that number of a 10% to 15% increase in business to get to that level.

Budd Bugatch - Raymond James

Congratulations on a very good execution in a tough environment and good luck to all of you on the rest of the year.

Operator

Your next question comes from the line of John Baugh - Stifel Nicolaus

John Baugh - Stifel Nicolaus

Could you comment on the gross margin versus SG&A components of upholstery and the margin there was good, I’m just curious how much of this is sort of factory cost driven versus overhead SG&A driven.

Kurt Darrow

We’re not, we don’t really give out our various segment margins and don’t want to go down that road, but we made appropriate changes to the SG&A model as part of the $60 million of structural costs. We tried to keep some of our relationships in line with the declining volume but the biggest driver was the efficiency of our facilities, the productivity we have with our workforce in our facilities today, the less employment, and the higher productivity.

So the majority of our improvement was really the efficiencies of our manufacturing facilities compared to a year ago.

Mike Riccio

And you’ve got to remember in the second quarter, at the beginning of the third quarter we had that big employment reduction which we had to pay out some severance and everything in the third quarter that did not incur in the fourth so we had all those employees out as well as becoming more efficient in the plants.

So we had our employment down to the level of our production which helped out significantly also.

John Baugh - Stifel Nicolaus

And then, [inaudible] I think about a 9% margin for upholstery in the next fiscal year you’ve got the move to Mexico and I don’t know how that positively or negatively impacts so you made comment there, you kind of touched on raw materials, you’re making some assumption of volume you haven’t share with us but how might we think about that figure next fiscal year.

Kurt Darrow

Good question, if you could tell me exactly what would happen to the volume in raw materials and all, I could give you pretty precise answer but that’s kind of difficult right now. We continue to talk about Mexico and want people to understand that right now in order to protect our service levels and be sure there’s no hiccup, we are running dual production facilities both with our US cut-and-sew abilities and our Mexican abilities.

We will be doing that and slowly ramping down our US facilities over this calendar year so there is no benefit from our Mexican facility today net of the US production. That starts to accrue to our benefit at the beginning of calendar 2010. And we would expect our efficiencies in our facilities to continue at the level or even improve.

We would expect raw material probably to trend, starting to trend back up but the wildcard here is volume. I’m confident if we get extra volume our conversion on that will be positive but its still a very challenging environment out there and we’re being cautious about our expectations going forward.

John Baugh - Stifel Nicolaus

And then on the casegood side its pretty much a variable cost business now as I understand it, can you make some level of profit on continuing revenue declines if that’s the case.

Kurt Darrow

We believe we can. The significant things that we’re doing now that we won’t see the benefit totally until probably the beginning of calendar year 2010, we’re taking two facilities, converting it to one which will pretty much double the capacity utilization of our one facility and we are also are vacating a fairly expensive leased warehouse and going into a facility that we own with very little expense.

So those two structural changes to our cost structure should help the profitability of the casegoods group. Our inventories will be in line and so we would probably be looking at 70% to 75% of our business being imported and 20% to 25% being manufactured here domestically.

John Baugh - Stifel Nicolaus

I just want to be clear on your, which was helpful on the guidance about the cash drain from retail of the assumptions or the parameters, the $7 to $9 million assumes the benefit you get of selling wholesale product to the retail system, is that a forecast, is that a run rate, is that, kind of some clarity there.

Kurt Darrow

We talked earlier about at current levels, so there’s probably a dip in that level in the first quarter, an acceleration over today’s level in the third or fourth quarter but taking the run rate we had in the fourth quarter given all the structural cost changes we’ve made on both sides of the fence, the numbers we gave you are the results we would expect if conditions remain consistent and that we could perform at that level without any help of volume.

Operator

Your next question comes from the line of Matthew McCall - BB&T Capital Markets

Matthew McCall - BB&T Capital Markets

I was hoping to get an idea on, you mentioned that the Mexico cut-and-sew facility will save $24 million once fully implemented, you’ll realize all of that or the full run rate in fiscal 2011, how much of the duplicate costs are you currently seeing. Is it that $24 million, is that what’s currently still on the books now or is it some level below that, so we can kind of get an idea of once that goes away what the impact to the margins in that segment will be.

Kurt Darrow

I just want to clarify one thing, we have said based on our current volume when we announced our Mexican transition that we would save $20 million not $24 but $20 million is the number. And the difficult thing that we have in giving any more clarity on that is that the production is ramping up in Mexico every month and our production is ramping down in the US every month.

So there is crossing lines of the performance happening simultaneously and so we are increasing our employment in Mexico from probably 400 to 800 people by the end of the year and appropriately taking the same number of employees out of the US operations.

So there’s progress being made every month but the net effect until we get 80%, 85% of the change made with our staffing in the US the benefit doesn’t accrue to the entire corporate until that level which is the first of the calendar year.

Mike Riccio

And just to clarify that $24, $25 million number came from when we combined Tremonton’s closing with Mexico, it was in the same announcement that we separated the two just to give clarity for everybody.

Matthew McCall - BB&T Capital Markets

I know you haven’t necessarily broken out your fixed versus variable cost structure, I know you did give the $60 million of structural costs that have come out overall, but can you remind us how that $60 million was allocated to the different segments so we can kind of try to get an idea of what the variability of the new cost structure is in the mall.

Mike Riccio

I’m not sure that we are breaking out the structural cost by segment but obviously the larger portion of that at the time we talked about it was in the upholstery side because it was mainly related to moving the, lowering the production at our facilities which are mainly in our upholstery group where we only had the two facilities at that time in casegoods.

And so the feel for that is we’re not going to give much more clarity on what we do by segment at that level but appropriately a lot of the structural costs would have been for people and while those people are still in the upholstery segment.

Kurt Darrow

And I would add that if you look at our results proportionately each of the businesses are challenged in revenue about equal. They all were down about 20% for the quarter and so each of our segments have contributed proportionately to the cost savings. There’s work as we’ve announced in each of our segments there’s work going on on the cost structure of all of them and there’ll be continued work next year on being sure we get any kind of benefit from the changes we’ve made to have as lean a cost structure as possible.

Matthew McCall - BB&T Capital Markets

Any comment on sales trends in May and thus far in June versus what you saw in the fiscal fourth quarter. I guess what I’m trying to determine is if there’s been stabilization maybe not the right word to use but have we’ve gotten to the point where normal seasonality can come back into play. In the last year Q1 which is typically your weakest quarter was actually your second best quarter and just the dramatic decline in volume and demand has kind of skewed the normal seasonality. Have we gotten back to the point where that’s realistic again.

Kurt Darrow

I clearly wish we knew a definitive answer to the question. It’s a question we talk about all the time. I would tell you there’s two factors here, the first factor is the consumer and their shopping patterns and their confidence and all the indicators that everyone in the industry looks at.

And right now we don’t see a substantial difference then what has been going on the last 90 to 120 days so the call on whether or not its hit bottom, whether its stabilized, whether it has a chance to improve, we don’t have enough visibility or clarity to say a definitive difference or any change then what we’ve experienced the last 90 to 120 days.

I would say that the other thing though that probably is going to be helpful somewhat to everybody in the furniture business is I think the inventory levels that were much higher last fall for both the retailers and the manufacturers, I think the industry has worked its way through the majority of those challenges albeit in a costly manner.

And so we’re seeing that as people sell things today, they’re having to reorder as opposed to working it out of their inventory so there may be a little bit of benefit there. But the real benefit has to come from the consumer having more confidence about the future and shopping more and there’s no evidence right now that there’s a big uptick but there’s also no evidence that its getting worse.

So that may be clear as mud but that’s the best help we can give you on our thinking right now.

Matthew McCall - BB&T Capital Markets

As you go forward are you going to be as aggressive with focusing cash flow on debt reduction or I guess what’s the ultimate comfort level there with the level of debt and you’ve done great job managing the excessive availability and paying down in the last few quarters.

Mike Riccio

Well if you look at our debt structure there’s so much that’s tied into the interest rate swap and then there is so much tied into IRVs that have fixed maturities out into the future. So at this time in time our debt being as low as it is we’ll, and being less then 20% debt to cap, we’ll keep monitoring that and make a balance between what we think we need to pay down debt and what we think we need for cash ability to be as liquid as possible and to keep our liquidity strong.

So there’s just not much prevailing out there one way or another because our debt level is getting to such that we’ll just have to make those decisions quarter by quarter based on our current flow.

Matthew McCall - BB&T Capital Markets

Do you have a suggestion for a tax rate to model for fiscal year 2010.

Mike Riccio

I tried to give some clarity the best I could in my opening comments, there are, the issue comes when you have to put a valuation reserve on all your deferred tax assets. Depending on any tax planning strategies that we can develop or any adjustments to how our losses are recorded or income is recorded in the future, its difficult to pin that down for what its going to be.

Hopefully I’ll be able to give more clarity after our first quarter to that but I don’t have the clarity to give you to make sense of it as we speak right now because we’re, we just have still a lot of deferred tax assets to kind get through and work through.

Operator

Your next question comes from the line of Unspecified Analyst

Unspecified Analyst

Just a quick question on book value, why did it go down by $15 million despite you posting a profit.

Mike Riccio

The main reason is in our OCI, other comprehensive income, just like everyone else in the world our pension assets have gone down slightly. That’s an understatement. So our liability is larger then our asset value so we’re required to put that under funding through a write-off in other comprehensive income.

It’s a corresponding increase in our long-term liabilities and when the assets come back up to a certain level, they’re reverse that back out but that’s, I think you’ll find most companies have that accounting entry in the last three to six months because of the stock market decline.

Unspecified Analyst

Right so and what is your under funded liability now.

Mike Riccio

Its $17 million, I think its actually defined in our 10-K that we filed last night as well if you need some more perspective on that in the footnotes.

Unspecified Analyst

Okay and are there any cash contributions you’re planning on making this year.

Mike Riccio

At the present time, we’re not required to make any cash contributions this year.

Unspecified Analyst

And then has there been any change in your independent dealers or VIE’s experiencing any sort of financial difficulties, is there just a level they can sort of hang on for a few months but if this kind of demand environment stays for the next six to nine months it may cause another downturn in their ability to be profitable.

Kurt Darrow

I think my comment would be not just our VIE’s but our entire dealer network. I think the whole industry is keeping a mindful watch on the credit worthiness of all of our customers. But our VIE’s have made good progress. We were able to have a change and go from four to three VIE’s and six months earlier we had made another change in our Toronto VIE to combine that market and to give them a little more breadth of the market in size.

But its been, one of the largest VIE we have is in Southern California and certainly that market along with Florida and a few others has been hardest hit so, but we’ve made significant progress. They’re reaping some of the same benefits on the changes we’ve made to our own retail model. They’re making some improvements and but certainly if business got more challenging then we would have some other decisions and actions we’d have to take in that arena.

Unspecified Analyst

I was talking about just the whole network dealers, etc., but I just didn’t know if this level of demand was staying for a little bit of time, if you’d see another larger group of stores in your network that you would expect to close besides the five to 10 that you—

Kurt Darrow

I think Mike gave the best clarity on that that we can give, that 80% of our customers are continuing to pay us within terms and that hasn’t changed much and we feel that that core group has staying power, has flexibility, a lot of them in our store network own their own real estate and have low leases as a result.

So on that side we don’t have grave concerns about their staying power. The other 20%, some of them have gotten worse, some of them have gotten better. If business gets worse they probably will struggle some more but we think we’ve evaluated that and have the proper perspective on our risk there and have taken the proper adjustments accordingly.

Unspecified Analyst

And then just on the upholstery margin I know its been beaten a little bit to death here but was there any kind of one-time benefit or one-time inventory, it was just sort of a stunning reversal when you look at the trend from the first, second, and third quarter and just was curious if there was any kind of one-time or inventory gain or commodity benefit that may not be repeated in the future.

Kurt Darrow

We would answer that that there was nothing that was a one-time significant charge that would inflate this quarter’s results more then any other thing. This is a combination of 2.5, 3 years of hard work, of change, of tenacity, of structural costs, of efficiencies, and depending on the volume, we would think that a performance within a range that we gave earlier would be doable and we’re not relying on a win fall in order to operate at a high efficiency level.

Unspecified Analyst

When you talk about the cash burn, is that for the whole company or is that for just the retail division.

Kurt Darrow

No, that is taking the retail as though the retail and the wholesale part that we sell to retail, if that was a stand-alone business. The $80 million of wholesale that we sell to our $160 million retail business, that was looking at that by itself. Then we have the whole rest of the company that makes a profit, sells to other people, does other things, we were trying to give you a snippet of that section broken out individually.

Operator

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

Kathy Liebmann

Thank you everyone for participating on today’s call. Should you have follow-up questions, I will be available this rest and the rest of the day. Thanks again and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: La-Z-Boy Incorporated F4Q09 (Qtr End 04/25/09) Earnings Call Transcript
This Transcript
All Transcripts