LaZBoy Inc. Reports Operating Results (10-Q)
Lazboy Inc. has a market cap of $562.37 million; its shares were traded at around $10.91 with a P/E ratio of 363.67 and P/S ratio of 0.46. LZB is in the portfolios of Chuck Royce of ROYCE & ASSOCIATES, Bruce Kovner of Caxton Associates.
Highlight of Business Operations:Selling, general and administrative expenses (S,G&A) decreased by $10.0 million or 5.0 percentage points when compared to the prior year s third quarter. Bad debt expense decreased $8.4 million or 2.9 percentage points in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. The deteriorating economic conditions in the third quarter of fiscal 2009 affected the ability of some of our customers to pay outstanding past due amounts which resulted in a significant charge to bad debts. Advertising costs as a percent of sales decreased 0.7 percentage points or $1.3 million in the third quarter of fiscal 2010 compared to the third quarter of fiscal 2009. Our decrease in advertising costs was mainly a result of a shift in the timing of our advertising spend to specific promotional time periods. Additionally, the overall decline in the economic climate has decreased the cost of purchasing advertising. We believe these changes have allowed us to maintain a strong presence in the marketplace, while decreasing our costs.
Restructuring costs, net of reversals totaled $0.6 million for the third quarter of fiscal 2010 as compared with $2.4 million in the third quarter of fiscal 2009. The restructuring costs in the third quarter of fiscal 2010 related to the consolidation of our casegoods manufacturing plants and conversion to a distribution center, in addition to ongoing severance as we transition our domestic cut and sew operations to our Mexico facility and the ongoing costs for our closed retail facilities. These costs were offset by the reversal of restructuring charges due to a decrease in our estimated healthcare costs for these plans. The restructuring costs in the third quarter of fiscal 2009 related to the closure of our Tremonton, Utah facility, the closure of our Sherman, Mississippi facility, the restructuring of our La-Z-Boy U.K. facility, the restructuring of our company-wide employment and the ongoing costs for the closure of retail facilities. These costs were comprised mainly of severance and benefits, fixed asset and inventory impairments, transition costs for the Utah plant closure and the ongoing lease cost for our closed retail facilities.
As of the end of the third quarter of fiscal 2009, we had $39.9 million in long-lived assets for our Retail Group. Of this $39.9 million, fair value exceeded carrying value for $20.4 million of these assets. For the remaining $19.5 million, we recorded an impairment charge of $7.0 million.
For the seven retail facilities that we owned, which accounted for $17.9 million in value as of the end of fiscal 2009, third party appraisals were utilized to determine the fair value of the stores. For the remaining retail facilities we utilized a discounted cash flow model over the remaining life of the lease, as well as comparable market data, to determine fair value. Our cash flow model assumed an economic recovery in our fiscal 2011 and used a 16% discount rate based on the market participant s view of our industry s weighted average cost of capital. The impairment charge recorded in the third quarter of fiscal 2009 was based on current market conditions and the current fair value of those assets. Changes in economic conditions could result in a need to evaluate whether the fair value of the long-lived assets of our retail stores has deteriorated further which could result in additional impairment charges. The net book value of our retail fixed assets was $29.3 million as of January 23, 2010.
During the third quarter of fiscal 2009, we evaluated the goodwill of our Upholstery Group and Retail Group and the trade names of our Casegoods Group. Due to the steep decline in our stock price during the third quarter of fiscal 2009 and its negative impact on our market capitalization at that time, we recognized a $40.4 million non-cash impairment charge relating to the goodwill in our Upholstery Group and Retail Group and a $5.5 million non-cash impairment charge relating to the trade names in our Casegoods Group.
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