Against the backdrop of ongoing challenging business conditions pervasive throughout the furniture industry, our results reflect a significant drop in volume, which made it difficult to absorb our current fixed costs.
Kurt L. Darrow, CEO, La-Z-Boy

La-Z-Boy's net sales for the second quarter plunged 12.6% to $344.4 million compared with the same period last year. The company posted a loss of $8.7 million.

Kurt L. Darrow, La-Z-Boy's President and Chief Executive Officer, said, "Against the backdrop of ongoing challenging business conditions pervasive throughout the furniture industry, our results reflect a significant drop in volume, which made it difficult to absorb our current fixed costs. Additionally, our [fiscal] first quarter is typically our slowest reporting period, due to seasonality factors, including the scheduled vacation shutdown in July at our plants, and is not indicative of our expectations for the full fiscal year."

La-Z-Boy's upholstery sales decreased 13.8% to $254.8 million compared with $295.4 million in the prior year's first quarter. Margins dropped to 3.5% from 6.0% in the year-ago period. Darrow stated, "We are continuing to address our cost structure and are executing on our strategic plan to convert our La-Z-Boy branded facilities to the cellular production process. The conversion is on schedule and will be completed in our fiscal fourth quarter."

Darrow continued, "Our incoming order rate in July improved versus the first two months of the quarter and, importantly, we believe today's order rate is more reflective of actual demand as retailers have worked through their high inventory levels. In the meantime, however, we further aligned our capacity this quarter, by closing four facilities. While our capacity today more closely matches the industry's overall dampened demand, we did experience manufacturing inefficiencies in the quarter as we shifted production to other plants."

System-wide same store sales for La-Z-Boy Furniture Galleries stores were down 7%.

Casegoods sales were $53.6 million, down 12.2% from the prior year's first quarter. The segment's quarterly operating margin was down slightly to 4.9% versus 5.3% in last year's comparable period.

Darrow commented, "On a double-digit sales decline, our operating margin decreased only slightly, reflecting the higher variable cost structure in the business combined with greater efficiencies at our domestic operations. However, in an effort to control inventory, our domestic facilities took additional down days beyond the normal vacation shutdown. As we move into the Fall, we are focused on increasing revenues through new product introductions and expanding our channels of distribution."

Commenting on the company's business outlook, Darrow said, "The external environment for home furnishings remains challenging, although it is important to note that we do not believe today's revenue stream is indicative of the run rate for the next 12 to 18 months. As we announced last quarter, we expect sales for the fiscal 2008 year to be down 5% to 10% compared with fiscal 2007."