"We are disappointed that the usual fall seasonal pickup in consumer furniture demand did not materialize to date. Business remained erratic in our upholstery segment, and continued under pressure on the casegoods side"
Kurt L. Darrow
La-Z-Boy president and CEO

La-Z-Boy reported operating results for its second fiscal quarter ended October 25, 2003. Net sales for the quarter declined 9.3% from a year earlier, to $511.0 million from $563.6 million in the same period of fiscal 2003.

As a result of the industry's difficult sales environment, increased promotional activity and plant downtime, the company's 2003 October quarter operating margin declined to 5.3% from 8.4% in the year-earlier quarter, while the first half operating margin was 4.0% this year, down from 7.6% in the same period of fiscal 2003. La-Z-Boy Incorporated president and CEO Kurt L. Darrow said, "While we were disappointed in the quarter's results and the trends we have been experiencing in our business, we have made major progress toward rationalizing our capacity and refining our import strategy. We are continuing to critically evaluate our progress in shortening lead times, improving our products, and increasing global integration."

Darrow continued, "Clearly we are working hard throughout the organization -- particularly in marketing, merchandising and product design -- to reverse the sales trends we have been experiencing. This will be accomplished by concentrating on our core competencies of proprietary distribution, selective brand extensions and brand investment, and a continued high level of design innovation to drive demand for our products."

Upholstery segment

Upholstery segment sales declined 7.0% for the October quarter compared to the prior year period, and were down 7.7% through the first six months of the fiscal year. Darrow said, "The decline in sales volume for the quarter appeared to be more dramatic than real business conditions warranted as incoming orders for the quarter were only down 0.8%. The primary difference was in last year's shipments which were substantially enhanced through the reduction of backlog. Upholstery segment sales were up 8.5% in the second quarter last year and increased 13.1% for the first six months of last year."

Commenting on the current business outlook, Darrow said, "We are disappointed that the usual fall seasonal pickup in consumer furniture demand did not materialize to date. Business remained erratic in our upholstery segment, and continued under pressure on the casegoods side. We do believe that the outlook for our industry has improved moderately of late, given growing signs of a strengthening U.S. economy and a rebound in consumer confidence, as well as the recent Federal Reserve Board decision to keep short-term interest rates at current low levels for a 'considerable' period. Encouragingly, we saw a meaningful improvement in order rates at several of our upholstery businesses in late October, and are hopeful this may indicate the beginning of a sustainable upward trend in our business."

He concluded, "Although we are encouraged by this recent improvement in incoming order rates, we feel it is prudent to remain cautious regarding the near-term outlook until a definite strengthening trend has become more evident. In this context, we expect sales for our January 2004 third fiscal quarter to be down mid-single digits compared to last year, and we anticipate reported earnings for the quarter to be in the range of $0.26 - $0.30 per diluted share, compared to the $0.41 we earned per diluted share in the same quarter of fiscal 2003."

With annual sales in excess of $2 billion, La-Z-Boy Incorporated is one of the world's leading residential furniture producers, marketing furniture for every room of the home and office, as well as for the hospitality, health care and assisted-living industries. The La-Z-Boy Upholstery Group companies are Bauhaus, Centurion, Clayton Marcus, England, La-Z-Boy, La-Z-Boy Contract and Sam Moore. The La-Z-Boy Casegoods Group companies are Alexvale, American Drew, American of Martinsville, Hammary, Kincaid, Lea and Pennsylvania House.