La-Z-Boy Incorporated (NYSE:LZB) said today it now expects earnings per share for its second fiscal quarter ending October 23, 2004 to be in the range of $0.13 - $0.15 per diluted share, which will include a restructuring charge of $0.01 and up to a $0.07 potential loss from the consolidation of Variable Interest Entities (VIEs). The previously announced range of diluted earnings per share was $0.29 - $0.33 and included the $0.01 for a restructuring charge and up to $0.02 of potential loss from VIEs.


La-Z-Boy President and CEO Kurt Darrow noted, "While we still expect our year-over-year sales for the October quarter to increase in the mid-single digit percentage range, we are reducing our earnings guidance primarily as a result of three factors. First, raw material price increases in lumber and unprecedented increases in steel have risen more significantly than anticipated. With approximately 78% of our total volume in the upholstery segment this has had a substantial impact on our margins. This was further magnified by the relatively large portion of recliners within our upholstery business mix which require more steel because of the recliner mechanism. Although we have adjusted our pricing to recover some of these costs, our backlog during the quarter is not maturing to the new pricing as quickly as we expected and we are absorbing the majority of these price increases. We expect this transition in pricing to be completed during our third fiscal quarter. Furthermore, we are determined to increase our market share in spite of the current aggressive promotional discounting in the marketplace which also added to the pressure on our margins."


Darrow continued, "The second contributing factor is a much greater expected loss from our VIEs as a result of performance issues at those entities during the summer months. We are in the process of taking specific actions to rectify those operations' results. Lastly, although we are encouraged by the progress being made in improving our casegoods volume, we continue to work through a challenging time as we transition our business model from primarily a domestic manufacturer to being an importer, marketer and distributor of casegoods. In particular, our Pennsylvania House operation has experienced significant unanticipated production inefficiencies as a result of our previously announced closing of our Lewisburg facility."


Darrow concluded, "While we are disappointed with the anticipated results this quarter, the actions we have taken will ultimately culminate in improving performance for our company." In 2004's second fiscal quarter, La-Z-Boy Incorporated earned $0.28 per diluted share, which included a $0.02 restructuring charge on sales of $511 million. The company plans to report this year's fiscal second quarter operating results after the market close Tuesday, November 9, 2004 with its regular quarterly investor conference call the following morning, Wednesday, November 10, 2004 at 11:00 a.m. EST
12:32 PM 10/7/2004