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La-Z-Boy is a hard charger in a laid-back industry
Tuesday, March 24, 1998 By Gary T. Pakulski, Block News Alliance
MONROE, Mich. -- It's not your classic success story. Over the last year, La-Z-Boy Inc.'s largest retail customer filed for bankruptcy; its 57-year-old chief executive had a fatal heart attack on a North Carolina golf course; and its 90-year-old founder died suddenly at his winter residence in Arizona.
But, strange as it may seem, times couldn't be better for the nation's third-largest manufacturer of household furniture.
Analysts are praising the company enough to share a love seat.
La-Z-Boy stock is on a roll after languishing as a Wall Street wallflower for years. Share prices have soared 38 per cent in the last year, establishing a new 52-week high yesterday, closing at 51 3/8 up 5/16.
And Americans have gone on a furniture-buying binge that is providing even greater dividends for La-Z-Boy than for many of its competitors.
Tragedy and misfortune aside, the kind of year La-Z-Boy is having could be seen in a recent episode of NBC's youth-oriented TV show "Friends," when La-Z-Boy got a free mention in a comedy bit about recliner chairs.
Matthew LeBlanc's character, Joey Tribbiani, lands steady acting work on a soap opera. To celebrate his new affluence, he splurges on matching recliner chairs for him and his roommate, Chandler Bing (played by Matthew Perry).
Never mind that the bit played into old stereotypes about the chair, first designed in 1928: an ungainly object enjoyed mostly by male couch potatoes with unsophisticated notions of the good life.
"It may be the ultimate slacker equipment," La-Z-Boy's John Case said of the recliner that made the company famous and today - sometimes equipped with telephones and answering machines - continues to be a top seller. "That's OK. The twentysomethings and now the thirtysomethings are not bound by snob appeal."
La-Z-Boy has made a major play for younger shoppers in recent years. Said one analyst: "La-Z-Boy's advertising is very with-it."
Yet, at its core, La-Z-Boy remains a conservative company. It is ensconced in a squat, unattractive headquarters building on a busy commercial strip in Monroe, Mich., between Toledo, Ohio, and Detroit.
Two members of the troika that have run the company since Chief Executive Charles Knabusch died Oct. 14 during a furniture industry convention are company veterans past usual retirement age. Chairman Patrick Norton is 75 and Frederick Jackson, executive vice president for finance, is 69.
The leadership picture could have been murkier if Knabusch, apparently warned by doctors about heart problems, hadn't promoted industry veteran Gerald Kiser, 50, in April from vice president of operations to chief operating officer. After the CEO's death, the board quickly gave Kiser the added title of president and a seat on the 11-member board of directors alongside four La-Z-Boy executives. The post of chief executive remains vacant.
Kiser came to La-Z-Boy in 1990 and won praise for restoring profitability to its Kincaid Furniture Co. subsidiary. He knows the competition. He spent 20 years at Broyhill Furniture, owned by Furniture Brands International, the industry's top company and a key La-Z-Boy competitor whose brands include Lane and Thomasville.
Kiser declined interview requests. La-Z-Boy refused to make any senior executive available, saying it wanted to provide a sufficient mourning period for the family of the deceased CEO. Knabusch was the son of the late Edward Knabusch, who co-founded La-Z-Boy in Monroe 70 years ago with his cousin, Edwin Shoemaker, who died earlier this month.
Executives are pushing ahead with an aggressive acquisitions strategy that has helped boost sales to more than $1 billion annually and has brought such well-known names as Kincaid, Hammary, and England/Corsair to the La-Z-Boy line.
La-Z-Boy announced last month it was buying Sam Moore Furniture Industries, Inc. of Bedford, Va., in a cash deal whose terms weren't disclosed. Sam Moore not only brings $33 million in annual sales but also provides La-Z-Boy with entry into an expanding upscale market where pricing is less important to customers.
"Things seem to be running very smoothly at La-Z-Boy," said John Baugh, an analyst with Wheat First Union in Richmond, Va. "The transition has gone well."
Added Elliott Schlang, editor of the investments newsletter Great Lakes Review, "It's business as usual." And don't look for any major changes in strategy, he said.
He rates La-Z-Boy an "aggressive buy" and placed the company on his list of the Midwest's 30 best medium-sized companies.
"They have the best-recognized brand name in the furniture industry and an extremely strong balance sheet."
The company employs 11,500 and operates 31 plants in North America and Europe.
Analysts say La-Z-Boy's retail network, growing by 30 to 40 stores a year, is the envy of the competition, providing "shelf space" for the company's products.
Manufacturers battle for floor space in department and furniture stores. The latest trend are "strategic alliances" between manufacturers and retailers. St. Louis-based Haverty Furniture Cos., the nation's fifth-largest retailer, announced last month that it had struck a deal with Furniture Brands International to devote up to 50 percent of floor space to its products.
Case, marketing vice president at La-Z-Boy, said the company soon will announce that Haverty has agreed to devote a significant amount of remaining floor space to La-Z-Boy furniture.
Meanwhile, La-Z-Boy's department store sales are dropping, to 13 per cent of its total in 1997 from 15 per cent two years earlier, according to company reports.
A decision by the firm's biggest department store account, Montgomery Ward, to seek bankruptcy protection from creditors July 7 cost the company dearly.
La-Z-Boy blamed Ward's move for a steep decline in profits in its fiscal quarter ending July, 1997 -- to $1.7 million from $4.6 million during the year-ago period.
But La-Z-Boy quickly recovered. The next two quarterly financial reports showed that profits were up an average of 13 percent. Sales rose 9 percent through the third quarter of the company's 1998 fiscal year, which ends next month.
If that pace holds, the year will be the second consecutively that La-Z-Boy had larger sales increases than the industry overall. Gains made in its stock price the past year were 10 percentage points higher than the 28 per cent gain by furniture companies overall, according to an index maintained by Wheat First Union.
Some industry experts foresee trouble, however.
Gerald Birnbach, president of Virginia-based Rowe Furniture Corp., argues that manufacturers spend too much time worrying about producing low-cost products and too little time on designing furniture that appeals to baby boomers. "The proof of the pudding is that our industry is not getting its fair share of the dollar," he said.
The gap is being filled, he said, by niche players like the Crate & Barrel and Pottery Barn chains, which have successfully entered the furniture business.
Schlang, the analyst, agreed that La-Z-Boy needs to keep an eye on such trends. "La-Z-Boy has been in style for a great many years," he said. "The challenge for them is to stay in style."
Gary T. Pakulski is a staff writer for The Toledo (Ohio) Blade.
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