The U.S. furniture industry lost a little more stuffing last week.
On Thursday, every TV watcher's best friend, La-Z-Boy
- The shuttering of two upholstered-furniture factories, one located in Lincolnton, N.C., the other in Iuka, Miss. Both closures should be complete this summer and will reduce the company's upholstered-furniture manufacturing capacity by more than 5% in total.
- The closure of a lumber mill in North Wilkesboro, N.C..
- The consolidation of three upholstery "operations" into one in Taylorsville, N.C.
- The elimination of at least 500 jobs, or roughly 6% of La-Z-Boy's workforce.
The company owns three of the facilities marked for closure and aims to sell them. On the one hand, that should generate some cash for the firm. On the other, it's likely to entail charges to earnings if the assets must be written down. In fact, La-Z-Boy says pre-tax charges for severance, benefits, asset writedowns, and similar charges swill total $9 million to $10 million, or $0.11 to $0.12, pre-tax, with most of the charges appearing in fiscal Q4 2007 and the balance hitting fiscal Q1 2008 results. The good news? Closing and consolidating the facilities is expected to save $11 million per year in operating costs.
I see a few trends worth noting here. First and most obvious is the continued string of U.S. furniture makers closing and consolidating domestic shops, and switching to imports to satisfy consumers' furnishing needs. La-Z-Boy is far from the only company caught up in the downsizing/offshoring trend. Furniture Brands
Second, and specific to La-Z-Boy, I see the following effects on margins. Unless sales begin to slide, satisfying existing consumer demand should require La-Z-Boy to import more furniture, as it produces less at home. With imports being generally more profitable, that should boost La-Z-Boy's gross margins. Add in the cost-cutting effects of slimming down, and La-Z-Boy's operating margins may begin rising as well.
Meanwhile, in the short term, expect the new restructuring charges to continue weighing on La-Z-Boy's net. They won't be enough to push the company into a loss this quarter (fiscal Q4 being La-Z-Boy's strongest of the year, historically), but they will hurt the net.
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