Company had many positives to report in Q3 financial report, but roadblocks remain, particularly in the supply chain
MONROE, Mich. — La-Z-Boy’s latest financial report for its third fiscal quarter offers plenty of good news for the company, its customers and investors alike.
For example, it reported $571.6 million in consolidated sales, a 22% increase compared to the same period in 2021. Meanwhile net income was flat during the same period.
Also during the quarter, the company recorded record delivered sales for its retail segment — up 19% to $197 million, with same-store sales rising 16% compared to the same quarter a year ago, Chief Financial Officer Bob Lucian noted during a conference call with financial analysts.
On the call, Lucian added that the retail segment also reported a 12.2% non-GAAP operating margin compared to 8.9% in the same period last year, driven largely by “fixed cost leverage on the higher delivered sales volume and disciplined expense management.”
The Joybird division, meanwhile, reported record sales of $45 million, which is up 56% from the same period last year.
“On a two-year basis, compared with the pre-pandemic fiscal ’20 third quarter, delivered sales more than doubled, representing a compound annual growth rate of 43%,” Lucian said. “This reflects the momentum Joybird is building in the direct-to-consumer marketplace as we continue to acquire customers and strengthen brand awareness through new digital marketing channels.”
The company also said that it returned $32 million to shareholders through dividends and share repurchases in the quarter, which brought the year-to-date total to $96 million. In addition, it closed on two acquisitions, including five La-Z-Boy Furniture Galleries stores in Alabama and the Furnico Manufacturing company in the U.K.
Despite these positives, the company — like most others — also has seen plenty of ongoing challenges, particularly with the supply chain.
In her remarks during the conference call President and CEO Melinda Whittington said that “After a very strong November across the majority of our business, supply chain volatility amplified in the balance of the quarter, even beyond our previous expectations.”
She noted that this had a significant near-term impact on the efficiency of the company’s plans to ramp up capacity, which affected both sales and profit performance. In other words, the company could have likely had an even better quarter, particularly in sales and profits had it not been for these issues.
“Within our own manufacturing operations, which comprise the majority of our wholesale business, lack of availability of component parts, including electronic chips and actuators, continued to disrupt production plans but at a higher level than we expected,” she noted. “Beyond the obvious direct production delays, these outages drove inefficiencies as manufacturing cells are trained on specific unit styles and need to retrain on other styles until parts are available. This was exacerbated by such a large portion of our manufacturing staff being relatively new, given our significant capacity expansion, including three new facilities in Mexico over the past year.”
She noted that the parts outages have disproportionately affected the company’s higher end products which sell at higher levels in its La-Z-Boy Furniture Galleries stores including company-owned locations, which in turn stand to magnify the “near-term financial impact.”
In addition, the Omicron variant impacted plant operations and production throughout its manufacturing base, with as much as 20% of its manufacturing work force out in January due to exposure to the virus.
“These peaks are orders of magnitude higher than our previous worst peaks last winter,” she said. “As with much of North America, we’re now seeing the number of Covid cases trend downward quickly, but it will take time to recover from the disruption.”
In addition, she noted that the lingering effects of 14-week Covid related shutdowns in Vietnam over the summer affected the flow of case goods produced in that country. That, combined with the cost of shipping goods ultimately impacted the company’s wholesale segment.
And while she said that global supply chain challenges remain prevalent and that “we will likely be managing them for a while,” there are some silver linings.
For one, product is once again flowing from Asia and the company expects its case goods sales and profits to normalize in the first half of FY ’23 “when we will more consistently receive product to ship customers.”
The company also is taking steps to minimize disruptions, particularly in the flow of raw materials.
A key focus, she said, is to improve the agility of the supply chain to increase production more quickly and efficiently. To help achieve this goal, she noted, that the company is using SWOT (strengths, weaknesses, opportunities and threats) teams at some of its most challenged locations to help with training and increasing output. She also noted that the company has hired additional key leadership with expertise from other industries to “bring fresh perspectives to these challenges,” including sourcing diversity, protective inventory builds and helping suppliers staff extra shifts in order to supply key components.
“These challenges, while significant, are temporary in nature, and each day we get better at managing them,” she said.
While demand for product continues to be strong, she added that the company must do better to weather each disruption, whether it be increasing capacity, improving cost efficiencies and lowering the backlog to better service retailers and consumers alike.
“In the immediate term, we are laser-focused on driving efficient supply chain expansion to benefit our end consumers, our customer business partners and our top and bottom line financial performance,” Whittington said. “And looking further out, our focus remains on long-term profitable growth as we execute our Century Vision, our strategy to leverage our strong consumer brands to drive sales growth ahead of the industry and deliver double-digit non-GAAP operating margins and value to all stakeholders.”
No one, La-Z-Boy included, pretends the challenges will go away anytime soon. But the company and its team appear to be addressing these issues head on, leaving the industry and the investment community eager to see the results in its future quarterly performance.