by Although it also seeks to grow its wholesale business, company expects retail to represent more than half its business in the next few years
MONROE, Mich. — Following news that it achieved an all-time record of $252 million in Q2 sales in its retail segment, La-Z-Boy has even more aggressive plans to boost this part of its business.
In its recent second-quarter conference call, President and CEO Melinda Whittington said the company expects that more than half of La-Z-Boy’s business will be direct to consumer in the next three to four years. She was referring to its company-owned retail footprint and its online Joybird business, which are growing “at a faster rate than our traditional wholesale business.”
During the latest quarter, the overall retail segment — which includes 351 locations, including 169 company-owned stores — and Joybird had a combined $290 million in revenues. The results showed a 31% increase in delivered sales for the retail segment alone including a 25% gain of same-store sales — compared to $446 million in wholesale sales, which were up just 2% compared to the prior-year period.
Of course, the wholesale increase is coming off a larger number. But the retail and e-commerce part of its business indeed is gaining ground and also is growing from large numbers even if you take into account that the company-owned stores represented just over half the store network.
And that will continue as the company makes further investments in these areas of the business.
During the call, Bob Lucian, senior vice president and chief financial officer, said that year to date, the company has spent some $40 million in capital investments largely on La-Z-Boy Furniture Galleries store projects and new retail stores. This includes the opening of two new galleries and the remodel/relocation of five other stores in its retail business during Q2 alone. It also has signed an agreement to acquire another store from an independent dealer in West Virginia.
“Growing our company-owned retail will allow us to provide more consumers with a full end-to-end brand experience and will serve as a key driver as we shift our consolidated business mix to be more direct to consumer, driving sales and operating margin expansion in the process,” Lucian said.
In addition, the company is opening another five stores and remodeling or relocating 30 more across its galleries network during fiscal 2023.
“With the core La-Z-Boy consumer preferring to shop in store, we are expanding and improving the La-Z-Boy Furniture Galleries footprint with new and remodeled stores to provide consumers with an extraordinary end-to-end experience,” Whittington added of the expansion plans.
The retail segment also remains profitable, contributing $41.5 million in operating income, or 67% of the company’s total $61.9 million in consolidated operating income.
Lucian noted that Joybird, by comparison, saw a 5% decrease in sales to $38 million compared to the same period last year, although written sales were up 27% during the same period. He said that the 5% decrease was due to a slowdown in e-commerce sales activity in the marketplace and the “effects of changes in campaign execution with a key marketing partner.”
Lucian added that Joybird posted a loss for the quarter, which reflected lower volume, an unfavorable shift in the product mix and a lower return on advertising spend. He said that to improve its performance in the current environment, it is making changes to its marketing platform and social media efforts to focus on building brand awareness “while tailoring messages to better resonate with a post-Covid consumer. And we are beginning to see improvement. We are also optimizing marketing spend and cost in all areas of the Joybird business as we navigate this post-Covid e-commerce consumer market.”
For the full year, the e-commerce division also expects to post a loss which Lucian said reflects the impact of external headwinds and continued prudent investments in marketing and retail locations to drive long-term growth. “We are making improvements across all areas of the business model to balance investments in growth with bottom-line performance and expect it will take several quarters for the business to return to profitability.” he said.
As part of the company’s DTC strategy, the Joybird division will bear watching in the investment community — particularly as it opens new stores of its own, including a new Manhattan store in November and three stores in Seattle, Philadelphia and Los Angeles in the first half of 2023, which will bring the total to 10 stores.
“While our long-term plans include additional Joybird retail locations, we will align the pace of store openings with the overall business environment,” Whittington said.
As many recall, the company purchased the e-commerce retailer in July 2018 for $75 million as part of a plan to better reach millennial and Gen X consumers. That part of the strategy appears to be working.
But with new and emerging business models also come challenges as seen in the recent quarterly loss, not to mention other prior losses. La-Z-Boy, however, appears to be committed to making the model work due to the investments it is making in the business.
It’s a position that the company has apparently held for some time as part of a plan to grow its DTC business.
“As Joybird continues to hone its business model, it is expected to deliver value to the La-Z-Boy enterprise over the long term,” the company said in its year-end fiscal 2020 report.
Carry that forward to the early December conference call where Whittington added, “While we have some near-term challenges to optimize the Joybird business, we remain bullish on the long term.”
