by Q1 report, conference call highlight growth opportunities for the company moving forward
MONROE, Mich. — By all accounts, La-Z-Boy had an impressive start to its current fiscal year as evidenced by its latest quarterly report.
Granted, while a 3% gain may seem modest by some industry standards, it’s worth noting for a couple of reasons.
For one, it’s coming off a large number, increasing sales from $481.7 million to $495.5 million.
Secondly, it occurs amid declines in retail sales that have persisted for months, causing a ripple effect in demand from industry suppliers both on the case goods and the upholstery side of the business.
Third, the company remains profitable, with net income of $26.1 million, during the quarter, down slightly from $27.5 million last year.
But there are other key takeaways from its latest quarterly report and earnings call worth noting as they hint at some growth opportunities for the business, now and in the future.
+ Much of the quarterly increase was related to growth in the wholesale side of its business. The company reported that sales increased 5% to $351 million, which was related to higher delivered volume to its external customers and partially offset by lower intercompany sales to its retail segment. This indeed was a major reversal from the same period last year, when sales in the wholesale segment were down 24.5% during the quarter. “What we saw in the first quarter was those external customers starting to come back, whereas last year, that was still a much more depressed business,” said President and CEO Melinda Whittington during the conference call. “Those external customers took a little bit longer to come back and so you’re really seeing the benefit of that here in this first quarter.” Adding further context to this development, Chief Financial Officer and Vice President Robert Lucian noted that the reason the wholesale market was depressed last year was because many customers were still unloading old inventory and hadn’t gotten back to normal order rates. As they are back to normal order rates, the business has thus improved.
+ The company also attributed part of its success on the wholesale side of its business to strategic partnerships with major retailers such as Rooms To Go and Furniture Row, which Whittington noted “have allowed us to gain mindshare in an underpenetrated market. We continue to look for new and creative ways to reach a broader audience and bring products like the iconic La-Z-Boy recliner into more households.” The company also has raised awareness through its Long Live the Lazy advertising campaign, which drives traffic not only to its own stores, but also of those retailers that advertise the La-Z-Boy product in their respective markets. It’s a competitive dynamic that likely will boost sales through both channels.
+ The company continues to invest in its company-owned retail footprint, having completed the acquisition of an independent La-Z-Boy Galleries store in the Midwest and having signed an agreement to acquire another two in Florida in the second quarter. “These store acquisitions are immediately accretive to our profitability, allowing the company to benefit from integrated wholesale and retail margins,” Whittington noted during the call. Today, company-owned stores represent about 53% of the entire 356-store network. It also is looking to open another 12-15 new La-Z-Boy Furniture Gallery stores in the second half of this year and expand its overall retail footprint to about 400 stores over the next several years.
+ The Joybird e-commerce division was another part of the company’s success this quarter. Written sales in the segment rose 9%, compared to a 17% year-over-year decline reported the same period last year. Delivered sales, while down 3% during the quarter, also showed a marked contrast to last year’s 17% year-over-year decline. Whittington noted that “with 12 stores currently open in major markets, the digitally native brand is benefiting from the halo effect of stores in major markets.” She added that there is potential to grow to 25 locations over the near term based on “opportunities in real estate and overall market conditions. We continue to believe in the long-term growth prospects of the brand, as Joybird has a considerable opportunity to expand market share and we will continue to make prudent investments to position it for long-term success.”
+ Lucian noted how the company’s balance sheet of $342 million in cash is helping fuel some of its growth plans. He said the company spent $16 million in capital expenditures during the quarter largely related to retail store openings and remodels, along with upgrades to its manufacturing facilities and market showrooms. Moving forward, he said, the company’s capital allocation target is to reinvest 50% of its operating cash flow back into the business and return about 50% to shareholders in share repurchases and dividends over the long term. He also noted that the company plans to target sales growth of double the industry’s growth rate, while also achieving double-digit operating margins.
The execs noted that none of this negates the challenges ahead, particularly in an environment of still-tepid housing sales and strains on consumer budgets in general. Yet they remain optimistic the company will emerge even stronger once those roadblocks are lifted.
“As we enter the second quarter, we expect a continued challenging macro environment for the remainder of the fiscal year,” Whittington said. “However, we remain optimistic about our ability to continue to outperform the market while investing in our own business through our Century Vision so that when trends rebound, we can disproportionately benefit.”
