La-Z-Boy (LZB +18%) surged after ending FY24 on a high note. The furniture company reported a significant EPS beat for Q4, its largest of the fiscal year. Revenue fell 1.4% year-over-year to $553.5 million, but exceeded expectations. Despite a challenging furniture market, La-Z-Boy outperformed.
- Housing turnover is a key driver for furniture sales. However, higher interest rates are causing homeowners to stay put to keep their low mortgage rates, reducing housing turnover and dampening demand. La-Z-Boy states that high interest rates and low housing turnover are impacting store traffic.
- Long-term, La-Z-Boy is optimistic about industry growth due to a significant housing shortage. With estimates of a 2-6 million housing unit shortfall, the company believes that lower interest rates and increased housing turnover will spur industry growth.
- In Q4, La-Z-Boy's written sales outperformed the industry. Retail segment written sales rose 1% year-over-year, while same-store sales dipped 5%. Sales were strong in the first half of the quarter, boosted by holiday events and recovery from January weather disruptions. However, overall traffic trends remain challenged.
- La-Z-Boy highlighted strong execution, with conversion rates at all-time highs and average ticket and design sales trending up. The company expects industry volatility in the near term but is confident in its ability to outperform and gain market share. Q1 has started well, with encouraging Memorial Day results.
- Historically a North American manufacturer, La-Z-Boy has shifted focus to its own retail stores and direct-to-consumer sales, including the Joybird acquisition. DTC sales, which are higher margin, now make up about half of sales. Despite this, Q4 non-GAAP operating margin declined by 40 basis points year-over-year to 9.4%.
Overall, investors are pleased with La-Z-Boy's Q4 performance. While the near-term outlook is muted, the company is confident that lower interest rates will unleash pent-up demand. La-Z-Boy's solid balance sheet, with $341 million in cash and no external debt, adds to its resilience.
