La-Z-Boy Is Just Hitting Its Stride

La-Z-Boy Shares Fall On Margin Warning

La-Z-Boy NYSE: LZB and the furniture industry are among the most durable winners in the post-pandemic world. The industry suffered a blow when the pandemic struck but has since been able to bounce back very strongly.  La-Z-Boy just released its fiscal Q4 results and blew past all the consensus estimates just like we expected. shares experienced some volatility in the after-hours session due to a warning on margins but we think that ultimately the trend in this stock is still up. Not only is business good but it's accelerating and backlogs suggest it will be several quarters before the company catches up with demand. 

“We strengthened our business by significantly expanding production capacity, enhanced our retail platform, including the acquisition of the Seattle-based La-Z-Boy Furniture Galleries® stores, and turned Joybird profitable. All business units are experiencing record demand, demonstrating the strength of our brands in the marketplace combined with fantastic execution from all retail and sales teams, “ Said Melissa D Whittington La-Z-Boy CEO. 

La-Z-Boy Blows Past The Consensus

La-Z-Boy had a great fourth quarter but it is admittedly against a very easy comp. The company's business fell about 20% last year, the mitigating factor for us is that revenue has bounced back this year to well above the pre-pandemic levels. The $519.47 million in net consolidated revenue is up 41.4% from last year, beat the consensus by 400 basis points, and grew 14% over the last two years. Sales gains were evenly split between wholesale and retail segments, both up about 40% from last year, with a notable increase in consolidated margin.

The company's operating margin expanded 70 basis points over the last year with most of the strength in the retail segment. Retail margins grew to 12.2% on the back of price increases announced earlier in the year while wholesale margins shrank about 90 basis points. Regardless, both the adjusted and non-GAAP eps showed significant growth over last year's Q4 and beat the consensus estimates. the GAAP EPS of  $0.81 beat by $0.08 while the adjusted $0.87 be by $0.13 and grew roughly 30% over the past two years. 

The company did not give any formal guidance in regards to expected revenue or earnings but did reveal that sales trends remain strong and the company's backlog increased more than 100% from last year. This is expected to mitigate seasonal slowness in the first quarter and drive sequential revenue gains in the back half of the year. Those gains will be amplified as the company seeks to increase production capacity in key areas. The negative within the guidance is the outlook for margins. The company expects ongoing issues with freight, raw materials, and other input costs to have a negative near-term impact on earnings.  Longer-term, the company will continue to enact incremental price increases but they will not affect the company's large backlog. 

Nothing Lazy About This Dividend

La-Z-Boy is not a high-yield stock but it is among the safest payouts on Wall Street. The company suspended the payout last year for one quarter in order to preserve its fortress balance sheet but since reinstated the dividend and then raised it to a level above the pre-pandemic pay rate. With revenue and earnings on the rise, a 20% payout ratio, and a fortress balance sheet we expect to see this distribution get raised again at the end of the year if not sooner.

The Technical Outlook: La-Z-Boy Is Still Consolidating

Shares of La-Z-Boy have been in a consolidation over the past couple of months and may not yet be ready to break out. The after-hours action was volatile but shares appear to be trading near break-even at this point. While we see no reason to get bearish on this stock, the profit warning may be enough to keep it from moving much higher in the near term. Longer-term, we expect to see this stock eventually move higher and break out to new highs as the company navigates the second half of the year.