La-Z-Boy Incorporated (LZB) on Q2 2021 Results - Earnings Call Transcript

Operator: Good day, ladies and gentlemen, and thank you all for joining us for this La-Z-Boy Fiscal 2021 Second Quarter Conference Call. As a reminder all phone lines are in a listen-only mode. And for opening remarks and introductions, I’m pleased to yield the floor to Kathy Liebmann with Investor Relations. Good morning, Ms. Liebmann. Kathy Liebmann: Good morning, and thank you, Jim. Thank you, everyone, for joining us to discuss our fiscal 2021 second quarter results. With us today are Kurt Darrow, La-Z-Boy’s Chairman, President and Chief Executive Officer; and Melinda Whittington, CFO. Kurt will open and close the call, & Melinda will speak to the financials move through. We will then open the call to questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for one year, and a telephone replay of the call will be available for one week beginning this afternoon. Kurt Darrow: Thank you, Kathy, and good morning, everyone. Following yesterday’s close of market, we reported strong operating results for our fiscal 2021 second quarter reflecting record demand trends and strong execution across all of our businesses. But before I begin discussing the quarter, I would first like to acknowledge and thank our almost 9,000 employees who have demonstrated resiliency, a commitment to safety and the dedication to La-Z-Boy throughout the pandemic with a focus on serving our customers. I could not be prouder of the team and every member has my respect and admiration. Now on to the results. During the quarter, we experienced strong written orders as consumers continue to allocate more discretionary dollars to their homes rather than on travel and other leisure related activities. The company delivered increases in sales and operating income with a double-digit consolidated operating margin, reflecting excellent performance across all companies. Also contributing this quarter was Joybird, which turned profitable for the first time in acquisition, fueling an increase in earnings per share. Additionally, we generated 196 million in cash from operations for the year-to-date period, increased our company-owned store footprint with an acquisition paid a dividend and ended the quarter with no borrowings outstanding on our credit line. All in all, for the quarter, these are outstanding results, particularly as our supply chain had to turn on a dime last spring to restart production after the COVID-19 related shutdown and continues to ramp up capacity to satisfy unprecedented demand levels. While we are increasing production weekly, demand acceleration continues to outpace capacity acceleration creating a record backlog and extended lead times. Melinda Whittington: Thank you, Kurt, and good morning, everyone. As always, let me remind you that we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. As detailed in our press release and in the tables of the appendix section of our the tables of the appendix section of our conference call slides, excluded from our fiscal 2021 second quarter non-GAAP reporting are pretax purchase accounting charges related to acquisitions totaling $3 million or $0.06 per diluted share, primarily due to a write-up of the Joybird contingent consideration liability based on an updated forecast of future performance. And a pretax charge of $300,000 or $0.01 per diluted share related to the Company’s business realignment announced in June, which included a 10% reduction in our global workforce and the closure of our Newton, Mississippi manufacturing facility. Kurt Darrow: Thank you, Melinda. As you can see, we are very pleased with the agility of our entire organization has demonstrated as it responds to the new operating environment. Our supply chain team is pulling out all stops to drive production. Our merchandising and marketing teams have pivoted to find new ways to showcase product highlight the La-Z-Boy brand and its attributes and target consumers in a manner that will drive growth for the long-term. And our retail team is performing at a very high level providing a great store experience for customers while keeping them safe. And all of our other operating companies, including Joybird, England, Casegoods and our international business are also adapting to the landscape and performing very well. We believe the strength of the La-Z-Boy brand carries great weight in this environment as consumers tend to gravitate to brands they know and trust during uncertain time. With our vast distribution, including the vibrant La-Z-Boy Furniture Galleries stores and thousands of other distribution points, our world-class supply chain, successful marketing platform focused on expanding our Omni-channel offering and our strong balance sheet, we believe we are extremely well positioned to continue to navigate and thrive in this environment capture market share and return long-term value to our shareholders. We would like to thank all of you for your interest in La-Z-Boy this morning, and I will turn the call over to Kathy to provide instructions for getting into the queue. Kathy. Kathy Liebmann: Thank you, Kurt. We will begin the question-and-answer period now. Jim, can you please review the instructions for getting into the queue to ask questions. Operator: I would be happy to. Thank you. We will hear first this morning from Bobby Griffin at Raymond James. Robert Griffin: Good morning Kurt, Melinda and Kathy. Thank you for taking my questions. I hope everybody is doing well and staying safe. Melinda Whittington: Good morning. Kurt Darrow: Good morning Bobby. Robert Griffin: The first thing I want to talk about was just the written growth, clearly impressive numbers out of the La-Z-Boy branded distribution. Can you maybe provide a little color on how the non-La-Z-Boy branded distribution performed during the quarter from a written perspective, was it close to the same or just as strong or anything to help us kind of sum up your whole entire distribution network? Kurt Darrow: So in general sense, Bobby, all of our businesses have benefited from the sector rotation and what is been going on around the world. We have had a little more hiccups in Europe in our business, particularly in Great Britain. And our Casegoods business comes and goes on a weekly basis based on inventory availability because we import all the case goods, but everybody in the whole nation this quarter, contributed mightily to our success. Obviously, La-Z-Boy and the La-Z-Boy Stores are the largest components of it, but everybody else exceeded our expectations for the quarter. Robert Griffin: Okay. That is helpful. And I’m just trying to understand kind of the quarterly progression here, given the big rate number and then 3Q and then work in between of 4Q. When we look at the flat to up 4% and think about that, is there any way to frame how big of a drag the foam and supply chain or kind of raw material side of the equation is? And understanding I’m trying to look more just from the materials side, understanding that the labor and getting things ramped up in the plant time, but the shortage of foam and all that, how much is that shifting delivered sales from 3Q into 4Q? Melinda Whittington: Yes. I would think about it in terms, Bobby, we continue to ramp up production. I mean, I think it is telling that if you look just on total sales from Q1 to Q2, our sales throughput was up like over 50%, right, on a consecutive quarter basis, and we will continue to make so really solid progress in Q3 and again in Q4. The broad range of flat to 4% for Q3 really accounts for the broad range of where the outcomes could be around foam. We called out that there was almost a 2% impact of foam on the wholesale business in Q2 and it is not unlikely that it is in that same kind of range for Q3. But I mean, this is literally late-breaking news as of this past week where we thought this was pretty much under control for the industry and then have learned that it is not. So it really accounts for that breadth. And I would also call out that Q3, as I mentioned in my prepared comments, last year, was an all-time record sales quarter for the La-Z-Boy enterprise. And so it is a pretty significant base that were on top of as well. Robert Griffin: Okay. And then I guess, lastly for me. Just wanted to quickly touch on capital allocation, and Melinda and Kurt, you guys both kind of called it out a little bit in your prepared remarks, but the cash balance here is significantly above where it has been really throughout history here at La-Z-Boy. Understanding some will have to work its way down as production ramps up. But with that size of a cash balance, can you maybe just talk about where your views are and what is the comfort level of cash in this uncertainty? Kurt Darrow: Great question. And the answer is a little bit like the foam issue. The honest answer is we don’t know what the next few months, we hear about how bad the pandemic is right now, and it is going to be a tough winner for everybody. So given our conservative nature, we are looking at a lot of opportunities. We are going to deploy some of that capital. We would look to do acquisition if it made sense, but we don’t want to get ahead of ourselves because I’m not yet ready to declare victory over the pandemic and over the global supply disruptions. And how fast we have gone from having to borrow some cash to now being flushed with cash. I’m not sure anybody would have predicted that quick of a turnaround. But we have experienced that. And I think you can be pre-assured, Bobby, that we are not going to sit and not utilize some cash to advantage our business going forward. But at the present time, I’m not able to give you specifics. Robert Griffin: Okay. That is helpful. And I would say, Kurt, I sure didn’t predict that high of a cash balance and not quick return around to answer your question. So but - Kurt Darrow: And I would say, Bobby, the other thing about the fourth quarter is that is when we are hopeful that midway through that quarter, that all of the things we have done, and I’m not aware of many other furniture manufacturers have added this much extra capacity for the long-term. We are supposed to have a lot of that online by then. So it is the comparison to the previous year, which was a total shutdown, but it is also that the extra capacity that we work so hard on to get comes into full support of the organization. So we will whittle down our backlog unless this extraordinary demand continues at this level. But that is the big bubble we hope to get through in Q4. Robert Griffin: Okay. I appreciate the details. Congrats again on managing through pretty challenging environment. Kurt Darrow: Thank you. Operator: Our next question will come from Brad Thomas at KeyBanc Capital Markets. Bradley Thomas: Thanks good morning Kurt, Melinda and Kathy. Congrats on a nice quarter here. I wanted to follow-up on that last line of conversation about the capacity. And if I do some quick math, on the sales outlook for the fourth quarter or the high end of the range, I think would be about 530 million of revenues in the fourth quarter, that would be up maybe about 17% from what you just did this quarter and maybe a similar kind of increase from where you were in the fourth quarter of two years ago. So I guess, is that 530 million number kind of a good way for us to think about maybe what the upper limit of sales might be in a given quarter at this point with your capacity? And maybe you could describe, otherwise in percentage terms, how much do you think, Kurt, you will be raising the bar with some of the investments you are making right now on capacity? Thanks. Melinda Whittington: Yes. I will take that one. We tried to give a bit of a range and perspective that we don’t normally do because we recognize it is such an unusual time. And so almost by definition, our ranges are showing the potential for outcome. If absolutely everything goes right and our best estimate of things don’t go as well, but are still within reason both for the third and fourth quarter. As Kurt noted, the march to add capacity, and we called out four different items that are underway. Probably the most significant for the long-term is our investment in SLRC, which is a part of an ongoing strategic plan we have had for a while in how to best service the West Coast. And as we have called out before, each one of those take some time. And so we have made a lot of progress in our existing facilities on hiring and training. We have called out before that training people take six-months to nine-months to really get them up to sort of an average throughput. So SLRC coming online in the back half and really getting up to full speed in the fourth quarter will be a big chunk of that capacity expansion. And that is all folded into that 40% to 45% uptick on sales that we have given perspective on for the fourth quarter. Again, that number obviously benefits from April a year ago being shut down. But even if you back that out, you’ll see there is incremental growth even beyond what we are doing in the third quarter. Kurt Darrow: And just to add, Brad, we would have the capacity to manufacture that much furniture during the fourth quarter, but it is all dependent on the global supply chain. And maybe we don’t know, but maybe the foam is just the tip of the spear. Lots of challenges right now with containers, lots of costs going up. There is going to be huge pressure on demand from Christmas to Chinese New Year. And so what we are capable of and what we will be able to do based on how all of our partners support us, which they have been great so far, and we haven’t had any hiccups to-date other than the poly issue, but there is still some uncertainty, and there could be something. So we just don’t want to get over our skis here and assume everything is going to be perfect. Bradley Thomas: That makes sense. That is helpful. With respect to the Seattle acquisition, could you just talk a little bit more about how that is going so far and as you talk to the independent dealers, what is your sense of the likelihood of additional transactions in the year ahead? If there is any color you could share. Kurt Darrow: Well, in the first comment, the Seattle acquisition is going really good. It was a real smooth transition. We had a strong ownership in Seattle that had things in good shape but had a great team, and we have got things transferred and they have hit the ground running. So it is doing what we expected. We will be making some investments in that market soon to upgrade some stores and maybe some new ones. So we are very pleased with that. And I do believe, as we have had a continuing cadence on this, there will be some other of our licensees that may consider retiring or selling their business. They would have perhaps this year, a record year, and maybe in that mode. But we are always giving the right circumstances, we are willing to talk with our dealers and try to figure out what is best for both of us. So that is still a very active part of our longer-term growth strategy is to continue when available and making sense that we can service it, continuing to add stores to our portfolio. Bradley Thomas: That is helpful. And if I could squeeze one more in around margins. I greatly appreciate all the financial commentary you have shared about how to think about the next two quarters. I think the comments are that you expect operating margin to be in the 9% to 11% range for the balance of the year. Any thoughts or anything we should keep in mind as we think about 3Q margin versus the 4Q margin, I mean, it would seem to me that in 4Q, you are looking at some very strong sales results, some benefits of the price increase going through and perhaps that 4Q margin then is higher than the 3Q margin. Is that a reasonable conclusion or are there any other thoughts that we should keep in mind as we fine-tune our models? Melinda Whittington: Yes. I think as I called out in the prepared remarks, probably the biggest thing to think about is we are already starting to experience of higher input costs on poly, on lumber, on nonwoven, on ocean freight, and we have put pricing in place. But to be good partners to our customers we did not put that pricing in place on orders that had already been written that were sitting in our backlog. Which is obviously a significant number of orders at this point. So we really won’t start to see that pricing benefit come grow until we are well into the fourth quarter. So to your point, that would be probably input costs input costs one of the major trends between three. Beyond that, as I called out, we are definitely pulling back appropriately so, but on some of our ad spend right now because we have got this significant backlog, and we don’t want to drive even increasing demand that just frustrates the consumer in the near-term. So we have kept our marketing out there to build brand equity across our brands but we are not at an all-time high of demand driving ad spending, which at some point will need to turn back on some of that. In the same way, market was reduced, reduced travel, obviously, reduced training. There are just a lot of things that businesses aren’t doing today because of the pandemic that will eventually turn back on to some level, probably not very likely from what I’m seeing that that happens in the balance of this fiscal, but it is something to keep in mind for the future. Bradley Thomas: Great. Thank you all so much. Melinda Whittington: Thank you. Kurt Darrow: Thanks Brad. Operator: We will hear from Anthony Lebiedzinski at Sidoti & Company. Please go ahead. Anthony Lebiedzinski: Hi yes, good morning everyone and thank you for taking the question. I may have missed this, but did you guys quantify the record backlog? I think you said it was five time larger than a year ago, but I don’t know if you guys give a specific dollar amount? Kurt Darrow: We did not. Five ties is very significant and why we have gone from delivery in four weeks or five weeks to 20 plus. So it is it is unprecedented, and we are doing the best we can to deal with it. It is not a specific La-Z-Boy problem. It is an industry problem. And our customers have been very patient and waiting a long time for products. But yes, it is it is a big number, Anthony. And I think the magnitude was the five times and the fact that our orders are out into March gives you some magnitude of what it is. But we did not give a number. Melinda Whittington: As we have said in the past, I mean, great problem to have, right, in backlog is the outcome of two things. It is the pace of demand coming in, and it is the pace of what we are manufacturing take out of that backlog. We continue to exponentially increase our capacity and ability to make product. But at the same time, we continue to experience pretty amazing demand. And so again, as we have said before, high-class problem to have, but there is no doubt, five times. And that is for our La-Z-Boy branded wholesale business, five times the business, five times the backlog of this time last year is quite significant. Kurt Darrow: And add to that Antony, that we are going in traditionally, it could be different this year, but we are going now traditionally into the highest seasonality of the buying cycle for furniture between now and February. So it may be dampened a little bit with COVID and dampened a little bit by the extended lead times, but we are headed into what is typically a strong - and we could add to that backlog if everything goes the way it has been trending. Anthony Lebiedzinski: Got it. Okay. I definitely appreciate that. So as far as Joybird, so now that you have improved your supply chain efficiencies. What would you say would be kind of on the minimum quarterly revenue run rate for Joybird to be profitable? Kurt Darrow: Well, I think we gave you what we expect for the year. We gave you the $90 million to $100 million pace and expect it to be profitable for the whole year. There will be an ebb and flow in certain months, depending on seasonality depending on how much marketing investment we make. And we said from the beginning, we wanted Joybird to grow above our core businesses. But we wanted them to do it without being a drag on the Company’s earnings. I think we have found that middle ground. And so we will be testing and watching how effective our marketing is for growth without giving up all the bottom line performance. So we need some more time to let this play out. But we think, at a reasonable level of volume, which they have been doing, they can be profitable. The reason for their profitability at this time was not exclusively volume. There are a lot of structural things. There are a lot of coordination between La-Z-Boy supply chain and Joybird supply chain that have come full circle and come into fruition, the lower cost efficiencies, get product to customers faster all those things, structurally, the business is in a really good shape now and think it will head that way in the future. Anthony Lebiedzinski: Okay. That is good to hear. And then as far as the costs for the opening of the new facility in Mexico, did you guys quantify that or are you willing to quantify that? Melinda Whittington: No. That is built into all the numbers that we gave you, both on capital and on the perspective for the balance of the year. Anthony Lebiedzinski: Got it. And lastly. Okay go ahead. Melinda Whittington: It is a relatively asset-light investment with leased space. And so that is part of what we are excited about exploring. Kurt Darrow: And just so it is primarily an assembly plant. It won’t be stamping, it is mechanism. It won’t be cutting its old frames. They will get those from our U.S. supply centers. So it is not as capital pensive if you build a full facility that handle all of the things that Dayton and Neosho do. Anthony Lebiedzinski: Got it. Okay. So I just wanted to lastly follow-up on the large cash position that you have. So I understand that there is still uncertainty with the pandemic. I mean would you say if you get better visibility with the pandemic next year, would you guys perhaps consider doing a special cash dividend or maybe a large repurchase? I just wanted to follow-up about that and see what you guys think about it? Melinda Whittington: Just to recap a bit on what Kurt said, I think there is a couple of things, no doubt. I mean this is I think the highest cash positions we have probably ever held and within the quarter we have resumed all the normal kind of cash usages internally and externally that we had stopped during the pandemic, we are back to full dividend. We have restarted in capital projects that we had delayed. And so as Kurt said there are still so much uncertainty that we will definitely in the near-term hold higher cash balances than we have historically have, but as always we are looking for those capital investment opportunities in our business as well as on the M&A front conservatively given the unusual and unprecedented times that we are living in. But our focus is to make sure, we are investing in our business for growth, even past the pandemic and evaluating opportunities there. And then as far as returns to shareholders, we resumed the dividend. Comments on special dividends or increased buyback and so forth. I want to first fully flesh out getting through this pandemic and looking at the opportunities that we can identified to invest in our business and return value to shareholders through growth. Anthony Lebiedzinski: Got, it okay. thank you and best of luck. Kurt Darrow: Thank you Anthony. Melinda Whittington: Thank you. Operator: Ladies and gentlemen, that does conclude today’s Q&A session. I will turn it back to the La-Z-Boy’s leadership team for any additional or closing remarks. Kathy Liebmann: Thank you, everyone for participating in our call today. Have a great holiday season, and we will talk to you next quarter. Bye-bye.
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La-Z-Boy Incorporated Surpasses Earnings and Revenue Estimates in Q4 Fiscal Year 2024

  • La-Z-Boy's EPS of $0.915 exceeded estimates, showcasing strong financial performance and operational efficiency.
  • The company reported revenue of approximately $867 million, significantly surpassing estimated revenues.
  • Strategic growth initiatives led to a 22% increase in consolidated delivered sales compared to the same quarter in 2019.

La-Z-Boy Incorporated (NYSE:LZB), a prominent player in the residential furniture manufacturing and retail sector, recently reported its earnings for the fourth quarter of the fiscal year 2024. The company's earnings per share (EPS) of $0.915 exceeded the estimated EPS of $0.68, showcasing a strong financial performance. Additionally, La-Z-Boy generated revenue of approximately $867 million, significantly surpassing the estimated revenue of about $516.44 million. This performance not only highlights La-Z-Boy's robust financial health but also its operational efficiency during the period.

The company's ability to outperform Zacks Consensus Estimates, with quarterly earnings of $0.95 per share, underscores its resilience and market performance. Despite a slight decrease from the earnings of $0.99 per share reported in the same quarter the previous year, the earnings surprise of 39.71% for this quarter marks a significant positive deviation from expectations. This is particularly noteworthy considering the previous quarter's earnings of $0.67 per share fell short of the anticipated $0.75 per share, resulting in a -10.67% earnings surprise.

La-Z-Boy's revenue for the quarter ending April 2024 was $553.54 million, exceeding the Zacks Consensus Estimate by 6.70%. Although this represents a slight decrease from the $561.29 million reported in the same period last year, La-Z-Boy has consistently beaten consensus revenue estimates in three of the last four quarters. This trend demonstrates the company's ability to maintain revenue growth amidst challenges in the furniture industry, which has been impacted by a largely stagnant housing market.

The company's strategic growth initiatives are evident in its operational achievements. For the fiscal 2024 fourth quarter, La-Z-Boy achieved consolidated delivered sales of $554 million, a significant 22% increase compared to the same quarter in the pre-pandemic year of 2019. Additionally, the company expanded its La-Z-Boy Furniture Galleries network by three stores, including the acquisition of two independent stores. These moves signal confidence in its business strategy and future growth prospects.

La-Z-Boy's financial metrics further underscore its growth and operational efficiency. With consolidated delivered sales of $2.05 billion for the full year and a robust $158 million in operating cash flow, the company demonstrates a strong balance sheet with $341 million in cash and no external debt. Moreover, La-Z-Boy's commitment to shareholder value is highlighted by its return of $85 million through share repurchases and dividends, along with a 10% increase in its prior quarterly dividend to $0.20 in the third quarter. These results position La-Z-Boy for continued success in the competitive furniture manufacturing and retail markets.

La-Z-Boy Shares Up 7% on Q4 Beat, Guidance Above Expectations

La-Z-Boy (NYSE:LZB) shares closed more than 7% higher on Wednesday following the company’s reported Q4 results, with EPS coming in at $1.07, significantly better than the Street estimate of $0.92. Quarterly revenue increased 32% year-over-year to $685 million, compared to the Street estimate of $664.91 million.

The company provided its Q1 revenue guidance, expecting it to range from $560 million to $575 million, above the Street estimate of $554.2 million.