Q2 2025 La-Z-Boy Inc Earnings Call
He has been an exceptional partner to me.
Speaker Change: Hello world It's been a while Welcome to World Without Sky Subscribe Or you will jar
And a strong leader for our entire team.
We wish him all the best in his retirement at the end of the fiscal year.
Turn the call over to Bob to review the results in more detail.
now, let me
Thank you. Melinda, and good morning, everyone.
And non-GAAP basis.
Copyright Australian Broadcasting Corporation
As a reminder, we present our results on both again.
We believe the non-GAAP presentation better reflects. Underlying operating Trends and performance of the business.
Which are detailed in our press release and in the tables in the appendix section of our conference call slides.
non-GAAP results. Exclude
On a Consolidated basis, fiscal 20.
25 second quarter sales increased 2%.
To 521 million versus the prior year. Primarily driven by higher delivered volume within our retail segment and joybird business.
Consolidated. Gaap operating margin was 39 million and non-GAAP operating margin was also 39 million.
A decrease of 4% versus last year's second quarter.
Consolidated. Gaap. Operating margin was 7.4%.
5% reflecting a 40 basis points declined, versus last year due to demand challenges in our case goods, import business, and a significant temporary customer.
And non-GAAP operating margin was 7.
Disruption and our international wholesale business.
Gaap diluted EPS was 71 cents for the second quarter versus 63% 63 cents.
In the prior year quarter.
9 Gap delivered EPS was 71 cents. Versus 74 cents last year.
As I moved to the segment discussion.
my comments from here, will focus on our non-GAAP reporting unless specifically stated otherwise
Sales were 222 million. A 3%, increase over the prior year. Second quarter.
Starting with the retail segment for the quarter. The
Primarily due to growth from acquired stores.
Importantly, conversion rates, average ticket and design sales, all remain, strong improving year-over-year.
Margin was 12.6% versus 13% and the prior year quarter.
On non-GAAP operating.
And fixed costs supporting our long-term strategy of growing our retail business through new and acquired stores.
This was driven by slavy lower same store sales and an increase in selling expense.
Partially offset by gross. Margin improvements resulting.
From a favorable shift.
And product mix.
For our wholesale segment. Delivered sales to the quarter were flat at 364 million.
As higher sales to our retail segment. Mostly offset lowered, delivered sales and our international wholesale business.
Operating margin for the wholesale segment was 6.8% versus 7.7% and last year's second quarter.
non-GAAP.
In our case goods, import business.
This was driven by demand and macroeconomic challenge.
And fixed cost de-lever on lower sales, and our international wholesale business.
partially offset by an improvement, and
non-GAAP. Operating margin for the core North America. Lazy Boy brand.
Wholesale business.
I want to spend a moment on our international business.
If you recall, last quarter, we called out a temporary customer disruption negatively impacting this business.
Then in September, we announced a major partnership with DFS the leading UK Furniture retailer.
I'm excited to report.
Ing high quality comfortable furniture.
Our Brands are closely aligned and the mission of the
Furniture in store and online.
This is is an exclusive partnership and the UK. And Ireland were DFS will introduce a range of Lazy Boy, reclining.
The product has begun to reach DFS showrooms and we expect sales to begin to accelerate in the fourth quarter of this fiscal.
For joybird reported in corporate. And other delivered sales were 39 million of 20% versus the prior year quarter on stronger.
For sales Trends, enjoy bird retail stores.
Mix and fix cost leverage on higher sales.
Joybird operating margin performance saw year-over-year improvement from higher gross margins driven by favorable product.
This resulted in Break, Even operating margin for the quarter.
Moving on to our Consolidated, non-GAAP gross margin and sgna performance for the quarter.
A couple segments of 10 basis points versus the prior year. Second quarter.
Consolidated non-GAAP gross margin increased slightly across all report.
Towards our retail segment which has a higher gross margin rate than our wholesale segment.
Gross, margin expansion was primarily driven by the positive shift and Consolidated mix.
Mostly offset by lower gross margins in our case goods business.
non-GAAP sgna as a percentage of sales for the quarter increased by 50 basis points compared with the same period last year.
primarily due to reduced leverage and
Our wholesale segment due to a significant temporary International customer disruption and the mix shift to our retail segment which carries a fixed cost.
Cost structure relative to wholesale.
.3%, compared to 26.5% for the prior year.
Our effective tax rate on a gaap basis. For the second quarter was largely unchanged at 26.
Turning to cash, we entered the quarter with a strong balance sheet.
303 million in cash and no externally funded debt.
Flow from operations, with 68 million up, 20% from last year's comparable period.
We generated 16 million in cash from operating activities in the quarter and year to date cash.
Quarter primarily related to Lazy Boy, Furniture Galleries, including new stores, and remodels.
We invested 17 million dollars in capital expenditures during the quarter.
We also spent $1 million on Acquisitions During the period.
for the quarter, we returned approximately 28 million to shareholders via dividends and share repurchases, including 8 million paid in dividends
Additionally, we repurchase 467,000 shares in the quarter, which leaves 4.3 million shares available under our existing, share repurchase authorization.
Year to date 700 million has been returned to shareholders approximately double the same period last year.
Reflecting the confidence in the company's long-term growth prospects.
And finally, subsequent to quarter end.
The board of directors increased, the regular quarterly dividend by 10%.
This takes our
A per share dividend to 22 cents.
We continue to view, share repurchases, and our dividend as an attractive use of our cash and a positive return to shareholders.
Shareholders and share repurchases, and dividends.
our Capital allocation Target is to reinvest approximately 50% of operating cash flow back into the business and returned approximately 50% to
Over the long term.
A fiscal 2025 and our third quarter.
Now before turning the call back to Melinda let me highlight several important items for the back half.
Housing, turnover.
Looking forward, we expect the industry to continue to be challenged by lower consumer, demand driven by higher mortgage rates.
Against that backdrop, we expect to continue to outperform the market throughout fiscal 2025, similar to our performance in fiscal 2024.
Consistent with our Century Vision strategy. We continue to Target sales growth, double the industry growth rate and double-digit operating margins over the long.
Term with the benefit of more normalized industry growth rates.
The holiday periods of downtime at our North America plants.
Third quarter delivers sales are generally lower than the second quarter due to multiple.
Sales in the third quarter, into the fourth quarter.
Additionally recall that we experienced adverse winter weather events in January. Last year, we shifted some
Representing growth versus last year.
Taking this into account. We expect third quarter delivered sales and the range of 505 to 525 million.
Further, we expect second quarter. non-GAAP operating margins to be in the range of 6 to 7%.
As we continued investment in our Century Vision. Pillar of growing retail. We expect near-term margin compression versus the prior year, primarily driven by expected negative same source.
Sales Trends from the continuing.
Challenging demand environment.
Which will more than offset the margin accretions from independent Lazy Boy, Furniture Galleries, Acquisitions, on our retail segment.
Additionally, wholesale, margins. Will continue to be negatively impacted by our case goods businesses.
Of our new partnership with DFS in the UK for the balance of the year.
And a startup.
We continue to expect to open 12 to 15 new Lazy Boy, Furniture Gallery. Stores for the fiscal year.
We expect our tax rate for the full fiscal year to be in the range of 25.5 to 26.5%.
We anticipate non-GAAP adjustments for
Just accounting charges for the year to be in the range of 1 to 3 cents per share.
We continue to expect Capital expenditures to be in the range of 70 to 800 million for fiscal 25. As we invest to strengthen the company for the future consistent with our Century Vision strategy,
To growth rate of our retail Network.
This includes land and building investments in stores to maintain.
Sounds consistent with preco levels.
And finally presuming no significant worsening in macroeconomic Trends. We expect to continue share repurchases at dollar amount.
At the end of our fiscal year.
Finally, last month, it was announced that I will be seating the role of CFO to Taylor, lupke effective January, 1st and return.
It has been an absolute privilege and honor to lead this company with Melinda.
I am proud of the progress, the company has made towards realizing.
Our Century vision and an excited for very excited for what is in store next?
I've known and worked with Taylor for over a decade.
He has a thorough understanding of this company and I am very confident he will continue to deliver on our Century vision and financial success.
It will be a positive and seamless transition.
I'll turn the call back to Melinda.
With that.
Thanks, Bob and congratulations again to you and welcome to Taylor.
Why do the challenging industry backdrop? We continue to make progress towards achieving our Century Vision goals and outperforming the industry.
In.
On the expansion of our Lazy Boy brand.
Our Focus remains.
Driving growth of our company-owned retail segment.
Improving agility across our supply chain.
And driving efficiency and margin expansion, throughout our business both now. And as our industry rebounds
Entire team for yet another quarter of outstanding execution at both, the Tactical and strategic levels.
I'd like to congratulate our in
To wish you all a happy and healthy holiday season.
finally, I'd like,
And thanks for joining us today.
With that. I'll turn the call back to mark. Thank you. Melinda.
We will begin the question and answer period. Now, Holly please review the instructions for getting into the queue to ask questions.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad,
A confirmation tone. Will indicate your line is in the question queue? You may press star 2. If you would like to remove your question from the queue.
Speak or equipment and may be necessary to pick up your handset before pressing the star keys.
For participants using.
1 moment, please while we pull for questions.
your first question for today is from Bobby Griffin with Raymond James,
Um, I guess Bob since this is uh, your last call I got about 6 or 7. I'm just going to fire off, you know, and make sure I get it, get it, get a little bit more out of you.
Good morning, buddy. Thanks for taking my question.
Before you go, you know, thank you Bobby. No, but in all seriousness, congrats on your retirement. It's been fun working with you, the last couple years. Uh, I hope to see
Live here in Florida and uh Taylor great meeting you at High Point look forward to working with you over the next next group of years.
Likewise Bobby.
Um, so I guess first maybe, can we just talk a little about the wholesale side of the business? Understand there's some, some transition going on internationally. So when we look at the difference of the year-over-year step down,
And uh ebit margins on that segment. How much would that International transition and kind of what I would deem as short-term disruption was the driver of that.
Over your step down in in margins.
I'd say about roughly half.
About the case goods impacts that we've been seeing as well as the, uh, the international impact that we saw, um, with uh, with moving from FCS to DFS in the UK. Yes, set another way if you
okay, it was it was it was roughly half in between um
If you strip out those, those sort of unique businesses, that we usually don't spend a lot of time talking about our, our core Lazy Boy branded North American.
A business was actually positive on margins for the quarter, but they were positive, that there was an increase.
Is that starting to show up? Now, I know we are targeting, I believe.
Okay. That's very helpful and is that growth in the core Lazy Boy, branded margin, is that a reflection of some of this manufacturer efficiencies in the work we've been doing on the, on the
50 to 60 basis points of total Improvement once we were done with some of the manufacturing footprint changes.
Yes, it is.
Okay. And and we are, are we tracking we're tracking on towards that goal 50 to 60, um, by I guess.
But uh, by um, early 20, uh, fiscal year 26, early fiscal year 26.
Yes.
Um, just Switching gears, a little, um, you know, Melinda, we, we got to see the high point showroom, uh, the new High Point showroom, which was great to see. Can you? Maybe just talk a little bit about kind of the mood from some of your dealers.
Okay, perfect. Um,
Kind of how their dealers are thinking about, uh, account year 25. Um, you know what, what kind of the, uh, view of the new products were, you know, initial orders. We, we saw some of the new
Productions as well.
A lot of our customers. And as you say, importantly, those General dealers that carry a lot of Brands, I think across the industry. And I've been at at multiple industry events, even
Yeah, we we were pretty excited about the buzz in our in our showroom. And we heard that from we heard that
Cents market across the industry, you know, it, it's still, uh, everyone's still cautious, right? Um, you know, I think the the recovery of the
Consumer while we know it will be out there eventually as as you know housing availability and affordability. Um improves you know we're not seeing a lot of turn on that yet.
That. So, like us people are are planning prudently. Um, but we were incredibly pleased again as a lot of these, these things that we're doing around really understanding the consumer,
we're making sure we're listening to our consumer and our customer and having that playback into
the products that we are offering. Um, and then the selling
Experience. And then the the messaging experience really across all of our all of our businesses. But particularly in our Lazy Boy showroom, we received really positive feedback,
Financials. Um, and a 100-year history and the North America footprints that that drove additional interest.
um, you know, there's also a level of just in in this ongoing somewhat tumultuous Market of of the safety of our, our prudent management of our
And continues to.
A lot of going on during the quarter. Um, you know, we had the holiday period obviously started and you had the kind of election, uh, noise towards the end of it. Um, anything post-election interesting that you've seen
um, clearly
and either orders, um, or commentary from retail, uh, from customers or that that's worth calling out, uh, understands a very short period but just, um, you know, obviously with all the
Noise leading up to the election. Just curious if anything's leveled out and and is returned a little bit more normal or something posted.
Into this next quarter and we're pleased with another solid start, you know, that as we go into the holidays, that's where, you know, that's where things the devil will be in the details on that side of things. And we're super
Yeah, I mean obviously as you said, we're, we're super early.
Super excited about where we're positioned going into the holidays. I still think the consumer is going to be bumping for a while. Certainly you know, for many having the election behind us just
Provides some level of some level of, at least.
You know, to be able to get back on are, um, so I think those are all positive but I don't think anybody's going to going to declare Victory just yet. I think, uh, you know, we will continue to control
knowledge of, of where we are and just less noise in the system, to be able to get, um,
What we can here and and we feel good about that piece of things going into some of the bigger selling seasons.
Okay, and then maybe 1 last 1, you know?
Notable call out, joy board back to break even uh, you guys have owned it now for a, a good bit. Just kind of curious on with it, trending back towards break. Even what you think the game plan is.
For that brand. Um, the opportunity for it um, is it is it, you know, moving to more of accelerated growth type investment phase, or are we kind of still on on the plan?
we, you know, we've been talking about before
Given in a time, when a lot of companies like it are actually shuttering. Um, we we feel pretty good about that, but obviously we still have we still have work to do so we're pleased with
Yeah. You know for joybird to be achieving what it is right now, it's just positive sales Trends and and at least you know, balancing out to that break.
the discipline of of how we're now operating that business we're pleased with the consumer reaction and even as as we strengthen execution across kind of All Phases of
Of joybird, including even what is the brand stand for and what is that messaging to the end consumer? Um, 1 thing, we know for sure is across the stores that we do have those stores are
Creative to our business model. And that's why we are are now actively pursuing a a slow, but back to, um, pursuing expansion for
Joybird stores as we start to look into next year. So, um, you know, again, it'll be prudent, it'll be slow and steady, um, consumers still bumpy and that doesn't
Doesn't make any business easy but but we are a little bit back into more into growth mode now, in joybird.
Order I think as we round out earnings season here, we'll see that you're down 1. Same store. Written looks very good versus a lot of peers. So congrats on that performance. Um, and Bob again, congrats on retirement.
okay, I appreciate the details and uh, congrats on the
and, uh, you know, look forward to staying in touch
Thank you.
Thanks Bobby.
Dinsky with sidonian company.
To tailor and the rest of the Lazy Boy team.
You're next question is from Anthony Li
Good morning, everyone. And likewise Bob best wishes for your upcoming retirement and look forward to working with.
you know, looking at the guidance for for Q3 as as far as that the uh the margin guidance that you provided is that, you know, looking at, you know,
Thanks. So I guess my first. Yeah. So yeah. So I guess some first, I guess in terms of my first question here
that would be the high end of your
2. So is that mostly just just really um what's going on in the case goods business or what what else is driving that
if you were at that high end of your Revenue guidance, it's still implies that the margin would be down from where you reported for
What, what I mentioned in in the prepared remarks. It's the case goes business. The continued, uh, margin compression there, as well as the, the continued transition with, uh, getting DFS.
it's the it's that, uh, and
The speed, we are not we're not nearly at the sales rate that will be within long term. We probably won't hit that until the end of the fourth quarter, uh, because we've got to get into all those stores and get into their
Merchandising rotation, Etc. So it's that's that's the biggest compression from a margin standpoint. Um, that is um, that that we're seeing in in in Q3
versus, uh, versus last year, the the other thing and we I also mentioned that, you know, our our, our Q3 margins are generally always a little bit lower, just because we have
We have so many holidays during that period, where our plants are down. So if you just look a source historically, in non what, I'll call non-destructive years. If we ever had 1 of those probably in 2019,
Um yeah we we would you you'd always see the Q3 it's slightly lower on margin than Q2 just because we don't have the plans running as much, so we're not able to there's it's it's more inefficiency.
System there.
And also um you know, the design piece obviously is a very critical and important piece of your business. Um can you get provide more color on that and and do you
Okay. Thanks and and then you guys have talked a while for for as far as increases in the average ticket and
I think, um, you know, given the industry headwinds that you guys can continue to increase the average ticket.
Yes.
You know, I I always go back to, you know, 5 well yeah, 5 years ago, we had a goal of getting to 4 million.
In the store.
Now, we're looking at 5 million in store, right? And it really comes down to it. It's each 1 of those things. Um it's it's the absolute execution in the store.
Um, and and that was an incredibly aspirational, an an incredibly aspirational, you know, goal. Um, you know, not not
Consumer and make that a really positive selling experience but it also wraps around uh making sure you've got the right product. Making sure you've got the right messaging to get people in.
Um, it's the you know, it it's every measure around. How much we're doing in the way of design. How equipped our sales associates are to really meet the needs of the
To the store and then making sure you can deliver on a timely basis, and our, you know, custom furniture into your home. Uh, you know, in 4 to 6 weeks.
Set of goals, we we find the next 1 and even, you know, to your point on, it is just a tough environment, right now? What is what our sales associates have done,
Um, is compelling for consumers and it's something that you can't get too many places. So I do believe, we still have have room to go there because each time we we achieve 1.
Has taken that.
Slower traffic that we're seeing across the industry and making sure they're using that as an opportunity to really invest in the individual consumer.
Has come in and make sure they get an absolutely outstanding experience.
The way the stores are operating with their sales process with the associate training, Etc, or helping us to deliver those things. But on the flip side, there's on the other side, there's inspiration and we're spending continued.
and and I I just add its think about discipline and inspiration on the discipline side the
Spend money on remodels to make that consumer experience that much better. Um and that and the focus that we have internally on the design and continuing increase that design is those are 2
Things that will ensure that what Melinda just said will will will continue to allow us to grow.
Inventory. It was up 8% from last year. Um so it was a bit higher than what we would have expected. You know what drove that increase, uh, and do you think your inventory is in good shape.
Gotcha. Okay. Yeah, thanks for that. And then um, you know, as far as your
To make sure that when consumers or customers order product from us, we're able to get get that turnaround time, uh, and get it to them as quickly as possible. So we've invested, um, in that
The the inventory increase was a was a planned increase. The we we have been spending a lot of time on ensuring that we have uh the the raw materials that
Our stock levels and our regional distribution centers for in stock product. We've taken that to a little bit higher level going into this season. And and we've done that with the expectation that
This is the busy season. We want to make sure that we're winning with consumers on delivering to them on as fast as possible timing. Um, and then we typically will always see a little bit of a bump up in
For those suppliers.
Q2 and into Q3 just getting ready with uh materials coming in from China uh or Vietnam due to the Chinese New Year and the Tet and in the Tet New Year uh shutdowns.
All right. Well, uh, that makes a lot of sense. Well, thank you again and the best of luck.
Your next question for today is from Brad, Thomas with KeyBank.
First of all, nice quarter, great, great results in a still tough environment for the industry, uh, Bob and Taylor congrats to both of you on New Opportunities.
Hi, good morning everyone. Um,
Thanks Brad. Um,
You just help us think about how how much exposure you might have, how that kind of flows through the business model, how it may impact the p&l. If it
I I, I guess maybe to jump in on a, uh, the the Tariff topic um could could
Call. If we do, start seeing tariffs next year,
That will all play out for us versus our competition. We're we're in a pretty good position given that the vast majority of our consumer base.
yeah, I'll take that 1, you know, obviously a lot of uncertainty right now and and you know how
Us-based and then North American US, Canada. And that the vast majority of our products are manufactured vinyl assembly here.
Um, Net versus competition that puts us in a pretty good spot with some of the tariffs, you know that, you know, expectations that are out there.
Um, you know, certainly, when you get into, we do have operations in in Mexico, we do, um, you know, some of our cut and sew there and so forth and that's an important part of our business.
We have, um, you know, we've managed through tariffs before and as an industry. Those costs are have generally been pretty much passed through to, you know, to the the customer and then the
Relatively well.
Consumer, um, through search charges. And so we've, we've got some experience with that. And I think the key is to stay agile on that. Um, but overall, I think, you know, we're positioned relative
I think of of working with your wholesale Partners. Um, can you just talk a little bit more about how you're thinking about that opportunity? Um, oh, over the next year.
That's helpful. Um, and and Melinda, you know, you all have done a really good job.
In a backdrop where many of your manufacturing competitors or I think really struggling because of volume levels out there right now.
Opportunity for us. And I think, you know, in particular like last quarter you saw, you know, year on year that you know, that that General dealer those retailers that sell multi-brand.
Yeah, it it's definitely an
Um, came on particularly strong year on year and our business. So there's maybe a couple of things at Play 1, the folks that we are already doing business
This with, um, are looking in many cases to expand, you know, their their play with us additional vignettes and so forth. But then also, you know, we really are
Rose some of those and we're looking for, you know, compatible distribution. That's going to help us reach a consumer base that we're not going to reach with our Furniture Galleries, right? Truly
Building those strategic Partnerships and over the last year or 2. We've added added some important new partners. Uh you know, we've talked a lot about Rooms To Go furniture.
That they continue to kind of um, you know, spread the word a lazy boy and keep that top of Mind, regardless, of where the consumer wants to shop.
Truly compatible. Um, and ideally they're they are um, retailers that that advertise a lot. We talked about them being noisy. Um,
Given that we can provide that charity of our sound financial base.
um, but to your, to your very specific point,
s, um, and we saw that this last Market that maybe, you know, we haven't been into for a while where, where folks are are seeing that flight to safety and again, um, you know,
Um and our North America footprint, we are definitely in some additional conversation.
build on that by strong product on Trend high quality, so it's it's not a hard hard hard sell
My cell phone and and, and maybe Bob not to let you off the hook. We'll, we'll try and rope you in here for 1 last question. Um, just as we think about the, the balance sheet and the, and the cash balance, um, you know, you all seem to have some pretty nice momentum. Halfway through your fiscal year to be, you know,
Growing sales and and, and seeing a trough in, in earnings. Um, can you all just talk a little bit about how you think about the appropriate level of cash balance?
you know, to have, uh, you know, going forward,
Longer term. We expect that we've. We've pre preco. We were in the hundred million dollar range on.
Average longer term, we think with the the shift of our business is some more retail business, more customer deposits on the balance sheet that we should probably have somewhere in the the 200 the low 200s.
Uh, range from from millions of dollars of of cash, in the balance sheet. Uh, over time, I expect that as to probably migrate that way. Uh, we are also uh, heavily investing in.
New stores. Uh, we've got other capital projects that we're doing, um, and then we're always looking for opportunities for the furniture gallery Acquisitions. So I expect uh, a combination of spending
On the business and spending on share repurchase uh will be how we Glide past that down, um, to that level over time. Uh, while we continue to generate some pretty healthy.
Operating cash flows, um, year over year.
And thank you so much.
Thanks, Brad.
Thanks.
We have reached the end of the question and answer session and I will now turn a call over to mark for closing remarks.
Thanks Holly Melinda Bob Taylor and I will be in our offices to respond to any follow-up questions. Thanks and have a great day.
This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.