Free Newsletter
MONROE, Mich. – La-Z-Boy’s announcement Tuesday afternoon of stronger-than-expected earnings per share for its fiscal 2020 first quarter gave a boost to the company’s stock.
In a spotty three months for furniture retailing, La-Z-Boy’s branded stores recorded good same-store growth, while the wholesale business was flat in upholstery and down single-digits for case goods. A conference call with analysts on Wednesday offered some insights into La-Z-Boy’s performance and where it’s heading.
Same-store performance
Traffic, close rates and average tickets are trending up at La-Z-Boy Furniture Gallery stores, and that drove a 4.7% same-store sales increase in the first-quarter, 3.5% in corporate-owned stores. Another key is in-home design services, which Darrow said accounted for 30% of retail segment sales.
“We’re doing more in-home design. We’re selling more room packages, and that is driving the ticket,” he said during the call. “And with less customers coming into stores nationally over the past few years, conversion has been a big focus of ours to be sure we maximize the share of wallet of every customer that comes through the doors.”
A bigger store base?
That sort of execution at retail has Darrow optimistic about brick and mortar. The retail network currently includes 352 La-Z-Boy Furniture Gallery stores, 155 company-owned.
“I believe that we still feel we have the opportunity to grow the store base to eventually 400 stores someday,” Darrow said, noting the network has experienced same-store sales growth in seven of the past eight quarters. “Our dealers are investing in remodeling their stores, opening new stores. … It’s no guarantee what’s happening today is going to continue into future. But if you don’t invest in your stores, if you don’t update them, if you don’t have compelling product or a message, it’s going to be tougher and tougher for you to perform well.”
While Darrow doesn’t believe retail is going away, “We think perhaps some inefficient or bad retail probably will. … It could be different in 10 years, but our consumer today continues to tell us she likes to shop in our stores.”
Ahead of the game
La-Z-Boy’s own store performance is ahead of that of many furniture retailers. First-quarter upholstery sales to external retail customers of $203.8 million were off 3.8% from the prior-year period. Sales were down at England, for example, which does not sell to La-Z-Boy stores.
Darrow noted, “Our wholesale business is not as strong as we’d like it to be right now. But I think it’s reflective of a lot of the general trade that is having a little more difficult time. And it reflects in England’s number because that’s who their main customer” is.
Bullish on brand
La-Z-Boy is on track to launch an advertising campaign featuring new brand ambassador Kristin Bell.
“While early in the process, market research reveals that once customers have seen the campaign, they are more interested in and more likely to consider La-Z-Boy,” Darrow said. “Additionally, the research highlights an uptick in those indicating the La-Z-Boy brand is relevant to them and fits their style.”
Along with an increased marketing spend in the first quarter, La-Z-Boy launched an augmented reality app for Apple mobile devices that Darrow said aims “to deepen engagement with consumers as usage of the mobile channel increases in popularity. And we are also testing a virtual reality experience as part of the design program in select stores to better help consumers visualize the potential for their various rooms.”
Innovation
Darrow said a wireless hand remote option for power motion furniture introduced in April has gained beyond-expected retail placements, and consumers are responding well to the company’s eco-friendly “conserve” fabric, which has at least 30% content of recycled plastic bottles spun into yarn.
“And our previously launched iClean stain-resistant fabrics are pacing at almost 25% of our total unit sales,” Darrow said. “These are great examples of our team working to bring innovative products to the market while addressing a customer need and preferences.”
Tariff talk
During the call, Darrow addressed tariffs “because it seems that we can’t have a quarter without a word on tariffs.”
Canadian business already is rebounding after a 10% retaliatory tariff on finished goods going into Canada was lifted in May. China tariffs aren’t as much of an issue as they might be.
“As discussed in prior quarters, this (China) tariff impacts several items we source, including most of our cover for our upholstered product,” Darrow said. “As a reminder, for La-Z-Boy, approximately two-thirds of our cover is converted into cut-and-sew kits in our Mexican-based facility and is therefore not subject to the Chinese tariff, leaving just one-third of the kits subject to the tariff.”
He added that La-Z-Boy’s supply chain strategy has limited its pass-through charge to customers to around 3.5% on non-powered upholstery and about 4% on powered products.
“Thus far, although it’s still fairly early, we have not seen any material impact to demand elasticity,” Darrow said, noting that a 10% tariff on some products effective in September includes a small amount of imported components, “and we do not expect a material impact from this new tariff.”
Most of La-Z-Boy’s imported case goods are sourced in Vietnam, though some occasional tables from China are subject to the 25% tariff. All the noise around tariffs, however, is having an effect.
“As mentioned earlier, we are seeing a dampening of demand for case goods across the industry as a result of tariff rhetoric in the marketplace and its effect on the consumers’ inclination to purchase bedroom and dining room furniture,” Darrow said.
