Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Consolidated delivered sales increased by 3% year-over-year to $496 million.
- Wholesale segment sales grew by 5%, driven by higher delivered volume to external customers.
- Non-GAAP operating margin stood at 6.6%, with non-GAAP EPS at $0.62.
- Strong operating cash flow of $52 million, double the prior year's figure.
- Returned $42 million to shareholders through share repurchases and dividends, maintaining a strong balance sheet with $342 million in cash and no external debt.
Negative Points
- Retail segment delivered sales decreased by 3% due to lower delivered sales and fixed cost increases.
- Written same-store sales for the company-owned retail segment declined by 3% year-over-year.
- Non-GAAP operating margin for the retail segment decreased to 10.3% from 14.1% in the prior year.
- Joybird delivered sales decreased by 3% year-over-year.
- The company anticipates continued challenging macroeconomic conditions for the remainder of the fiscal year, potentially impacting future performance.
Q & A Highlights
Q: Can you provide insights on traffic trends at retail during the quarter and into August? Did you see any notable differences in monthly traffic trends or improved demand during the holiday promotional period?
A: Traffic remains challenged broadly, with stronger trends around major holidays like Memorial Day. July saw more challenged traffic trends, which is consistent across the industry. Conversion rates in stores remain strong once customers are in the door.
Q: How is the restructuring process progressing, particularly regarding margin improvements in the wholesale segment?
A: Progress is being made towards the 50 to 60 basis points improvement in wholesale margins, though there have been some delays in Mexico. The full improvement is expected by the end of the fiscal year, with gradual progress from Q2 to Q4.
Q: Have your advertising plans changed given the current demand backdrop?
A: Advertising plans are continuously optimized. While the "Long Live The Lazy" campaign remains strong, spending is adjusted based on consumer behavior and market conditions to ensure effectiveness.
Q: What are you seeing in terms of competition within the space, particularly regarding pricing and promotions?
A: The market remains fragmented, and recent disruptions have led to some competitors exiting. This presents an opportunity for La-Z-Boy to gain market share. Pricing remains stable despite higher input costs, with some competitors even raising prices due to increased container rates.
Q: How should we think about retail margins as we move throughout the year and longer-term?
A: Retail margins are expected to improve gradually, with the highest margins typically seen in Q3 and Q4. Long-term, the goal is to achieve mid-teens margins as the industry recovers and positive same-store comps return.
Q: Can you unpack the 8% increase in sales to external customers within the wholesale segment?
A: The increase is driven by the return of external customers to normal order rates and the addition of new customers like Rooms To Go. Strategic partnerships and improved execution in branded spaces also contributed to the growth.
Q: What is driving the wholesale channel's sales pickup, and can you quantify the impact of new versus existing customers?
A: The growth is due to new customers and the return of existing customers to normal order rates. Specific quantification is not provided, but both factors significantly contribute to the increase.
Q: Is there a target number of Comfort Studio locations as part of your Century Vision strategy?
A: There is no specific target number. The focus is on the right execution and balancing opportunities between Comfort Studios and Furniture Galleries to best serve consumers.
Q: Are you seeing benefits from the 30% off Labor Day promotion on your website?
A: It is too early to comment on the Labor Day promotion's effectiveness. The 30% off call to action is consistent with past promotions, and the duration of promotions is being experimented with to drive top-of-mind awareness.
Q: Have you implemented ocean freight surcharges to offset higher container rates in the case goods segment?
A: Yes, surcharges have been implemented on new orders. However, due to operating on a LIFO basis, there will be a temporary mismatch between costs and the impact of surcharges on the bottom line.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
