Furniture company La-Z-Boy (NYSE:LZB) announced better-than-expected results in Q2 CY2024, with revenue up 2.9% year on year to $495.5 million. On the other hand, next quarter’s revenue guidance of $505 million was less impressive, coming in 2.5% below analysts’ estimates. Its non-GAAP profit of $0.62 per share was flat year on year.
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La-Z-Boy (LZB) Q2 CY2024 Highlights:
- Revenue: $495.5 million vs analyst estimates of $482.2 million (2.8% beat)
- EPS (non-GAAP): $0.62 vs analyst estimates of $0.60 (2.8% beat)
- Revenue Guidance for Q3 CY2024 is $505 million at the midpoint, below analyst estimates of $518.2 million
- Gross Margin (GAAP): 43.1%, in line with the same quarter last year
- EBITDA Margin: 9%, in line with the same quarter last year
- Free Cash Flow Margin: 7.4%, up from 2.6% in the same quarter last year
- Market Capitalization: $1.80 billion
Melinda D. Whittington, President and Chief Executive Officer of La-Z-Boy Incorporated, said, “We continue to deliver positive results amidst a challenging macroeconomic backdrop. We were pleased to return to delivered sales growth in the quarter, led by our Wholesale segment, which benefited from higher delivered volume supported by Century Vision's channel expansion strategy. While the Retail business currently continues to wrestle with depressed traffic trends experienced across our industry, we again delivered strong execution. Conversion rates and design average ticket sales both improved again year-over-year and our in-store teams remain laser focused on providing the highest level of customer service and showcasing our industry leading product assortment. Over the past five years, our Retail business has grown at an impressive 7% compound annual sales growth. Our high quality offering of comfortable, custom furniture with quick delivery is resonating in a challenging marketplace. And while we expect industry fundamentals to be volatile for the foreseeable future, we remain confident in our ability to outperform the market and gain share longer term.”
The prized possession of every mancave, La-Z-Boy (NYSE:LZB) is a furniture company specializing in recliners, sofas, and seats.
Home Furnishings
A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Over the last five years, La-Z-Boy grew its sales at a weak 3% compounded annual growth rate. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. La-Z-Boy’s history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 8% annually.
We can better understand the company’s revenue dynamics by analyzing its most important segments, Wholesale and Retail, which are 63.4% and 36.6% of core revenues. Over the last two years, La-Z-Boy’s Wholesale revenue (sales to retailers) averaged 9.5% year-on-year declines. On the other hand, its Retail revenue (direct sales to consumers) averaged 1.1% growth.
This quarter, La-Z-Boy reported reasonable year-on-year revenue growth of 2.9%, and its $495.5 million of revenue topped Wall Street’s estimates by 2.8%. The company is guiding for a 1.3% year-on-year revenue decline next quarter to $505 million, an improvement from the 16.3% year-on-year decrease it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 2.2% over the next 12 months.
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Cash Is King
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
La-Z-Boy has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.2%, subpar for a consumer discretionary business.
La-Z-Boy’s free cash flow clocked in at $36.7 million in Q2, equivalent to a 7.4% margin. This quarter’s result was good as its margin was 4.8 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts’ consensus estimates show they’re expecting La-Z-Boy’s free cash flow margin of 6.3% for the last 12 months to remain the same.
Key Takeaways from La-Z-Boy’s Q2 Results
It was good to see La-Z-Boy beat analysts’ revenue expectations this quarter. On the other hand, its revenue guidance for next quarter came in slightly below Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.3% to $40.50 immediately following the results.
So should you invest in La-Z-Boy right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.