La-Z-Boy signals largest retail acquisition and $90M-$100M capex plan while navigating consumer headwinds

Earnings Call Insights: La-Z-Boy Incorporated (LZB) Q1 2026

MANAGEMENT VIEW

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Melinda D. Whittington, President, CEO & Board Chair, highlighted that "we delivered sales growth in both our Retail and Wholesale segments as well as margin expansion in Wholesale, and we accomplished significant Century Vision' strategic milestones even despite continued industry headwinds." She announced the opening of 2 new company-owned La-Z-Boy Furniture Galleries during the quarter and the upcoming acquisition of a 15-store network in the Southeast, "expected to close late in October and will be the largest independent La-Z-Boy Furniture Galleries acquisition in our company's history." Whittington also reported the successful transition to the new Arizona distribution center, the first of three centralized hubs in a multi-year transformation, and emphasized a strong balance sheet with $319 million in cash and no external debt.

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Taylor E. Luebke, Senior VP & CFO, stated, "On a consolidated basis, fiscal 2026 first quarter sales decreased 1% to $492 million versus the prior year as growth in Retail and Wholesale segments was offset by a decline in Joybird sales." He added, "Consolidated GAAP operating income was $22 million and adjusted operating income was $23 million. Consolidated GAAP operating margin was 4.5%, and adjusted operating margin was 4.8%." Luebke described strong operating cash flow of $36 million and noted, "We invested $18 million in capital expenditures during the quarter, primarily related to La-Z-Boy Furniture Galleries new stores and remodels and manufacturing-related investments."

OUTLOOK

* Luebke provided guidance for fiscal second quarter sales to be in the range of $510 million to $530 million and adjusted operating margin to be in the range of 4.5% to 6%. He reiterated, "We will continue to invest in our Century Vision growth strategy and expect to open approximately 15 new company-owned and independent La-Z-Boy Furniture Galleries stores during the year, of which the majority are company-owned as well as 3 to 4 new Joybird stores." Capital expenditures for fiscal 2026 are expected to be in the range of $90 million to $100 million.

FINANCIAL RESULTS

* Consolidated sales for the quarter were $492 million. Retail segment delivered sales reached $207 million, up 2% over the prior year's first quarter, while Retail adjusted operating margin was 6.3%. Wholesale segment delivered sales increased 1% to $353 million, with adjusted operating margin at 7.5%. Joybird delivered sales were $28 million, down 20% versus the prior year quarter. Diluted earnings per share totaled $0.44 on a GAAP basis and $0.47 on an adjusted basis. The company ended the quarter with $319 million in cash and no externally funded debt. $22 million was returned to shareholders through dividends and share repurchases during the quarter.

Q&A

* Taylor Zick, KeyBanc Capital Markets: Asked about sequential improvement in trends and early August performance. Whittington responded, "We definitely saw some sequential traffic improvement through our first quarter, and that has continued into early August. It's step by step, and we're managing prudently through that. Too early to call that a trend."
* Zick inquired about margin performance and the ramp of new stores. Luebke explained, "On a kind of a cadence of a new store, we see in year 1, they are a drag on profitability with improvement into year 2 and kind of like a going rate into year 3 of a neutral to accretive margin to the segment."
* Zick questioned Wholesale customer sentiment amid tariff uncertainty. Whittington stated, "There's a level of hesitancy just around where the consumer is going to go... the vast majority of our product is manufactured here in North America, so we're not as impacted by tariffs. That plays well for us."
* Anthony Lebiedzinski, Sidoti: Asked about geographic differences in traffic and sales. Whittington replied, "No big differences... on the Canada side of things, with the 25% retaliatory tariff... business is holding steady but down on units and offset by pricing but around the U.S., no big geographic shifts."
* Lebiedzinski sought clarity on evaluating alternatives for non-core businesses. Whittington explained focus remains on La-Z-Boy brand and direct-to-consumer growth, while non-core Casegoods and international businesses are being evaluated for performance improvement and options.
* Lebiedzinski asked about the pace of new store openings and distribution transformation amid choppy demand. Whittington affirmed commitment to the current timeline, stating, "we are committed to our strategy."
* Robert Kenneth Griffin, Raymond James: Queried about written business cadence and margin outcomes. Whittington noted, "we have seen a bit of improvement in traffic trends that played broadly into written. We haven't... seen that come through quite as significantly as we would have expected."

SENTIMENT ANALYSIS

* Analysts expressed cautious optimism, pressing for clarity on consumer trends, margin pressure, and ramp-up periods for new stores. The tone was slightly negative but inquisitive, reflecting concern over persistent consumer headwinds and margin compression.
* Management maintained a cautiously optimistic tone in prepared remarks, highlighting strategic progress and a strong balance sheet. In Q&A, management became more defensive and prudent, underscoring the challenges of the consumer environment and the impact on margins and sales trends. Whittington stated, "we're navigating prudently as we go forward."
* Compared to the previous quarter, management's sentiment has shifted more defensive, with greater emphasis on prudence and near-term operational adjustments. Analyst tone remains probing, with a slightly increased focus on risks and performance variability.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for operating margin was lowered versus the previous quarter, with Q1 adjusted margin at 4.8% compared to prior guidance of 5.5% to 7%. Retail delivered sales grew 2% in Q1 versus 8% in Q4, and Joybird sales fell 20% in Q1 from a 2% decline in Q4.
* Strategic focus intensified on retail expansion, highlighted by the planned 15-store acquisition, compared to 11 new stores and 7 acquisitions in the prior year.
* Analysts increased their focus on sequential trends, margin pressures, and caution around new store productivity, while management reiterated commitment to Century Vision but signaled more near-term caution.

RISKS AND CONCERNS

* Management cited continued industry headwinds and a "challenged consumer and macroeconomic environment" as key risks, affecting store traffic and same-store sales.
* The company is actively evaluating alternatives for non-core businesses, particularly Casegoods and international wholesale, due to ongoing financial pressure.
* Margin pressure from new store openings and fixed cost de-leverage was identified, with Luebke noting "the biggest and largest impact at least quarter 1, was traffic and the consumer being a little bit more challenged than expected."
* Analysts expressed concern over the impact of tariffs, pace of new store expansion, and the cadence of written sales trends amid volatility.

FINAL TAKEAWAY

La-Z-Boy Incorporated emphasized its confidence in long-term growth through strategic retail expansion, including the largest store acquisition in company history, and continued investment in supply chain transformation and new stores. Management highlighted prudent navigation of ongoing consumer and industry headwinds, robust cash flow, and a strong balance sheet as pillars for long-term value creation, while acknowledging near-term margin compression and persistent volatility in consumer demand.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/lzb/earnings/transcripts]

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