Company Overview and History

La-Z-Boy Incorporated is a global leader in the retail and manufacture of residential furniture, with a rich history spanning over a century. The company's commitment to innovation, quality, and customer-centric strategies has solidified its position as a premier player in the highly competitive furniture industry.

Founded in 1927, La-Z-Boy's origins can be traced back to the invention of the iconic recliner chair by cousins Edward Knabusch and Edwin Shoemaker. This groundbreaking innovation revolutionized the way people experienced comfort in their homes, setting the stage for the company's remarkable growth and expansion over the decades.

Product Portfolio and Business Model

Over the years, La-Z-Boy has significantly expanded its product offerings beyond its initial single product. The company now operates a vertically integrated business model, encompassing manufacturing, wholesale, and retail segments. Its diverse product portfolio includes a wide range of upholstered furniture, such as recliners, sofas, loveseats, chairs, sectionals, modulars, and ottomans, as well as casegoods furniture, including bedroom sets, dining room sets, entertainment centers, and occasional pieces.

Retail Expansion

La-Z-Boy's strategic focus on expanding its retail footprint began in the 1950s with the establishment of the La-Z-Boy Furniture Galleries store network. This move provided a flagship branded retail experience for customers, strengthening the La-Z-Boy brand and creating a dedicated sales channel. The company's retail expansion continued over the years, and it currently operates a network of 362 company-owned and independently owned La-Z-Boy Furniture Galleries stores, as well as 537 La-Z-Boy Comfort Studio locations, providing consumers with a unique and immersive brand experience.

Overcoming Challenges

During the 1970s and 1980s, La-Z-Boy faced challenges from macroeconomic headwinds and increasing competition. However, the company successfully navigated these obstacles by streamlining operations, investing in technological innovations, and further developing its retail footprint. These initiatives helped La-Z-Boy emerge as a stronger and more resilient organization.

Diversification and Growth

In the 1990s and 2000s, La-Z-Boy implemented a diversification strategy by acquiring other furniture brands such as England, Kincaid, and American Drew. This allowed the company to cater to a broader range of customer preferences and expand its presence in the upholstery, casegoods, and e-commerce segments. Despite facing challenges like the 2008 financial crisis, La-Z-Boy continued to enhance its operational efficiency and brand recognition.

Financials

La-Z-Boy's financial performance has been impressive, with the company reporting consistent revenue and profitability growth over the years. In the most recent fiscal year (2024), the company generated $2.05 billion in revenue and $122.63 million in net income, demonstrating its ability to navigate the challenges of the furniture industry.

For the third quarter of fiscal 2025, La-Z-Boy reported revenue of $521.78 million, up 4.3% year-over-year, and net income of $28.43 million. The increase in revenue was driven by strong same-store sales growth in the Retail segment, incremental sales from Retail acquisitions, and higher volume in the Joybird business. The company saw margin expansion in the Wholesale segment due to lower input costs and favorable foreign exchange.

The company's financial ratios further highlight its financial strength and stability. As of the end of fiscal 2024, La-Z-Boy had a current ratio of 1.91, a quick ratio of 1.26, and a debt-to-equity ratio of 0.48, indicating a solid liquidity position and a conservative capital structure. As of the third quarter of fiscal 2025, the current ratio stood at 1.85 and the quick ratio at 1.21.

Liquidity

La-Z-Boy's cash flow generation is also noteworthy, with the company reporting $158.13 million in operating cash flow and $104.58 million in free cash flow in fiscal 2024. This strong cash flow profile allows the company to invest in its growth initiatives, while also returning capital to shareholders through dividends and share repurchases.

As of the third quarter of fiscal 2025, La-Z-Boy had $314.59 million in cash and cash equivalents. The company also maintains a $200 million unsecured revolving credit facility, with no borrowings outstanding as of the third quarter, providing additional financial flexibility.

Acquisition Strategy and Retail Presence

Moreover, the company's acquisition strategy has been instrumental in strengthening its retail presence. In recent years, La-Z-Boy has strategically acquired independently owned La-Z-Boy Furniture Galleries stores, allowing the company to integrate the entire supply chain and capitalize on the benefits of its vertically integrated model.

Manufacturing Capabilities and Innovation

Alongside its retail growth, La-Z-Boy has also been focused on enhancing its product offerings and manufacturing capabilities. The company's North American-based supply chain, which includes five major manufacturing locations and 15 distribution centers, enables it to deliver customized, high-quality products with speed to market.

La-Z-Boy's commitment to innovation is further exemplified by its Joybird brand, an e-commerce retailer of upholstered furniture that the company acquired in 2019. Joybird has been a key component of La-Z-Boy's Century Vision strategy, which aims to drive disproportionate growth of the company's consumer-facing brands and strengthen its enterprise capabilities.

Resilience and Adaptability

Despite the challenges posed by the COVID-19 pandemic, La-Z-Boy has demonstrated its resilience and adaptability. The company has navigated supply chain disruptions, shifting consumer preferences, and macroeconomic uncertainties, emerging as a stronger and more agile organization.

Future Outlook

Looking ahead, La-Z-Boy remains focused on executing its Century Vision strategy, which includes expanding its brand reach, growing its company-owned retail footprint, and enhancing its supply chain and manufacturing capabilities. The company's strong financial position, coupled with its innovative product development and customer-centric approach, position it well to capitalize on the long-term growth opportunities in the furniture industry.

For the fourth quarter of fiscal 2025, La-Z-Boy expects delivered sales to be around $545 million, with a non-GAAP operating margin in the range of 8.5% to 9.5%. The company anticipates growing 2% in the second half of the fiscal year. For the full fiscal year 2025, La-Z-Boy expects its tax rate to be in the range of 25.5% to 26.5% and capital expenditures to be between $70 million and $80 million.

Conclusion

In conclusion, La-Z-Boy Incorporated's rich history, financial strength, and strategic initiatives make it a compelling investment opportunity in the furniture sector. The company's commitment to transforming the consumer experience through comfort, quality, and innovation is a testament to its enduring success and bright future.

Segment Analysis

Wholesale Segment

La-Z-Boy's Wholesale segment is the largest part of the business, consisting of four operating segments: La-Z-Boy, England subsidiary, casegoods (American Drew, Hammary, and Kincaid brands), and international operations. This segment manufactures and imports upholstered furniture and casegoods, selling directly to La-Z-Boy Furniture Galleries stores, La-Z-Boy Comfort Studio locations, England Custom Comfort Center locations, major dealers, and independent retailers.

In the third quarter of fiscal 2025, the Wholesale segment's sales increased by $6.6 million or 2% compared to the prior year period. This growth was driven by a favorable shift in product mix toward higher-priced products, partially offset by the impact of a significant customer transition in the international wholesale business. For the first nine months of fiscal 2025, Wholesale segment sales increased by $23 million or 2%, benefiting from increased sales volume in the core North America La-Z-Boy branded upholstery business, including growth from major wholesale dealers.

The segment's operating margin improved by 10 basis points in the third quarter and 30 basis points in the first nine months of fiscal 2025 compared to the prior year periods. This improvement was driven by an increase in gross margin due to lower input costs from reduced commodity prices and improved sourcing, as well as favorable fluctuations in the Mexican peso. These factors more than offset the impact of higher marketing expenses in the third quarter and a shift in channel mix toward external customers in the first nine months.

Retail Segment

La-Z-Boy's Retail segment consists of 197 company-owned La-Z-Boy Furniture Galleries stores. This segment primarily sells upholstered furniture, along with some casegoods and other home furnishings accessories, directly to end consumers through these stores.

In the third quarter of fiscal 2025, Retail segment sales increased by $23 million or 11% compared to the prior year period. This growth was driven by higher delivered same-store sales as well as $9.2 million in incremental sales from retail store acquisitions completed in fiscal 2024 and 2025. For the first nine months, Retail segment sales increased by $24.4 million or 4%, with the acquired stores contributing $32.1 million, partially offset by a decline in delivered same-store sales.

Written same-store sales, which include the sales of all currently active stores that have been open and company-owned for each comparable period, increased by 7% in the third quarter and 1% in the first nine months of fiscal 2025 compared to the prior year periods. This growth was driven by strong store-level execution and improved traffic trends in the third quarter.

The Retail segment's operating margin decreased by 20 basis points in the third quarter and 150 basis points in the first nine months of fiscal 2025 compared to the prior year periods. This decline was primarily due to an increase in SG&A expenses as a percentage of sales, resulting from higher selling expenses and fixed costs from the acquired stores and retail expansion, in support of the long-term strategy to grow the Retail segment. Gross margin remained relatively flat, with a slight decrease in the third quarter offset by a slight increase in the first nine months.

Corporate and Other

La-Z-Boy's Corporate and Other segment includes shared costs for corporate functions, revenue generated through royalty agreements with companies licensed to use the La-Z-Boy brand name, the company's global trading company in Hong Kong, and Joybird, an e-commerce retailer of upholstered and casegoods furniture.

In the third quarter of fiscal 2025, Corporate and Other sales increased by $2.5 million or 7% compared to the prior year, led by a $3 million increase in Joybird sales driven by higher delivered volume and favorable product mix. For the first nine months, Corporate and Other sales increased by $7 million or 6%, also primarily due to an $8.4 million increase in Joybird sales.

The operating loss in Corporate and Other increased by $0.4 million in the third quarter but decreased by $7.7 million in the first nine months of fiscal 2025 compared to the prior year periods. The third quarter increase was due to lower intercompany operating profit from the global trading company, partially offset by improved Joybird profitability. The first nine-month decrease was driven by Joybird profit improvements and favorable intercompany inventory profit elimination adjustments, partially offset by lower trading company profits.

Industry Trends and Market Position

La-Z-Boy operates primarily in the United States and Canada, with some international presence in the UK, China, Australia, South Korea, and New Zealand. As a relatively small-cap company, the majority of their sales are domestic.

The global furniture market is expected to grow at a compound annual growth rate (CAGR) of 5.25% from 2025 to 2030, reaching $866.59 billion by 2030. This growth is being driven by factors such as urbanization, rising disposable incomes, and commercial construction.

La-Z-Boy's strong brand recognition, vertically integrated business model, and focus on innovation position the company well to capitalize on these favorable long-term trends in the furniture market. The company's Century Vision strategy, which emphasizes brand reach expansion, retail growth, and supply chain enhancement, aligns with the evolving needs of consumers and the changing dynamics of the furniture industry.