La-Z-Boy Incorporated (LZB) Earnings

Management highlights

- Overall Fiscal 2026 Performance * Delivered a strong finish to the fiscal year, meeting performance expectations despite uneven macroeconomic and industry conditions. * Generated $204 million in operating cash flow, up 9% year-over-year; maintained a strong balance sheet with $303 million in cash and no external debt. * Returned $85 million to shareholders via share repurchases and dividends, marking the fifth consecutive year of 10% quarterly dividend increases. - Retail Expansion Strategy * Achieved a company record 15 net new company-owned La-Z-Boy stores in fiscal 2026, completed the largest ever 15-store independent La-Z-Boy acquisition, and ended the year with 230 company-owned stores (61% of the total 380-store North American La-Z-Boy network). * Identifies long-term runway to expand the total La-Z-Boy footprint to 450 locations, primarily via company-owned store growth; a new 3-store independent acquisition in Florida/Alabama is expected to close at the end of June. * Fourth quarter company-owned retail written sales increased 11% year-over-year; same-store sales (excluding new/acquired stores) decreased 2%, a sequential improvement from Q3, with positive comparable sales in April and continued positive trends in May including the Memorial Day holiday. The overall furniture market declined 3-4% in the quarter per U.S. Census data. - Century Vision Strategic Progress * Century Vision is the company's long-term strategy to grow sales and market share at twice the industry rate and sustainably expand operating margin beyond the 2027 centennial anniversary. * Won multiple industry awards for 2025 brand redesign, including Ad Age's top 5 rebrands and a Shorty Awards gold win for brand redesign; named to USA Today's 2026 America's Best Stores list, highlighting strong brand relevance and in-store execution. * Launched two new product lines at High Point Market: AudioLuxe, a premium integrated audio furniture line in partnership with Klipsch launching in fall 2026, and Comfort Essentials, an opening price point stationary collection for value-focused younger consumers. * Grew wholesale dealer partnerships, adding 30 new dealers and 100 new points of sale including a new partnership with Living Spaces; ended the year with nearly 1,400 La-Z-Boy Comfort Studio and Branded Space locations at independent retailers. - Joybird Business Updates * Joybird is a complementary DTC upholstery brand that fits the company's core strategy; fourth quarter total written sales increased 2% year-over-year driven by new stores. * Opened 3 new Joybird stores in fiscal 2026 (ending at 16 dedicated locations) and plans 3-4 new stores in fiscal 2027; launched a well-received Joybird wholesale program with select strategic partners to expand brand reach efficiently. * A $20 million goodwill impairment was recorded reflecting near-term macro impacts on Joybird's price-sensitive core consumer; the company remains committed to disciplined long-term investment in the brand. - Supply Chain and Operational Optimization * 90% of upholstered products are manufactured in the U.S., a competitive advantage that enables 4-6 week delivery for customized products and reduces tariff exposure. * Completed the western phase of the multi-year distribution and home delivery transformation project with the new Arizona centralized hub; the Midwest and eastern phases are on track. The full transformation will reduce distribution center square footage by 30% and delivery mileage by 20%, improving consumer experience and wholesale margins. * Completed U.K. supply chain restructuring and sold the American Drew and Kincaid wholesale case goods businesses in May 2026, exiting non-core portfolio assets. * Initiated consolidation of two small U.S. upholstery plants into the larger existing plant network, including fully consolidating Joybird manufacturing into existing La-Z-Boy plants in fiscal 2027 to improve efficiency; all transitions are expected to be completed by the end of fiscal 2027. - Capital Allocation * Maintains a target of reinvesting 50% of operating cash flow back into the business and returning 50% to shareholders via dividends and share repurchases. * The board approved a new $300 million share repurchase program, replacing the prior program, representing ~20% of outstanding shares.

Guidance

- Fiscal 2027 first quarter (seasonally the lowest sales/margin quarter of the year): Expect sales of $490 million-$510 million, representing organic growth of up to 4% (excluding acquisitions and divestitures), with adjusted operating margin in the range of 4%-5.5%. - Full fiscal 2027 comparability will be impacted by the full-year absence of the divested case goods business (which generated ~$60 million in annual sales in fiscal 2026) and the half-year impact of the 15-store retail acquisition completed in October 2026. - Expects to open approximately 10 new La-Z-Boy stores (most company-owned) and 3-4 new Joybird stores in fiscal 2027. - Expects full-year capital expenditures to range from $90 million-$110 million, focused on the distribution transformation project, manufacturing improvements, and new/remodeled retail stores. - Maintains long-term strategic objectives: grow core organic sales, outperform the furniture industry by 2x, and achieve sustainable double-digit operating margins. - Expects a normalized effective income tax rate of 26%-27% going forward.

Segment performance

For the fiscal 2026 fourth quarter (ended April): 1. **Retail Segment**: Delivered sales increased 9% year-over-year to $270 million, contributing 47.4% of total consolidated sales. Adjusted operating margin strengthened to 13.9% from 13.1% in the prior year, driven by the positive impact of acquisitions. 2. **Wholesale Segment**: Delivered sales decreased 2% year-over-year to $393 million, contributing 68.9% of total consolidated sales. Adjusted operating margin increased to 10.1% from 8.5% in the prior year, driven primarily by 150 basis points of improvement from the case goods business due to favorable pre-divestiture inventory adjustments and pricing. 3. **Corporate and Other (includes Joybird)**: Delivered sales were $32 million, down 10% year-over-year due to lower delivered sales volume, contributing 5.6% of total consolidated sales. Adjusted operating loss increased year-over-year, driven by expense deleverage on lower Joybird sales. A $20 million non-cash goodwill impairment charge was recorded for Joybird on a GAAP basis. For full fiscal 2026: - Total consolidated delivered sales were $2.1 billion, up year-over-year. - Retail Segment delivered sales increased 6% year-over-year. - Wholesale Segment delivered sales were flat year-over-year, with strengthened adjusted operating margin.

Risks & headwinds

- Overall consumer demand and sentiment remain choppy, with continued softness in the overall furniture and home furnishings industry; the timing of a return to normalized industry growth and a rebound in housing fundamentals is uncertain. - Joybird's core price-sensitive consumer has been disproportionately impacted by current economic weakness, leading to lower sales volume, operating deleverage, and a $20 million goodwill impairment. - Recent inflationary pressure on input costs (particularly poly/foam linked to petroleum prices) has created near-term margin pressure, which the company is absorbing in the first quarter of fiscal 2027. - The multi-year distribution and home delivery transformation generates ongoing near-term friction costs that act as a headwind to margins during the implementation phase. - Geopolitical and trade policy changes create tariff uncertainty, though the company's high U.S. manufacturing content limits this exposure relative to peers.

Analyst Q&A

• Q: What is driving the recent positive sales momentum in April and May, and what trends have been seen so far in June? /

  A: Management attributes the recent strength to consistent in-store execution, right-sized product assortment including new accessible price points for entry-level consumers, and strong performance of higher-ticket design products against a backdrop of ongoing choppy consumer behavior. June is still early, with the July 4th tentpole selling event upcoming, and the company plans to maintain its focus on driving momentum amid continued market uncertainty.

• Q: After backing out the non-recurring pre-divestiture margin benefit from the case goods business, what drove year-over-year core margin pressure in Q4, and when will friction costs from the distribution transformation subside? /

  A: Core margin pressure came from three existing, well-telegraphed factors: ongoing friction costs from the multi-year distribution transformation, fixed cost deleverage from still negative same-store sales, and deleverage from lower Joybird delivered sales. The transformation is a four-year project: year 1 (western hub) is complete, year 2 (Midwest/eastern hubs) will see similar friction costs to year 1, results will turn breakeven-positive in year 3, and the full 50-75 basis point margin benefit will be realized in year 4 when the project completes.

• Q: What is the strategic rationale for continuing to open new Joybird stores amid weak written sales, and what impact do new stores have? /

  A: Joybird is a strong strategic fit for the company's portfolio with existing high consumer awareness, and new Joybird stores are almost immediately accretive to the overall brand portfolio. The company is consolidating Joybird manufacturing into existing La-Z-Boy U.S. plants in fiscal 2027 to right-size support operations and improve agility for the current choppy environment, while expanding into efficient wholesale partnerships to reach markets that do not yet warrant a standalone store.

• Q: What has early performance looked like for the new Joybird wholesale partnership initiative, and what is the long-term opportunity? /

  A: The initiative is complementary to Joybird's core retail growth, focused on expanding brand reach to markets that do not currently support a standalone store with carefully selected partners that align with the brand's positioning. It is a metered, learning-focused rollout, and early consumer demand has exceeded the company's planned pace of expansion, with positive feedback from partner retailers.