La-Z-Boy (LZB) Fell 16% After Hours. Is Retail Growth Hiding a Wholesale Problem?

La-Z-Boy Incorporated (NYSE:LZB) saw its stock price drop by about 16% in after-hours trading following the release of its fiscal first-quarter results. The company's sales in its retail business grew by 10%, and same-store sales increased by 3%, while overall consolidated sales declined by 3% to $475.7 million. Adjusted operating margin for the quarter narrowed to 3.9% from 4.8%.

Management expressed cautiousness about the fiscal second-quarter outlook, predicting sales between $500 million and $520 million, below expectations of roughly $537 million, and an adjusted operating margin range of 4.0% to 5.5%. The reaction from investors suggests that retail growth may not be sufficient to drive the broader business.

The company reported adjusted diluted earnings of $0.43 per share, down from $0.47 a year earlier. Adjusted operating income dropped 20% to $18.7 million, indicating that the decline was not limited to revenue but also affected operating income. Wholesale sales fell by 9% to $322.9 million, remaining down 5% even when excluding the divested casegoods business.

Joybird's sales declined 4%, with written sales dropping by 17%. Despite the challenges, La-Z-Boy's retail strategy appears to be generating measurable growth. The company added four company-owned stores during the quarter, bringing the total to 234. Management anticipates that investments in new stores, advertising, and digital transformation will put pressure on second-quarter margins.