This week La-Z-Boy (
NYSE:LZB) announced fiscal third-quarter results that were as solid as its classic furniture. This was, however, overshadowed by the announcement that well-regarded CEO Kurt Darrow is retiring. The unexpected news created an air of uncertainty around the company causing some investors to exit the showroom. While the notion of a new, unproven leader calling the shots at La-Z-Boy is a source of risk, an overdone selloff may soon attract new buyers.
How Did La-Z-Boy Perform in Q3? The headline numbers were largely positive for La-Z-Boy's most recently completed quarter. Revenue of $470.2 million was down a bit year-over-year as expected but surpassed the Street's estimate of $468.4 million. Written same-store sales for the La-Z-Boy Furniture Galleries Network were up 6.3%. Adjusted earnings per share of $0.74 also beat expectations.
With Americans spending more time at home these days, home renovation and home décor have become popular ways to pass time—and spend money. Ordering new furniture to replace weary furniture overworked by our pandemic lifestyles has been one way to spruce up the home.
Elevated consumer demand for home furnishing was reflected in La-Z-Boy's record backlog in Q3. So, why the disconnect between demand and revenue growth? While consumer demand has been sturdy, supply chain challenges tied to COVID-19 led to a slight dip in delivered sales. This included plant absenteeism and shipping delays. La-Z-Boy said it is addressing these issues by adding capacity while also juggling the need to prioritize employee safety.
The company also
offered strong guidance for fourth-quarter sales growth of 34% to 39%. At the midpoint this was 5% more than the analyst consensus pointing to favorable momentum in the business heading into the final quarter of the fiscal year. Management noted a "strong acceleration" in January same-store sales.
Who Will be the new CEO at La-Z-Boy?
Despite the solid Q3 performance and outlook, news of the retirement of President and CEO Kurt Darrow stole the show. Darrow will, however, be staying on as Chairman of the Board which bodes well for company leadership. The news broke the hearts of long-time La-Z-Boy investors who have seen Darrow at the helm for nearly 20 years and with the company since 1979.
When he steps down on April 25th, he will be replaced by current CFO Melinda Whittington. She has been with La-Z-Boy for less than three years and was previously the CFO at health technology company Allscripts Healthcare Solutions, a rather different world from selling couches and end tables.
Whittington does, however, bring 30 years of experience to the position and will start with a clean slate at the start of the next fiscal year. She will be taking over at a favorable time when La-Z-Boy's position as a leader in the $115 billion global residential furniture industry appears to be strengthening amid the pandemic.
Nevertheless, a new CEO and CFO represent change and uncertainty to the market because there are big shoes to fill—and as we know, the market doesn't like uncertainty.
Will La-Z-Boy Stock Bounce Back?
La-Z-Boy stock was trading near an all-time heading into earnings but fell below its 50-day moving average on February 17th in twice the average daily trading volume. This is a bearish signal, so investors will be looking to see if the stock still has support at its longer 200-day moving average.
It will likely get that support as the market comes to terms with La-Z-Boy's strong fourth-quarter outlook, the potential for supply chain improvements, and opportunities to capitalize on a high-demand environment. Looking beyond the near-term, La-Z-Boy has opportunities for organic growth through product innovation and e-commerce expansion as well as inorganic growth in an industry that remains fragmented.
Thus far only one sell-side firm has chimed in on La-Z-Boy since this week's developments that being Raymond James who didn't hesitate to reiterate its 'buy' rating.
Investors should also feel comfortable about La-Z-Boy's shareholder friendly stance. The company has an active stock buyback program and recently increased its dividend. With a cash position that more than doubled year-over-year in the third quarter to $393 million, La-Z-Boy is in good shape to further reward shareholders.
So, while the market was understandably a bit shellshocked by the retirement of a longtime CEO, La-Z-Boy remains in good financial health and will likely be in good hands with its new CEO and Darrow as Chairman. New leadership or not, it's hard to bet against a company whose biggest problem at the moment is keeping up with customer demand.
As the market digests the leadership shakeup, La-Z-Boy's stock price may recline and take a nap for a while. But eventually, it will wake up and resume its march higher.
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