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La-Z-Boy (LZB +18%) is trading sharply higher after wrapping up FY24 on a strong note. The furniture company reported a hefty EPS beat for Q4 (Apr), its largest beat of the fiscal year. Revenue dipped 1.4% yr/yr to $553.5 mln, but that also was much better than expected. The furniture industry is going through a rough time right now. Consumers are not spending as much on discretionary items, like furniture, and higher interest rates make purchases more expensive.

• More importantly, housing turnover is a major catalyst to spur consumers to buy new furniture. However, higher rates are causing homeowners to stay in their current home so as not to relinquish their low mortgage rates. As a result, slow housing turnover is dampening demand. LZB says that higher-for-longer interest rates and housing turnover near 30-year lows is negatively impacting store traffic.
• Longer term, LZB is confident that its industry is structurally well-positioned to return to growth due to the significant housing shortage. Supply has not kept up with population growth, with industry estimates of a 2-6 mln housing unit shortage. LZB believes that, as soon as interest rates start moving lower and housing turnover starts to increase, it will see industry growth resume and potentially accelerate to make up some of the current shortfall.
• Specifically to Q4, LZB's written sales again outperformed the industry with Q4 total written sales for the Retail (company-owned La-Z-Boy Furniture Galleries) segment up 1% yr/yr, and written same-store sales down -5%. Trends were strongest in the first half of the quarter around key holiday events and a recovery from January weather events. However, furniture and home furnishings spending remains depressed with overall traffic trends challenged and housing activity down.
• LZB says its execution is the strongest it has ever been, including conversion rates at all-time highs and average ticket and design sales trending up for the year. LZB expects industry fundamentals to remain volatile for the near term, but remains confident in its ability to outperform the market and gain share longer term. Looking ahead to Q1 (Jul), LZB says it's off to a good start and it's encouraged by solid Memorial Day results.
• LZB's history has been as a manufacturer primarily serving North America. However, in recent years, it has been shifting more focus from wholesale to its own retail stores. Its direct-to-consumer business through Retail and its recent Joybird acquisition (focused on online sales) now represents about half of sales. This is important because DTC sales are higher margin. With that said, LZB still saw a 40 bps yr/yr decline in Q4 non-GAAP operating margin to 9.4%.

Overall, investors clearly like what they saw in La-Z-Boy's Q4 report. The furniture industry is difficult right now, mainly because people are not moving as much and therefore not buying new furniture. However, LZB more than held its own this quarter and performed much better than expected. Also, while the near term outlook appears muted, LZB is confident than when rates decline, there could be some nice pent up demand. Also, LZB's balance sheet is solid as it ended Q4 with $341 mln in cash, or $7.94 per share, with no external debt.