La-Z-Boy shares suffered their steepest decline in 4.5 years on Wednesday after the furniture maker's second-quarter guidance missed expectations, providing even more evidence that weak housing turnover has suppressed demand for big-ticket discretionary goods such as sofas and recliners. With mortgage rates elevated and home prices near record levels, affordability remains severely stretched, keeping transaction volumes depressed, thus limiting replacement purchases that typically drive furniture demand.
La-Z-Boy forecasted second-quarter sales of $475.7 million, down 3% from a year earlier and well below the $537 million average analyst estimate tracked by Bloomberg. It forecast an adjusted operating margin of 3.9% to 4.8% and a reported operating margin ranging from negative .4% to 4.5%.
KeyBanc Capital Markets analyst Bradley Thomas said the company issued sales and implied earnings guidance below consensus, pressured partly by continued investment.
The soft guidance followed a weaker-than-expected first quarter. Adjusted earnings came in at 43 cents a share, compared with 47 cents one year ago and below the 49-cent analyst estimate. On a reported basis, La-Z-Boy lost 6 cents a share, compared with earnings of 44 cents a year earlier.
Sofas and recliners are considered highly deferrable purchases - non-essential goods. The stock's 14% plunge suggests investors view the dismal evidence as further evidence that households are delaying discretionary spending and that the trend will persist, with the 30-year fixed mortgage rate remaining around 6.7%.
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