The Ratings Game: La-Z-Boy stock enjoys best day in more than a year afte…

The Ratings Game: La-Z-Boy stock enjoys best day in more than a year afte…

La-Z-Boy stock enjoys best day in more than a year after earnings beat

Shares of La-Z-Boy Inc. surged the most in more than a year Wednesday, after the maker of the iconic recliner blew past earnings estimates for its fiscal first quarter.

La-Z-Boy LZB, +11.48% said it earned $18 million, or 39 cents a share, in the quarter, compared with $48 million, or 24 cents a share, in the year-ago period. Sales rose nearly 8% to $384.7 million and retail same-store sales turned positive after several weak quarters. Analysts polled by FactSet had expected La-Z-Boy to report earnings of 25 cents a share on sales of $368 million for the quarter. Shares jumped more than 14% in Wednesday trade.

Chief Executive Kurt Darrow said the company closed two acquisitions just after the quarter end, of e-commerce furniture seller Joybird, which is popular with millennials, and nine Arizona L-Z-Boy Furniture galleries, which include four of the highest sales volume locations in the 351-store network.

The two deals are expected to add about $80 million to fiscal 2019 revenue and to slightly boost earnings, excluding purchase accounting charges.

“Importantly, the Joybird acquisition will help La-Z-Boy expand its e-commerce capabilities (less than 5% of total sales) and attraction to a younger customer base, a demographic that it underpenetrated, historically,” Raymond James analyst Budd Bugatch wrote in a note.

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Also: Online retailer Wayfair thinks this home furnishing is a ‘multibillion-dollar market’

Related: This is the one retail category that doesn’t have too many stores

On a conference call with analysts, Darrow said the company is pleased with how its three-prong e-commerce strategy is progressing. That strategy includes selling more products through the La-Z-Boy.com, Wayfair Inc. W, +2.22% and Amazon.com Inc. AMZN, +0.92% ; leveraging the supply chain to support other e-commerce brands; and investing in early-stage furniture brands that sell directly to consumers, the fastest-growing segment of the furniture market.

“Joybird will provide us with a greater presence online and allow us to more easily and effectively reach millennial and Gen X consumers who often prefer the mid-century modern product and styling that Joybird offers and the ability to shop through the online channel,” he told analysts, according to a FactSet transcript.

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Joybird was set up by four individuals in 2014 and has grown to $55 million of annual sales in just four years, he said.

Still, the company is concerned about the threat posed by the tariffs and other trade tensions currently brewing between the administration of President Donald Trump and China, Europe and other major trading partners.

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“Our team is keeping a watchful eye on the developments and is working with our industry association, the American Home Furnishing Alliance in lobbying efforts,” he said. “The Association’s position mirrors ours and that these duties are not good for the consumer, nor are they good for the majority of our industry.”

The retaliatory surtax went into effect on goods being exported to Canada in July and La-Z-Boy is watching to see how it will impact volumes. But the bigger fear is phase three, which is “pretty much a tariff on anything in the furniture business coming in from China.”

The list includes fabrics, leather and finished goods.

See: DIYers can expect better-trained associates in the aisles, says Lowe’s

“What really has the industry perplexed is, we understand products that can be bought in both countries and whether or not there’s fair trade going on. But there is very minimal supply of fabrics and leathers in this country that the industry can buy, and most of it comes from China,” he said.

Other furniture stocks were also higher Wednesday, with Conn’s Inc. CONN, +3.35% up 3%, RH, +3.36% the former Restoration Hardware, up 3.4% and Wayfair W, +2.22% up 1.3%.

La-Z-Boy shares have gained about 20% in 2018, while the S&P 500 SPX, +0.11% has gained 7% and the Dow Jones Industrial Average DJIA, -0.04% has gained 4%.

Read now: Here’s what businesses are saying about the Trump administration’s proposed tariffs on $200 billion of Chinese goods

Ciara Linnane

Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.

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