Dive Brief:
- La-Z-Boy transitioned into a new Arizona distribution center during the fiscal quarter ending July 26, President and CEO Melinda Whittington said in an Aug. 20 earnings call.
- The Arizona facility is the first of three centralized hubs foundational to the company’s distribution network redesign, a critical piece of La-Z-Boy’s multiyear Century Vision project.
- "We are excited about the early progress of this transformation, which is an important driver toward our broader objective of double-digit margins in our wholesale segment over the long term," Whittington said.
Dive Insight:
La-Z-Boy expects its distribution revamp to help it achieve long-term margin growth and top-line expansion at double the market’s pace, both goals of the Century Vision initiative launched in 2022. The company plans to finish the five-year program by La-Z-Boy's centennial year, 2027.
The home furnishings maker expects the new network to help it reach its goals by reducing the number of large distribution centers from 15 to three centralized hubs. The warehouses will be supported by small-format cross docks, which are facilities designed to quickly transfer goods from inbound to outbound trucks with minimal or no storage, a spokesperson told Supply Chain Dive in an email.
“This is about building the agile network of the future to support our continued growth in retail,” the spokesperson said.
Overall, the company expects to reduce square footage across the network by roughly 30% and lower the mileage of inventory traveled by about 20%, Whittington said.
The network redesign also aims to improve inventory productivity, double the company's delivery radius from 75 miles to 150 miles, decrease reliance on third-party providers and increase supply chain agility to better serve La-Z-Boy's current store footprint, Whittington said.
Senior VP and CFO Taylor Luebke told investors that increased supply chain costs in the company's distribution network and manufacturing operations contributed to a 30 basis point decrease year over year in La-Z-Boy's consolidated adjusted gross margins in the quarter.
"We continue to believe that the best use of our cash is prudently reinvesting back into the business," Luebke said. "As such, we are committed to investments in new stores, acquisitions and our distribution transformation to profitably grow our core business."
La-Z-Boy expects its distribution transformation project to improve wholesale margins over time, Luebke said. Until then, the company foresees a “modest drag” on adjusted operating margins during the first two years, with savings kicking in the third year.
La-Z-Boy remained committed to revamping its distribution network despite what one analyst on the earnings call described as "uneven or choppy” consumer demand in the industry.
"I think it's important that we play offense even in challenging times," Whittington said. "And because of the strength of our financial position, our balance sheet, our cash, we're in the enviable position to be able to do that."
