I spent this weekend reviewing the last 10k and past 2 quarterlies for LZB. At first glance EPS numbers blew past previous years but this was mostly due to tax loss carry forwards. net operating income is increasing year over year but not at a super impressive rate.
La-Z-Boy is made up of 3 segments, the profitable upholstery segment, the case goods segment (think hutches, tables, chairs etc) and the super unprofitable retail segment. 2 years removed from a complete miss in numbers due to the recession LZB has the appearance of an improved company. I would like to argue that the stock is extremely risky given the current circumstances.
company has started to gradually pay down debt
operating income has improved to over 15M 6 months ending 10/29/11 from 3.7M this time last year
Avg price paid on recently purchased shares 8.30 well above current market price
EPS improvement is almost completely due to tax loss carry forwards and not due to operating income
management seems more concerned maximizing current stock incentive plan given to them in 2010 then turning around the business
using company money to buyback shares to increase options given at low strike prices
The pension plan is 65% equities and has experienced a 10%+ decline in the past year
none that I can clearly see
all commodities prices
local furniture stores
If the economy comes back and housing turns a corner it wont matter how bad management is running the companyLa-Z-Boy will manage to post decent numbers.
The problem arises if we end up in a stall and the company continues to operate like a neanderthal. It seems like the more i read about the furniture business the more it sounds like the clothing business but with much more upfront costs. This seems like a sector to avoid completely as there is no true "moat" one company can create.
The upholstery segment of the company keeps the rest afloat. The case goods segment sales are down compared to last year. The retail business is losing less money than it has in the past.
Margins are already slim and the expected rise in commodity costs will cut into the bottom line. If the economy does not rebound LZB will experience serious losses that will hurt the stock price.
Likely Worst Case Scenario
The economy stinks and management continues to repurchase shares instead of investing in stores.
$5.11 per share
Just muddling along and hoping the economy gets back on track. Share repurchases are a good idea.
$12 per share
Best Care Scenario
Interest rates remain low, US economy picks up and commodities don't go higher.
$15.31 per share
Due to the current risk/reward profile of 27% on the upside and more than 50% on the downside I am going to have to rate LZB AVOID.
Happy New Year