La-Z-Boy Is Cautiously Optimistic
Furniture-maker La-Z-Boy (NYSE:LZB) reported a mixed quarter that’s only if you read the headlines. Revenue missed, sure, but by a slim margin but EPS more than mitigated the shortfall. The company, like so many others in the 2Q, was able to leverage cost-control efforts and deliver EPS above the highest estimate on Wall Street. Couple that with a “cautiously optimistic” outlook for the rest of the year and it’s no surprise that this stock is moving higher.
Perhaps the most noteworthy detail of the report is the dividend. La-Z-Boy was among the first to suspend its payment when the pandemic struck and now among the first to reinstate the payout. The company elected to declare a payment below the previous, a not unwise decision, leaving plenty of room for future increases as the business recovery develops.
"We are cautiously optimistic as we head into the fall, based on current demand trends, but recognize the pandemic is still upon us and much uncertainty exists on a variety of fronts. We remain agile in managing the business day to day, focusing on service to customers while maintaining financial conservatism. We are proud to have delivered strong cash results in this challenging first quarter, with $106 million in cash from operations and a strong balance sheet which enables us to navigate this uncertain time,” said CEO Kurt L. Darrow.
La-Z-Boy’s Revenue Miss Is Not The Real Story
La-Z-Boy reported actual, top-line revenue of $285.46 million. That’s down 31% from the previous and below the consensus figure. The mitigating factors here are that 1) the miss is negligible at 140 basis points and 2) the net sales for the quarter don’t reflect the full picture. While total realized sales fell double-digit the more important figure, written sales, rose double-digits. Written sales, the value of the business at the point-of-sale, rose 14.8% and point to solid results in the coming quarters.
The reason net sales declined so badly is due to a combination of factors all related to COVID. To start, the business was impacted by closures across the footprint that resulted in sales and manufacturing disruptions. Now, with the company operating at 90% of capacity, demand is back but supply chain issues have yet to be fully overcome. That situation led to an increased backlog, longer lead-times for delivery, and lower-than-expected delivered sales and that’s what hampered revenue in the 2Q. That situation is already correcting itself.
Regarding written sales, total written sales declined in the first month of the quarter but rebound strongly once the company was able to reopen. Written sales in June and July topped 30% and accelerated into the end of the quarter and that’s the real story.
La-Z-Boy’s Balance Sheet Is A Fortress
La-Z-Boy has a fortress balance sheet, that’s the only way to say it. The company has a wee bit of debt on the books but not enough to pose any sort of danger. To say La-Z-Boy is well-capitalized is an understatement. The company was carrying about $6.00 in cash per share at the end of last quarter and nearly doubled that over the past three months. Now, with coverage well above 125X its debt requirements, the company is in a good position to do… well to do whatever it wants whenever it wants to.
As for the dividend, the yield is low and below 1.0% but there is nothing not to love about it. The company has a history of distribution increases and the capacity to make a substantial increase in future quarters.
The Technical Outlook: La-Z-Boy Is Trying To Break Out
Because the fundamental story is good for this and most other furniture companies the long-term outlook for the share price is bullish. But there are hurdles to overcome. The La-Z-Boy chart is very bullish in that it’s been in an uptrend, the earnings news has shares up 5% and it’s trading above a key point of resistance. The bad news is that there is another key point of resistance just above Wednesday’s high that is keeping price action in check. Resistance appears to be at the $34 level now but may impact trading all the way up to $36. In that light, I am leery of buying without a pullback to support or clear break above resistance.
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