More of the Same From La-Z-Boy

No two ways about it: It's not a great time to be in furniture.

"Or homebuilding," echo Centex (NYSE: CTX  ) and Ryland (NYSE: RYL  ) .)

"Or home improvement," Lowe's (NYSE: LOW  ) and Home Depot (NYSE: HD  ) chime in.

"Hey! Don't forget raw materials," shout Weyerhauser (NYSE: WY  ) and Rayonier (NYSE: RYN  ) . "We're getting killed, out here."

It's the economy, Stu ...
What I'm getting at is that you can't drop all of the blame for Tuesday's news in front of La-Z-Boy's (NYSE: LZB  ) recliner. Just about anybody who has anything to do with houses -- building 'em, selling 'em, or filling 'em up with stuff -- is having a rough time. But facts are facts, and here are the facts from La-Z-Boy's perspective:

  • The fiscal first quarter of 2009 saw sales continue sliding, down 7% this time around.
  • Losses from continuing operations again amounted to $0.17 per share, the same as last year.

Yet according to CEO Kurt Darrow, the quarter wasn't all bad. La-Z-Boy "expanded [its] margins on a 6.6% decline in sales." Its "balance sheet and the strength of [its] business model will carry [the company] through this period."

True ...
True: The balance sheet is looking a mite healthier today. Both inventories and accounts receivable dropped faster than sales are falling, down 18% and 13%, respectively. Net debt declined nearly $37 million, to $88.6 million.

... and false
But I take exception to Darrow's claim of expanded margins. Yes, La-Z-Boy's gross margin expanded 110 basis points to 25.1%. Kudos for that, but only one segment out of La-Z-Boy's three (upholstery) saw its operating margin expand, and overall, operating margins for the company fell more than 30 basis points, to negative 4.1%.

Now, La-Z-Boy might argue that exceptional, non-operating charges for restructuring and goodwill writedowns -- often called "one-time" charges -- explain the company's deteriorating operating margin. I'd agree to an extent, but I'd also point out that such charges appear with discomforting regularity at La-Z-Boy. The company appears to be in an almost constant state of restructuring and has taken such charges in every quarter for the past two years.

At some point, though, such regular deductions from profit cease to become "one-time" in nature. Eventually, we're going to have to just consider them part and parcel of La-Z-Boy's business.

For further Foolish thoughts on La-Z-Boy, read:

Fool contributor Rich Smith owns no shares of any company named above. The Motley Fool has a disclosure policy.


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