It's so tempting to buy La-Z-Boy (NYSE: LZB) right now. With the company having turned a fiscal fourth-quarter profit of $5.3 million, cut costs, and given a convincing spiel about future prospects, it looks on the surface as if this year’s 100%-plus gains are well deserved.
There's a big part of me that thinks the stock will probably go higher in the medium term, too. Maybe even much higher. While retail sales for furniture and home furnishings stores were pretty grim in April and May when adjusted for seasonal variations, once they pick up again, companies such as Steelcase (NYSE: SCS), Furniture Brands (NYSE: FBN), Home Depot (NYSE: HD), and yes, La-Z-Boy, will all probably zoom.
So why am I not taking part in the frenzy right now surrounding La-Z-Boy's shares?
My Foolish colleague Brian Pacampara pointed out Tuesday how La-Z-Boy had received a dismal one-star rating from the 135,000-member Motley Fool CAPS investor community. Members cited reasons such as slow consumption growth and still perilously high foreclosure rates as the principle reasons they didn't want to take part in the La-Z-Boy rally.
But that's not of such big concern to me. Even when foreclosures hit a bottom, and consumption picks up aggressively, I still don't want to own La-Z-Boy.
The problem for me is that the company's earnings have been on the decline for years. That helps explain why, when you look at the stock price, you see more or less a straight decline from May 2002 onward.
Worst of all, management always seems to blame its troubles on the market environment.
Take, for example, comments made by then-President and COO Jerry Kiser back in April 2001, when La-Z-Boy was having a dismal quarter (but promising a stronger year). Kiser said that "margins for the quarter will be reduced due to continuing credit problems at several major furniture retailers which will necessitate an additional increase in bad debt expense for the quarter." La-Z-Boy's plan of action then? "Additional restructuring."
When things didn't work out quite as hoped, La-Z-Boy resorted to other tricks: slashing jobs. Fast-forward to August 2004, when the firm fired 645 employees.
In other words, La-Z-Boy's current cost- and personnel-cutting exercises are nothing more than what the company always does when times are tough. While it's nice to see costs go lower, continuous reduction of workforce only leads to a longtime downsizing in earnings.
I don't care if La-Z-Boy doubles from here. I don't want my money in a company which is making the same "restructuring" mistakes, year-in, year-out, and then blaming its woes on external sources.
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