La-Z-Boy Hits Second-Quarter Earnings Out of the Park

On Tuesday, Nov. 19, La-Z-Boy (NYSE: LZB  ) released its second-quarter fiscal results for 2014. Despite doing poorly in the first quarter, La-Z-Boy recovered with an impressive earnings beat, increasing total revenue by 14.9% from the first quarter to the second quarter. Wall Street analysts and investors alike were extremely surprised by the high earnings, but applauded the company's performance. La-Z-Boy is looking forward to beating estimates once again in the third quarter as the holiday shopping season gets under way.

Behind the La-Z-Boy recliners
Founded in 1928, La-Z-Boy is one of America's largest manufacturers, importers, distributors, marketers, and retailers of recliners and upholstered furniture. La-Z-Boy operates in three segments – upholstery , casegoods, and retail – with seven different brands. Known for its comfortable recliners, the company manufactures its products in countries all around the world, primarily selling them within the United States and Canada through company-owned stores and other network retailers. As of August 2013, La-Z-Boy was expanding its stores throughout more parts of the Midwest such as Michigan and Ohio.

Surpassing all expectations by a landslide
La-Z-Boy hit earnings estimates out of the park on Nov. 19 with its second quarter fiscal results, sending shares northwards. The company reported net income of $16.7 million with earnings per share of $0.31. Earnings per share rose $0.19 from last year's second quarter when net income came in at only $6.6 million, or $0.12 a share.

La-Z-Boy's net income increased by 2.5 times, which is quite significant! In addition, revenue increased by 14% to $366.4 million; analysts polled by FactSet anticipated revenue reaching only $349.4 million, or $0.24 a share. Furthermore, La-Z-Boy's same-store sales rose by 9.8% at its La-Z-Boy Furniture Galleries.

Its operating margins in two of its segments – upholstery and retail – also increased from last year's second quarter. Its upholstery group's operating margin increased by 11% from 8.4% while the retail group's operating margin increased by 4.4% from 0.6% in the second quarter last year. Unfortunately, the company's casegoods segment reported a nearly 2% decline in both sales and operating margin from last year. 

Looking ahead to the third-quarter
La-Z-Boy's President and Chief Executive Chairman, Kurt Darrow, is content with the company's second quarter results and believes these results are further proof that the company's business strategies are effectively working in its favor. Furthermore, the company is achieving its business goals, and its recent success is thanks to the company's sales growth, store expansion, and retail involvement within its many segments. La-Z-Boy plans on opening and remodeling about 30% of its total stores over the next year.

As for third quarter estimates, with the holiday shopping season just around the corner, analysts expect La-Z-Boy to report EPS of $0.34 with full year EPS of $1.17. In addition, analysts estimate that revenue will total $370 million which would be an increase over last year's third quarter revenue of $349 million. Aside from financials, La-Z-Boy must factor in how its competitors are doing to determine how well positioned they are in the market.

Pinning furniture against furniture
Two of La-Z-Boy's direct competitors are Ethan Allen Interiors (NYSE: ETH  ) and Natuzzi S.p.A. (NYSE: NTZ  ) . Both furniture retailers also specialize in upholstered furnishings such as sofas, loveseats, armchairs, dining room furniture, bedroom sets, and other furniture items. Like La-Z-Boy, Natuzzi also manufactures its furniture abroad, whereas Ethan Allen manufactures a majority of its customized furniture domestically. La-Z-Boy is actually the largest of the three companies with around 878 furniture locations, followed by Natuzzi, which offers nearly 600 places to purchase its furniture. Ethan Allen has close to 300 locations.

Given the sluggish economy over the past several years, these companies have had their challenges since consumers are looking elsewhere to find cheap, durable furniture for their homes. As such, La-Z-Boy, Ethan Allen, and Natuzzi have had to battle it out to secure consumer sales and strengthen their positions in the market.

TOTAL ANNUAL REVENUE

Company Name

FY 2013

FY 2012

FY 2011

La-Z-Boy

1.33 Billion

1.23 Billion

1.19 Billion

Ethan Allen

729.08 Million

729.37 Million

678.96 Million

Natuzzi, S.p.A (ADR)

468.84 Million

486.36 Million

518.63 Million

TOTAL ANNUAL NET INCOME

Company Name

FY 2013

FY 2012

FY 2011

La-Z-Boy

46.39 Million

87.97 Million

24.05 Million

Ethan Allen Interiors

32.48 Million

49.69 Million

29.25 Million

Natuzzi, S.p.A (ADR)

-29.53 Million

-13.07 Million

-8.87 Million

Based on the information in the charts above, La-Z-Boy has had steady revenue growth over the past three fiscal years. On the other hand, Ethan Allen's total revenue has remained flat, while Natuzzi's revenue has declined each year along with its net income. Unfortunately, neither La-Z-Boy nor Ethan Allen did better or worse than the other in terms of net income over the past three fiscal years, with both suffering losses in FY 2013.

Foolish takeaway
La-Z-Boy is doing much better than its competitors in terms of both company expansion and revenue. Natuzzi, especially, should try modeling La-Z-Boy's business initiatives in hopes of turning around sales and actually making a profit, whereas Ethan Allen may need to consider a different marketing approach to lure consumers to its custom-made furniture. Investors in La-Z-Boy, though, should be extremely proud of how well the company is doing with its EPS, same-store sales, and total revenues, and should continue to expect steady growth.

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  • Report this Comment On April 18, 2014, at 3:55 PM, thiagorulez wrote:

    It's been interesting to see how La-Z-Boy has fluctuated over the last few years. I've always liked their upholstery, but I know my family hasn't always agreed. It's good to see that they're coming out on top again, though. Thiago | http://www.cliftonupholstery.com.au

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