Why La-Z-Boy Incorporated Shares Plunged

Is La-Z-Boy's stock move meaningful or just another movement?

Jun 18, 2014 at 12:25PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of furniture maker La-Z-Boy (NYSE:LZB) sank 10% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has slumped in 2014 on signs of slowing growth, and yesterday's fourth-quarter results -- adjusted earnings per share of $0.27 missed the consensus by $0.05 on a revenue decline of 2% -- coupled with downbeat guidance only reinforce that troublesome trend. In fact, the company's retail segment operating margin fell 180 basis points from the year-ago period, to 3.6%, while same-store sales slipped 0.9%, suggesting that La-Z-Boy's competitive position continues to weaken as well.

Now what: Management remains confident in its long-term initiatives, but doesn't see things turning anytime soon. "As we build momentum with our store growth strategy, we will leverage the efficiencies at our manufacturing facilities, which we believe will highlight the value of our integrated retail model," said Chairman and CEO Kurt Darrow in a press release. "In the immediate term, however, the furniture industry typically experiences weaker demand during the summer months and, as a result, our plants shut down for one week of vacation and maintenance during the first quarter, which ends in July. Accordingly, the first quarter is usually our weakest in terms of sales and earnings." When you couple that downbeat short-term view with the intense competitive pressure that clouds La-Z-Boy's long-term picture, I'd hold out for a much wider margin of safety before buying in. 

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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