Ah, June. Brightest month of the year. First month of summer vacation. To you and me, it may seem that the year's not even half over, but not so for La-Z-Boy (NYSE: LZB), for whom June marked the end of fiscal year 2008 -- and good riddance. (Other companies suffering because of the mortgage mess, like Banc of America (NYSE: BAC), Home Depot (NYSE: HD), and Lowe's (NYSE: LOW), are counting the days until they can say the same.)
La-Z-Boy reported its Q4 and full fiscal year numbers on Monday, and the news was not good. The company sold 10% less stuff last year than the year before, and lost $0.26 per share in the process ($0.15 from continuing operations).
In the fourth quarter alone, sales were down 10%, and the company booked a $0.09 loss. The company's upholstery business saw sales decline 9%, its retail unit dropped 10%, and the casegoods (translation: "wood furniture") unit experienced a total meltdown with sales plummeting 24% year over year in the fourth quarter.
And yet, the stock is up more than 15% since the earnings announcement. What gives?
La-Z-Boy gets busy
Basically, investors are buying into the turnaround story, because turnaround, and restructuring, is the big theme at La-Z-Boy today. Over the course of last year, the company announced a raft of plant closures and consolidations stretching from Tremonton, Utah, to Taylorsville, N.C.; confirmed that some operations are moving to lower-cost Mexico; and shuttered numerous outlet stores, exiting the Pittsburgh outlet market entirely. Q4 was particularly active as La-Z-Boy got busy getting rid of slow-moving inventory. While it had to discount the wares to get them out the door, hurting profitability, management boasted that inventories were down 15% against the 10% drop in sales that quarter.
Liquidating inventory has had the beneficial effect of releasing previously tied-up cash as well. GAAP accounting rules may have forced the company to report a $13.5 million loss for the year, but from a free cash flow perspective, La-Z-Boy generated about $21 million worth of greenbacks in fiscal 2008.
Is now the time to buy?
Not so fast, Tex. La-Z-Boy may not be as unprofitable as it seems, but that doesn't necessarily make it a good deal. At today's price, the stock still sells for 18 times its free cash flow. With analysts predicting the company will grow at only about 4% per year going forward, that seems a bit rich to me. Unless and until you see the housing downturn show signs of ending, I wouldn't recommend taking a seat on this one.
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