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.
Related Foolishness:
Follow along with the Global Gains team as they travel to key business centers in China to uncover the very best investing opportunities! Sign up here to receive their FREE dispatches from the road.
Terms & Conditions
RSS Headlines
Fool UK