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Why La-Z-Boy Stock Just Dropped 12%

By Rich Smith - Nov 21, 2019 at 11:12AM

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La-Z-Boy hopes a dividend hike may help support its stock after an earnings miss.

What happened

Shares of La-Z-Boy ( LZB 2.08% ) are down 12.3% as of 10:30 a.m. EST after the furniture maker reported an earnings miss last night.

Analysts had predicted La-Z-Boy would earn $0.55 per share, adjusted for one-time items, in its fiscal second quarter of 2020, on sales of $454.4 million. Sales actually came in at only $447.2 million, and adjusted profits were $0.52 per share.  

Red velvet share with a leg missing propped up with a cinder block

Image source: Getty Images.

So what

The news wasn't all bad. While sales missed estimates, they were still up 2% in comparison to last year's Q2. Operating profit margins inched up 10 basis points to 6.6%, and on the bottom line, GAAP net income was $0.48 per share -- not quite as good as the company's "adjusted" number, but still up a very respectable 14% year over year.  

CEO Kurt Darrow called the market for home furnishings "challenging" at present, but urged investors to focus on the company's improved profit margin, as well as "strong cash flow and returns to shareholders."

Now what

Cash flow from operations, by the way, is up 16.5% in the first half of this year, compared to last year's first half. And with capital spending down 15%, that's translating to 60% improvement in free cash flow in this year's H1 -- $30.8 million -- cash that La-Z-Boy is using to boost its dividend yield by 8% to $0.56 per share.

Problem is, that still leaves La-Z-Boy paying a 1.8% dividend yield on its stock, which is below average for the S&P 500. If La-Z-Boy management wants to convince dividend investors to ignore its earnings misses and buy the stock for its dividend, it may have to do better than that.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

La-Z-Boy Incorporated Stock Quote
La-Z-Boy Incorporated
$35.91 (2.08%) $0.73

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