If you tuned in to Fool Central for our report on La-Z-Boy's (NYSE:LZB) fiscal first-quarter 2006 numbers, you'll likely recall two things about the news. First, this Motley Fool Income Investor pick beat analyst estimates by the proverbial penny. Second, the company gave guidance that fell about $0.02 short of analysts' expectations for fiscal Q2 2006.
It was that second bit that really got this Fool's attention. If you'll forgive the mixed metaphors, earnings reports that "beat by a penny" are a dime a dozen. So what made August's earnings report truly memorable was La-Z-Boy's earnings warning and, more specifically, the reason for it.
The CEO's quote on this score was so good last time around, I'll repeat it again here: "Additionally, there has been fierce competition for consumers' discretionary income, with employee pricing offers from the automotive industry, which is contributing to weak retail furniture demand."
That's right, folks, La-Z-Boy laid the blame for its expected profit shortfall squarely at the feet of consumers who were buying Corvettes instead of couches.
My, how times have changed. Three short months later, we've seen both Ford (NYSE:F) and GM (NYSE:GM) post anemic, mid-single-digit sales gains. But did consumers' failure to invade auto showrooms prompt La-Z-Boy to sound the all-clear?
Au contraire. As recently described by fellow Fool Nathan Parmelee, La-Z-Boy beat the automakers to the bad news punch and issued an earnings warning of its own more than a month ago. The furniture maker cited a shortage of foam needed to upholster its products, plus tornado damage done to one of its factories, in predicting that it would suffer a "significant miss" of its previous earnings forecast of $0.17 to $0.21. How bad is "significant?" The analysts who follow the company now expect that La-Z-Boy will see its sales decline 15% to $452 million and incur a $0.10 per-share loss.
If that's the way things play out when La-Z-Boy reports earnings tomorrow, it's likely that Wall Streeters will be tearing out their hair and donning sackcloth, predicting that end times are nigh.
But not we Fools. We recognize that short-term earnings are terribly difficult to predict and that disasters sometimes happen. It's just a fact of life that Mother Nature can play havoc with a company's supply chain when she's of a mind to. The good news is that the sun eventually shines again, and a good company will pull through to brighter days.
In fact, if tomorrow's news is as bad as we're expecting and Wall Street overreacts (as we're also expecting), that might well provide income-loving Fools with a primo opportunity to snap up some cheap La-Z-Boy shares. The company may be in the midst of a foam shortage, but its shares remain right plump with a 3.7% dividend and plenty of cash flow to fund it.
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Fool contributor Rich Smith has no position in any of the companies mentioned in this article
