It's certainly a nice bonus when you can find a good stock idea from a product you like. But it doesn't always work out that way; sometimes the product in question can be great, but the company and the stock just aren't up to scratch. That would seem to be the case for furniture-maker La-Z-Boy
One quarter does not a good (or bad) investment make. Sales fell about 10% this quarter, in part because of a lower number of weeks in the period, but also because of a generally sluggish market for La-Z-Boy's furniture. Though gross margins did improve a bit, operating income was down about one-third (after adding back some restructuring items).
It may seem ironic that even with the housing boom of the past couple years, furniture-makers like La-Z-Boy, Ethan Allen
Then again, I didn't really need to see the stock price charts to tell you that; living in North Carolina, I've had a ringside seat to the ongoing struggles of the furniture industry. I don't think that La-Z-Boy faces improving economic conditions, either. As interest rates rise, the financing for its goods gets more expensive. Comfortable and well-built though its stuff may be, it's not a necessity or must-have purchase.
Making matters worse from my point of view, the returns on capital here have been lackluster for a while, tracking the company's disappointing stock performance. It's been about seven years since this company produced the sort of return on invested capital that would tempt me to buy for the long term.
On the flip side, some investors believe you should buy stocks like these precisely when they seem flat on their back. La-Z-Boy is still a good brand, it's still profitable, and some raw-material cost pressures should ease off. It's really a leap of faith, though, and that's all but impossible to quantify. If your due diligence says "buy," go for it. For me, I'll stick with the chairs instead of the stock.
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Fool contributor Stephen Simpson but has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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