How did La-Z-Boy
- The firm reported $418.9 million in fiscal first-quarter 2006 sales, a 2% decline from last year and a full 7% lower than the company's own sales predictions.
- Its operating margin deteriorated, falling 90 basis points to 0.7%.
- The $0.02 in profits per diluted share (from continuing operations), although within the firm's predicted range of a penny to a nickel per share, were down 60% from what La-Z-Boy earned last year.
In response, investors dropped the stock 4% after the earnings report. But did they perhaps overreact? I say yes.
On the surface, sure, things aren't looking so hot at La-Z-Boy. Sales down, margins down, profits down -- not much good news in that. But let's dig a little deeper, burrow past the income statement (where market pundits too often stop), and see what we can see happening within La-Z-Boy's stuffing.
On the balance sheet, for example, we can see that the firm continues to keep a tight rein on its working capital. With sales down 2%, we'd have liked to see La-Z-Boy reduce its inventories and accounts receivable (A/R) in tandem. As it turned out, though, La-Z-Boy did us several points better, dropping its A/R by 7%, and working down its excess inventories of foam (built up last year to deal with the industry's well-publicized foam shortage -- ask Select Comfort
Also on the balance sheet, we see that the company has been putting its cash to work in paying down $36.6 million in debt over the last year, and reducing its outstanding share count by about 0.5%.
Getting ready for winter?
In reviewing Stanley Furniture's
For all its troubles, La-Z-Boy remains an active recommendation of Motley Fool Income Investor. Find out what dividend guru Mathew Emmert has to say about the company when you take a free trial of the service.
Stanley , Hooker, and Select Comfort are Motley Fool Hidden Gems recommendations.
Fool contributor Rich Smith does not own shares of any company named above.