Last quarter was an unlucky No. 7 for La-Z-Boy (NYSE:LZB). After six consecutive "earnings beats," the company finally flubbed a test and reported lower-than-expected earnings for its fiscal fourth quarter. Tomorrow, the furniture maker tries to get back on track when it reports its fiscal Q1 2006 numbers after market-close.

What analysts say:

  • Buy, sell, or waffle? Eight analysts still track La-Z-Boy, and their ratings are unchanged since last quarter. Four of them rate the stock a buy, three a hold, and one a sell.
  • Revenues. On average, they're looking for a 3% improvement in quarterly sales, to $464.8 million.
  • Earnings. But they think profits will fall by half to $0.03 per share.

What management says:
Two quarters back, La-Z-Boy CEO Kurt Darrow highlighted improved margins in his company's casegoods and upholstery segments as signs of the company's improving fortunes. Last quarter, the company proved his optimism correct (on gross margins, at least -- overall the report was pretty bleak), as noted in Stephen Simpson's June write-up.

The firm's more recent news consists of a July 31 announcement that it has sold off its American of Martinsville subsidiary to a private equity firm (yes, Fools, the vultures are beginning to circle the beleaguered American furniture sector). Terms of the sale were not disclosed in the press release, but that doesn't mean it was totally devoid of interest to investors. For one thing, La-Z-Boy noted that the sale will result in a small profit for the firm in tomorrow's results -- which would make the expected decline in profits hurt all the worse. For another, La-Z-Boy noted that American accounts for about 5% of its annual sales. If the firm can pull off the anticipated 3% improvement in sales -- even as it sheds 5% of its business -- well, that would be really nice to see.

What management does:
"Nice," however, doesn't necessarily mean "profitable." And profitability is where La-Z-Boy has lagged in recent quarters. While it's been gratifying to see this little Income Investor pick grow its rolling gross margins for three quarters in succession, the continual restructuring efforts (and charges, such as last quarter's $22.7 million goodwill impairment) have weighed heavily on La-Z-Boy's operating and net margins.

Margins %

1/05

4/05

7/05

10/05

1/06

4/06

Gross

23.3

23.2

23.4

23.2

23.4

23.9

Op.

4.1

3.6

3.7

3

2.9

2.5

Net

(1.3)

1.8

2.1

1.4

1.4

(0.2)
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
In our last Foolish Forecast on La-Z-Boy, I mentioned that Foolish Income Investor lead analyst Mathew Emmert suggested investors wait for a quarter or two of further improvements before buying in. La-Z-Boy's Q4 report can probably be interpreted as an indication that we need even more time before the firm becomes a "buy" -- but that's not how Mathew sees it. Saying the stock price now offers a "25% discount to intrinsic value," Mathew suggests that now is the time to begin buying La-Z-Boy in small bites. He finds the company's continued dedication to consolidating some operations, and selling off others, encouraging.

Want to see a virtual tussle between two Carolina boys arguing the merits of a local hero? Read Stephen Simpson's analysis of the long-term challenges to La-Z-Boy in "La-Z-Boy Lounging Around."

Then click here to grab your free trial of Income Investor, lounge back, and read Mathew's original investment thesis for La-Z-Boy.

Competitors:

  • Stanley Furniture (NASDAQ:STLY)
  • Hooker Furniture (NASDAQ:HOFT)
  • Furniture Brands (NYSE:FBN)
  • Flexsteel (NASDAQ:FLXS)
  • Ethan Allen (NYSE:ETH)
  • Bassett Furniture (NASDAQ:BSET)

Stanley Furniture and Hooker Furniture are both Motley Fool Hidden Gems picks.Discover sleepy but sparkling small-cap stock ideas when you dig into a free 30-day trial ofHidden Gems.

Fool contributor Rich Smith does not own shares of any company named above.