La-Z-Boy Falls After Mixed Q4
Shares of La-Z-Boy (NYSE:LZB) took a hit in premarket trading following a less-than-spectacular Q4 report. It’s not that La-Z-Boy had a bad quarter, it’s that results failed to beat the consensus. There has been a high expectation for average companies to beat their consensus targets ever since the market bottomed in the spring of 2020. That expectation reached a crescendo going into the Q4 reporting season and set some companies up for correction.
If there is an expectation for better-than-consensus results then meeting consensus is less-than-expected and negative for share prices. The point is that La-Z-Boy’s rebound accelerated, revenue grew on a sequential basis and has a positive outlook for growth, but shares fell -5.0% in pre-market trading. In our view, that begs the question is now an excellent time to buy this stock?
La-Z-Boy Revenue Falls On A YOY Basis
Shares of La-Z-Boy are down in part because of the revenue. The company’s $470 million in revenue is up sequentially and better than the consensus but only by a slim margin and it fell versus last year. The analysts were expecting closer to $468.25 million or about 40 basis points lower than the actual compared to much wider margins of error and YOY growth for most other stocks.
But there is this to consider as well. The comparison is against last year’s $475.8 million which was the highest quarterly revenue in at least five years. From that perspective, a small decline isn’t as bad as it may look and the comps get easier from here. The next quarter will compare against the calendar Q2 of 2020 when pandemic shutdowns had the entire furniture industry in retreat and should produce a high double-digit comp.
“Given the continued temporary impacts of COVID-19 on the company’s manufacturing facilities and broader supply chain, and comparing with a prior-year base period which included the month-long pandemic shutdown, La-Z-Boy now expects fiscal 2021 fourth-quarter consolidated sales growth of 34% to 39% versus the prior-year quarter, and consolidated non-GAAP operating margin at the lower end of the 9% to 11% range,” said La-Z-Boy in its press release.
On a written basis, comps at store registers and digital channels are up 6.3% and foreshadow strong business for the foreseeable future. The increase in written comps is fueling backlogs that are resulting from shortages in the freight and trucking industries. A lack of drivers and available truck-hours is causing supply chain disruption across all verticals, not just in the furniture industry. Moving down the report, higher freight costs and other COVID-related costs are impacting margins as well. On a GAAP basis, the operating margin fell to 7.3% from 11% last year while the adjusted operating margin improved 10 basis points to 9.5%. The shift in margins caused the GAAP $0.62 to fall short of consensus by a nickel while the adjusted $0.74 beat by the same margin.
La-Z-Boy CEO Retires, Melinda D. Whittington Takes Over
Another reason shares are falling is because the company’s long-time CEO is retiring. After 40 years at the helm CEO Kurt L. Darrow is stepping down as CEO and president. He will remain as non-executive chairman of the board with Melinda D. Whittington taking his spot. Whittington has been the company’s CFO for years and is well versed in La-Z-Boy operations. She’s been instrumental in the company’s turnaround and should be able to carry out the company’s long-term growth strategy.
La-Z-Boy Raises Dividend, Buys Back Shares
La-Z-Boy generated a lot of cash despite the failure to grow revenue. The company has generated more than $250 million in cash flow YTD with net deposits for written sales up to $120 million. With the balance sheet nearly unencumbered by debt, the free-cash-flow is running over 80% leaving ample room for buybacks and dividend increases. The company repurchased about $1 million in stock during the quarter and upped the dividend by 7% after reinstating it earlier in the fiscal year. There are still 4.5 million shares available for repurchase or about 10% of the float. The dividend is worth about 1.5% in yield with shares trading at $40 and will very likely be raised again next year.
The Technical Outlook: Be Ready For A Bounce
Shares of La-Z-Boy fell more than -5.0% in premarket trading but the bargain hunters are already buying them back up. The key level for traders and investors to watch now is near the $36 to $37 range. If this level is confirmed as support prices are likely to rebound and retest the $42 and $46 levels. If not then a fall to the even more-attractive level of $34 is possible
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