La-Z-Boy Doesn't Sit As Well

By Greg Sushinsky | June 28, 2011 AAA

Furniture maker La-Z-Boy (NYSE:LZB) turned in mixed results on June 21 for its fourth quarter and fiscal year. Increased revenue was offset by rising costs which made for lower profits, as the furniture industry struggles with continued headwinds.

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A Mixed Quarter
Revenue increased to $338.9 million from $310.7 million, although this year's quarter had an extra week. Seven percentage points of that 9.1% sales increase was due to this extra week. Net income was 19 cents per share, or $10.3 million, compared to 26 cents per share, or $14.4 million in last year's same quarter. Rising costs of cotton, yarn, wood, leather and even steel dampened profits. The input costs were one challenge, the still weak housing market was another. While the commodity costs can and do fluctuate, the housing effect on the furniture industry has now been the constant headwind and headache for a couple of years. (Learn more in Why Housing Market Bubbles Pop.)

An Industry Grind
La-Z-Boy raised prices in May, which also helped fuel its improved revenue numbers, and it has ramped up its advertising with its Brooke Shields campaign. Competitor Ethan Allen Interiors (NYSE:ETH) also plans to spend more on its advertising, while Leggett & Platt (NYSE:LEG) posted a flat quarter year-over-year at the end of April and cited increased costs which it also offset by raising its prices. Leggett & Platt offered raised guidance, however, despite the current difficulties in the industry. Leggett & Platt's business emphasis is on office and industrial furniture, with competitors such as Steelcase (NYSE:SCS), so there's a little different dynamic there than with La-Z-Boy. Smaller Haverty Furniture (NYSE:HVT) reported a loss this spring, as it specifically cited the homeowner as its customer while it pointed to the historic decline in that sector. Haverty also mentioned rising fuel prices and wages as cost drivers as well.

Progress Slowed
The continued stall in the housing sector has slowed La-Z-Boy's progress. The company had gone into the black in fiscal 2010, earning $32.5 net income, after losing $122.7 million in 2009 and $14 million in 2008. Revenues had been shrinking, from $1.7 billion in 2006 to $1.18 billion in fiscal 2010. Revenue for its fiscal 2011 just reported was $1.19 billion, a marginal increase over 2010. Net income fell in fiscal 2011 to $24 million from last year's $32.5 million. (Learn more in Understanding Pro-Forma Earnings.)

This is a company which has admirably rescued itself from the brink, as its share price dipped to 90 cents in February, 2009 and had bounced back to touch more than $13 a share in April, 2010. Yet concerns still remain with the sector weakness and with how the housing industry is staggering along in its zombie-like existence, dragging a weak consumer with it. La-Z-Boy isn't alone, as Furniture Brands International (NYSE:FBN) has recorded four years of losses in a row along with its revenues halved in a five-year period.

The Bottom Line
La-Z-Boy is having to fight too many headwinds now for fundamental investors to get involved with, unless they really want to get in far ahead of a clear improvement. The stock suffers from the overall still weak economy and wounded consumer, and the furniture industry is just too brittle right now.

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