La-Z-Boy Management Executing in Q3

La-Z-Boy (NYSE:LZB) reported its 3Q results last week beating analyst’s estimates and reaching key targets. LZB reported earnings of .43 cents per share with revenues coming in at $384.01M beating analysts estimates by .03 cents and $7.47M respectively. After the earnings beat, LZB share price rose nearly 19% and has since sustained its current levels.

Even more significant than the earnings beat is La-Z-Boy management reaching its ambitious 4-4-5 plan target 2.5 years ahead of projections. Launched in 2014, the company’s 4-4-5 growth store initiative was an aggressive plan to grow the company’s retail business by increasing the number of company owned stores to 400, all while averaging $4M in revenue per store over a 5 year time period. When I first heard the 4-4-5 plan was announced it sounded gimmicky and I was skeptical about the company reaching its target. Meanwhile, LZB has just announced it has reached this target in the latest earnings call in half the time expected. It bodes well for LZB that the company is executing on its strategies and is a testament to the company’s current managements credibility moving forward.

Q3 Highlights

Q3FY2016 was a great quarter for the company. The retail segment of the business continues to perform exceptionally well, with sales increasing 22.7%y/y to $110M. This is an increase of 66% in the company’s retail business since the 4-4-5 plan was announced in 2013. The aim of the 4-4-5 plans was also to increase LZB’s upholstery business, the largest segment of the company. Some key milestones were reached in Q3:

  • · Consolidated Operating Margins at 9.1% the highest in any quarter in 12 years
  • · Retail Margins at 8% the highest in company history
  • · Consolidated Earnings in Q3 were up 7.3% Y/Y

In Q3 LZB’s upholstery segment increased 5.6% Y/Y. Margins were particularly impressive in 3Q with Upholstery margins at 10.9%, Retail margins increased over 70% on a Y/Y basis to 8%, and Case goods margins increased 118% Y/Y to 7.2%. Zack’s Equity Research downgraded LZB to a sell just before earnings. Since then they have reassessed that decision and have upgraded the stock. Currently, 4 analysts covering the stock rate LZB a strong buy.

LZB Chart

LZB data by YCharts

Institutional ownership continues to buy into LZB with BlackRock (16.15%) and Vanguard (7.3%) both adding shares recently. LZB is relatively cheap with PE levels at 16.4, p/b at 2.2, p/s 0.8, p/cash flow 12.3, and a dividend yield of 1.5% payable to shareholders on record as of February 29th.

Things are moving in the right direction for LZB, the company is seeing steady growth and reached several milestones in the most recent quarter. LZB next target is to become a $1.6B enterprise in North America alone, and plans to open 20 new stores in the next year. With the company’s strong management that is executing on its goals, it gives us reason to believe LZB can continue to act on the guidance it gives.