I’ve talked a lot about household formation as I’ve gotten to know you over the last few weeks, as I believe it’s a very important part of our American Dream — you know, the one I also talk about. The stock I want to tell you about today plays a bit of a role in this process of moving away from home and starting your own household, family and life.
La-Z-Boy (LZB) is one of the largest furniture companies out there and inventor of the world famous recliner. I know you’ve heard of them. You may even be sitting in one as you read this! I firmly believe that one of the first things you should do when moving out of your parents’ house, whether you’re renting or buying, is get your own La-Z-Boy. Am I right?
LZB is a huge retailer, with 325 stand-alone furniture galleries and 573 independent Comfort Studio locations. It’s one of the fastest-growing proprietary furniture chains in North America and is among the top 10 retail brands in the everyday American home.
Over the last 10 years, annual sales growth in the company’s furniture galleries has averaged 8.5% per year. However, I’ll admit that execution hasn’t been great lately — LZB missed estimates on the Street two of the last three quarters.
That being said, there are still a lot of great things happening at La-Z-Boy and the last time they reported earnings on June 16, I did see some encouraging things for LZB stock. Gross margins increased to over 36% from 35% and operating margins were up a full percentage point to 4.7% from 3.8%.
Plus, I really like La-Z-Boy’s retail business. While it’s not the largest segment of LZB, it’s still a very important one and I liked that it did almost $90 million in sales in the quarter, up 12%.
Plus, I also like the way it looks on the chart:
I won’t say that this is going to be a big high-flying name in the near term, but I do believe this is a good longer-term play on household formation and consumer spending.
Plus, this is a company that appeals to the masses. Your grandparents probably have a La-Z-Boy, your parents likely have one and those kids finally moving out of mom and dad’s house are almost undoubtedly headed to one of LZB’s many furniture galleries to pick up their own.
I feel good about this one, and I think we’re getting in early in a stock that can make us a lot of money over time.
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