Why La-Z-Boy’s Good Times Probably Won’t Last

LZB stock isn't all that impressive

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La-Z-Boy (NYSE: LZB) stock has been anything but lazy this week. On Tuesday, it posted earnings for the first quarter of fiscal 2019 that has investors applauding and significantly boosted the company’s shares. LZB stock gained as much as 19% on Tuesday and finished the day 13% higher. That jump also accounts for the majority of the stock’s year-to-date gains. LZB stock has more or less moved sideways since the start of 2018, but now has a 20% YTD return in the books.

The Catalysts

La-Z-Boy has beaten earnings in each of the last four quarters. Why did the Q1 results cause such a large pop? The company’s sales increased just shy of 8% year-over-year, expanding from $357.1 million to $384.7 million. Delivered same-store sales, a key retail metric, increased almost 5%, while written same-store sales rose for the sixth straight quarter.

The furniture retailer’s earnings per share also increased 63%, going from 24 cents last year to 39 cents in the most recent quarter, but 11 of those 39 cents were derived from taxes, currency, and an investment gain. Although La-Z-Boy’s bottom line did beat Wall Street’s expectations, I don’t think its profits were worthy of a double-digit pop.

For La-Z-Boy bulls, the cherry on top was likely that the company also announced two acquisitions; specifically, it bought Joybird and Arizona’s La-Z-Boy Furniture Galleries. The deals, which are slated to close soon, are expected to add $80 million in incremental sales this year. That’s not bad, considering that the retailer only paid a combined total of approximately $115 million for the companies, not including incentives it granted to Joybird.

Why LZB Stock Isn’t Too Impressive

Still, I don’t think the acquisitions and the earnings beat are enough to make LZB stock appealing at these levels. The incremental sales expected to be produced by the acquisitions are equal to just 5% of the current consensus 2018 revenue estimate of $1.69 billion, according to Yahoo Finance. The incremental revenue would boost the company’s YoY sales growth from around 6% to around 12%.

But companies like La-Z-Boy simply don’t impress me all that much. Besides this earnings beat, when was the last time you even heard the brand La-Z-Boy mentioned? Buying growth is the main option for La-Z-Boy, but that’s not cheap, and neither is the stock. Over the last five years, LZB stock has posted a slow-and-steady gain of slightly less than 70%, but it’s been a rocky ride.

I think the post-earnings double-digit pop in LZB stock is less a base for a move higher and more just the latest gain before a downward move that will balance out the surge. Right now, the consensus estimate calls for LZB to post 8% earnings growth over each of the next five years. LZB stock isn’t dying or doomed, but it’s not impressive enough for me to tell anyone to buy the shares.

For the cherry on top of my indifference to LZB stock, the company’s CEO warned on the upbeat earnings call that “concerns relating to potential duties and tariffs that could impact the business persist.” I wouldn’t call my position on LZB stock a bear case; it’s more like a “meh” case. There’s no place for shrug-worthy stocks in your portfolio.

As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/08/lzb-stock-best-day-in-a-year-will-it-last/.

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