La-Z-Boy (LZB) has not been reclining this year. In fact, the stock is up 48% year-to-date. The shares have been propelled by a series of better-than-expected quarters.
With the stock near a five-year high, I wanted to position myself to buy LZB on a government shutdown-induced slide. The shutdown will likely stall the housing and furniture markets, but those markets should bounce back after a deal is made in Washington. Should the stock sell off, I want a piece of the action.
In mid-September La-Z-Boy reported a stronger-than-expected first fiscal 2014 quarter. Seasonally, the first quarter is typically a weak quarter, since consumers are at the beach and not buying furniture. Consolidated sales rose 5.8% to $318.9 million on a 12.7% increase in same store sales. Last year, in the same period, same store sales grew 9.8%, which really shows how the company has continued to grow sales and traffic, through an aggressive television-advertising program.
The company has also been able to boost sales and to bring down costs. Operating income increased 94% to $14.8 million. Upholstery margins rose to 8.7% from 6.5% last year. The retail segment began contributing to operating income by posting a 2.9% margin vs. last year's -3.5% margin.
It's been an amazing turn of events. Analysts are estimating the company could earn $1.18 on $1.42 billion in revenue. Just two years ago (FY12), revenue growth was flat at just 0.67%. But as the housing market came back, the demand for furniture jumped.
This quarter represents two and a half years of double-digit same-store growth for the Furniture Gallery network of stores. The retail segment delivered 16% sales growth and the third straight profitable quarter. At the end of the quarter, the company had 312 stand-alone Furniture Gallery stores. Management keeps executing on its "4-4-5" strategy -- 400 stores averaging $4 million in sales per store in five years.
If the company can stay on track, by next fiscal year, which ends in April, La-Z-Boy should be able to hit $1.5 billion in revenue and earn $1.43 per share.
If the stock comes down due to a hiccup in the housing market, I want to add LZB to my portfolio and put my feet up.