Should You Buy La-Z-Boy Now?

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La-Z-Boy's (NYS: LZB) first-quarter bottom line showed a big turn around, from a loss in the year-ago quarter to a profit of $45.5 million this quarter, beating Street estimates. Wait, wait ... don't get too excited, because there's something other than just revenue behind those profits. Curious?

The numbers
La-Z-Boy's sales went up by 6.4% to $280.1 million. Sales in the wholesale upholstery and retail segments rose 7.7% and 38.3%, respectively. The higher retail sales were primarily due to the contribution of 15 California stores that the company acquired earlier this year.

Same-store written sales, indicating sales accepted but not yet delivered, rose 9.7% from a year ago. This shows improving store traffic and conversion, which is definitely good for the retailer.

La-Z-Boy's bottom line swung from a loss of $0.2 million a year ago to a profit of $45.5 million. Sadly, it wasn't exactly on the back of higher revenues, as $43.4 million was attributed to a one-time tax-related benefit.

Tight-fisted conditions
In the just-concluded quarter, La-Z-Boy's customers were more inclined to buy its less expensive items rather than its leather recliners and core recliner products, which hurt margins to some extent.

Sales in the company's casegoods (wood) furniture segment also fell by 7.4% from last year. Since casegoods products tend to be higher priced than upholstered furniture, customers seem to be postponing purchases in a generally cash-tight consumer environment.

This seems to be a general industry-wide trend, as Furniture Brands International (NYS: FBN) also reported higher second-quarter revenue in its upholstery business as compared to its casegoods business. Leggett & Platt's (NYS: LEG) third-quarter unit sales volumes declined because of consumer uncertainty.

These results signal tepid consumer spending, and such challenging situations call for increased promotional activities in order to attract customers. Many players are going promotional, such as Ethan Allen Interiors (NYS: ETH) , which increased its advertising spending by 31% in its last quarter. What has La-Z-Boy been up to on this front?

La-Z-Boy's plans
La-Z-Boy has been paying heed to driving sales. As I mentioned in the previous quarter, its big promotional Brooke Shields campaign launched last year has been consistently boosting revenues. Following the success of the campaign, five new commercial roll-outs are being planned for the fall.

The Michigan-based company has also been revamping and opening new concept stores, with two stores added recently. As mentioned earlier, the 15 stores acquired some months back have contributed positively to sales. Further remodeling and expansions should add value to La-Z-Boy's business.

With cash equivalents increasing to $110.4 million from $93.1 million in the year-ago period and total debt-to-capital falling consistently over the last few quarters, La-Z-Boy doesn't look to be in a bad position to take on debt for expansion, if it has to.

The Foolish bottom line
While the first quarter was seasonally weak, fall is anticipated to bring in higher sales. Moreover, rising same-store sales and business growth-oriented moves are positive signs, and the stock may well be worth watching.

To stay up to speed on the top news and analysis on La-Z-Boy, or any other stock, click here to add it to your stock Watchlist.

At the time this article was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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