2023-06-30 03:33:10 ET
Summary
- LZB recently posted disappointing Q4 FY23 and FY23 results, with a decline in sales and net income, attributed to weakness in its wholesale and joybird segments and challenging consumer trends.
- The stock is currently in a downtrend, trading below its 200 ema, with a strong support zone at the $22 level. The author suggests avoiding the stock until it either gives a strong closing above its 200 ema or reaches the support zone.
- I recommend not investing in LZB due to poor financials, weak market conditions, and stagnant revenue growth; hence I assign a hold rating on the stock.
La-Z-Boy Incorporated ( LZB ) manufactures upholstery furniture products and casegoods furniture products. They operate through retail, wholesale, and corporate segments. The company manufactures loveseats, sectionals, ottomans, recliners, and motion furniture. LZB recently posted its FY23 and Q4 FY23 results . In this report, I will analyze its quarterly and annual results. I think there is no solid reason to invest in LZB. Hence I assign a hold rating on LZB.
Financial Analysis
LZB recently announced its Q4 FY23 and FY23 results . The FY22 included 53 weeks of business compared to 52 weeks of business in FY23. The sales for Q4 FY23 were $561.2 million , a decline of 18% compared to Q4 FY22, and excluding the extra week of business in Q4 FY22, the sales were down 12%. I believe weakness in its wholesale and joybird [corporate & other] segments was the major reason behind its decline in sales. The sales from the wholesale segment declined by 23% in Q4 FY23 compared to Q4 FY22 and 17% after excluding the extra week. I believe the decline was mainly due to a decline in delivered volume as the backlog reached pre-pandemic levels. The sales from the joybird [corporate & other] segment declined by 31% in Q4 FY23 compared to Q4 FY22 and 25% after excluding the extra week. I believe weakness in e-commerce trends and lower unit volume due to lower consumer spending were the main reason behind the sales decline in the segment. The gross margin for Q4 FY23 was 46.3% which was 39.6% in Q4 FY22. The operating margin for Q4 FY23 was 9.6% which was 11.5% in Q4 FY22. I believe the decline in operating margin was mainly due to a decline in operating margins in the wholesale segment. I believe the deleveraging of fixed costs on the decreased unit volume impacted the margins in the wholesale segment. The net income also declined by 39.8% in Q4 FY23 compared to Q4 FY22.
LZB's Investor Relations
The sales in FY23 were flat compared to FY22. I believe sales in FY23 were impacted due to challenging consumer trends, which was amplified by the impact of the banking crisis. The net income in FY23 was also flat compared to FY22. I think the quarterly and annual result of LZB was poor. The revenues, margins, and net income all declined, and there weren’t any positives.
Technical Analysis
Trading View
LZB is trading at the level of $28.7. It is trading near but below its 200 ema, which shows it is currently in a downtrend. The stock has created a strong support zone at the $22 level, and the 200 ema is acting as a resistance zone for the stock. So currently, I don’t think there is a buying opportunity in the stock because the stock price is unable to cross its 200 ema. In my opinion buying opportunity will only arise if the price gives a strong closing above its 200 ema because it might be an indication of a trend change or if the stock price reaches the strong support zone of $22 because the price has touched the support zone three times since May 2022 and each time the stock has risen more than 40%. But until then, I think one should avoid the stock.
Should One Invest In LZB?
LZB posted disappointing financial results, but what makes it even worse is that in FY23, that had the advantage of reduced delivery lead times. Due to supply chain challenges, the company struggled in FY21 and FY22, but in FY23, they managed to tackle the issue, but still, the advantage didn’t reflect in their financial results, which shows that the weakness is still present in the market. In addition, the management has provided revenue guidance for Q1 FY24, which is around $480 million, which is 20.5% lower than Q1 FY23 and 17% lower than Q4 FY23. I think the revenue guidance is a matter of concern because the decline in revenues and poor financials could have an adverse impact on the share price of LZB. Hence I think it is not worth buying LZB now.
Now looking at LZB’s valuation. LZB has a Price / Sales [FWD] ratio of 0.60x compared to the sector ratio of 0.85x. It shows that LZB is undervalued, but despite being undervalued, I think one should not invest in it due to poor financials, weak market conditions, and stagnant revenue growth. Hence considering all the factors, I assign a hold rating on LZB.
Risk
Most wholesale customers receive payment terms from LZB that range from 15 to 60 days. Some of its customers have experienced cash flow and credit-related problems, which may occur again. It may not be possible to collect monies owing to them, or payment may only be made after a sizable delay if a large event with adverse economic repercussions occurs and such impacts have already occurred. Even though they assess their customers' creditworthiness, uncollectible trade accounts receivable may arise. Credit assessments require a great deal of management care and discretion, particularly in the current climate. They may have trouble collecting amounts owed to them by the customers if more than they anticipate; customers experience liquidity issues if payment is delayed if a customer files for bankruptcy, or if a customer closes stores, which could negatively affect their sales, earnings, financial condition, and liquidity.
Bottom Line
LZB posted disappointing financial results. Their revenue growth was stagnant, and margins declined. In addition, the management’s guidance suggests weakness might continue. Hence I think the share price might get impacted due to the weakness. Hence I assign a hold rating on LZB.
For further details see:
La-Z-Boy: There Is Still Weakness