Why La-Z-Boy Inc. Stock Dropped Today

By Markets Fool.com

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Image Source: La-Z-Boy.

What: Shares of furniture producer and retailer La-Z-Boy (NYSE: LZB) slumped on Wednesday following the release of the company's fiscal first-quarter report. La-Z-Boy missed analyst estimates on all fronts, driven in part by a decline in comparable sales at its furniture galleries. At 11:30 a.m. ET, the stock was down about 12%.

So what: La-Z-Boy reported first-quarter revenue of $340.8 million, down 0.2% year over year and about $18 million below the average analyst estimate. Across all furniture galleries, including both company-owned and dealer-owned stores, comparable sales declined by 1.9%. Total retail sales jumped 10.5% year over year to $95.7 million due to new stores, while the larger wholesale upholstery segment suffered a 1.9% revenue decline.

EPS came in at $0.28, up from $0.27 during the prior-year period but $0.01 lower than analyst expectations. Gross margin increased slightly, more than offsetting higher operating costs. The company repurchased more than 500,000 shares during the quarter, helping to boost per-share figures.

La-Z-Boy CEO Kurt L. Darrow highlighted the positives:

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Our manufacturing operations are runningefficiently and when combined with other supply chain initiatives, we drove improved profitability for the fiscal 2017 first quarter, increasing consolidated operating margin to 6.4%. While we experienced flat sales for the quarter due to weaker demand at wholesale and inconsistent traffic throughout the La-Z-Boy Furniture Galleries store system, we are in an excellent service position for both our dealers and the consumer as we approach the traditionally stronger fall selling season.

Now what: La-Z-Boy plans to continue its strategy of building out its company-owned network of stores, despite slumping comparable sales. During the first quarter, comparable sales at the 108 stores that the company owned at this time last year declined by 4.4%, a steep drop that was offset by additional stores being opened or acquired.

La-Z-Boy was trading near its all-time high prior to the earnings announcement, so the mix of good news and bad news was enough to send the stock lower. Going forward, the company will need to halt the comparable sales decline at its retail stores in order to get back on track.

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