La-Z-Boy (LZB)

Furniture company La-Z-Boy (NYSE:LZB) announced better-than-expected revenue in Q1 CY2025, with sales up 3.1% year on year to $570.9 million. The company expects next quarter’s revenue to be around $500 million, close to analysts’ estimates. Its non-GAAP profit of $0.92 per share was 1.1% below analysts’ consensus estimates.

Company Overview

The prized possession of every mancave, La-Z-Boy (NYSE:LZB) is a furniture company specializing in recliners, sofas, and seats.

A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.

La-Z-Boy’s primary competitors include Ethan Allen Interiors (NYSE:ETH), Bassett Furniture Industries (NASDAQ:BSET), Haverty Furniture Companies (NYSE:HVT), Flexsteel Industries (NASDAQ:FLXS), and private company Ashley Furniture.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, La-Z-Boy’s 4.4% annualized revenue growth over the last five years was sluggish. This was below our standard for the consumer discretionary sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. La-Z-Boy’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.3% annually.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Wholesale and Retail, which are 23.8% and 76.2% of core revenues. Over the last two years, La-Z-Boy’s Wholesale revenue (sales to retailers) averaged 18.3% year-on-year declines while its Retail revenue (direct sales to consumers) averaged 15.7% declines.

This quarter, La-Z-Boy reported modest year-on-year revenue growth of 3.1% but beat Wall Street’s estimates by 2.2%. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.2% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

La-Z-Boy’s operating margin might fluctuated slightly over the last 12 months but has generally stayed the same, averaging 6.9% over the last two years. This profitability was paltry for a consumer discretionary business and caused by its suboptimal cost structure.

This quarter, La-Z-Boy generated an operating margin profit margin of 5.2%, down 3.9 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

La-Z-Boy’s EPS grew at an unimpressive 6.4% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 4.4% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

In Q1, La-Z-Boy reported EPS at $0.92, down from $0.95 in the same quarter last year. This print slightly missed analysts’ estimates. Over the next 12 months, Wall Street expects La-Z-Boy’s full-year EPS of $2.93 to grow 12.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

La-Z-Boy has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 6.8%, subpar for a consumer discretionary business.

La-Z-Boy’s free cash flow clocked in at $106.1 million in Q1, equivalent to a 18.6% margin. This result was good as its margin was 11.9 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict La-Z-Boy’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8.5% for the last 12 months will decrease to 4.7%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although La-Z-Boy hasn’t been the highest-quality company lately because of its poor top-line performance, it historically found a few growth initiatives that worked. Its five-year average ROIC was 18.1%, higher than most consumer discretionary businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, La-Z-Boy’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

La-Z-Boy reported $328.4 million of cash and $490.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $183.4 million of EBITDA over the last 12 months, we view La-Z-Boy’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $8.08 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see La-Z-Boy beat analysts’ revenue expectations this quarter. On the other hand, its EPS and EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $38.94 immediately after reporting.

Updated: July 27, 2025 at 10:39 PM EDT

Before making an investment decision, investors should account for La-Z-Boy’s business fundamentals and valuation in addition to what happened in the latest quarter.

La-Z-Boy doesn’t pass our quality test. For starters, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its solid ROIC suggests it has grown profitably in the past, the downside is its low free cash flow margins give it little breathing room. On top of that, its operating margins are low compared to other consumer discretionary companies.

La-Z-Boy’s P/E ratio based on the next 12 months is 11.7x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $46 on the company (compared to the current share price of $38.39).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.