La-Z-Boy (LZB) was already facing trouble, but it became clear Nov. 14 that the furniture manufacturer has been hit hard by the slowdown in the housing market.
Shares were off 4.5% after the firm announced earnings of just 1 cent per share in its second quarter. That's 6 cents below analysts' expectations and down from 6 cents a year ago. The stock was already down 38% from a year ago.
Customers just weren't buying La-Z-Boy furniture. Total sales dropped 11.9% from a year ago to $365.4 million.
"The credit crunch, the troubled housing market, lower consumer confidence, cautionary discretionary spending, you name it, they have all impacted the consumer's desire to spend money on furniture purchases," Kurt Darrow, president and chief executive, told analysts Nov. 14.
The slowdown in home buying has hurt furniture sales, but sales have also been hurt by a slowdown in mortgage refinancing and home equity loans, says Morgan Keegan analyst Laura Champine.
Champine, who downgraded the stock from "market perform" to "underperform," says La-Z-Boy's troubles pre-date the currently slow housing and retail environment. For example, La-Z-Boy has lost market share to a flood of cheaper Chinese imports, she says. "We see no light at the end of this tunnel," she wrote.
Raymond James (RJF) analyst Budd Bugatch downgraded La-Z-Boy shares from "strong buy" to "market perform" on Nov. 14.
"While a portion of the miss can be attributed to broad-based weakness in the home furnishings category, company execution has been less than crisp," Bugatch wrote, citing big losses at La-Z-Boy's retail stores. (Raymond James seeks investment banking business from La-Z-Boy, which also has a non-investment-banking relationship with an affiliate of Morgan Keegan.)
In its earnings call, Darrow said La-Z-Boy has tried to adapt to "the massive change that has swept our industry over the past three years." The firm is trying to improve its La-Z-Boy stores, reorganize its warehouse and distribution system and launch new TV ads with the tag line "Comfort, it's what we do."
"We are aggressively managing our business and taking the necessary steps to grow our business profitably," Darrow said. "Unfortunately, the headwinds from the retail environment are making it difficult to see the fruits of our labor. There may be a long road ahead of us, but we are confident we are positioning our company for the future."
One positive for La-Z-Boy has been its high dividend yield, partly due to the steep drop in its stock price. The firm announced a quarterly dividend of 12 cents per share on Nov. 13. With shares trading near $7, they were providing a dividend yield of almost 6.8%.
But with earnings of just 1 cent per share in that same quarter, analysts wondered how long La-Z-Boy can keep up that generosity.