Aging US Demographics And Retail Misalignments Will Shrink Margins

Key Takeaways

• Structural industry headwinds and misaligned store strategies will constrain La-Z-Boy's long-term growth, revenue trajectory, and margins.
  
• Brand perception, regulatory costs, and intense competition limit ability to attract younger consumers, achieve premium pricing, and ensure earnings growth.
  
• Strategic retail expansion, supply chain improvements, and brand innovation position La-Z-Boy for growth, improved margins, and resilience against market volatility.

Catalysts

Manufactures, markets, imports, exports, distributes, and retails upholstery furniture products in the United States, Canada, and internationally.

• La-Z-Boy faces structurally reduced growth prospects due to an aging US population in combination with declining rates of new household formation, which is expected to shrink the addressable furniture market in the coming years and directly constrain the company's long-term revenue trajectory.
  
• The company's core brick-and-mortar store expansion strategy is increasingly at odds with rising consumer preference for e-commerce and digitally-native direct-to-consumer brands, likely leading to increasing pressure on foot traffic, stagnant same-store sales, and potential misallocation of capital as physical expansion outpaces demand, ultimately weighing on both revenue growth and margins.
  
• Rising regulatory pressure and heightened scrutiny around environmental impact in manufacturing are anticipated to drive up ongoing compliance costs and capital expenditures for La-Z-Boy, further eroding gross margins and increasing the risk of unexpected cost inflation in the next several years.
  
• Persistent brand perception as an older, legacy recliner company limits La-Z-Boy's ability to attract younger consumer cohorts, which will constrain its market share and impede the company's capacity to command higher average selling prices or successfully execute premiumization strategies, thereby stagnating or reducing earnings power.
  
• Increased competition from low-cost Asian manufacturers and high levels of industry-wide discounting and oversupply are expected to suppress average selling prices and compress net margins, while growing product durability lengthens consumer replacement cycles, increasing the risk of sustained revenue stagnation and heightened earnings volatility for La-Z-Boy.

La-Z-Boy Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on La-Z-Boy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming La-Z-Boy's revenue will grow by 3.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.3% today to 5.5% in 3 years time.
• The bearish analysts expect earnings to reach $126.5 million (and earnings per share of $3.14) by about August 2028, up from $91.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, down from 16.5x today. This future PE is greater than the current PE for the US Consumer Durables industry at 11.8x.
• Analysts expect the number of shares outstanding to decline by 1.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.03%, as per the Simply Wall St company report.

La-Z-Boy Future Earnings Per Share Growth

Risks

• Ongoing expansion of the company's direct-to-consumer retail footprint and planned acquisitions in high-growth Southeast markets are likely to increase top-line revenue growth and improve operating leverage over time, especially as new stores ramp up to mature profitability within two to three years.
  
• La-Z-Boy's multiyear distribution transformation, which includes consolidating to three centralized hubs and enhancing supply chain agility, is expected to drive material long-term improvement in wholesale margins and cost efficiencies, supporting gross margin expansion and higher earnings.
  
• The company's strong financial position, including $319 million in cash, no external debt, and disciplined capital allocation toward investments and shareholder returns, provides the flexibility to invest through industry downturns and positions La-Z-Boy to capture outsized gains when consumer demand recovers, stabilizing cash flow and profitability.
  
• A clear strategic focus on innovation and brand modernization-including updated brand identity and expanded reach through both company-owned and independent stores-may enhance customer engagement, boost pricing power, and increase average selling prices, providing upward pressure on long-term revenue and gross margin.
  
• La-Z-Boy's vertically integrated North American manufacturing and supply chain insulates it from international tariff risk and enables responsiveness to local demand shifts, which can attract wholesale partners and consumers seeking reliability, thus protecting and potentially increasing market share and net margins over time.

Valuation

• The assumed bearish price target for La-Z-Boy is $36.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of La-Z-Boy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $46.0, and the most bearish reporting a price target of just $36.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $126.5 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $36.58, the bearish analyst price target of $36.0 is 1.6% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.