Century Vision Strategy Will Expand Brand And Network For Sustainable Success

Key Takeaways

• La-Z-Boy's strategic growth initiatives focus on retail expansion and supply chain improvements for sustainable revenue increases and gross margin expansion.
  
• The company's robust financial position enables capital return to shareholders, potentially boosting EPS through share buybacks and dividends.
  
• Challenging market conditions and international disruptions, alongside expansion costs, tariffs, and operational inefficiencies, present significant pressures on La-Z-Boy's margins and earnings.

Catalysts

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

• La-Z-Boy's Century Vision strategy aims to drive top-line growth at a pace double the market, setting the company up for sustainable revenue increases over the long term through brand and network expansion.
  
• The company is expanding its retail segment by increasing the number of company-owned La-Z-Boy Furniture Galleries stores, which is expected to immediately bolster profitability and contribute to net margin improvements.
  
• Significant investment in a more agile supply chain and manufacturing efficiency improvements are positioned to drive gross margin expansion and enhance earnings resilience.
  
• La-Z-Boy's focus on enhancing brand reach through strategic partnerships and marketing campaigns is poised to fuel higher revenue growth by attracting a broader consumer base, including younger demographics.
  
• The company maintains a strong balance sheet with no externally funded debt and plans to return capital to shareholders, potentially increasing EPS via share repurchases and dividends.

La-Z-Boy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming La-Z-Boy's revenue will grow by 3.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.9% today to 6.6% in 3 years time.
• Analysts expect earnings to reach $150.4 million (and earnings per share of $3.74) by about March 2028, up from $123.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 13.7x today. This future PE is greater than the current PE for the US Consumer Durables industry at 10.6x.
• Analysts expect the number of shares outstanding to decline by 3.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.04%, as per the Simply Wall St company report.

La-Z-Boy Future Earnings Per Share Growth

Risks

• The furniture industry is currently challenged by low existing home sales and high mortgage rates, impacting overall market demand and potentially affecting La-Z-Boy's revenue growth.
  
• La-Z-Boy is experiencing significant disruptions in its international business due to a customer transition in the U.K., which could negatively impact wholesale segment earnings.
  
• The company is expanding into new stores, leading to initial higher costs from increased selling expenses and fixed costs, which may pressure net margins in the short term.
  
• Tariffs and global trade policy changes present external risks that could increase operating costs and affect La-Z-Boy's supply chain, impacting overall earnings.
  
• Despite progress, La-Z-Boy’s international segment struggles with profitability and operational efficiency, potentially leading to continued pressures on net margins and consolidated earnings.

Valuation

• The analysts have a consensus price target of $46.0 for La-Z-Boy based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.3 billion, earnings will come to $150.4 million, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of $41.12, the analyst price target of $46.0 is 10.6% higher.
  
• 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.