Century Vision Strategy Will Strengthen Leading Furniture Brand

Key Takeaways

• La-Z-Boy's expansion through acquisitions and strategic partnerships aims to increase market presence and revenue by leveraging their strong brand.
  
• Investments in growth strategies and brand campaigns are expected to maintain margins and enhance revenue through heightened brand awareness.
  
• Challenges in the home furnishings industry, high mortgage rates, and international demand issues pressure La-Z-Boy's sales, margins, and profitability.

Catalysts

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

• La-Z-Boy's expansion strategy, including acquisitions of independent galleries and new store openings, is expected to drive revenue growth by increasing their retail footprint.
  
• The company's strong brand and execution in delivering high-quality, custom furniture quickly could enhance revenue and market share as consumers increasingly gravitate towards trusted brands.
  
• Strategic partnerships with major retailers are anticipated to boost sales by expanding the La-Z-Boy brand's presence in new markets and broadening its customer base, positively impacting revenue.
  
• Investments in the Century Vision growth strategy aim to maintain double-digit operating margins, which could lead to improved net margins as industry conditions recover.
  
• The continued success of the Long Live the Lazy brand campaign is expected to raise brand awareness, potentially driving higher sales and strengthening revenue growth over the long term.

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 6.0% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $153.3 million (and earnings per share of $3.81) by about December 2027, up from $124.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2027 earnings, up from 14.9x today. This future PE is greater than the current PE for the US Consumer Durables industry at 11.3x.
• Analysts expect the number of shares outstanding to decline by 0.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.47%, as per the Simply Wall St company report.

La-Z-Boy Future Earnings Per Share Growth

Risks

• The company faces challenges from a sluggish home furniture and furnishings industry, impacting their sales growth potential and possibly affecting future revenues.
  
• Higher mortgage rates and lack of housing affordability and availability remain significant issues, potentially restraining consumer spending on furniture, which could negatively impact revenue.
  
• The company's international Wholesale business is facing demand challenges and customer disruptions, leading to lower sales and impacting net margins negatively.
  
• Casegoods import business is under pressure due to macroeconomic challenges, contributing to margin compression and affecting net earnings.
  
• The company expects near-term margin compression from negative same-store sales trends and startup costs of new partnerships, potentially impacting net earnings and profitability.

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 2027, revenues will be $2.3 billion, earnings will come to $153.3 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of $44.65, the analyst's price target of $46.0 is 2.9% higher. The relatively low difference between the current share price and the analyst consensus 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.