Why La-Z-Boy Stock Just Dropped 12% – Nasdaq

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What happened

Shares of La-Z-Boy (NYSE: LZB) are down 12.3% as of 10:30 a.m. EST after the furniture maker reported an earnings miss last night.

Analysts had predicted La-Z-Boy would earn $0.55 per share, adjusted for one-time items, in its fiscal second quarter of 2020, on sales of $454.4 million. Sales actually came in at only $447.2 million, and adjusted profits were $0.52 per share.  

Image source: Getty Images.

So what

The news wasn’t all bad. While sales missed estimates, they were still up 2% in comparison to last year’s Q2. Operating profit margins inched up 10 basis points to 6.6%, and on the bottom line, GAAP net income was $0.48 per share — not quite as good as the company’s “adjusted” number, but still up a very respectable 14% year over year.  

CEO Kurt Darrow called the market for home furnishings “challenging” at present, but urged investors to focus on the company’s improved profit margin, as well as “strong cash flow and returns to shareholders.”

Now what

Cash flow from operations, by the way, is up 16.5% in the first half of this year, compared to last year’s first half. And with capital spending down 15%, that’s translating to 60% improvement in free cash flow in this year’s H1 — $30.8 million — cash that La-Z-Boy is using to boost its dividend yield by 8% to $0.56 per share.

Problem is, that still leaves La-Z-Boy paying a 1.8% dividend yield on its stock, which is below average for the S&P 500. If La-Z-Boy management wants to convince dividend investors to ignore its earnings misses and buy the stock for its dividend, it may have to do better than that.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.