La-Z-Z-Boy Financial Ratios

Financial Ratio Analysis: The Case of La-Z-Boy
La-Z-Boy (LZB) Incorporated manufactures, markets, imports, exports, distributes and retails upholstery furniture products. The Company's segments include the Upholstery segment, the Casegoods segment and the Retail segment.
Yahoo Finance classifies LZB as being part of Furniture industries1. The Furniture industry segment is very broad that includes beds, office furniture, lamps, sofas, etc. In this paper, we will compare LZB key stats to Industries Average and its peer group. The Fiscal Year (FY) for LZB ends on April 30th.
La-Z-Boy vs. Industry Average by Morningstar.com: The above Key Stats indicates LZB share’s price to earnings (P/E), books (P/B) and sales (P/S) are currently traded at
below the industry average. This may attract value investors but they need to be cautious. LZB seems a bargain at current P/E, P/B and P/S ratio but it is due to the financial results reported for the quarter ended July 31, 2017 (Q1) on August 23. LZB reported earnings per share (EPS) of $.04 cents below last year. LZB also reported weak guidance on future sales. This drove the stock to drop about 25% in a single day. Hence, this resulted in lower P/E, P/B and P/S compared to Industry average. Further, Return on Equity (ROE) compared to industry average also took a huge dive due to 25% drop in LZB stock price. ROE is a critical measure because it indicates how company’s leader uses its investor’s money3. On the other hand, Return on Asset (ROA) ratio shows 10.1 compared to industry average of 4. This indicates LZB management has been very effective in earning profit on its assets such as cash, accounts receivable, property, equipment, inventory and furniture3.
With recent softness in LZB sales, it has experienced slight drop in its operating gross margin. However, decline in margins were offset by improvements in working capital Days ratio. The company’s working capital days have fallen to 80.67 days from 85.86 days for the same period last year. Therefore, gross margin decline is not altogether bad4 because it reduced working capital days. Working capital days is a measure of liquidity, and the less days a company has of working capital, the less time it takes to convert that working capital into sales.
Further, LZB’s current ratio is 2.6 and 3.04 for the last 5 year average compared to 1.61 of furniture industry average4.
LZB’s quick ratio is 1.52 and five year average of 1.7 compared to .38 of industry average4. Both of these ratio reflects LZB is operating very efficiently and has sufficient capacity to meet its obligations using liquid assets that are in cash or other resources that can be converted to cash.
Moreover, it is critical to analyze a company’s operating cash flow against earnings numbers to measure whether its performance is sustainable. LZB’s change in operating cash flow of -42.71% year over year is about the same as its change in earnings at the end of quarter 1 of FY18. Also, this variation in operating cash flow is very comparable among its peer group. This suggests that the company did not use reserves to manage earnings and that, all else being equal, the earnings number is sustainable4. Finally, La-Z-Boy and Ethan Allen are the Apple and Samsung of the furniture industry. This report will be incomplete without the analysis of these two companies side by side. Below tables compares key financial ratios of both of this competitor. La-Z-Boy and Ethan Allen financial statements, Morning Star2 and Google finance5 are used to figure below
ratios.