La-Z-Boy: A Seat at the Value Investing Table

La-Z-Boy (NYSE:LZB) has quietly positioned itself as a compelling value play amid temporary operational challenges. Recent quarterly results reveal a company navigating near-term headwinds while demonstrating resilience in sales growth and margin recovery potential. For investors willing to look past short-term noise, La-Z-Boy's conservative accounting practices, improving revenue trends, and manageable valuation suggest a compelling entry point.

Conservative Accounting: Transparency Amid Turbulence

La-Z-Boy's financial reporting offers a rare virtue in today's earnings landscape: transparency. The company has consistently highlighted unusual items dragging margins, such as tariff-related import costs and fixed-cost deleverage in international operations. For instance, Q2 2025's non-GAAP operating margin fell 40 basis points to 7.5%, primarily due to these temporary factors. By isolating these costs in their disclosures, La-Z-Boy avoids painting an overly optimistic picture, which builds credibility.

This conservative approach contrasts with peers that might bury such expenses in vague line items. Instead, La-Z-Boy's clarity creates a roadmap for investors: once these one-time costs subside, margins should rebound.

Temporary Headwinds: A Short-Term Detour

The most significant drag on margins stems from casegoods import challenges and temporary disruptions in international wholesale. These issues, while painful, are not structural. For example:
- North American manufacturing insulates La-Z-Boy from tariff volatility, as highlighted in their strategy.
- Fixed costs in new stores and Joybird's scaling phase will diminish as these investments reach scale.

Meanwhile, foreign exchange impacts and industry-wide softness in furniture demand (due to housing affordability and mortgage rate headwinds) are macroeconomic factors expected to stabilize over time.

Improving Revenue Trends: Growth Anchored in Retail and Joybird

Despite the margin pressures, La-Z-Boy delivered a 2% sales beat in Q2 2025, with consolidated delivered sales of $521 million—exceeding analyst estimates of $506 million. Key drivers include:
1. Retail Segment Strength:
- 3% sales growth, fueled by five new stores and Labor Day sales records.
- Written same-store sales dipped 1%, but average ticket sizes and conversion rates rose, signaling consumer preference for La-Z-Boy's premium value proposition.

1. Joybird's Sustained Momentum:

2. Delivered sales surged 20% to $39 million, with the brand now breakeven on an operating basis. Joybird's focus on online-first, modern design aligns with shifting consumer preferences.

3. Wholesale Resilience:

4. Domestic deliveries grew, offsetting international softness. Management expects this division to stabilize as customer disruptions resolve.

Valuation: A Discounted Champion

At current levels, La-Z-Boy trades at 9.2x trailing 12-month earnings, well below its five-year average of 13.4x. With $303 million in cash and no debt, the balance sheet is pristine. Even under conservative estimates of $3.50 EPS by 2026 (factoring in margin recovery), the stock offers a compelling single-digit P/E multiple.

Catalysts for Margin Recovery

1. Reduced One-Time Costs:

2. The $39 million in special charges in 2024 (e.g., store relocations and Joybird integration) are largely behind the company.

3. Share Buybacks and Dividends:

4. La-Z-Boy has returned $70 million to shareholders in the first half of 2025, with a 10% dividend hike underscoring confidence in cash flow.

5. Operational Leverage:

6. As new stores and Joybird scale, fixed costs will dilute, improving margins. Management aims for high-single-digit operating margins in Retail by 2026.

Investment Thesis

La-Z-Boy is a classic value opportunity. The stock's dip reflects temporary challenges, not long-term viability. With organic sales growth, a restructuring-driven margin rebound, and a debt-free balance sheet, the company is poised to outperform once macro headwinds ease.

Buy Below $28: At current prices (~$25), LZB offers a margin of safety. Investors should look to add positions ahead of Q4's holiday sales, a critical period for furniture demand.

Hold Above $28: Monitor margin trends and Joybird's expansion. A sustained return to double-digit EPS growth would justify a re-rating.

Conclusion

La-Z-Boy's conservative accounting practices and temporary headwinds have masked its underlying strength. With improving sales momentum, a disciplined capital allocation strategy, and a valuation that ignores its turnaround potential, this is a stock to consider for patient investors. As one-time costs fade, LZB could recline into a standout performer in the coming quarters.