Why La-Z-Boy Stock Just Dropped
Key Points
La-Z-Boy beat on sales and earnings last night.
Profit margins declined, however, and Q4 guidance was a bit light.
La-Z-Boy (NYSE: LZB) stock tumbled 7.3% through 10:20 a.m. ET Wednesday despite beating on both sales and earnings last night.
Heading into the company's fiscal Q3 2026 report, analysts expected La-Z-Boy to earn $0.59 per share on $535.4 million in sales. La-Z-Boy actually earned $0.61 per share on sales of $541.6 million.
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La-Z-Boy Q3 earnings
La-Z-Boy grew its sales 4% year over year in Q3, with retail sales up 11% but wholesale only 1%. Earnings, however, were more of a disappointment than met the eye. While La-Z-Boy "beat earnings," its earnings under generally accepted accounting principles (GAAP) were only $0.52 per share -- not $0.61, which was a non-GAAP number.
Non-GAAP profits declined 10% year over year despite the sales increase. GAAP profits fell 24%, as La-Z-Boy's operating profit margin contracted 120 basis points to just 5.5%.
Is La-Z-Boy stock a buy?
The good news is that La-Z-Boy remains profitable, and its free cash flow is still on the incline. La-Z-Boy has generated $119 million so far in the first nine months of its fiscal 2026, up 61% year over year. Management hasn't said precisely what it expects to generate in Q4. It did forecast, however, that revenue will continue to rise sequentially to at least $560 million and that non-GAAP operating margins will improve.
This implies continued momentum in FCF generation. If we run rate out the money La-Z-Boy has generated so far this year, therefore, the company looks on course to generate at least $158 million in free cash flow this year. On a $1.5 billion market capitalization, that works out to a price-to-free cash flow ratio of less than 10.
Factor in a tidy 2.6% dividend yield, and La-Z-Boy stock looks comfortably cheap to me today.
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.