La-Z-Boy's Accretive Expansion Strategy Is Undervalued

Core Viewpoint - La-Z-Boy is strategically expanding its store network through acquisitions and organic growth, which has led to significant increases in operating income and a solid financial profile despite industry challenges [2][5][9]. Financial Performance - In FY2024, La-Z-Boy spent $39.4 million to acquire 11 Furniture Galleries stores and opened six new company-owned stores, with total capital expenditures of $53.6 million [2]. - Operating income rose from $30.4 million in FY2011 to $158.0 million in FY2024, reflecting a compound annual growth rate (CAGR) of 13.5% [2]. - The company's five-year average return on equity is 14.4% [2]. - La-Z-Boy's stock has appreciated approximately 64% over the past decade, with a current dividend yield of 2.22% [5]. Store Network Expansion - The total retail network expanded from 304 to 355 Furniture Galleries stores and from 526 to 528 Comfort Studios from FY2011 to FY2024 [6]. - La-Z-Boy now owns 187 Furniture Galleries stores, more than double the number from FY2011, with plans to continue acquiring 5-10 stores annually until at least FY2027 [6]. Industry Context - La-Z-Boy's revenue declined by 12.9% in FY2024, which is less severe compared to competitors experiencing declines over 20% [11]. - The company is positioned well to navigate current industry headwinds, leveraging a strong balance sheet with no interest-bearing debt and significant cash reserves of $347.9 million [11]. Future Outlook - The fair value estimate for La-Z-Boy's stock is $50.33, indicating a potential upside of 40% from the current stock price [4]. - Future growth is projected at 2% for FY2025, with a rebound to 7.5% growth in FY2026 as industry conditions improve [8]. - The company aims to achieve a double-digit operating margin as it continues to expand its retail network and acquire stores [18].