Monday, 22 July 2013

Take a seat with Lazy Boy

The US housing market is back! The amount of new homes being built has doubled from the bottom in 2009 (see chart below). This is a big improvement but starts have increased to what has been the trough for previous recessions. This suggests there is still substantial room for improvement given the population has increased 50% since the 1970's.

Source: Bloomberg

Home builder stocks have done well as the number of new home starts have increased. We feel that furniture stocks should benefit more going forward. The most famous furniture stock of all is Lazy Boy (LZB).  LZB is the leading global producer of reclining chairs and the second largest distributor in the US according to Furniture Today. The market value of LZB is just over $1 billion still quite small given they are the leading brand in the industry.

No sitting back and relaxing here
LZB had a tough time during the crisis cutting staff and resizing production. But today the company is stronger LZB can now manufacture the same amount of furniture in their five facilities as they did in nine factories five years ago.

                                                         Source: Lazy Boy annual report

LZB is now a different company as the graphs above suggest. Debt of $150 million has been paid down LZB now has net cash of $125 million. LZB currently has 878 stores with plans to increase to 1,000 outlets, over 87% of sales are just in the US. LZB also signed a deal last year with Kuka Home a large Chinese retailer to sell product in China. The stores will be owned by Kuka home but LZB will receive a portion of the profits.

Sit back, relax and enjoy the ride.


Disclosure: Decisive has no long position in Lazy Boy (LZB) stock
The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.