La-Z-Boy Inc. (NYSE: LZB) stock dropped 7% after the home furnishings retailer reported earnings on August 20. The report itself was fine with revenue and earnings beating analysts’ expectations and revenue coming in higher year-over-year (YOY). 

The company also noted that its Wholesale segment was the key reason the company posted growth in delivered sales for the quarter. This is part of the company’s Century Vision channel expansion strategy that has goals of growing revenue at 2x the industry average and delivering double-digit operating margins.  

LZB stock recovered slightly on Friday. That was likely due to the speech by Federal Reserve chair Jerome Powell that all but clinched the idea of an interest rate cut in September. 

Investing in La-Z-Boy stock requires a belief that the housing market will recover in 2025 and beyond. On the company’s earnings call, chief financial officer Bob Lucian remarked, "The overall macroeconomic and consumer spending environment remains challenging ...Our industry will remain under pressure in the near term as the market contends with still-high interest rates, muted housing turnover and an uncertain economic and geopolitical environment." 

The Issue Facing Investors 

The largest driver for La-Z-Boy and many consumer discretionary stocks is the housing market. In the company’s earnings presentation, it cited data from The Home Depot Inc. (NYSE: HD) that forecasts a need for 3x the current rate of housing starts to close the 6.5 million single-family housing gap. The company also cited a Spring 2023 survey from Provoke Insights that found 68% of consumers planned to buy furniture in the next year.  

On the other hand, management acknowledged that the home furnishings industry remains under pressure. Traffic trends are lower, which reflects the impact of inflation and higher interest rates. But when you look at the company’s revenue in 2024 as opposed to 2021 and 2022, it’s clear that consumers continue to prioritize other discretionary items over home furnishings.  

Of course, looking backward is rarely helpful. The question for anyone who wants to get involved with LZB stock is what the future holds. The company expects marginal improvement in the second half of the year.  

That optimism may be due to the expectation of one or more interest rate cuts between September and December. To be clear, it will take months for the impact of those cuts to be felt by consumers. However, buyer behavior is often based more on perception than reality. If consumers feel better about the outlook for the market, they may be inclined to buy furniture.  

Does the Election Really Matter? 

Not surprisingly, La-Z-Boy stock hit a record high in 2021 when consumers were renovating the homes they had and buying new furniture during the great relocation.  

However, the last two years have seen declining earnings and revenue as the housing market has stagnated. This is about supply and demand and interest rates. It’s also about the consumer. But if you’re looking for clarity from the election, you may be disappointed. 

In mid-August, vice president Kamala Harris outlined a plan to provide $25,000 for select first-time homebuyers to use towards a downpayment. Harris also proposes having the government involved in building three million homes across the country. This would primarily take the form of tax incentives for home builders to build the smaller, more affordable starter homes that these homebuyers need. 

However, for that to happen, the federal government would likely have to release some of the land that it owns. The Biden administration, of which Harris is a part of, has expressed reluctance to do that. On the other hand, a second Trump term would likely be more open to such moves. That could also be what Harris is suggesting.  

Hold LZB Stock for Now 

Over the last five years, La-Z-Boy has rewarded investors with a total return of 43.45%. But it’s been a volatile five years. You've done much better if you bought LZB stock at its trough in early 2020. You've broken even if you bought it near its all-time high in 2021. Nevertheless, the stock is up 11.5% in 2024 and 14.9% since making a double-bottom pattern in May. 

Analysts don’t widely cover LZB stock and has a consensus rating of Hold with a consensus price target that forecasts a 4.3% upside. But the stock pays a reasonable dividend of 20 cents per share. And it should be noted that La-Z-Boy cut, but did not suspend, that dividend in 2020. Plus, with no debt on the company’s balance sheet, it’s likely the dividend will increase, perhaps as early as the next quarter.