La-Z-Boy Do You Trust Inventory Valuation

La-Z-Boy (NYSE:LZB) announced Q4 and year end results. They are showing all the correct moves despite drops in revenues. Inventories are down, debt is being reduced, leverage is very low, cash is being generated, they are exiting expensive manufacturing and getting a plant going in Mexico. OK so why is this stock not doing better. The economy is terrible and people are not buying furniture. OK so let’s look at the future strategy and we see it’s still the same. They are relying on their own retail network and they are attempting to cut costs by going to Mexico. Basic business school stuff nothing outstanding.

But look at inventories. They seem to turn at about 8x to 9x latest annual sales. If you crank up Mexico to produce more cheaply and then face cut throat retail pricing pressures you will need to write down the inventory. So the question becomes why inventories were not yet written down. Is this a side door view of the costs in the Mexican plant?