La-Z-Boy Incorporated

Please stand by. Good day, ladies and gentlemen, and welcome to your Lazy Boy Fiscal 2020 First Quarter Results Conference Call. Today's conference is being recorded. All lines have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero. At this time, it is my pleasure to turn the floor over to Ms. Kathy Liebman, Director of Investor Relations. Ma'am, the floor is yours.

Thank you, Cynthia, and good morning. Thank you for joining us to discuss our fiscal 2020 first quarter results. With us this morning are Kurt Darrow, Lisey Boys Chairman, President, and Chief Executive Officer, and Melinda Whittington, CFO. Kurt will open and close the call, and Melinda will speak to the financials midway through. We'll then open the call to questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for one year. And a telephone replay of the call will be available for one week beginning this afternoon. Before we begin the presentation, I'd like to remind you that some statements made in today's call include forward-looking statements about Lazy Boy's future performance. Although we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to view those risk factors as well as other key information details in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page on our website, and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn over the call to Kurt Darrow, Lazy Boy's Chairman, President, and CEO. Kurt?

Thank you, Kathy, and good morning, everyone. After yesterday's market closed, we released solid fiscal 2020 first quarter results, demonstrating the strength of the Lazy Boy brand within today's challenging home furnishings environment, as well as the power of our global supply chain. Our retail segment delivered strong sales momentum and also nearly doubled operating profit. The broader Lazy Boy Furniture Galleries network posted increases in the first quarter written same-store sales on a one-, two-, and three-year basis. Within wholesale upholstery, while sales were flat, we still delivered gap operating margin of 9% and a non-gap operating margin of 9.5%. Additionally, we generated $19 million in cash from operating activities and returned $18 million to shareholders through share purchases and dividends. But before getting into a discussion of each operating segment, I would like to take a few minutes to share some of the highlights of our Lazy Boy branded business. With respect to the brand platform, the launch of our advertising campaign featuring new and Brand Ambassador Kristen Bell is on track. While early in the process, market research reveals that once customers have seen the campaign, they are more interested in and more likely to consider Lazy Boy. Additionally, the research highlights an uptick in those indicating the Lazy Boy brand is relevant to them and fits their style. During the quarter, we increased our marketing spend on the campaign launch and are confident the campaign will deliver strong results over time as we continue to invest in the strong brand equity of Lazy Boy. In other marketing news, we launched an augmented reality app for Apple mobile devices to deepen engagement with consumers as usage of the mobile channel increases in popularity. and we are also testing a virtual reality experience as part of the design program in select stores to better help consumers visualize the potential for their various rooms. On the product and innovation side, the wireless hand remote option for power motion furniture introduced in April has placed on retail floors above our expectations. Additionally, our eco-friendly conserved fabric, which contains at least 30% of recycled plastic bottles spun into yarn and averages 110 bottles per sofa, has met with great consumer response at the retail level, and our previously launched iClean stain-resistant fabrics are pacing at almost 25% of our total unit sales. These are great examples of our team working to bring innovative products to the market while addressing a customer need and preferences. I will now turn to our operating segments. First, our wholesale business. In the upholstery segment on flat sales, due principally to lower sales for our England subsidiary and our international business, gap operating margin improved to a solid 9% and non-GAAP operating margin increased to 9.5%, primarily due to lower raw material costs and supply chain efficiencies, which were offset by other increased costs. The non-GAAP margin primarily excludes charges for our supply chain optimization initiative announced two weeks ago and which I will review in a few minutes. In the case goods segment, On a 4.4% decline in sales, operating margin was 9.6%. Although we do source a majority of cases from Vietnam, orders from retailers are down in response to consumer reluctance to make purchases of bedroom and dining room furniture in this volatile tariff environment. Additionally, due to a fire at one of our major supplier's plants, We have experienced some inventory delays and some product, resulting in lower shipments for the quarter. This plan is back up and running, and while product is in the queue for production, we expect delays to last for another quarter or so. Now moving on to our retail segment. Our retail segment continues to deliver excellent results, driven by strong execution at the store level. Sales for the segment increased 19.9% and operating margin increased about 90%. On a GAAP basis, operating margin improved to 5.9% from 3.7% and non-GAAP operating margin increased to 6% from 3.8% in last year's first quarter. Delivered same-store sales increased 3.5% and margin performance is driven by improved leverage of fixed costs on the higher same-store sales. In addition to the core stores contributing to sales and operating margin improvement, performance for the period was driven by $19 million in sales from the 10 stores we acquired last August, nine of which are in Arizona. And as a note, these stores are not included in the delivered same-store sales number, but will begin to be next quarter. Across the broader Lazy Boy Furniture Gallery network, which includes both company-owned and dealer-owned stores, written same-store sales for the 352 Lazy Boy Furniture Gallery stores increased 4.7% in the first quarter. I am also pleased to report that since the Canadian Retaliatory Tariff on finished goods coming into the U.S. was lifted in May, sales have have begun to rebound, and for the first time since fiscal 18Q3, the Canadian Lazy Boy Furniture Gallery has posted a written same-store sales increase in line with the U.S.-based stores. Investing in our Lazy Boy Furniture Gallery store system remains of paramount importance as our core customer demonstrates a preference to shop in-store. Additionally, the stores provide the best opportunity to showcase our entire product line, provide comprehensive service, and excellent shopping experience. For the first quarter across the network, one new Z-Boy Furniture Gallery store was opened, four were remodeled, and two were closed. Projected activity for the full year includes more than 20 projects, and we plan to end the year with 358 stores. including five net new. Now let me spend a few minutes on Joybird, the e-commerce business we acquired last fiscal August. Joybird continues to exhibit fast-paced, top-line growth, and for Lazy Boy, it targets a new consumer through a new channel. For the quarter, Joybird delivered $17 million in sales, finishing out our first 12 months of ownership at about 76 million, up from the 55 million when we acquired the company last summer. Based on Joybird's growth trajectory to date, we see it tracking in the range of 95 to 100 million in delivered sales for fiscal 2020. Sequentially for the first quarter, Joybird sales were lower due to seasonality as expected. But marketing investments related to customer acquisition are fairly consistent quarter to quarter, and we were not able to leverage the spend with a sales decline in the quarter. However, written orders for the period were solid and in line with the pace of seasonality that we have seen in the prior quarters, indicating we should see a seasonal uptick in delivered sales in Q2. On the integration side, we are slightly behind on synergy realization with respect to cost savings, although our supply chain teams have made a lot of progress, increasing the Tijuana plant's capacity, delivering Tijuana-built product to our regional distribution centers, and manufacturing some Joybird product in our Dayton, Tennessee plant, all of which shorten lead times and lower costs. All of this translated to Joybird posting a larger operating loss for the first quarter than each of the prior three quarters of ownership. We still expect Joybird to be profit positive by the back half of the fiscal year, excluding purchase accounting adjustments, and we will continue to focus on striking the right balance between profits and reinvesting in the business to fuel growth. Now let me shift gears a little to address the supply chain optimization announcement made earlier this month. Over the past decade, we have done extensive work across our supply chain to improve efficiencies and productivity, which has increased our production capacity. With available capacity at our existing North American plants, we made the decision to close our smallest Lazy Boy branded facility in Redlands, California, and transition its production to two larger U.S. facilities. We also announced we would transition our leather cut-and-sewing operation from our Newton, Mississippi plant to our large cut-and-sew center in Mexico, which was opened 10 years ago and where we employ 1,500 people to make approximately 25,000 kits per week. These moves are expected to cost $5 to $7 million pre-tax in fiscal 2020 and will be excluded in our non-GAAP results. We then anticipate ongoing annual savings of $4 to $6 million pre-tax beginning in fiscal 21. We do regret the impact to those employees impacted. We greatly appreciate their contributions and thank each of them for their years of dedicated service. We will provide outplacement assistance to them during this transition period. While these decisions are not easy to make, they are the right moves for the company for the long term as we further optimize operations and strengthen our competitive positioning in the marketplace. Our commitment to service remains strong, and our dealers and their consumers will continue to receive excellent service with quick and on-time deliveries as we transfer these operations. With 3.7 million square feet of North American manufacturing space for the Lazy Boy branded product and about 5,000 employees in those facilities, we do have the capacity to not only service the existing business, but expand our volume as we execute our growth strategies. And finally, before turning the call over to Melinda, I'll address tariffs because it seems that we can't have a quarter without a word on tariffs. As mentioned earlier, the 10% retaliatory tariff on finished goods going into Canada was lifted in May, and we are already seeing that business begin to rebound. Regarding tariffs on materials coming from China, on June 1st, we increased our pass-through charge on product to account for the increase in tariff on these goods from 10% to 25%. As discussed in prior quarters, this tariff impacts several items we source, including most of our cover for our upholstered product. As a reminder for Lazy Boy, approximately two-thirds of our cover is converted into cut-and-sew kits in our Mexican-based facility and is therefore not subject to the Chinese tariff, leaving just one-third of the kits subject to the tariff. While the current tariff is at 25%, Due to our supply chain strategy, our pass-through charge to customers is roughly only 3.5% on non-powered upholstery and about 4% on powered products, positioning us well from a competitive standpoint. Thus far, although it's still fairly early, we have not seen any material impact to demand elasticity. The new List 4 10% tariff has got some going effect on September 1st, includes a small amount of components that we import, and we do not expect a material impact from this new tariff. And finally, for our case goods business, we have an all-import model with the majority of our wood furniture sourced from Vietnam, so those goods are not subject to tariffs either. We do, however, source some smaller occasional tables from China, which are subject to the 25% tariff. As mentioned earlier, we are seeing a dampening of demand for case goods across the industry as a result of tariff rhetoric in the marketplace and its effect on the consumer's inclination to purchase bedroom and dining room furniture. I will now turn over the call to Melinda to review our financials.

Thanks, Kurt, and good morning, everyone. As always, let me remind you that we are presenting our results on both a GAAP and non-GAAP basis. Non-GAAP results continue to exclude purchase accounting adjustments for our acquisitions, and we are now also including the one-time charges related to our supply chain optimization initiative that Curt discussed a moment ago. We believe this non-GAAP presentation better reflects underlying operating trends and performance of the business. For the fiscal 21st quarter, We recorded $1.5 million or 2 cents per diluted share in purchase accounting charges, the majority of which related to the acquisition of Joybird, which is reflected in corporate and other. We also recorded $1.5 million or 2 cents per diluted share for severance charges related to our global supply chain optimization initiative, which is reflected in our upholstery segment. And, as always, A full reconciliation of gap to non-gap is included in our press release and in the appendix section at the end of our conference call slides. Moving to consolidated first quarter results, sales increased 7.5% to $414 million, reflecting strong retail performance, a combination of core growth and the August 2018 addition of the Arizona-based Lazy Boy Furniture Galleries. as well as the impact of Joybird, which we acquired in fiscal August 2018. GAAP consolidated operating income was $23.4 million versus $23.2 million in the prior year quarter. Excluding purchase accounting charges and the charge for our supply chain optimization initiative, non-GAAP consolidated operating income increased to $26.2 million from $23.3 million in last year's quarter. Consolidated operating margin on a GAAP basis was 5.7% versus 6% in last year's quarter, and non-GAAP consolidated operating margin was 6.3% versus 6.1, primarily driven by favorable raw material prices in the upholstery segment and higher leverage of fixed costs in our retail segment. These benefits were partially offset by changes to our consolidated business mix, with the acquisition of Joybird and the growth of our retail segment, as we have discussed previously. This created a 160 basis point drag to operating margin, the combination of 300 basis points higher SG&A partially offset by a gross margin benefit of 140 basis points from the mix. Additionally, as Kurt noted earlier, Joybird's operating loss for the quarter was larger than each of the prior three quarters, and this had a more significant drag on profit than in the prior periods. GAAP earnings per diluted share for fiscal 2020 first quarter were 38 cents versus 39 cents in the prior year period. Non-GAAP EPS was 42 cents per diluted share in the current year quarter versus 39 cents in last year's first quarter. As a reminder, GAAP and non-GAAP EPS for fiscal 2019 first quarter included a $0.03 per share benefit from currency changes. And non-GAAP results for fiscal 2020 first quarter exclude charges of $0.02 per share for purchase accounting and $0.02 per share related to severance for the company's supply chain optimization initiative. Digging into the results a bit more deeply, first quarter consolidated GAAP gross margin increased 200 basis points and non-GAAP gross margin increased 230 basis points. Again, the gross margin increase was due to changes in our consolidated business mix, driven by growth in our retail segment and the contribution from Joybird, both of which carry higher gross margin than our wholesale businesses, as well as improved gross margin in our upholstery segment. primarily due to lower raw material prices and supply chain efficiencies which offset other higher input costs. GAAP results also include the recognition of the severance liability for our supply chain optimization initiative that resulted in a gross margin decrease of 40 basis points. Moving to SG&A, GAAP SG&A as a percent of sales increased 230 basis points in the fiscal 2020 first quarter compared with last year's comparable quarter. And non-GAAP SG&A increased 20 basis points, adjusted for acquisition-related costs for Joybird. Changes in our consolidated business mix increased SG&A as a percent of sales by 300 basis points for the quarter, reflecting the growth of retail and the addition of Joybird. This impact was partially offset by fixed cost leverage on higher sales volume in our retail segment. Our effective tax rate for the first quarter was 22% compared to 22.8% in the prior year period. Absent discrete items, the effective tax rate in fiscal 20 first quarter would have been 25.2%. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. and we continue to estimate our effective tax rate, excluding discrete items, will be in the range of 25 to 26% for the full fiscal year. Turning to cash, we generated $19 million in cash from operating activities in the quarter. We ended the period with $114 million in cash, cash equivalents and restricted cash, and $33 million in investments to enhance returns on cash. During the quarter, we invested $12 million in capital, primarily related to machinery, equipment, and upgrades to our Dayton manufacturing facility. We also paid $6 million in dividends and spent $12 million purchasing 400,000 shares of stock in the open market under our existing authorized share repurchase program, which leaves 5.5 million shares of purchase availability under that authorization. Our capital allocation priorities remain to invest in the business to drive growth, and then provide return to shareholders with our dividends and discretionary share buyback. We continue to expect capital expenditures for the fiscal 2020 year to be in the range of $50 to $60 million, primarily related to plant upgrades and improvements to several of our retail stores. On the balance sheet, The company adopted the FASB's new leasing standard during the quarter, which resulted in an increase in assets and liabilities of $314 million. Under this standard, the lessee is required to record an asset for the right to use the underlying asset for the lease term and a corresponding discounted liability for the contractual lease payments. And finally, before I turn the call back to Kurt, I'll remind you of several items for fiscal 2020, which we also mentioned in our last quarterly call. We will continue with our non-GAAP presentation, excluding purchase accounting adjustments, as well as the charges related to our recently announced supply chain optimization initiative. For acquisitions to date, adjustments are anticipated to be in the range of 8 to 10 cents per share for fiscal 2020, spread roughly evenly across the quarters. plus any effect from revaluation of the contingent consideration liability for future earnouts on Joybird, where the payout could range from zero to $65 million, as we've discussed in previous quarters. Additionally, in non-GAAP, for our supply chain optimization initiative, charges are expected to be in the range of eight to 11 cents per diluted share for the year, spread roughly evenly across the four quarters of fiscal 2020. As we work through the operational changes associated with this initiative, we do not anticipate any material benefits in this fiscal year, but we expect to realize ongoing operational savings of $4 to $6 million pre-tax annually beginning in fiscal 2021, a portion of which we expect to reinvest back into our businesses. On tariffs, As we've mentioned, the tariff environment remains volatile and uncertain, and we plan to continue to pass through tariffs as a surcharge on our wholesale business, resulting in higher selling prices but with some risk to elasticity. Regarding mix, as we've noted, our change in consolidated sales mix may affect the seasonality of consolidated results. With Joybird and the growth of our retail segment, Third quarter consolidated sales could outpace or be level with fourth quarter, which has historically been our largest quarter. Regarding SG&A cost trends, we would again note the impact of changes in our consolidated business mix, with retail growing and the acquisition of Joybird. This mixed impact for the full year is expected to be an SG&A increase in the range of 100 to 150 basis points, the majority of which was realized in Q1 given timing of the Arizona and Joybird acquisitions. And finally, for comparability, on the back half of the year, fiscal 2019 included a one-time $0.04 per share net benefit for changes to our employee benefits programs. This was comprised of a $0.07 benefit in Q3 and a $0.03 charge in Q4 of fiscal 2019. and now I'll turn the call back to Kurt for his concluding remarks.

Thank you, Melinda. The home furnishings environment remains challenging amid tariff uncertainty, geopolitical concerns, stock market volatility in addition to ups and downs of the Consumer Confidence Index over the past couple of months. But against that backdrop, we continue to believe Lazy Boy is competitively well-positioned with a strong brand multi-channel distribution, including a growing retail business and a world-class supply chain, which we continue to strengthen. Additionally, we are optimistic about the long-term growth prospects for Joybird as our e-commerce strategy and business evolve. With a strong balance sheet, we will continue to make prudent and strategic investments to deliver long-term performance and provide returns to our shareholders. We do thank you for your interest in Lazy Boy Incorporated, and we will turn over the call to Kathy to provide instructions for getting into the queue for questions. Thank you again.

Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. Questions will be taken in the order they were received. If you are using a speakerphone, we ask that while posing your question, You pick up your handset to provide favorable sound quality. If at any time your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, if you do have a question or comment, please press star 1 on your telephone keypad at this time. Please hold while we poll for questions. Our first question comes from John Baugh of Stiefel. Please state your question.

Thank you, good morning, and congrats on a good quarter in a tough environment. I'll jump right in. I'm particularly intrigued by the seeming spread of performance between the Lazy Boy upholstery brands and England. What do you think that's attributable to?

Well, good morning, John. You know, I think the Lazy Boy stores have... performed very well. In fact, we've had seven of the last eight quarters in the system with same-store sales comp, which is not the trend in the industry. And I think our consistency to floor execution, investing in the brand, having some innovative products, I think a lot of that is what's setting us apart. So England does not sell any product to the Lazy Boy stores, and our wholesale business is not as strong as we'd like it to be right now, but I think it's reflective of a lot of the general trade that is having a little more difficult time, and it reflects in England's number, because that's who is their main customer. Okay.

You mentioned Kristen Bell and it's on track. I'm curious, where are you with that advertising rollout and what, if any, clarity or correlation have you seen with that campaign and traffic or sales in the Lazy Boy Branded stores?

First of all, I would say we're very pleased with the launch. We're very pleased with the way she comes across on media. A lot of additional coverage in social media, which we never had before. But frankly, John, it's been 90 days, and we only launched her in May. And it's going to take a time to really – we've got some early reads, but we will give you some more color later in the year when we have more time. with her on the air. We'll spend considerably more money in the back half of the year on marketing due to the seasonality and the holidays, so we'll get more exposure. We're getting great reviews on her from customers that love her personality and that she comes across as a very authentic spokesperson, but it's too early to really Say anything that we would read is a definite trend yet.

Okay. And then quickly, you mentioned Canada. Could you remind us again what the prices went up and it sounds like they came back down and what you've learned about the elasticity as it relates to Canada and cost or prices?

Well, I wish it was that simple because there are two factors. So the Canadian retailers... were paying all the tariffs that a U.S. dealer would pay on finished goods coming up to their country. And then the retaliatory tariff came into effect, which was 10%. And that seems bad, but when the Canadian dollar was $1.40 to $1, you combine the two of them, it was extremely difficult. So I haven't looked in the last week or two about the currency difference, but just having that tariff come off has to be a big relief, and it showed up immediately. So, yeah, there is a point where, and, you know, we're feeling fairly good right now about only passing on 3% to 4%, but if we had to pass on 25% or 30%, I'm sure it would have a huge impact to our volume. and that's what they experienced.

And keep in mind the Chinese tariffs are on component parts so that 25 as Kurt said becomes a 3.5-4% uptick for us. That Canadian tariff was a finished goods tariff so that was 10% of the entire value of a finished goods product.

Okay. That's helpful. And lastly, just quickly you mentioned international. Is that the UK or other parts? What's a What's low and how much of a drag is that on the overall upholstery business?

Well, it's actually everywhere, John. It's with our Asian business. It's with our European business, particularly the U.K. There's just so much uncertainty. But on the overall basis, the international business is not that big of a – Part of our sales mix, so a hiccup there is not, I would say, material, but we like it a lot better when they're contributing positively than negatively. Understood.

Congrats again, and I'll defer to others. Thank you, John.

Our next question comes from Brad Thomas of KeyBank Capital Markets. Please state your question.

Hi, good morning, Kurt, Melinda, and Kathy, and let me add my congratulations as well on a good quarter here.

Thank you. Thank you.

I just want to follow up on some of John's questions and maybe talking about trends here in the United States. You know, obviously very strong results out of your Lazy Boy network, and I guess I was hoping you could help us to think about how some of the U.S., You know, dealerships, major dealers, minor dealers, smaller dealers have been performing. Are they adding additional Lazy Boy floor space? Where are their inventory levels? How are they doing if you kind of piece apart some of the international headwinds that you're seeing in that upholstery division?

I think I'd answer that, Brad, in a couple of ways. One, since we own 40% of the stores and and our independent dealers report in a lot of data so that we know what's going on. I can speak chapter and verse about what's happening inside the 355 Lazy Boy stores, but when it comes to our other 2,500 dealers, exactly what they're doing from day to day, their metrics, we can tell how much they buy from us, having any insight into the inventory levels that they carry. We just don't have that kind of data. But we have seen a trend, particularly the smaller dealers in rural America, we have seen a trend of them struggling more with the cost of doing business, trying to keep their websites up to date, doing all the things that is required today of marketing furniture. And so I think that is part of the problem, the impact that the e-commerce channels have had on the business and the share they've taken. But we have, and I'm not casting a shadow on the entire point, we have dealers that are independent dealers, both big and small, who are having solid growth with us, and we have ones going the other way. The net result is in the aggregate, if you take out the lazy boy stores, we're not seeing the growth that we've been accustomed to.

That's helpful. And if I could move over to margins, I think the upholstery segment had an 80 basis point benefit from raw materials. I guess, could you talk a little bit about the cadence of that? Is that a tailwind that could get bigger over the next couple of quarters, or is this a run rate that may continue at this pace going forward? How should we think about that?

Clearly, we're very pleased with the margins we were able to achieve in upholstery this quarter on essentially a flat top line. We mentioned coming into three months ago, well, I guess it was only two months ago, given that you're in, but We talked about the fact that we would see some tailwinds from raw materials, but we continue to see other cost increases between people costs, healthcare costs, transportation, and so forth. And so we're very pleased with how we were able to offset those costs with other supply chain efficiencies. In the quarter, but looking forward, there's a lot of uncertainty out there, as has certainly been the topic of the conversation. And volume in the end cures a lot of evils. And so we need to continue to see the strong business top line to be able to consistently deliver on those strong bottom lines, both for upholstery and our retail business.

That's helpful. Thank you so much.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. We will take our next question from Anthony Libodzinski with Sidoti & Company. Please state your question.

Yes, good morning, and thank you for taking the question. So, first, I just wanted to get a better sense as to the same-store sales traffic versus unit volume, if you could provide some color on that.

Good morning, Anthony. So our traffic is trending up, and we are as is our close rate and our average ticket. So those are the three big drivers. We're doing more in-home design. We're selling more room packages, and that is driving the ticket. And with less customers coming into stores nationally over the last few years. Conversion has been a big focus of ours to be sure we maximize the share of wallet of every customer that comes through the doors.

In terms of the penetration level of your in-home design, where are you guys now at?

I think across the network it It is in the low 30% of our sales, certainly not 30% of our customers, but 30% of our sales delivers a huge dollar value to our – a small percentage of our customer delivers a high 30% dollar value to our total revenue.

Got it. Okay. And then switching over to Joybird – Are you already making products from Dayton, Tennessee? And if you are, what percentage of the product sales are flowing through that?

We are making some of their best sellers in our plant in Tennessee. A lot of that effort has gone to getting our regional distribution centers that support our retail business stocked with the Joybird product. and I think we'll report at the end of the next quarter that a lot more has started to go out to the consumer as we ramp up the transition. And the teams are working incredibly hard to make this transition, but getting to different companies and different systems and different ways to go to market 100% in sync overnight doesn't happen. We're confident we'll get it worked out. There's great cooperation and learnings on both sides, but there's still a lot of work to do, and one of the reasons we're a little bit behind is just because of the complexity is our systems have to be integrated, and that's taken longer than we anticipated.

Understood. And lastly, just longer term strategically, how are you thinking about your store base? Just, you know, given overall the traffic trends across retail with less foot traffic, just longer term, just any updated thoughts on your store base?

I believe that we still feel we have the opportunity to grow the store base to eventually 400 stores someday. And as I mentioned earlier, we have... experienced seven of the last eight quarters of same-store sales growth throughout the network. Our dealers are investing in remodeling their stores, opening new stores. The company is. But it's not easy, and there's no guarantee what's happening today is going to continue in the future. But if you don't invest in your stores, if you don't update them, if you don't have compelling product or a message, It's going to be tougher and tougher for you to perform well, and we keep working at everything we do in our retail business one step at a time. There is no single silver bullet. It takes a combination of a number of things, but we don't think retail is going away. We think perhaps some inefficient or bad retail probably will, but our customer today It could be different in 10 years, but our customer day continues to tell us she likes to shop at our stores. And so we are continuing to foster that and try to build as big a retail network as is prudent.

Got it. Well, thank you very much and best of luck. Thank you, Anthony.

There appear to be no further questions at this time. I will now turn the conference back over to Kathy Liebman for closing comments.

Again, thank you for your participation in our call this morning. Should you have follow-up questions, please stay in touch with me. Thanks again and have a great day.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time and have a great day.