La-Z-Boy Incorporated

Ladies and gentlemen, hello, and thank you for joining this Lazy Boy Fiscal 2020 Third Quarter Results Conference Call. All participants are in a listen-only mode, but you will have the opportunity to ask questions after today's presentation. With that, I'm pleased to turn the floor over to your host, Kathy Liebman. Welcome, Kathy.

Thank you, Jim, and good morning. Thank you for joining us to discuss our Fiscal 2020 Third Quarter Results. With us this morning are Kurt Darrow, Lazy Boy's 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 the 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 review those risk factors as well as other key information will be detailed in our SEC filing. Also, our earnings release is available under the News and Events tab on the Investor Relations page of 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'll now turn over the call to Curt Darrow, Lazy Boys Chairman, President, and Chief Executive Officer.

Thank you, Kathy, and good morning, everyone. Following yesterday's close of market, we reported strong third-quarter results, which included an increase in sales to $476 million, a double-digit gap consolidated operating margin, double-digit upholstery margins, operating cash generation of $66 million, and 19 million returned to shareholders through dividends and share purchases. Our performance for the period reflects the ongoing strength of the Lazy Boy brand coupled with our powerful global supply chain. Against the entire North America, across the entire North America Lazy Boy Furniture Gallery network, written sales, written same store sales increased 10.5% The fourth consecutive quarterly increase and our company-owned retail segment turned in its seventh consecutive quarterly increase in delivered same-store sales. Looking at our results fiscal year to date, consolidated sales are up 3.5%, delivered sales for our company-owned retail segment are 9.7% higher, and written same-store sales for the Lazy Boy Furniture Gallery Network are up 6.4%, all in all, a very solid performance. With consumer confidence remaining high, interest rates low, and positive housing trends on the macro side, we believe we are well positioned to capture market share in this environment with our strong brand, our vibrant Lazy Boy Furniture Gallery system, with vast custom offering and speed to market promise. I will now walk you through our operating results by segment, then we'll start with our retail segment, given its ongoing excellent performance. Our retail segment continues to deliver excellent results, driven by improved traffic trends, an ongoing strong execution at the store level, increased design sales, selling more complete room groups, and improved engagement with consumers. Sales for this segment increased 5.1%, to 167 million and delivered same-store sales increase of 5.5%, the seventh consecutive quarterly increase as we noted earlier. On a GAAP basis, operating margin improved to 9.8% from 8.9% in last year's third quarter, and on a non-GAAP operating basis, it increased to 9.8% from 9.1%. Across the broader store network, which includes both company-owned and dealer-owned stores, written savings store sales for the 355 Lazy Boy Furniture Gallery stores increased 10.5% for the third quarter. We believe this excellent performance reflects the strength of the Lazy Boy brand, the positive impact our marketing platform featuring Kristen Bell, which I'll talk a little bit more about in a moment, and our broad array of odd trend furniture coupled with our design program. The results also reflect positive momentum in Canada for the quarter and year to date. The strength across the store system demonstrates our core customer's preference to shop in store, fueling our objective as well as our dealers to continually invest in the Lazy Boy Furniture Gallery program. For the third quarter across the network, three new stores were opened, three were remodeled, one was relocated, and one was closed. For the fourth quarter, plans are to open one new store, relocate one, remodel one, and close two, ending the year with 354 Lazy Boy Furniture Gallery stores, with 152 in the new concept. Now on to our wholesale business. In the upholstery segment on sales of $337 million, GAAP operating margin increased to 13.8% from 10.3% in last year's third quarter, and non-GAAP operating margin increased to 11.2% up from 10.3%, reflecting supply chain inflationary pressures more than offset by efficiencies and lower raw materials. Our down gap operating margin primarily excludes the net benefit of $8.7 million related to our supply chain optimization initiative announced in August, most of which relates to income from the sales of our Redlands, California facility. Recall, as part of our plan, we closed the Redlands Lazy Boy branded upholstery facility and shifted production to our Neosho, Missouri and Siloam Springs, Arkansas plants. We also transitioned our leather cut-and-sew operations from our Mississippi facility to our large cut-and-sew center in Mexico. Although these moves include short-term costs, we believe they will allow us to further optimize operations, strengthen our competitive positioning in the marketplace over time, and will provide ongoing annual savings. On the commercial side of the business, we continue to see momentum with a relaunch of the Live Life Comfortably campaign featuring our new brand ambassador, Kristen Bell. Since the launch, there has been month-by-month increase in consumer recognition of the campaign and Kristen as our spokesperson. Importantly, we are seeing increases in consumers indicating that Lazy Boy furniture fits their style or is for people like them. We believe this, combined with the quality and comfort that the Lazy Boy brand is broadly known for, is driving the brand's strong performance in the marketplace. On the merchandising side, as noted last quarter, we are experiencing great success with the new wireless remote upgrade for our power recliners, with orders continuing to increase and exceed expectations. In fact, more than half of consumers are selecting the option with its sleek, stylish wand and various memory positions. We have also introduced a line of pet-friendly fabrics, teaching iClean technology, which are doing well. And our sectional sofa business is extremely hot right now. At the upcoming April High Point Market, we will add to our new sectional super group collection that allows for multiple configurations to meet consumer needs. We will also introduce seating upgrades, an enhanced motion mechanism, and a custom leather offering that will give us more competitive starting price points. Now turning to our case goods segment on essentially flat sales, operating margin was a solid 9%, although slightly down from last year, reflecting the impact of tariffs on the occasional table and increased freight. As noted last quarter, we have moved much of our occasional table sourcing to Vietnam and stabilized the business vis-a-vis last quarter, although there is still some work to be done. Now let me spend a few moments on Joybird, the e-commerce business we acquired last fiscal August. For the quarter, Joybird delivered $22 million in sales, up 18% versus the prior year. The business continued to improve its gross margin quarter over quarter, fueled by supply chain synergies. The operating loss decreased versus the prior year period and sequentially from the second quarter. Joybird continues to exhibit fast-paced top-line growth and is bringing Lazy Boy, a new consumer, through a new channel. Although the trend in growth and integration efforts is slower than originally anticipated, We remain optimistic about Joybird's prospects to add long-term value and will continue to make improvements across the business model with the objective to balance investments and growth with bottom-line performance. Before Melinda goes through the financials, I want to make a brief comment on the past weekend's news about Artvan Furniture. with respect to its private equity owner exploring a variety of options with its creditors, investors, and landlords to ensure it can continue serving its guests and communities. While Artvan is an important customer for us, no one customer accounts for more than 3% of our consolidated sales. To that end, we are monitoring the situation closely, but it's too early to define how this may or may not impact our business. I will now turn our call over to Melinda.