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spk09: Good morning, ladies and gentlemen, and welcome to the Lazy Boy Fiscal 2021 Third Quarter Conference Call. At this time, all participants have been placed on the listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Kathy Liebman. Ma'am, the floor is yours.
spk10: Thank you, Holly, and good morning. Thank you for joining us to discuss our Fiscal 2021 Third Quarter results. With us today are Kurt Garrow, 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 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 and other matters. Although we believe these statements to be reasonable,
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spk04: Our actual results could differ materially.
spk10: 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 these risk factors as well as other key information detailed in our SEC filings. 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 will now turn the call over to Kurt Darrow, Lazy Boy's chairman, president, and chief executive officer. Kurt?
spk08: Thank you, Kathy, and good morning, everyone. Now, following yesterday's close of market, we issued two press releases. The first release discussed our leadership transition plan, Announcing my retirement as president and CEO at fiscal year end with Melinda named as my successor. And the second release detailed our fiscal 2021 third quarter results. I'm very excited about the new Lazy Boy leadership team and what they will accomplish in the future. But first, let's review the quarter and then I'll circle back to discussions on the transition of roles. For the quarter, We experienced strong written trends across the entire Lazy Boy enterprise as consumers continued to allocate more discretionary dollars to their homes in an environment with travel and other leisure related restrictions. This continues to translate to a build in our record level backlog even as we add more capacity. Despite the strong written business, delivered sales declined slightly versus the prior year quarter due to greater than anticipated impacts from COVID-19, which I'll detail more in a minute. And we delivered strong consolidated non-GAAP operating margin of 9.5%, including another profitable quarter for Joybird. All of this on a base of last year's third quarter, which was the strongest quarter in the company's recent history for both the sales and consolidated operating margin. In addition, our strong cash generation enabled us to return more than $7 million to shareholders through dividends and share repurchases, and we declared an increase in the dividend to $0.15 per share. Now I'll take a moment to explain the specific COVID-19 impact to the business. Along with the rest of the country, we started to experience an escalation of planned employees needing to be off work due to COVID following the Thanksgiving, and then again following the Christmas and New Year holidays. With strict safety protocols in place, including contact tracing, we experienced a higher than anticipated level of absenteeism in our manufacturing facilities as employees quarantined, which limited our ability to increase production to planned levels. The impact on sales was further exaggerated by COVID-19 absenteeism disproportionately affecting our most mature US plants where our most complicated and higher priced furniture is built. So for the quarter, with lower than expected units made, particularly at our mature US facilities, there was a mixed shift in production with fewer sectionals and other high priced items manufactured, even though we have the orders for them. And because our Lazy Boy furniture gallery stores tend to sell a higher proportion of custom product sofas and sectionals with higher selling prices, our retail segment was particularly impacted by the shift in mix. Additionally, we were affected by demand and COVID issues impacting shipping routes around the globe. and experience delays and oversee shipments of finished product to our international and case goods business.
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spk08: And of component parts to our manufacturing operations during a period which impacted all of our business. As an example, we were short of supply of electronic components for our highest margin power units, and this too contributed to the shift in mix. While supply chain challenges affected our quarter and will continue to drive uncertainty in the near term, they will be remediated over time. Our backlog remains strong and we are scaling production as quickly as possible and working with our partners in Asia and domestically to address disruptions in supply so that we can improve service to our customers and deliver strong financial results as we focus on the health and safety of our employees. Now, in the midst of all these challenges, written sales momentum remains very strong. Across the Lazy Boy Furniture Gallery's network, written-same-store sales increased 6.3% in the quarter, with the strongest momentum in January. This is on top of last year's third quarter written-same-store sales increasing 10.5%. And for some additional context, Stripping out the Canadian stores that were closed at various points during the third quarter due to COVID restrictions, written same-store sales would have increased to 8.2% for the network. Written same-store sales for fiscal 21 year-to-date increased 18%. And for calendar year 2020, written same-store sales for the Lazy Boy Furniture Galleries network increased 6%. And the average revenue per store increased to $4.4 million from $4.1 million in calendar 19, even with some of the stores being closed for the better part of two months last year due to the pandemic. These results continue to demonstrate the strength of our brand and its appeal to consumers during these uncertain times, as well as the ability for store teams across the network to provide a safe shopping experience for the consumer. As I turn to a discussion of our segments, my remarks will detail our non-GAAP numbers, which we believe better reflect underlying operating trends, and Melinda will cover the non-GAAP adjustments. I'll start with our wholesale segment, and as a reminder, it now includes both our upholstery and our case good companies, as well as our international business. During the quarter, our wholesale backlog grew to over $600 million, four and a half times what it was at the end of Q3 last year, and up another 25% since the second quarter. However, delivered sales declined 4% to $351 million, reflecting the COVID-19 production and delivery challenges and a change in mix, as I detailed a moment ago. Non-GAAP operating margins for the wholesale segment was 10.2%, reflecting the temporary COVID impacts to our supply chain and increased costs to expand manufacturer capacity as well as for raw materials. These factors were partially offset by lower promotional activity due to the strong demand environment. With a surge in product demand, our challenge has been to ramp up capacity at all of our plants and expand overall production capabilities. And we have put many pieces in place. Recall we have added manufacturing cells and weekend and third production shifts at all of our US plants. We have temporarily restarted a portion of our Newton, Mississippi assembly plant to service select geographics. And we have also added cells and available force base at our cut and sew center in Mexico. And finally, we opened a new manufacturing facility in Mexico just south of Yuma, Arizona in San Luis, Rio, Colorado, where production started in December with full ramp up extending over the first half of the calendar year, allowing us to tap into a new labor pool. And we are already in the process of increasing the number of cells in both Mexican-based locations. Our supply chain team is ramping production capacity as quickly as possible to shorten lead times, which today stand at an unprecedented five to nine months, depending on the product category. Our plant teams are working tirelessly to serve as customers, and we sincerely thank them for their dedication and hard work. Now let me turn to the retail segment. For the quarter, delivered sales decreased 1% to $166 million, reflecting the COVID-related product delays. However, written same-store sales for the company-owned stores increased 9%, with the strongest momentum in January, reflecting positive trends across all sales metrics, including traffic, conversion, and average ticket by increased upholstery units and design sales. For the period, delivered same-store sales decreased 6.3%. Non-GAAP operating margin for the segment was 8.9%, slightly down from 9.8% in last year's comparable quarter, primarily related to lower delivered sales relative to fixed costs and higher selling expenses driven by commissions paid on increased written sales partially offset by decreased spending for marketing given the strong demand environment and some lower travel-related spending due to COVID restrictions. We continue to see our furniture galleries as an integral part of our omnichannel offering and are investing in robust plans for new stores, remodels, relocations, and technology upgrades. For fiscal 21 and 2022, each year we'll include more than 20 projects and they will be completed across the network, with more than half of them in our company-owned retail. With a broad array of styles and accessories, as well as free design services, the stores provide the consumer with our most comprehensive offering and a welcoming, safe, and inspiring shopping experience. So it is critical that we keep the store systems up to date and engaging. Finally, I'd like to spend a few moments on Joybird, which churned in another solid and profitable quarter. Sales for the second quarter, which are reported in corporate and other, increased 30% to 29 million. Written sales increased 79% in the quarter versus the prior year, reflecting ongoing strong demand trends and the strength of the brand in the online marketplace. Joybird again delivered profitable growth, improving the gross margin and investing in marketing to drive customer acquisition. And one last note before turning over the call to Melinda. Last week, we announced the expansion of our board of directors to 10 members with the addition of Jim Hackett, who currently serves as a special advisor to Ford Motor Company and was president and CEO of Ford from 2017 to 2020. Jim spoke most of his career at Steelcase, serving as its CEO for 20 years. A true visionary, Jim will undoubtedly make a significant contribution to Lazy Boy, and we look forward to his guidance and perspective as we move into the next phase of growth. Melinda, now over to you.
spk11: Thank you, Kurt, and good morning, everyone. As always, let me remind you that we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. As detailed in our press release and in the tables in the appendix section of our conference call slides, excluded from our fiscal 21 third quarter non-GAAP reporting are purchase accounting charges related to acquisitions totaling $10.4 million pre-tax, or 20 cents per diluted share, primarily due to a write-up of the Joybird contingent consideration liability. based on significant improvements to our most recent financial projections and income of $5.2 million pre-tax or $0.08 per diluted share for employee retention payroll tax credits the company qualifies for under the CARES Act. Last year's third quarter non-GAAP results exclude purchase accounting charges of $1.4 million pre-tax or $0.02 per diluted share a charge of $6 million pre-tax, or 10 cents per diluted share, related to an impairment for one investment in a privately held startup company, and income of $8.7 million pre-tax, or 14 cents per diluted share, related to the company's supply chain optimization initiative, which included the closure of our Redlands, California facility and relocation of our Newton, Mississippi, leather cut and sew operation. Now on to our results. My comments from here will focus on our non-GAAP reporting unless specifically stated otherwise. On a consolidated basis, fiscal 21 third quarter sales decreased 1.2% to $470 million, primarily due to temporary supply chain impacts from COVID-19. Consolidated non-GAAP operating income was essentially flat at $45 million versus last year's quarter, and consolidated non-GAAP operating margin improved to 9.5% versus 9.4%, mainly driven by strong performance by Joybird. Non-GAAP EPS was 74 cents per diluted share in the current quarter versus 72 cents in last year's third quarter. Consolidated gross margin for the third quarter increased 60 basis points. Changes in our consolidated sales mix, primarily driven by the growth of Joybird, which carries a higher gross margin than our wholesale businesses, drove the biggest change in margin. Additionally, Joybird experienced a significant improvement in gross margin, primarily resulting from product pricing actions taken, an increase in average ticket, and favorable product mix. Partially offsetting these increases were higher costs related to expanding our manufacturing capacity across the company. SG&A as a percent of sales increased 50 basis points, primarily reflecting the changes in our consolidated sales mix due to growth in Joybird, which carries higher SG&A costs than our wholesale businesses. And non-operating income in the quarter was primarily due to unrealized gains on investments and contributed two cents per diluted share to EPS in the third quarter on both a GAAP and a non-GAAP basis. Our effective tax rate on a GAAP basis for fiscal 21 third quarter was 27.7% versus 26% in last year's third quarter. The increase is due mainly to the increase in the Joybird contingent consideration liability, which is not tax deductible. Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes. For the full fiscal 21 year, absent discrete items, we estimate our effective tax rate on a GAAP basis to be between 26 and 27%. And on a non-GAAP basis, We estimate it will be in the range of 24 to 25% after adjusting out the effects of the non-deductible Joybird contingent consideration. Turning to cash, year-to-date we generated $250 million in cash from operating activities, reflecting strong operating performance and a $122 million increase in customer deposits and orders for the company's retail segment in Joybird. We ended the period with $393 million in cash, more than double our $168 million in cash at the end of last year's third quarter. In addition, we held $31 million in investments to enhance returns on cash compared with $30 million last year. As we have managed the business through COVID-19, We've been conservative with cash and in the process have strengthened our resources to capitalize on future value creating opportunities to grow out of the pandemic. Year to date, we have invested $27 million in capital, primarily related to investments in our retail stores, new production capacity in Mexico, machinery and equipment, and upgrades to our Dayton, Tennessee manufacturing facility, which have now been completed. As we make investments in the business to strengthen the company for the future, we expect capital expenditures in the range of $35 to $40 million for the full fiscal year, which will include investments in new manufacturing capacity in Mexico, technology upgrades, improvements to retail store facilities and technology, and upgrades to our Neosho, Missouri manufacturing facility. Regarding cash return to shareholders, Fiscal year to date, we paid $9.7 million in dividends to shareholders and spent approximately $1 million purchasing 22,000 shares of stock in the open market since reinstating our program in December under our existing authorized share repurchase program, leaving 4.5 million shares of purchase availability in the program. And yesterday, our board of directors increased the quarterly dividend to 15 cents per share, demonstrating its confidence in the strength of our business. Before turning the call back to Curt, let me highlight several important items for the upcoming fourth quarter. First, a reminder that our expected non-GAAP adjustments for the fourth quarter will include purchase accounting and related tax adjustments for acquisitions to date. which are expected to be a $0.02 per share benefit in the fourth quarter. This excludes any further adjustments to the Joybird contingent consideration liability, which is dependent on estimates of Joybird's ongoing business trajectory. Second, a reminder that last year's fourth quarter included a one-time $16 million benefit in cost of sales for the rebate of previously paid tariffs. which was included in both our GAAP and non-GAAP results, and which was mostly offset by a bad debt expense of $13.5 million due to the art van furniture bankruptcy and a provision for potential credit losses in the COVID-19 environment, also included in both our GAAP and non-GAAP results. Our non-GAAP results for last year's fourth quarter excluded a non-cash, non-tax deductible Joybird goodwill impairment charge of $27 million, mostly related to the future financial projections at the beginning of the pandemic, and a $6 million pre-tax benefit from purchase accounting primarily related to the reversal of the Joybird contingent consideration liability by its full carrying value, also based on financial projections at that time. And now looking at our ongoing business, let me update the perspective previously provided for the fiscal 21 fourth quarter. As noted, we do not intend to provide this level of forward-looking perspective regularly, but we think it important to offer it in the near term, given the unusual business trends driven by the pandemic. We have a significant order backlog that will have a long tail in terms of production and deliveries. We are expanding output and we will continue to increase production capacity. We are optimistic about our business trajectory and confident we will deliver strong results in the fourth quarter and beyond. With respect to raw materials, we took pricing on written orders beginning in October to cover cost increases. Given slower progress to work through our backlog in Q3, we will experience less of that benefit in Q4 than originally expected. Meanwhile, with costs for raw materials continuing to escalate, as well as those for freight, we continue to evaluate the need for further pricing actions. Also, as we saw in Q3, we are still experiencing extreme uncertainty with respect to COVID-19, including related shutdowns and absenteeism affecting our plants, hiring challenges, impacts of global supply chain volatility impacting availability and timing of component parts and finished goods shipments, and most recently, weather challenges. Considering all of these factors, we now expect fiscal 21 fourth quarter consolidated sales growth of 34% to 39% versus the prior year fourth quarter, which included the month-long pandemic shutdown. We expect non-GAAP consolidated operating margin at the lower end of the 9% to 11% range. Included in these margin expectations is the anticipation that Joybird will sustain profitable operations even as we test investment effectiveness to optimize top-line growth. And looking to next fiscal year, with our existing backlog of written orders and the capacity increases we have underway, we will not experience our usual seasonality in Q1 and Q2. Instead, we expect to continue to make moderate sequential improvement in wholesale capacity from Q4 throughout the first half of next fiscal. Further, as we increase efficiencies, we will focus on reinvesting a portion of returns back into our business to strengthen our capabilities for longer-term results beyond the pandemic. And of course, We expect the impacts of COVID and the global supply chain disruptions to continue to cause uncertainty and some temporary volatility as we move forward. And now back to Kurt.
spk08: Thank you, Melinda. We feel very positive about our business for the long term. We have always had one of the strongest brands in the industry, and we believe we have further strengthened this over the past year, allowing us to build market share and a more solid foundation from which to grow. At the same time, we have built a sizable CAS position, which provides us the means and flexibility to invest in opportunities that will drive long-term growth and return for all of our stakeholders. Now onto our other news yesterday, as our press release indicated last night. I have made the decision to step down as president and CEO of Lazy Boy after 42 years associated with this great company. and I will remain chairman of the board. This decision was not taken lightly and has been in the works for some time. I believe a thoughtful and dedicated leader should be responsible, along with the board of directors, for a well-planned and comprehensive leadership transition so the company may continue to move forward with as few bumps in the road as possible. I believe we have accomplished that. These types of things have a timeline of their own of their own, and for Lazy Boy, the timing is right. We are rounding the corner on the pandemic. All the company's business units are growing and very profitable. We have a Fortress balance sheet. Our backlog is at an all-time high, and our stock price is just about at an all-time high as well. For some perspective, in March of 2009, our market cap was around $30 million and now is approaching $2 billion. But most importantly, we have the right leader in Melinda Whittington who has earned the respect of our entire organization and a seasoned leadership team that has been battle tested and has successfully dealt with everything that has been thrown at them. I want to thank our employees, customers, suppliers, and partners around the globe for their continued dedication to Lazy Boy and their unwavering support. And also thanks to all of you who have been on the call with this journey we've been on. And now it is my distinct pleasure to introduce the new president and CEO of Lazy Boy, Melinda Whittington.
spk11: Thank you very much, Kurt. I am honored to have the opportunity to lead this amazing company through the next phase of our journey. As Kurt said, we have a great team and a bright future ahead as we leverage our strong foundation and build our next chapter. I'm also thrilled today to introduce our new CFO, Bob Lucien, who is joining us for today's call. Welcome, Bob, and congratulations. And while we still have several months of transition ahead of us, and I know I can count on Kurt's continued mentorship, I would also like to be the first to publicly thank Kurt for everything he has done to build Lazy Boy into what it is today. I wish him the very best in his retirement. Kurt and I thank you for your interest in Lazy Boy Incorporated. And now we'll turn our call over to Kathy to provide instructions for getting to the queue. Thank you, Melinda.
spk10: We'll begin the question and answer period now. Holly, please review the instructions for getting into the queue to ask questions.
spk09: Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Bobby Griffin. Bobby, please announce your affiliation, then pose your question.
spk06: Good morning, everybody. This is Bobby from Raymond James. Thank you for taking my questions and congrats on managing another challenging quarter. I guess first, Kurt, congratulations on retirement. It's been a pleasure to work with you and I wish you nothing but the best happiness and health in retirement.
spk08: Thanks so much for those comments, Bobby. It's been a long relationship for us with Raymond James and you for the last number of years as well.
spk06: Thank you, thank you. And Bob, Melinda and Bob, congrats on the new roles. Look forward to continuing to work with you guys and seeing what the next chapter of Lazy Boy is.
spk11: Thank you. We're excited as well.
spk06: So I guess first for me, maybe can we just get a quick update with the extended backlogs on any changes in cancellation rates? I believe when we talked last time in the last quarter, you guys hadn't noticed any really material changes. but there was expectations for a little bit better capacity coming online this quarter. Has anything changed in how you're servicing customers and keeping them happy with the extended backlog times?
spk08: That's a great question, Bobby, and nothing has materially changed. The amount of demand we're getting, even though we're producing more furniture every month, is... keeping the backlog out a lot farther than we'd like. And customers are not thrilled with that, but that is the state of the industry. So it's not just a lazy boy problem. It's for everybody. And the demand is still high. Starting off in January, our demand has been surprisingly strong to what we would have anticipated. And let me make a comment about all the little hiccups we've had with parts and people and COVID and whatever you want. Individually, any one of them is not that significant and could be overcome. But when you get them coming at you from six or seven different directions, the magnitude of it adds up. I forget what the number was, but we could have produced, I don't want to say significantly, but I think that the number was around $30 million more of business if we hadn't had the disruptions with parts and homes and freight and things coming in on time. You make the corollary, if you want, to the car industry, now without the chips, they can't They have the capacity to make a lot of cars, but without these component parts, they have to stall, and we ran into that. So we will continue to hire. We will continue to get more capacity, but we don't know what pickup may come at us in the future, and so we're just cautious in what we're projecting going forward.
spk06: Okay, that's helpful, and good news that the cancellation rates haven't materially changed. If we look at the 4Q sales guidance first, the prior commentary around it, those elements, you know, a little bit lower, is that just a function of the challenges in the supply chain just continuing longer than your original expectations? And if so, would you expect kind of to make that up, that difference up in basically the first quarter, just as, you know, the improvements have been shifted out further in the future, basically?
spk11: That's exactly right, Bobby. We will continue to increase raw production capacity. We've been doing it month to month here, basically since we opened up again back at the beginning of May. And that march will continue on through the end of this summer even. But at any given time, as Kurt said, with the variety of of input challenges that we're managing through. It just keeps holding us back from getting to that max number on any given month. That said, the underlying capacity continues to increase. The only thing I might clarify a bit is the catch-up factor is a challenge because we are every day set up to max out everything we can possibly make. So if you lose a couple days because of, you know, I saw ice and snow all over the majority of the United States. You can't just run an extra Saturday or run an evening shift to make that up in near term because those extra shifts were already planned to continue to work against the existing backlog.
spk06: Understood. Okay. That's very helpful. And I guess lastly for me, just a two-part question on the written business. So If we look at the trends for the 350-ish network galleries, Lazy Boy network galleries, was there some weird ebbs and flows during the quarter? Because even on a two-year stack basis, it does look like it slowed a good bit, but then reaccelerated in January. Was there just some timing on industry or kind of customers coming in or any weather or anything like that? And then the second part of my question is when you look outside your
spk11: lazy boy distribution how are the written trends for the non-lazy boy side of of your net of your distribution network yeah i would say similar to what we heard around most of the industry um november and december you know started to slow again you know we're at in an industry that generally grows two to three percent we're at 18 year-to-date written same store sales but November and December I think most of our industry saw some flowing still growth right but but those rates slowed by the time we got to January we're back up you know in the near double-digit kind of numbers across virtually all the businesses so you know we don't we don't track written in the same way you know on the businesses that we don't sell direct to consumer you know if we do for our for our furniture galleries but really we continue to see that growth of coming in across all the businesses. And that's why you see even with making more furniture each quarter, we still had our backlog grow from Q2 to Q3 by like over 25%. So that demand continues to build.
spk08: And that is not all furniture gallery demand. Yeah. Another fact, Bobby, to kind of gauge how we're doing. The numbers that we've seen, so we told you today that our same-store sales were calendared, 20 were up 6%, and I think the latest industry numbers we've seen was the industry was down 1% for the calendar year. And remember, all those numbers are with sometimes a month or longer of stores being shut down. So we're... I think we gained some share last year, and if we don't have continued supply and COVID problems, I think we have that opportunity again this year.
spk06: Understood. Understood. Well, thank you again for taking my questions, and Kurt and Melinda and Bob, congrats again on the announcements, and Kurt, your accomplishments during your tenure. It's been fun to watch.
spk08: Thanks, Bobby.
spk09: Thanks, Bobby. Your next question is coming from Anthony Libidinsky. Please announce your affiliation, then pose your question.
spk07: Yes, good morning. This is Anthony Libidinsky from Sidoti and Company, and thank you for taking the questions. Congratulations, Melinda and Bob, on your promotions, and congratulations on your pending retirement. Certainly it's been a pleasure working with you, and certainly look forward to working with you, Melinda and Bob. So, you know, first, you know, I just wanted to follow up. As far as the January reacceleration in the store sales, it's certainly encouraging to see. Is this – would you say this is partly maybe attributable to the stimulus checks that went out, or do you think there's other factors at play here? And if you could maybe comment on what you saw over President's Day weekend.
spk08: Well, I can't give you an exact – data on what caused the uptick. Was it vaccines started to be given to people and they felt more comfortable shopping? Was it a mild January that kept people out? The stimulus checks probably had some impact, although I'm not sure what proportion of our customers will receive the stimulus check, but all those things figure into the momentum. And, you know, President's weekend was heading in a really strong direction until the snow came on Monday and kind of put a damper on Monday, which is the biggest day of the weekend. So that was not helpful, but it did show that And the Friday, Saturday, Sunday leading up to it, the demand was still strong, the customer was out shopping, and we were pleased with what we saw. But the biggest day is Monday, and we certainly did achieve last year's numbers.
spk07: Got it. Okay, thanks for that. I mean, certainly can't control the weather for sure. As far as Joybird, I was just wondering if you feel there's room for additional synergy improvements. You talked about gross margin improvements. I was just wondering how we should think about the sustainability of Joybird's profitability improvements.
spk11: I'll take that in two pieces. Certainly, the gross margin improvements, we've been working for a long time on a lot of individual pieces that are all really coming together. And our plan is that that gross margin improvement should stay very sustainable going forward. Of course, obviously subject like any business now, right, to ongoing increases in input costs and ability to price against that. Relative to the true bottom line, though, on operating margin, what we've always said is that we will test what does the return look like on investments in marketing to really grow that business? And our goal on Joybird isn't necessarily to maximize margin right now, but to get a prudent margin and grow that business. And that's why we were so pleased this quarter being able to leverage that gross margin and leverage great returns on our marketing investment to still deliver a profitable quarter but also deliver a 79% written sales growth for the quarter compared to last year. So I think we're figuring out that model.
spk07: Got it. Okay. Great. And then last question for me here. So, you know, as far as the record high cash balance, what would you say would be the top priorities for usage of that cash going forward here?
spk11: Certainly. certainly a healthy chunk of our focus well I'll start by saying we will continue to be conservative because this pandemic thing isn't over yet and that's always been our nature but no doubt we are building a really significant chest and and with that it provides us an opportunity to to look at investments in our business, and we're already starting to do that. Recall the beginning of the year, we basically stopped all capital investment until we knew what was going to happen with the business. So as we've turned that valve back on, obviously we're investing in our new locations and additional capacity, both in Mexico and across our production network. We have turned back on the remodel of our Neosho, our second largest facility. that we had temporarily paused there. We are investing in our retail stores at an increased pace both in remodeling to represent the fashion of our brand, but also the technological capabilities to help both our employees, but also the consumer experience when they're in our stores. and technology upgrades for our own company and corporately to increase our efficiencies and capability. So I think you'll continue to see us doing more of that and really leveraging the benefit of the increased sales that we've been able to experience with the pandemic. Beyond that then, of course, we increased our dividend this quarter, which shows the board's support of this as well. And we did, as you know, turn on our share repurchase back in December. Didn't get a lot bought because we turned it on in the middle of the quarter. But, you know, we're back in the market on share repurchase as well.
spk07: Got it. Okay. Thank you very much and best of luck.
spk11: Thank you. Thanks, Anthony.
spk09: Your next question is coming from Brad Thomas. Please announce your affiliations and pose your questions.
spk05: Hi, good morning. It's Brad Thomas with KeyBank Capital Markets. And first of all, Kurt, congratulations to you on a tremendous career and your leadership of Lazy Boy and Melinda and Bob, congratulations to you both on your promotions, all very well preserved. I wanted to follow up on the Joybird comments and Wondering, Melinda, if you could give us a little bit more color on how you think about what the right growth rate should be for Joybird going forward. I still think of it as being a young business with a tremendous amount of opportunity, both in terms of its online opportunity as well as its opportunity to start getting its own stores. And how do you think about what the right growth rate is for this business? And what are the plans to add stores as the world starts to get a bit more normal here in the future?
spk08: So, Brad, I think, you know, obviously one of our interests in Joybird when we bought them was we felt it was a business that could grow faster than our core. And we still believe that. And, you know, we don't know in any of the businesses we're in, even Joybird, you know, what is the COVID factor right now for volume? and how long is that going to stay? So that is in these calculations, but I think Joybird's got a great trajectory. I think it's got the, you know, a new website that's been up for a few months, the connection to the customer. Very pleased with the 79% same store quarter. And so, you know, We bought the business when it was around $40 million. We'll do in excess, I believe, of $100 million this year, and it's a profitable business, which was one of our goals. But as Melinda just said earlier, we're going to balance the fact between reinvesting in the marketing to grow and being sure it does have a reasonable return. It may not have the same return as all of our other businesses, but if it has, double the growth, we would accept that. So we think there's a lot of growth. To give you a number now would be a guessing on our point, but it will grow faster than the base enterprise, and I think you'll see a great acceleration here in the future.
spk05: That's helpful. Thank you. And the next topic I want to talk about a bit is what you're seeing on the raw material front. You know, this is a question that comes up a lot with investors about how much risk there is in the economy from inflation. Can you talk a little bit about what you're seeing from a raw material standpoint, what you're passing through at this point, any more color on the degree of price increases that you're passing through and how you're thinking about that? I'm going to let Linda handle that.
spk08: Melinda handled that, but I failed to mention we are going to continue to open stores at Joybird, too. We've got a couple we're just making a final decision on here in the near term. So I don't believe they'll ever have 100 stores at all, but they will have stores in the key markets where there are already tons of online business. And so we truly have that omni experience. And the stores to date. in most cases, exceeded our expectations. So getting Joybird more stores is part of the growth strategy. Melanie, you can talk about our raw material challenge.
spk11: Sure. So obviously, given demand, we're seeing pressure on raw material input costs. And honestly, all supply chain costs, including freight, pretty much across the board. Back in October, we announced pricing and that of course was only on new written orders. So it's going to be, you know, we're in fourth quarter before those written orders are starting to become delivered orders and we're starting to see the benefit of that even though the cost pressures are already there. We are evaluating, you know, continue to evaluate if you look kind of around the industry. You'll see that, you know, another round of price increases starting to show up in a lot of the industry. And in general, our industry, you'll see these be, to your point, an order of magnitude. You'll see them in the low to middle single digits over the last year, I think, is probably the right kind of planning number. And so the good news about our industry is that it has always been pretty resilient to the pricing when there are real input costs to pass through. Freight, as I said, is another one that you have to continuously evaluate, but we have been able to generally pass that through in the past. And we're trying to be fair with our customers. It's a little painful when we've got this long backlog to only price on new written orders and not on existing backlog, but we also are striving to be very good partners with our customers in these challenging times. and not essentially pinch them by increasing prices on orders they've already written to their customers. So it is fluid. Definitely there is cost headwinds, and we continue thus far to be able to experience pretty positive ability to price. There's no doubt at some point that might that have some impact on you know, end consumer demand. That could be the case. We certainly have not seen that thus far.
spk05: Very helpful. If I could just squeeze one more in. For your fourth quarter, the guidance implies that you would do about, I believe, about 20 to 40 million more in revenue in your April quarter than you just reported in your January quarter. Obviously, you know, this implies that you'll be getting productivity expanding during the quarter to meet those levels. And so I presume it's fair to say that you guys are ramping up and feeling like you're seeing that productivity and that run rate improve at this point.
spk11: We are making progress every single month in our ability to make furniture since the month we opened up back in May. And we expect that progress to continue all the way through back end of the summer but you know again what we found this quarter and what we expect you know we're just planning for at this point is that there will continue to be challenges in either this past week it's been weather right that has shut down either the ability for our employees to get to plants or for our suppliers employees to get to plants or for trucks of supplies to get to plants You know, certainly the holidays, as Kurt alluded to in his comments, the holidays were really tough for keeping employees safe and folks having to self-report and stay out of work for a while. You know, we've had challenges with shipping lanes to get finished goods products to some of our international businesses, our case goods products. materials in for our, you know, component materials in for our part. So it just seems like the world stage right now is wrought with a lot of challenges. So what we can control is continuing to make that pipe bigger on the number of units we can make each month and plan to be as agile as possible. But yes, no doubt your opening comment is right. We do intend to be able to make more furniture each month than we did the last month, and that has That has been true thus far.
spk08: Just another input for you, Brad, in what you're trying to look at. The fourth quarter has, calendar-wise, more production days than the third quarter because you have the holidays in the third quarter. And so typically, we have more production days, although we lost a couple yesterday and Monday with the snow. The impact on the southern part of the country with the freezing and the snow and the power outage and everything, that's where we have all of our domestic plants. That's a suspended thing for a few days. But in the magnitude of the quarter, we kind of took that into consideration. But there is, you know, we take Good Friday off. I mean, we take Thanksgiving off. We take the week between Christmas and New Year's off and Other than Good Friday, there's no holiday dates that our plans aren't working. So that's an added factor as well.
spk05: Very helpful. Thank you both so much.
spk04: Thank you.
spk09: There are no more questions in queue. Thank you very much, everyone, and have a great day. Bye-bye. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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