La-Z-Boy Incorporated

Please stand by. Good day, ladies and gentlemen, and welcome to your Lazy Boy fiscal 2021 fourth quarter and full year conference call. All lines have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. As a reminder, today's call is being recorded. If you should require assistance throughout the conference, please press star, then zero. At this time, it is my pleasure to turn the floor over to your host, Kathy Liebman. Ma'am, the floor is yours.

Thank you, Melinda. Good morning, and thank you for joining us to discuss our fiscal 2021 fourth quarter and full year results. With us this morning are Melinda Whittington, Lazy Boy's President and Chief Executive Officer, and Bob Lucien, Chief Financial Officer. Melinda will open and close the call, and Bob 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, 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 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'll now turn over the call to Melinda Whittington, Lazy Boy's president and CEO.

Melinda? Thank you, Kathy, and good morning, everyone. Late yesterday afternoon, we reported our fiscal 21 fourth quarter and fourth year results. What a difference a year makes. When we started the fiscal year, the world was still in the early stages of COVID-19, and things seemed pretty dire. We had just restarted our plants after a month-long shutdown, and most retailers were still closed or just beginning to reopen. Then, as the year progressed, we experienced unprecedented demand for our products. We strengthened our business by significantly expanding production capacity in response to this demand, enhanced our retail platform, acquired the Seattle-based Lazy Boy furniture galleries, and turned Joybird profitable, all while navigating a multitude of challenges, including multiple supply chain disruptions, raw material price increases, and macroeconomic uncertainty. Through it all, our highest priority was and continues to be the health and safety of our employees and our consumers. The global pandemic tested everyone in just about every way, and I am so proud of the Lazy Boy team for its unbelievable perseverance, dedication, and resiliency. qualities that enabled us to deliver excellent results even in the midst of these historic challenges. And I want to take this opportunity to express my sincere gratitude to every one of our employees and business partners, all of whom contributed to our success. I also want to again thank Curt Darrow, our now retired president and CEO, for his unwavering leadership in the last year and throughout his long career. Turning to our financial results, full fiscal year consolidated sales grew to $1.7 billion and consolidated GAAP operating margin increased to 7.9%. Non-GAAP operating margin reached 9%, the highest margin level achieved in recent history. Over the year, we generated $310 million in cash from operations and returned $61 million to shareholders through share repurchases and dividends. Truly outstanding results, particularly considering the challenges of the fiscal year. Specifically in the fourth quarter, consumer demand across all business units continued to be robust, reflecting the ongoing allocation of consumers' discretionary dollars to the home. The strength of our brands in the marketplace, where we are disproportionately winning, and excellent execution from our retail and sales teams. For the quarter, record sales of $519 million led to all-time record profits, driven by increased production capacity, excellent performance by our company-owned Lazy Boy furniture galleries, and continued profit growth at Joybird. Additionally, our cash generation enabled us to return $50 million to shareholders through dividends and share repurchases in the quarter. And fiscal 22 is off to a great start with continued strong written order rates and a record backlog setting us up well for a strong year of shipments ahead. Written sales momentum continued to be very strong in the fourth quarter. Across the Lazy Boy Furniture Gallery's network, written same-store sales doubled, increasing 100% in the quarter versus a year ago. And to provide some additional context, written same-store sales for the quarter increased 29% compared with our pre-COVID fiscal 2019 fourth quarter for a compound annual growth rate of about 14% over the two years. As I turn to the discussion of our segments, my remarks will detail our non-GAAP numbers, which we believe better reflect underlying operating trends, and Bob will cover the non-GAAP adjustments. Starting with our wholesale segment, which includes our upholstery and case goods companies, as well as our international business, delivered sales for the quarter grew 40% to $384 million compared with prior year quarter, which was impacted by COVID-related shutdowns. Sequentially, sales increased 9.5% from fiscal 21 third quarter as we continued to increase production capacity. Non-GAAP operating margin for the wholesale segment was a healthy 10.2%. Discipline cost management on advertising helped offset higher raw material and freight costs, as well as expenses to expand production capacity to service record backlog. Also, last year's fourth quarter benefited from a one-time $16 million rebate of previously paid tariffs, partially offset by higher bad debt expense. We continue to expand capacity to service demand. However, continued strong written growth is still outpacing production increases, translating to an expansion of backlog and lead times for the Lazy Boy branded business. For perspective, today our backlog is about eight times higher than in pre-COVID and 16 times higher than at the end of last fiscal year. Our supply chain team has demonstrated great agility over the past year, and has been relentless in taking actions to increase capacity, including adding manufacturing cells, second shifts, overtime, and weekend production at our U.S. plants, temporarily reactivating a portion of our Newton, Mississippi assembly plant, adding manufacturing cells in available floor space at our cut and sew center in Mexico, opening a new manufacturing facility in Mexico in San Luis, Rio, Colorado, or SLRC, where production started in December and continues to increase as new sales are added and new employees are trained, and recently opening an additional fabric sewing site in Paris, Mexico, with plans to increase capacity over time. Our supply chain team has done excellent work establishing new capacity. And given continued strong product demand, we are increasing the number of sales at these new locations to shorten lead times, which today range between four to nine months for the Lazy Boy branded business, depending on the product category, versus our normal four to six weeks. Beyond capacity challenges, we continue to face raw material price increases due to supply and demand trends and supply chain disruptions. Input materials such as foam, steel, and plywood are up two to four times their pre-pandemic prices. While we have taken several rounds of pricing on new written orders, as costs have continued to escalate, Our significant backlog results in it taking several quarters for pricing actions to flow through to delivered sales and our financials. And as we continue to monitor costs and we'll take further actions when and if necessary, we've taken additional pricing just last week. Our procurement team is also actively managing product availability challenges. including shipping container issues that have delayed deliveries of finished product to our international and case good businesses, and component part availability, such as electrical components for our higher margin power units. Despite continuing supply chain disruptions, the team has done a great job keeping us in stock for major raw material inputs, including wood, foam, and steel. While we actively focus on increasing production and managing supply chain challenges, our demand remains very strong. The Lazy Boy brand continues to meet the test of time with enduring attributes of comfort and quality. Over the past year, all product categories have performed well, with sectionals and modular sofas continuing to be very strong. At the most recent High Point Furniture Market, We announced that Lazy Boy has teamed up with Temper Sealing to create a proprietary material unlike ordinary memory foam called Temper Response that is specifically designed for our seating and sleeper mattresses. With two iconic brands banding together, we have seen great interest from our customers. And on the marketing side, with Kristen Bell as our brand ambassador, we are seeing increased consideration for Lazy Boy among younger consumers underscoring her broad appeal to both our core and target consumer. Now let me turn to the retail segment, which produced excellent results. For the quarter, delivered sales increased 39% to a record $194 million, and delivered same-store sales increased 35% versus a year ago on strong execution by the team. Non-GAAP operating margin increased to 12.2% from 10.8% in last year's comparable quarter, primarily driven by fixed cost leverage on higher delivered sales volume. Last year's fourth quarter was marked by a reduction in sales due to COVID-related store closures in the last four weeks of the quarter. Written same-store sales for the company-owned Lazy Boy Furniture Gallery stores more than doubled increasing 114% in the quarter, reflecting positive trends across all sales metrics, including traffic, conversion, and average ticket. For perspective, against the fiscal 2019 fourth quarter, when we were in a pre-COVID environment, written same-store sales increased 40%. That's about an 18% compound to average growth rate over the two years, which again demonstrates the strength of our business and brands in the marketplace and that consumers feel safe shopping in our stores. Our primary focus is to service and delight consumers at all touch points, providing them with a great end-to-end experience every time. As part of this, we are committed to enhancing our omnichannel presence to offer an easy and comprehensive experience to meet consumers wherever they want to shop, whether online, in-store, or a combination of both. As we invest in technology enhancements to make the online experience more robust and engaging, we will continue to invest in the Lazy Boy Furniture Gallery store system to provide consumers with modern, bright, and inspiring stores. For fiscal 22, approximately 30 projects, including new stores, remodels, and relocations, will be completed across the network. with two-thirds of the projects within our company-owned portfolio. Also, in addition to the Seattle acquisition that closed last September, this week we signed an agreement to acquire three stores in the vibrant Long Island, New York market. I'll now spend a few minutes on Joybird, which turned in a great quarter. Delivered sales for the period, which are reported in corporate and other, more than doubled, increasing 144% to $38 million, reflecting strong end-to-end execution. Written sales increased 125% in the quarter versus the prior year period, reflecting ongoing strong order trends and the strength of the brand in the online marketplace. Joybird again delivered profitable growth and improved its gross margin. Our Joybird team continues to do an excellent job in terms of marketing effectiveness. We've increased our marketing spend to drive consumer acquisition, bringing the right consumer to the site and providing an excellent online experience, leading to improved conversion. I'll now turn the call over to Bob to discuss the financials.