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spk00: Good morning, ladies and gentlemen, and welcome to the Lazy Boy fiscal 2022 second quarter conference call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your 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.
spk03: Thank you, Matt, and good morning, everyone. Thank you for joining us to discuss our fiscal 2022 second quarter 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 segment performance and 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 details 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'd like to now turn over the call to Melinda Whittington, Lazy Boy's President and Chief Executive Officer. Melinda?
spk04: Thanks, Kathy, and good morning, everyone. Yesterday afternoon, following the close of market, we reported our fiscal 22 second quarter results, delivering very strong sales growth as well as solid margin progress since Q1. We are delivering on plan and controlling the controllables, even in these times of significant, widespread global supply chain disruption. Across the Lazy Boy enterprise, We delivered all-time record high sales of $576 million. With sales 29% ahead of the pre-pandemic fiscal 20 second quarter, our business is much larger today than pre-pandemic, and we believe our momentum is sustainable. We are poised to grow on this base of nearly $2.1 billion in trailing 12-month sales. Also as expected, Operating margins improved sequentially as our delivered sales for the quarter reflected pricing and surcharge actions taken to offset unprecedented rising raw material costs. All in all, we are pleased with the momentum and growth we are experiencing during these challenging times. Looking forward, demand continues to be strong across the enterprise and our backlog remains at all-time highs. even as we continue to increase capacity to service our customers and consumers. During Q2 of last year, businesses were just reopening and consumers were resuming furniture purchases. At the time, written same-store sales for the Lazy Boy Furniture Galleries Network were unusually strong, up 34%. Off that base, written same-store sales for the Lazy Boy Furniture Galleries Network decreased 6%, in the fiscal 22 second quarter. However, comparing this quarter to the pre-pandemic fiscal 20 second quarter, written same-store sales for the Lazy Boy Furniture Galleries Network increased an impressive 26% for a compounded annual growth rate of 12% across the two years. Similarly, while written same-store sales for our company-owned retail segment decreased 7% versus the unusual prior year period, written sales increased at a compounded annual growth rate of 12% across the last two years. For Joybird, primarily an e-commerce business, it continued its strong growth trajectory, accelerating to write 56% more business this Q2 than in last year's second quarter, and delivering an extremely impressive compounded annual growth rate of 40% across the last two years. As we focus on addressing this strong ongoing demand and accumulated backlog, we continue to make strategic investments to increase capacity and improve capabilities and are producing more units than ever to service customers. We're continuing to add manufacturing cells and now employ almost 40% more manufacturing personnel than pre-pandemic. In Mexico, Additional cells are coming online at our SLRC facility, and the first cells at our new Torreon plant are expected to begin operations in January, with that location fully operational by fiscal year end. And we continue to work to minimize supply chain disruptions, from those associated with lack of component parts, such as electronic chips, to those inherent in hiring and training new workers until they reach normal productivity levels. As we mentioned last quarter, where possible, our procurement team is significantly increasing inventory for key components to minimize disruption while also working to diversify our supply chain with multiple sources in various geographies to protect against continued supply chain volatility. In addition, early in Q3, we acquired the Furnico Upholstery Manufacturing business in the UK. Fernico has been manufacturing Lazy Boy product for sale in the UK and Ireland since 2008. This expansion of in-house manufacturing capability will provide greater certainty of supply to our customers in the UK and is a key step in building an integrated supply chain network for Lazy Boy International. Also during the quarter, we continued to return value to shareholders with a dividend payment and $15 million in share repurchases, bringing our total cash return to shareholders in the first half of the year to $64 million across dividends and share repurchase. And finally, we were pleased to announce last month the expansion of our Board of Directors to 12 members with the addition of Erica Alexander, who serves as the Chief Global Officer, Global Operations, for Marriott International. Erica has held various leadership roles for several of Marriott's largest brands and will bring a wealth of operational experience, perspective, and expertise to Lazy Boy. Importantly, as we manage the current operational challenges across the business, we're also addressing the long term with our work on Century Vision, our winning strategy for growth through our centennial anniversary in 2027 and beyond. As I noted last quarter, Century Vision includes three key pillars. The first is to leverage and reinvigorate the Lazy Boy brand. This includes leveraging the Lazy Boy comfort message, a renewed focus on aging down the core consumer, and accelerating our omnichannel offering. To date, our marketing platform featuring Kristen Bell, excuse me, has been successful in driving brand recognition, including among younger consumers who say the Lazy Boy brand is relevant to them. Our objective is to build on this sentiment, and last month we produced a new series of commercials that showcase how Lazy Boy's range of products meet our consumers' needs. At the same time, throughout the course of Century Vision, will expand the vibrant Lazy Boy Furniture Gallery store base to approximately 400 locations across North America, and will strengthen the entire network through remodels and relocations, with some 30 projects on tap for this fiscal year. While the purchase journey may start digitally, Our consumers like to visit our stores to shop, providing us with a great opportunity to deliver the flagship Lazy Boy Furniture Gallery store experience. Most importantly, our goal is to connect with consumers along their purchase journey through multiple means, whether that's online or in person. With respect to company-owned stores, we've become very successful running our retail business where we benefit from the integrated wholesale retail margin. We continue to acquire independent Lazy Boy Furniture Gallery stores to round out our portfolio where it makes sense for us and the dealer. We recently signed an agreement to purchase five stores in the Alabama and Tennessee markets from a retiring dealer that will be accretive as we quickly and seamlessly integrate them into our portfolio when we close the transaction later in the third quarter. The second pillar of Century Vision relates to Joybird, where we have a sustainably profitable direct-to-consumer model. An exciting and relevant brand with significant potential, we are fueling Joybird to drive disproportionate profitable growth through an increase in digital marketing spend to drive awareness and customer acquisition, ongoing investments in technology, and expansion of product assortment and additional small format urban stores in high traffic areas. We are excited to open a new store in LA this month and have an additional store slated to open by the end of the fiscal year. In markets where we have Joybird small format stores, we consistently see a geo lift in the online sales, demonstrating the appeal of an omnichannel model across all brands and retail formats. We also recently opened a virtual store at Joybird's LA headquarters for online shoppers to chat, call, and video conference into a dedicated retail environment, which has proven to be very successful, both in terms of consumer satisfaction and closing sales. And the third pillar of Century Vision is to leverage and enhance our enterprise capabilities to support the growth of our consumer brands, as well as enable the potential for tack-on acquisitions that can benefit from our supply chain expertise and accelerate the Lazy Boy Incorporated growth story. Strengthening digital capabilities across the entire Lazy Boy enterprise and improving the agility of our supply chain so that it can more broadly support all our customer brands will be key focus areas moving forward. As we execute Century Vision, we expect to grow the top line higher than industry averages and deliver double-digit operating margins. We are proud of our near-term results and excited for our future. Now let me turn the call over to Bob to review the results for the quarter.
spk02: Bob? Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects underlying trends and performance of the business. Our fiscal 22 second quarter non-GAAP results exclude a $0.02 per share charge related to purchase accounting for acquisitions in prior periods and a $0.06 per share gain related to our business realignment, primarily due to a sale and leaseback of a facility, which are detailed in our press release and in the tables in the appendix section of our conference call slides. On a consolidated basis, fiscal 22 second quarter sales increased 25% to a record $576 million versus the prior year quarter and increased sequentially from the fiscal 22 first quarter, reflecting continued strong demand and ongoing capacity increases, as well as the effects of pricing and surcharges. Compared with the pre-pandemic fiscal 20 second quarter, sales were 29% higher for a compounded annual growth rate of about 14% over the last two years. Consolidated gap operating income increased $54 million versus the prior year period, and non-gap operating income increased to $52 million. Consolidated gap operating margin was 9.4%, and non-GAAP operating margin was 9%, up sequentially from the first quarter. GAAP diluted EPS was 89 cents for the fiscal 22 second quarter versus 75 cents in the prior year quarter. Non-GAAP diluted EPS was 85 cents in the current year quarter versus 82 cents in last year's quarter. My comments from here will focus on our non-GAAP reporting unless specifically stated otherwise. I will now review our results by segment. Demand for product across all businesses remains strong. Starting with our wholesale segment, delivered sales for the quarter grew 28% to $439 million compared with the prior year period and increased 12% sequentially from Q1. Compared with the pre-pandemic fiscal 20 second quarter, sales were 25% higher for a compounded annual growth rate of 12%. Non-GAAP operating margin for the wholesale segment was 9.1% versus 12.2% in last year's second quarter, primarily reflecting higher raw material and freight costs, startup costs for new facilities, and labor challenges, partially offset by pricing and surcharges, fixed cost leverage on higher volume, and lower marketing spend as a percentage of sales. All in, we were pleased with the results and the progress made sequentially from the first quarter operating margin of 4.7%. Turning to the retail segment, for the quarter, delivered sales increased 19% to $192 million. Delivered same store sales increased 17% versus the year-ago quarter. Compared with the pre-pandemic fiscal 22nd quarter, Delivered sales increased 30% for a compounded annual growth rate of 14%, again demonstrating the strength of the Lazy Boy brand and our furniture gallery store system in this environment, as well as ongoing strong execution at the store level with sales metrics positive across the board. Non-GAAP operating margin increased to a second quarter record of 12.5% versus 9.4% in the prior year quarter. driven primarily by fixed cost leverage on the higher delivered sales volume, as well as expense management. Sales for Joybird, which are reported in corporate and other, increased 37% to $40 million versus the prior year quarter. On a two-year basis, compared with the pre-pandemic fiscal 22nd quarter, delivered sales increased an impressive 93% for a compounded annual growth rate of 39%. reflecting the momentum Joybird is building in the direct-to-consumer marketplace as we continue to acquire customers and strengthen brand awareness through new digital marketing channels. For the quarter, Joybird increased both its web and in-store traffic, conversion, and average ticket. Joybird is sustaining profitability, and with a focus on accelerating disproportionate growth, we will continue to invest in Joybird marketing to drive broader brand awareness and customer acquisition. Pulling all of this together, consolidated non-GAAP gross margin for the entire company for the fiscal 22 second quarter decreased 500 basis points versus the prior year quarter, primarily driven by significant increases in raw material and freight costs, startup costs associated with the expansion of our manufacturing capacity, and labor challenges in our wholesale businesses. These items were partially offset by pricing and surcharges in our wholesale business. Consolidated non-GAAP SG&A as a percentage of sales for the quarter decreased 280 basis points, primarily reflecting fixed cost leverage on the higher sales volume, mainly in our retail segment, as well as lower marketing spend as a percentage of sales. Our effective tax rate on a GAAP basis for the fiscal 22 second quarter was 26.6% versus 26% in the second quarter of fiscal 21. Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes. We expect our effective tax rate for the full fiscal 22-year to be between 25.5% and 26.5%. Turning to cash, year-to-date we generated $15 million in cash from operating activities. We ended the period with $297 million in cash and no debt, and held $31 million in investments to enhance returns on cash. Year to date, we invested $59 million in higher inventory levels to protect against supply chain disruptions and support increased production and delivered sales. We also spent $33 million in capital year to date, primarily related to improvements to our retail stores, plant upgrades at our manufacturing distribution facilities, New upholstery manufacturing capacity in Mexico and technology upgrades. As a note, last month we entered into a new five-year $200 million unsecured revolving credit facility, which replaced our $150 million ABL facility. The new facility has a $100 million accordion feature, allowing us to expand our borrowing capacity to support future growth. It also provides the option to request to extend the term beyond five years for two additional periods of one year each. Borrowings under the facility may be used for general corporate purposes and working capital. As of today, we have no borrowing against the facility. Regarding cash returned to shareholders, during the quarter, we continue to buy back shares, spending $15 million, repurchasing more than 400,000 shares of stock in the open market. leaving 8.6 million shares in our existing authorized share repurchase program. Year to date, we have returned $51 million to shareholders via share repurchase. We also paid $6.6 million in dividends to shareholders in the second quarter. And subsequent to quarter end, demonstrating its confidence in the company's long-term growth prospects, the Board of Directors increased the regular quarterly dividend by 10% to 16.5 cents per share. As we look to the future from a capital allocation perspective, over the long term, we will target to invest roughly half of operating cash flow back into the business via CapEx and M&A and return the remainder to shareholders via dividends and share repurchases. Before turning the call back to Melinda, let me highlight several important items for the remainder of fiscal 2022. As noted, demand trends are strong across the business and remain significantly higher than pre-pandemic levels. With a high backlog and plans for a continued increase in capacity as new assembly cells come online, we expect a strong year of shipments. Accordingly, we expect a continued increase in production capacity, particularly in Q4. Raw material and freight costs remain high and global supply chain disruptions continue. Industry experts predict it will take multiple quarters before we see resolution of the West Coast shipping backups. Electronic chip shortages continue, which impact our power furniture. Across multiple areas, we expect to face continued supply chain disruptions with respect to having all component parts available to finish units and complete orders, particularly for our company-owned retail segment, which tends to disproportionately sell our higher-end products. Given the COVID-related shutdown in Vietnam, we expect our case goods business to experience a significant temporary decline in sales and margin in the third quarter, reflecting a delay in shipments as manufacturing facilities restart there and product gets on the water. Finally, we will continue to monitor the escalating freight environment to determine if further pricing action is needed. Pulling all of this together, We are actively managing supply inputs and recognize that we will likely continue to experience uncertainty and disruption for the foreseeable future, particularly in the third quarter. Quarterly trends will also be impacted by our third and fourth quarters containing 12 and 14 production weeks respectively, compared to 13 production weeks in our second quarter. Recall fiscal 2022 will include 53 weeks of results. Taking all of these factors into consideration, we expect sales and margin in Q3 to be similar to Q2 and expect sales and margin to accelerate in the fourth quarter to enable consolidated lazy boy results to finish the fiscal year with a full year non-GAAP operating margin at or near double digits. Finally, as we make investments in the business to strengthen the company for the future, including work related to our century vision strategy. We expect capital expenditures to be in the range of $75 to $85 million for fiscal 22. Spending will support updating our Lazy Boy Furniture Gallery stores, updates to our plants and distribution facilities in Neosho, Missouri, new upholstery manufacturing capacity in Mexico, and investments in technology solutions across the organization. And now I will turn the call back to Melinda.
spk04: Thanks, Bud. I'm extremely proud of our organization and our business partners for delivering these strong results in very challenging times. The team is doing a great job navigating the uncertain environment and is setting us up for strong business growth as we move forward, both in the near term and as we execute our century vision. The best is yet to come for Lazy Boy Incorporated. as we deliver profitable growth and long-term value for all stakeholders. We thank you for your time this morning, and I'll turn the call back to Kathy.
spk03: Thank you, Melinda. We'll begin the question and answer period now. Matt, please review the instructions for getting into the Q&A question.
spk00: Certainly. 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 do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Bobby Griffin from Raymond James. Your line is live. Good morning, everybody. Thank you for taking my questions.
spk06: Morning, Bobby. I guess 1st, I wanted to just touch on maybe the last comments about the guide and it will kind of intertwine with what's going on in Vietnam. It looks like if you kind of do deliveries per week of production. Being similar in 3 Q sales would imply the production, the weekly delivery, stepping up a little bit sequentially. So maybe you can just talk about that sight line and the confidence and being able to get the weekly delivered revenue per week of production to step up a little bit sequentially and then update us on what is, you know, going on there in Vietnam, understanding different capacity challenges with COVID and shutdowns. But is it opening back up now and good confidence in what's going on there and all that around there?
spk02: Thanks, Bobby. On the sequential growth of our business on a production week basis, we continue to bring online new cells in our Mexico facilities and continue to work on increasing production in our U.S. plants. And despite only having 12 weeks of production in Q3, our expectation is we'll be able to get out the same amount of sales. And that's how we've been planning and we've been working against, and that's why we're providing those comments. The Vietnam piece is one that we've been watching very, very closely. It's been down since sometime in July. It is now starting to come up. Our biggest challenge is the fact that everything that we had ordered from them in July has all pretty much gotten. We received that, and we're now shipping that out. It's going to take a while to fill up that supply chain and start getting product down the water coming over here. And that's why during Q3 we expect to see some pressure on the case goods business and on our overall business as it relates to paying for that product, paying for the freight before it comes over, and not being able to actually realize the sales until later in the quarter and into Q4.
spk06: Okay, and then Bob, to that point, I mean, do you find that customers mostly, you know, that's case good products. Usually people are ordering a combination of products. So are you just, are you able to just subset and say, hey, look, certain products are going to be delivered in 10 weeks, certain products are going to be delivered in 16 weeks because there's that lull in getting the case kids over from Vietnam? Is that how it's getting handled with the customer?
spk04: It's certainly about communication. We also... did a pretty good job of getting ahead of some of this as things were starting to shut down. Again, investing in some inventory. So we've been able to maybe stave off some of that, you know, some of that lull knowing that things were shutting down and be able to provide product a little bit longer than maybe some businesses have been able to. And then, you know, get ahead of being able to restart that chain as quickly as possible. And as you said, communicate on timeline so that people, you know, our goal may be in these crazy times you can't deliver as quickly as you'd like, but you can at least communicate to what the realities are and deliver on those.
spk06: Okay. And then my second question is kind of on the comments of cash flow generation and, you know, 50% backing the business and 50% to the shareholders. Clearly, you know, investments in inventory and then the COVID benefit last year, you know, impacted the current trailing cash flow from operations. But if we go back before that and we think about some of the working capital metrics of Lazy Boy – Are those working capital metrics still the right range to use when we think about getting back out into a normal environment? So we look at, you know, what that business historically kind of generates on the balance sheet from a cash flow perspective, and that's like a good proxy to take forward when you think about your 50-50 split in distribution of cash flow.
spk02: Yes, Bobby, they are, absolutely. The one challenge will be, okay, so when does that go back to there, Bob? And that's really a function of what happens with the economy, what happens with consumer demand, and those types of things. But, yes, over time, we will revert back to what you saw before. Okay. Yeah, I wasn't going to make you predict when normal was quite yet, Bob. Don't worry.
spk06: I wasn't going to or even tried to. And then – Melinda, you referenced the acquisition in the UK. Just maybe any quick comments on the current acquisition environment, either for independent galleries or, you know, bolt-ons like that UK acquisition?
spk04: Yeah. So, you know, speak to a couple of things. The UK acquisition was a matter of, you know, that had been a long-term supplier for our business, and it became available and was a great opportunity for us to really shore up shore up our supply for our international, for a very meaningful piece of our international business, and we believe there'll be some synergies for that over time. We've also always talked about, you know, opportunistically when, if and when dealers are interested in selling their businesses, and, you know, if they fit in well to our portfolio, we would look at those, and so we just announced, it won't close until Q3, but we just announced the stores of Alabama and one in Tennessee. So that investment will go there. And then we continue to look for, to your point, more of the opportunistic items. But, you know, the non-furniture gallery opportunistic will be, you know, more spread out and probably longer term as we continue to work on our own capabilities and be ready to make the most out of anything we do.
spk06: Thank you so much for answering my questions, and best of luck here in the remainder of the calendar year.
spk04: Thanks, Bobby. Appreciate your time.
spk00: Thank you. Your next question is coming from Brad Thomas from KeyBanks Capital Markets. Your line is live.
spk05: Hi, good morning, Melinda, Bob, and Kathy, and congrats on the strong results here. I wanted to – absolutely, well-deserved. I wanted to ask a little bit more about the cadence of the written business and And obviously, when you look at the comparison and the cadence of the business on a two-year basis and a three-year basis, it really does stand out that this is particularly tough comparisons for you here. You know, trends did accelerate on a two- and three-year basis. But I guess I was hoping to see if there was any more color you could give us around, you know, if perhaps there had been some pull forward of orders into the prior quarter due to price increases or any changes in how promotional you were being because there's limited inventory, just how we should think about what the run rate is of, you know, sort of the underlying demand here, and then what levers going forward you may be pulling to keep pushing demand and capitalizing on the environment.
spk04: Yeah, I'll start, and then Bob can certainly add in. I think, you know, to your point of is there anything particularly unusual in, you know, in the corridor, no. I think overall you know, demand, the level at which we're writing continues to be incredibly strong, certainly, you know, versus pre-pandemic kind of levels. I think the one thing that, you know, trying to think about comparisons, if you go back to the base period a year ago, because we were more or less shut down and a lot of our retailers were more or less shut down for that Q1 and really just coming back from the worst of the of the pandemic closures, Q2 had a disproportionately heavy quarter. So that was just when we were seeing the beginning of sort of the surge towards focus on home and nesting. And so I think that quarter, you know, that had a, you know, 30%, kind of 34%, I think for the, if I'm remembering right, for the entire Furniture Gallery Network kind of lift in Q2 last year. So I think that might be the, more the, the unusual quarter, if you will. That might have almost had two quarters of demand in this new world. But beyond that, getting on to this year, we're quite pleased with the fact that we continue to write at very strong levels and believe we can continue to sustain that.
spk02: Oh, sorry. Go ahead, Bob. Just written sales in Q2 and absolute dollars were consistent in Q2 versus Q1. So we didn't see a drop off in consumer demand. Again, it's against a base that was completely distorted due to COVID. And that's why we gave the two-year look of a 12% compounded annual growth rate, which we believe is a very strong indication of a healthy and growing business.
spk05: Gotcha. That's helpful, Bob. Thank you. And, you know, Melinda, a question that we've asked pretty regularly is just around, you know, pricing and how the consumer has responded to the price increases you've put through. Can you just give us an update, again, on kind of how much prices are tracking up for you and, you know, what data or analysis you've been able to do to, you know, make sure that that's still going to be palatable and we're not going to be seeing, you know, material pushback here?
spk04: yeah at this point since pre-pandemic with the pricing we took over the summer we're up like like most in our industry up into the high teens in overall pricing um and you know there's no doubt there is an ellis in an elasticity to that but that pricing is all out there in the market now and again reflected in kind of these written orders that you're seeing today so Thus far, you know, the consumer continues to be interested in investing in their home.
spk05: That's really helpful.
spk00: Thanks so much.
spk04: All right. Thanks, Brad.
spk00: Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time. Your next question is coming from Adam Anthony Libinetsky from Sedoti. Your line is live.
spk01: Good morning and thank you for taking the questions. Certainly impressive results for the quarter. Just wondering if you guys could quantify perhaps the cost or the startup cost for the new facilities. How much of a drag was that on the margin?
spk02: We're not specifically calling out the basis point drag on the margin on that. It's changed, and it's morphing over the period as new ones come online, and then the old ones get more efficient, et cetera. So our preference right now is not to provide that information.
spk01: It would be hard to isolate what that number was on a slave issue. Okay, that's fine. No worries there. So just curious though, so once you have all the manufacturing capacity open, you're about to open another facility in Mexico, I believe in January. So just wondering how much capacity will you have, you know, once everything is fully operational? And then I guess the second part of that question is that when demand perhaps normalizes at some point, what is your ability to flex that down if needed?
spk02: By the end of this fiscal year, that final plant will be up and running. It still won't be at the efficiencies we expect, and we'll continue to see the efficiencies down in Mexico improve as the folks down there get better and better at making the furniture. That capacity is going to enable us to begin to work against our backlog. Right now, With all the work we're doing increasing our capacity, we're just holding the backlog. We're not really making any cuts into it. And if you recall, we're in a six- to seven-month range as it relates to how far behind we are. So the capacity that we're adding is expected. Once we get this additional capacity that's going in this quarter as well as next quarter and gets up to speed, that we'll be able to start working down that backlog that we've got. which will enable us to see stronger sales than what we currently are showing right now. And that's why we're talking about an acceleration of sales into Q4, which will eventually get into Q1 and Q2 of next fiscal year as well. The question regarding what happens when things return to normal, you'll have to tell me what normal is. Right now, we're in a position where we've got a very large backlog, and the market appears to be I wouldn't say stabilizing, but it's not dropping off. It's sustaining the gains that it has. So we're going to need that capacity to be able to continue to service that business. And in addition, the work that we're doing is part of Century Vision. We will see a higher growth rate of our overall business. We'll use that capacity to manage that growth rate. And that said, if for some reason there is something that happens out there that sees demand drop, we have the ability relative to, as we've talked before, about reducing overtime, reducing work shifts. or weekend shifts and things like that to moderate the capacity. We see attrition in our plants all the time. It's difficult work, so there's opportunities to naturally slow down production if that's required. That's not what our plan is. Our plan is to continue to grow our business, but our capacity is in such a place that going down is probably easier than going up.
spk04: It's always important with our business to keep in mind this is an artisan process where, you know, the final assembly of furniture is really done by people's hands. And so it makes it a little more challenging to put like a per unit on the capacity side of things because it's really you can drive efficiencies, you can drive extra shifts. It's all about the people. But it's also, as Bob said, it's a great opportunity. It's easier to decrease your capacity than it is to increase your capacity in many ways because you could always take advantage of natural attrition if you needed to.
spk01: Got it. Okay. And then just to kind of follow up as far as the production capacity, what would you say is your ability to hire and retain workers and whether there's a big difference between U.S. and Mexico?
spk04: I mean, we've had to be agile, no doubt. So our biggest plant, the lion's share of our manufacturing for the vast majority of our business, which is U.S.-based, is in U.S., and we've made significant investments over the last couple of years in those U.S. plants, including an entire revamp, remodel of our Neosho, Missouri plant. At the same time right now, you know, for expansion to meet this capacity, expansion of capacity to meet this demand, you know, we are finding more opportunity for hiring in Mexico right now. So a lot of the near-term expansion has been more Mexico-driven, as we've called out.
spk01: Got it. Okay. All right. Well, I think that's all I had. Thank you, and best of luck going forward. Thank you. Thank you, Anthony.
spk00: Thank you. There are no further questions in the queue. I will now hand the conference back to management for closing remarks. Please go ahead.
spk03: Thank you everybody for listening to our call today. If you have further questions, please give me a call. I will be available. Have a great day.
spk00: Thank you ladies and gentlemen. This concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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