La-Z-Boy Incorporated

Good morning, ladies and gentlemen, and welcome to the Lazy Boy Fiscal 2022 Third Quarter Conference Call. At this time, all participants have been placed on a 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.

Thank you, Holly. Good morning, and thank you for joining us to discuss our Fiscal 2022 Third Quarter results. With us this morning are Melinda Whittington, Lazy Boy's President and Chief Executive Officer, and Bob Lucien, CFO. 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 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 filing. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck. With that, I'll now turn over the call to Melinda Whittington, Lazy Boy's President and Chief Executive Officer. Melinda?

Thank you, Kathy, and good morning, everyone. Yesterday afternoon, following the close of market, we reported our fiscal 22 third quarter results, which included delivered consolidated sales of a strong 22% versus last Q3. including record-delivered sales and operating profit for our company-owned retail segment, ongoing strong demand versus pre-pandemic levels, $32 million return to shareholders through dividends and share repurchases in the quarter, bringing our year-to-date total up to $96 million, an all-time high, and closing on two important acquisitions, the five Lazy Boy Furniture Gallery stores in the Alabama market, and the Furnico Manufacturing Company in the UK. While delivering strong top-line growth, the quarter also had significant challenges. After a very strong November across the majority of our business, supply chain volatility amplified in the balance of the quarter, even beyond our previous expectations. This had a significant near-term impact on the efficiency of our manufacturing capacity ramp plans. affecting both sales and profit performance. Within our own manufacturing operations, which comprise the majority of our wholesale business, lack of availability of component parts, including electronic chips and actuators, continued to disrupt production plans but at a higher level than we expected. Beyond the obvious direct production delays, These outages drove inefficiencies as manufacturing cells are trained on specific unit styles and need to retrain on other styles until parts are available. This was exacerbated by such a large portion of our manufacturing staff being relatively new given our significant capacity expansion, including three new facilities in Mexico over the past year. Further, These parts outages are disproportionately affecting our higher-end products, which sell at a greater level in our Lazy Boy furniture gallery stores, including our own retail, thereby magnifying the near-term financial impact. With the goal of meeting consumer demand and to best serve our customers in this environment, our procurement team continues to invest in inventory for key component parts and diversify our supplier base, including creative solutions. In one particular instance, we have sent a Lazy Boy team to work in the plant of one of our domestic suppliers to help increase their production of component parts for Lazy Boy, as they too are experiencing labor challenges. We will continue to make progress here, but global supply chain disruptions remain prevalent, and we will likely be managing them for a while. Additionally, The 14-week COVID-related shutdowns in Vietnam, where the majority of our case goods products is sourced, significantly impacted our wholesale segment, resulting from minimal inventory available to ship to consumers and high freight costs during the quarter. Product is flowing again, and we expect case goods sales and profits to normalize during the first half of fiscal 23, when we will more consistently receive product to ship to customers. Further exacerbating the disruption this quarter, the Omicron variant impacted plant operations and production across all geographies. In January, at times we had as much as 20% of our manufacturing workforce out due to contraction of the virus or exposure, as the health and safety of our team remains our highest priority. These peaks are orders of magnitude higher than our previous worst peaks last winter. As with much of North America, we're now seeing the number of COVID cases trend downward quickly, but it will take time to recover from the disruption. Managing across these challenges, as well as the ongoing tight labor market and increasing input costs, has resulted in production gains being slower than expected. impacting the pace of delivered sales and profitability growth in the near term. Our number one focus across the company is to improve the agility of our supply chain to increase production more quickly and efficiently. We have deployed SWAT teams comprised of some of our most experienced leaders to our newer, most challenged locations to assist in training and increasing output. We have hired additional key leadership with expertise from other industries to bring fresh perspectives to our challenges, working alongside our industry veterans. And as noted, we continue to identify and act on creative solutions to upstream supply challenges, including expanded sourcing diversity, protective inventory builds, and even helping supplier staff extra shifts to supply key component parts. These challenges, while significant, are temporary in nature and each day we get better at managing through them. Ultimately, demand for our product is strong and we are already delivering sales at all-time record levels. But we must do better to weather each disruption, continue to increase our capacity, improve cost efficiencies, work down our backlog, and service our customers and consumers while working toward the double-digit profitability levels we know we can achieve in the longer term with our expanded North American footprint. Turning back to the top line and demand for our products, written same store sales for the Lazy Boy Furniture Galleries Network increased 3% in the fiscal 22 third quarter. and we are up 9% compared with the pre-pandemic fiscal 20 quarter for a compound annual growth rate of 4% across the two years. Sales to the Lazy Boy Furniture Gallery's network represent about half of our total manufactured Lazy Boy product and are directionally indicative of the continued strength of demand for our product over time. For our company-owned stores, our retail segment, written same store sales were down 1% versus the prior year third quarter and up across the two years at a compound annual growth rate of 4%. Given the unusual nature of the past two years, written same store sales comparisons in any given period may shift positive or negative slightly compared with prior year period, even as the underlying business remains very strong. In fact, our annual sales per store across the network now average about $5 million versus $4 million pre-pandemic. And as part of our century vision, in addition to sustained, strong, same-store sales, we intend to also grow Lazy Boy with additional new stores and, specific to our company-owned retail business, opportunistic company acquisitions of existing independently owned stores, such as the recent Alabama Network acquisition. And our Joybird business continued on its strong growth trajectory this quarter, writing 27% more business this Q3 than last year's third quarter, with an extremely impressive compound annual growth rate of 51% across the last two years. Now let me turn the call over to Bob to review the results in more detail. Bob?