La-Z-Boy Incorporated

Greetings. Welcome to the Lazy Boy Fiscal 2025 Second Quarter Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mark Becks. Director of Investor Relations and Corporate Development of Lazy Boy Incorporated. You may begin.

Thank you, Holly. Good morning, everyone, and thanks for joining us to discuss our fiscal 2025 second quarter. With us today are Melitta Whittington, Lazy Boy Incorporated's President and Chief Executive Officer, Bob Lucian, Lazy Boy's SVP and CFO, and Taylor Lubke, VP Finance and Treasurer. Melinda will open and close the call, and Bob will speak to segment performance and the financials midway through. We will 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 would like to remind you that some statements made in today's call include forward-looking statements about Lazy Boy Incorporated'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 Events tab on the Investor Relations page of our website and 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 Melinda Whittington, Lazy Boy Incorporated's President and Chief Executive Officer. Melinda?

Thanks, Mark, and good morning, everyone. Yesterday, following the close of market, we reported results for our October-ended second quarter. We were pleased with the strong results led by our retail segment despite a continued challenging macro environment and sluggish home furniture and furnishings industry. Our total delivered sales grew for the second consecutive quarter despite these headwinds driven by our iconic brand and outstanding execution across the company. Highlights for the quarter included consolidated delivered sales of $521 million, up 2% versus the prior year. And within these results, our retail segment sales increased 3%, led by acquisitions of independent Lazy Boy furniture galleries, new store openings, and record Labor Day results. Gap and non-gap diluted EPS of 71 cents, quarterly dividends of 22 cents, an increase of 10%, and continued progress against our century vision growth strategy, including opening three new company-owned Lazy Boy Furniture Galleries and completing the acquisition of a two-store independent Lazy Boy Furniture Galleries network in Florida during our second quarter, and signing an agreement to acquire another two-store independent dealer in the Midwest which is expected to close in our third quarter. Our results for the second quarter exceeded guidance on both sales and non-GAAP operating margin. This demonstrates the impact of our outstanding execution and strategic investments, controlling what we can to drive positive outcomes even against an uncertain consumer macroeconomic backdrop. Consumers are gravitating towards our comfortable, high-quality, custom furniture with strong speed to delivery. And in our furniture galleries, our associates build on this foundation and wow the consumer with a superior shopping experience. We're optimistic that we will build on our progress and continue to outperform the industry in the back half of our fiscal year and beyond as we benefit from our strategic investments. The furniture industry remains challenged. Home-related spending continues to be impacted by higher mortgage rates and lack of housing affordability and availability. However, our strong performance is further proof that consumers are choosing brands they trust during these tough times. And Lazy Boy Incorporated, with its nearly 100-year heritage of delighting the consumer with comfort and quality, stands apart. While recovery of industry momentum to more historic levels is certain, timing of that recovery continues to be deferred. However, I am more confident than ever that we are favorably positioned to capture a disproportionate share of consumer demand in the fragmented furniture and home furnishings industry. We continue to play offense with our century vision strategy, and we are winning. Shifting to forward-looking trends, as demonstrated within our written sales, total written sales for our company-owned retail segment increased 6% versus last year's second quarter. Written same-store sales for our company-owned retail segment, which exclude the benefit of newly opened stores and acquired stores, declined 1% versus the prior year's second quarter. and improvement sequentially versus our down 3% year-on-year in Q1. Consistent with recent trends in heightened consumer interest around key holidays, same-store sales were strongest during the Labor Day sales period as traffic accelerated. And once again, across the quarter, our superior in-store execution led to increasing conversion rates, average ticket, and design sales relative to the same period last year. Written same-store sales for the entire Lazy Boy Furniture Gallery's network of 358 stores was also down just 1% versus the prior year. According to the U.S. Census Bureau data, the furniture and home furnishings industry grew 1% during our fiscal second quarter, driven by relative strength in the sundry furnishings subcategory of that measure. Given recent widening disparity in performance between the furniture and furnishings subcategories, I'd like to provide some additional commentary on this externally sourced measure. The measure includes both furniture, which is our primary focus for our business, as well as furnishings, sundry items related to the home, which are not our company's primary focus. The furniture portion of the Census Bureau measure, most relevant to us, is reported on a one month lag. To note, within the Census Bureau data, furniture results have trailed home furnishings results in five of the past six quarters. And in August and September, that gap widened to over 800 basis points. Therefore, we have provided additional perspective on both the all-in furniture and furnishings data, consistent with what we have provided in previous quarters, as well as perspective on the two months of furniture-only data, which was down 5% across August and September for the industry. Turning to Joybird written sales, Joybird increased 1% on the quarter versus a year ago, as conversion improved versus the prior year. Looking to the longer term, I want to recap our progress during the quarter to strengthen our enterprise for the future. Recall, Century Vision is our strategic framework setting up Lazy Boy Incorporated for the next 100 years as we celebrate our first century in 2027. This is measured by our plan to grow top line at a pace double the market and deliver consistent double-digit operating margins over the long term. As one of the largest furniture brands in the United States, we are well positioned to continue to strategically grow our iconic Lazy Boy branded business. We have consistently expanded Lazy Boy's brand reach over the past two years, supported by our North American manufacturing footprint, which allows us to offer the highest quality on-trend products with both breadth and depth. as we bring to market fully personalized solutions in a wide variety of fabric and leather options. A key pillar of our expanded brand reach is our total furniture galleries network, which ended the quarter with 358 stores, and we remain on track to grow the total Lazy Boy furniture galleries network to approximately 400 stores over the next several years. Additionally, We are expanding the company-owned portion of that network. Our retail segment has increased to 193 stores, up 16 from prior year, and now represents 54% of the total Lazy Boy Furniture Galleries network. We are excited to have opened three new stores in the quarter in Topeka, Kansas, Fayetteville, North Carolina, and Saskatoon, Canada. Furthermore, We acquired two stores in Florida during the quarter, and we recently signed an agreement to acquire an additional two-store network from an independent dealer in the Midwest, scheduled to close in our third quarter. Growing our company-owned Lazy Boy Furniture Gallery stores is important, as we control the entire end-to-end consumer experience and are able to develop more sophisticated consumer insights. And these store acquisitions are immediately accretive to our profitability, allowing the company to benefit from the integrated wholesale and retail margins. We're also growing the business through our refined channel strategy. The Lazy Boy brand is showing up in more showrooms as we continue to grow share of voice with major dealers and provide a broader range of consumers access to the Lazy Boy brand. Our strategic partnerships with national and regional retailers like Slumberland, Furniture Row, Rooms to Go, and Gardner-White help us reach a broader audience and bring beloved products like the iconic Lazy Boy Recliner into more homes. In October, we opened our newly renovated showroom for our wholesale customers and our supply partners at the industry's High Point Furniture Market. It was a pleasure to welcome our key stakeholders and supporters of the company over the years to our reinvigorated floor space. We introduced new products that demonstrated our integration of consumer insights that enable us to design more on-trend merchandise in our core upholstery categories, particularly reclining and motion furniture. Consumers are looking for more functionality and modern, streamlined motion styles. And with our foundation in North American manufacturing, we are able to design and manufacture this with strong speed to market. Another core pillar of our Century Vision growth strategy to expand Lazy Boy brand reach is our Long Live the Lazy brand campaign, which launched in August 2023 on National Lazy Day. A little over a year into the campaign, we have been successful in increasing unaided awareness, consideration, and purchase attendance among those who have seen Long Live the Lazy and connected to Lazy Boy. I'm also delighted to share that over that same period, we have lowered the average age of our consumer by two years, reflecting our broadening appeal. During our second quarter this year, we activated our second National Lazy Day on August 10th with media takeovers across New York Times Games, Amazon, ESPN, Meta, and Pinterest. We also had a satellite media tour with influential thought leader, Dr. Sue Varma, promoting the health benefits of laziness. And as we continue to drive the Long Live the Lazy campaign, we are focused on broadening the impact to achieve our goal of connecting with both new and existing consumers. Joybird is another core pillar of Century Vision where we are optimizing the brand to deliver a balance of sales growth and profitability. Joybird had a solid quarter with positive delivered and written sales trends and operating performance improving against prior year comparable period. This resulted in profits that break even for the quarter as we continue to get more efficient with targeted marketing and advertising. as well as a more profitable product mix. We continue to believe in the long-term growth prospects of Joybird and will implement a disciplined approach to growing the business and have begun exploring additional store expansion. Strengthening our foundational capabilities, including building a more agile supply chain, is our final pillar of Century Vision. Clearly, there have been and will likely continue to be significant amount of disruption to global supply chains we will we are well positioned to design and manufacture our comfortable customized furniture with strong speed to market across our business on the foundation of our North American footprint as we enter the third quarter we continue to expect a challenging macro environment for the remainder of our fiscal year While there is a recent disconnect between interest rate cuts by the Fed and long-term interest rates which correlate to mortgage rates, we believe ongoing Fed rate reductions will eventually filter through the economy and positively impact housing activity. In the meantime, we remain optimistic about our ability to continue to outperform the market while investing in our business through our century vision so that when trends rebound, we are poised to disproportionately benefit. Now, before I turn it over to Bob, as many of you know, this will be Bob's last earning call as our CFO. And I want to recognize and thank him for the impact he has made at Lazy Boy Incorporated. He has been an exceptional partner to me and a strong leader for our entire team. We wish him all the best in his retirement at the end of the fiscal year. Now, let me turn the call over to Bob to review the results in more detail.