Greetings and welcome to the La-Z-Boy Fiscal 2019 First Quarter Results Conference Call. At this time, all participants are in a listen-only-mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to Kathy Liebmann, Director of Investor Relations and Corporate Communications. Please go ahead.

Thanks, Rob, and good morning and thank you for joining us to discuss our fiscal 2019 first quarter results. With us today are Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer, and Melinda Whittington, Senior Vice President and Chief Financial Officer. Kurt is going to begin today's call. Melinda will then speak about the financials and turn the call back over to Kurt for his concluding remarks. We'll then open the call to questions. Slides will accompany this presentation through our Webcast link, which will be available for one year. Additionally, a telephone replay of the call will be available for one week beginning this afternoon. These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles to communicate with investors about the Company's current operations and future prospects. We will make forward-looking statements during this call, so I will repeat our usual Safe Harbor remark. While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call. And with that, let me turn over the call to Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer. Kurt?

Thank you, Kathy, and good morning everyone. Yesterday afternoon we reported our results for the fiscal 2019 first quarter. As you can see from our press release, we've had a very busy summer. Sales increased 7.7%, consolidated operating income increased 42%, net income increased 57%, and we generated $32.2 million in cash from operations, and returned $13.6 million to our shareholders. In addition, the La-Z-Boy Furniture Galleries network hosted its sixth consecutive increase in written same-store sales, and our Company-owned Retail segment turned in a solid positive comp for delivered same-store sales. We also announced two exciting acquisitions, both of which closed subsequent to quarter end. I am very proud of all the work our team accomplished this quarter. Now let me speak to each operating segment. First, Upholstery; for the quarter this segment posted a 6.9% sales increase over the prior year, driven by a higher-priced mix, increased unit volume, and the benefit of our first round of price increases. Operating margin was 8.1%, down slightly from last year, primarily due to raw material cost. We would expect to see the full benefit of our second round of price increases by the end of the second quarter. On the innovation front, duo continues to sell extremely well and we believe the product line has great long-term potential. And the new re-imagined Urban Attitudes collection, launched at the April High Point Furniture Market, is beginning to hit retail floors. Our early indications are that it will do very well, particularly with the accompanying curated mix and matchable iClean fabrics which give consumers peace of mind for the unexpected spill backed by a three-year warranty. To keep these new product introductions coming regularly, we are building a new innovation center at our Dayton, Tennessee campus which is scheduled to be completed…

Thanks Kurt. Before beginning a discussion of our numbers, I would like to say I've had a great first few months at La-Z-Boy. It is truly an exciting time to be a part of this iconic company with a world-renowned brand as we write the next chapter of our history. Now let me turn to the financials. For the first quarter of fiscal 2019, sales increased 7.7% from last year's first quarter to $384.7 million, consolidated operating income increased 42% to $23.2 million, and consolidated operating margin increased to 6% from 4.6% last year. The Company reported net income attributable to La-Z-Boy Incorporated of $18.3 million or $0.39 per diluted share versus $11.7 million or $0.24 per diluted share in the prior year period. Compared to last year, first quarter of fiscal 2019 EPS reflects strong operating results as well as a $0.05 per share benefit from lower tax rate due to tax reform and a $0.03 per share benefit from currency gains in other income. Comparatively, the first quarter of 2018 EPS included a $0.03 per share benefit for an investment gain in other income. Our consolidated gross margin decreased 40 basis points in the first quarter of fiscal 2019 versus last year's first quarter, primarily due to raw material cost increases in the Upholstery segment, higher freight costs for Casegoods, and changes in our Upholstery product mix. As noted, we have taken two rounds of price increases in our Upholstery products intended to offset raw material cost increases, but we have not yet fully realized the benefit of the second round of increases. We expect to see the full benefit flow through by the end of the second quarter, assuming raw material costs stay at their same level. By segment, gross margin for Upholstery declined 110 basis points…

Thank you, Melinda. We were pleased to deliver such a great first quarter which demonstrated the strength of our base business, and as we look out to the remainder of the year, absent the acquisition accounting adjustments Melinda just received and the possible issues relating to tariffs, I believe we are on track to deliver a solid performance. With a strong brand, vast distribution network, world-class supply chain, and two exciting acquisition, we are poised for growth. I'm confident that these strengths coupled with our strong balance sheet and the ongoing execution of our strategic duo growth strategy will drive long-term returns for our shareholders. We thank you for your interest in La-Z-Boy Incorporated and we'll turn over the call to Kathy to provide the instructions for getting into the queue for questions. Kathy?

Thank you, Kurt. We'll begin the question-and-answer period now. Rob, please review the instructions for getting into the queue and ask questions.

[Operator Instructions] Our first question is coming from the line of Budd Bugatch with Raymond James. Please proceed with your questions.

Congratulations on a good first quarter. First quarter is always a challenge for La-Z-Boy, so it's nice to see that. Let's address some of the revenue issues. I've been getting a number of questions from clients regarding the price increases. Whether you could quantify if there have been any pull forward effect on the price increases that might have impacted this quarter's revenues more than normally?

The answer to that question is, there is not any pull-forward. We've had two price increases back to back, probably with a six-month gap in between. The last one was taken on July 1. So, we didn't see any of that. We would refer to the fact that we did have a little stronger backlog at the end of year when we went into April. As we said in our last quarterly call that there was nothing fundamentally different in our business and we were confident about our pace of business. But no, it was just – our sales don't go up straight-line, they have ebbs and flows based on the economy, based on retail promotions, based on holidays, and everything came together this quarter, but nothing to do with pricing, as best we can tell.

Okay. And I did see I think in Upholstery, if I calculated right, you had 1.5% unit gain embedded in that number that was mix, and there were other, if I looked at the MD&A properly, can you tell us in the Retail segment where the strength lie? You've kind of now started consolidating these very significant Arizona stores. Where did the strength in Retail come from in terms of the written business?

So, I think our comment there, Budd, would be, the business was pretty consistent throughout the quarter. You being an ex-retailer know that there are a number of levers you pull with merchandising, pricing, marketing, staffing, et cetera, and we have continued to try to find the right balance for us, and we try some things, sometimes they work, sometimes they don't, we pivot and do all that, so no one magical thing. I would say that our Retail teams with their emphasis on in-home and custom are doing a great job in trying to satisfy the customer and giving her very many options and being different in the marketplace in that regard. So, that is where the higher tickets and the higher margins are coming from because of a higher percentage of our business in those two categories, but no one thing stands out. It's a combination of a lot of changes that we've been doing over time to have this kind of result.

And you've talked about historically the efficacy of getting in the home. What percentage of sales right now are coming from those design operations?

I can't give you a real good number on the entire system, Budd, but I think with our own Retail business, it's in the high 30s. And the other great part about it is, the close rate once you get into a home is about 90%. So, it's a process to make sure that the customer wants that service, make the appointments, builds her trust, do all that, but once you are in the home and established that relationship, good things happen. And the most important thing about our in-home design is, we have a much more satisfied customer. She really doesn't want to buy just an item of furniture, she wants a beautifully decorated room, and the odds of her coming back and shopping with us more often increases exponentially when we do a professional in-home design job.

Okay. Couple of more questions if I could, thank you by the way for the additional disclosure on sales in the Q, that was notable, I appreciate that, but the accounting is getting trickier as a lot of these new pronouncements are having to be factored into Company's financials. One question I had that I don't quite understand was in the corporate side you had a $3.2 million improvement in that that came from a number of things including that incentive compensation. That worked out to be about $0.05 a share, if my math is correct, for the quarter benefit. A, is that correct, Melinda, and B, is that where we get the additional expense that has to be amortized over the other three quarters?

Your estimate is a little high there as far as how much of that is the comp piece, but you'll get two things going on as we look at the rest of the year. The first one is simply the accounting for timing and changes in how the equity awards vest – changes in timing how the equity awards vest. So that piece, you saw the benefit in the first quarter and that will play back, and so net to the year there will be no impact, but of course you'll see that load balance through the year. The second piece then is, and that's where we've called out that we expect to see our SG&A uptick 100 basis points for the total fiscal year compared to last year, and the biggest driver there is our compensation expense relative to primarily bonus type activity. So, you'll remember in the last year, Kurt and Mike talked about the fact that we really didn't hit the bonus levels that we had anticipated to. Even though we had delivered strong results for the year and certainly relative to our competition, we didn't hit the stretching targets that we had set for ourselves. And so, we've ended up realizing a fairly significant reduction in bonus compensation through the back half of last year. We anticipate this year delivering our results more in line with our plan, and so therefore we would expect to see that bonus compensation increase back up to a more going level this year. So that's why we've called out, in aggregate we expect to see SG&A expense up about 100 basis points for the entire fiscal.

Okay. And that's versus the reported numbers or an adjusted number, how do we look at that SG&A?

Versus reported.

Versus reported, okay. And finally from me, you had called out the fact that new acquisitions are slightly accretive excluding the purchase accounting adjustments. I assume those purchase accounting adjustments are the ones you referred to. Do we – if we did the math right, I think the EBIT on at least the Joybird acquisition looks like it's probably not positive at least as we can early-tell it, and also, are you planning to call out those purchase accounting adjustments instead of non-GAAP results in the future periods including those accounting adjustments?

Certainly. Given the magnitude of the purchase accounting adjustments, we do intend to be clear on those impacts. Whether or not we'll go as far as non-GAAP still TBD, but we'll make sure you understand those impacts going forward. As far as really the underlying operations excluding purchase accounting adjustments, we've been clear that Arizona is an established business and profitable, even as we bring it into our Company directly. Joybird is actually doing very well as far as being on a path to profitability but is still early-stage company. And so, when we think about everything in aggregate including some of the implementation costs that will occur and taking advantage of the synergies that we'll be able to deliver to these businesses, we're looking at turning to an overall profitability level across all those pieces, excluding purchase accounting adjustments, by the end of the year. But I don't see those in aggregate excluding purchase accounting adjustments really moving the needle for this fiscal on profitability.

Okay. Thank you very much.

The next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please proceed with your questions.

Let me add my congratulations on a strong start to the year and the acquisition of Joybird that feels like a nice strategic partner for you to be owning here. I want to just zoom in on some of the dynamics behind margins, and I guess first just to follow-up on Budd's question about the incentive comp, so I guess if I'm doing the math here right, a 100 basis points from incentive comp year-over-year looks like about a $0.28 headwind to earnings for the year on a tax-effected basis, and I think as you disclosed in the Q, it looks like you had about $0.03 of savings year-over-year on the incentive comp. So, does that set up that the next three quarters ahead we have something in the range of a $0.30 headwind year-over-year, if I'm doing the math right?

$0.28 for the entire fiscal, so we get to 100% for the entire fiscal and I think your $0.28 is about right.

Okay, great. And then on the margin front, I think we are all very encouraged to see the gross margin down 35 basis points in the first quarter, considering what's going on with input prices. I guess can you help us think about what the underlying products margins look like in 1Q and maybe how much gross margin benefited from just how strong the sales were in the quarter?

I think there's a combination. Let me go back to, Brad, and just to give you some other context, I mean last year we believe we delivered first quartile performance with our results but our expectations were even higher than that in the beginning of the year. So we disclosed in last year in our 10-K that we paid out a 42% bonus last year to management, and our intention is to try not to repeat that. And so, when you just do the math on accruing at 100% bonus, or better if we continue to do that, that's where you get the delta. So, I don't want anybody to think that the compensation – that we all got a bunch of big raises and things are different. It's all about kind of aligning our reward systems with our performance, and that's where you get that delta. Now going back to your question on – we had units, we had price, and we had mix, all in that sales growth this quarter, and we did sell more motion furniture as a percentage than we did recliners, which obviously carries a higher selling price. But the gross margins on our product lines don't change that much. There's not a lot of movement in that. So, I don't really think there's anything by product category that would stand out. Obviously duo is becoming a higher percentage of our sales as we launched two more styles of that last April, but there isn't anything that would give you any more clarity on any product line or margin by category.

Got you, okay. I guess where I'm going with this is, as we talked about the price increases should be offsetting the raw material increases that you're seeing, and so I guess as we move into 2Q just as it relates to the raw material prices, do you think we're past the worst of things and the rate of headwinds should continue to mitigate here?

That's our intention and that's what we had planned for, but the market is, there is increases coming on container freight from China, there's transportation challenges within our own country and every month or so we see fluctuation, but our plan was that we would get to a point by the end of the second quarter that our pricing pass-through would get us back to even with raw material increases that we experienced over the past year.

Got you, okay. And just on the tariff side of things, can you help give us a little bit more color on how much of the components that you put into your products? Look like they are subject to the Chinese tariffs.

I would start, Brad, with the retaliatory tariff that went into effect from Canada on July 1 is a 10% across the board. All finished goods going from the U.S. up to Canada carry the 10% tariff. The next round is primarily focused on actuators. So depending on how much power you manufacture and where the supply comes from, that is another challenge that goes into effect at the end of this month. The big one is Phase 3, and it's pretty much a tariff on anything in the furniture business coming in from China, and it's on fabrics, it's on leather, it's on finished goods. And what really has the industry perplexed is, we understand products that can be bought in both countries and whether or not there's fair trade going on, but there is very minimal supply of fabrics and leathers in this country that the industry can buy and most of it comes from China, and there is no offset to do anything different. So, the first two are not insurmountable. The third one is going to have the price of furniture across the board be challenged. So, don't know if it's all going to go into effect, don't know exactly what all the lobbying and testimony is going to be, but our industry as a percentage of the volume is in the top tier of the tariff effect if everything goes through. So, we'll just have a watchful eye, we have our plans of what we would or wouldn't do based on that, but the third tariff one is the big unknown at this point.

And Kurt, if it's a 10% tariff on these products you're importing, can you help to frame up at all what portion of your cost of goods sold could be exposed in a worst-case scenario? I mean, a quarter of it, would that be a reasonable guesstimate?

It would be all of it, Brad, because it's mostly all the fabrics and all the leathers. So, that would affect every single product we buy that comes from China, and the majority of not just our supply but the industry's supply is there. And yes, we do have that number, but I wouldn't mind telling you but I don't want to tell our competition.

Maybe coming at it another way, it's not all of cost of goods sold that's subject to the tariff? It would just be the components you're purchasing from over there?

No, but – and it could be on finished goods, so if you import casegoods or if you do some other things from China. Fortunately most of our casegoods come from Vietnam, but yes. And I don't know early on that you would rush and do a lot of different sourcing immediately because probably by the time you got things moved, maybe they will settle the tariff debate. And so it's kind of just an unknown that's out of our control and we don't want to be in that position.

Got you. I appreciate all that. Maybe I could just squeeze in one or two more in on Joybird. I guess from an operation standpoint, can you just help us think about maybe how you might integrate Joybird with the core business? Do you think you might see some of the Joybird products on La-Z-Boy store floors or vice versa with some of the La-Z-Boy products? How are you thinking about integrating the two businesses?

There's two different integration paths, Brad. One is on the supply chain side. They are trying to service the country from their facility in Tijuana. So, you can imagine there is a lot of excessive freight cost to be able to do that. When we assist them by manufacturing some of their product in our plants and make it nationwide and help them with delivery and have some product in our RDCs for immediate delivery to the customer, all of that is going to benefit them, and also our cost of material is different than theirs and there will be a benefit as well with that. But on the front side, our strategic bet here to start with is, this is a new customer for us, a younger customer that the La-Z-Boy line isn't strong in, and it's in a channel that is not for a brick-and-mortar retailer, that we're not doing the percentage of business that we think we should. So we want to see what the run rate is of that path before we start doing a lot of other things, and we have no plans to put La-Z-Boy chairs on Joybird's Web-site or put them in our stores immediately. What will happen a few years from now, who knows, but these four gentlemen that founded that company, doubled their business every year with very limited capital and very limited production capabilities. We want to see when the throttle is wide open, what this can do. So we're probably not going to interfere with that pathway for any time being, unless the Joybird folks have an idea that they think would be beneficial, but we just think there's a lot of room to run yet on their core idea of providing this different styling in a different way to a customer that appreciates that.

Very helpful. Thanks for answering all the questions and congrats again on the strong momentum at the start of the year.

Our next question comes from the line of Dillard Watt with Stifel. Please proceed with your questions.

Good morning and my congratulations as well. Obviously a lot has already been asked, so just a couple of quick ones here. Kurt, I know you talked a little bit about margins being more or less similar across the products, but I think you did have, you called out 50 basis points of headwind from mix in the Upholstery segment. Can you help me out with that a little bit?

So, that refers to the change we have in selling more motion and probably more stationary as a percentage than our recliners. There's a dual-edged sword here. Selling the major upholstery and major motion adds to our sales volume, but in aggregate as a category the margins aren't quite as good as what we make on recliners. But it's what the customer is asking for and what she is looking to us for, so that's the direction we take her. But there is a slight margin differential between our recliner business and the rest of our business, not major but enough that we called it out to give some more clarity.

Okay, great. And that's about what I thought but wanted to just make sure. On the Retail side, I mean you guys have a ton going on now with acquisitions and all that, and just any movement or loosening in your ability to find leases in some of the bigger markets? I assume there really hasn't been too much of a change there and you have your hands full anyway, but just thought I'd ask the question.

It's a good question, Dillard, and obviously unfortunately some people's challenges with closing all the stores and available real estate is an opportunity for us, and we're seeing some of it. One of the problems, limitations that we have is that our stores are 15,000 to 17,000 feet and a lot of the boxes that are coming available are 40,000 feet, and Toys "R" Us have some great locations around the country but they are just way too big for it to work for us. So we're working for that. And the other thing is that we've got, over the next three years we've got a number of leases that we have that are coming up for reconsideration. So, we will be making a lot of moves in the next three years to improve our real estate portfolio. It may not translate to a ton of new stores, but it will probably put us in better locations at cheaper rents given the situation out there in the market. So, that's an opportunity we have and look forward to. But both ourselves and our dealers are being opportunistic, and as we said on the prepared remarks, we're trying to run this tight-rope of a balanced approach to not only the quantity of the stores but the quality of the stores. We want the customer to have a great experience and shop in an inspiring environment, and some of our stores have aged to the point that maybe we don't always deliver that, so we're trying to balance the two things together and continue to improve the network every quarter.

All right, thanks. And then lastly, back on the Upholstery sales, I guess we had a question on pull-forward and you saying that's not really much of an issue, but it still did outperform both the Retail business and the written orders by a good margin. I know you said you had some backlog that you are catching up on. So, did the independent networks or independent retailers maybe outperform or any other reasons on the delta there?

I just think to make sure everybody understands, we talk a lot about our own retail, we talk about the La-Z-Boy store network and its impact on our business and all, but when you look at the overall Company, not just the La-Z-Boy brand, with all of our companies and all of our categories and everything like that, as much as we – we are very, very proud of our store business, it represents in the low 40s as a percentage of our business. So we do 60% of our business with a number of great retailers throughout North America who have Comfort Studios with us or a major position. And so, we work as hard with those partners as we do with our Furniture Galleries partners, and sometimes we have great positions with our other customers and sometimes we're trying to earn a bigger position. So I think that's one of the beauties of our distribution philosophy is that not only do we have this solid and vast store network, we have all these other customers that we can either grow or shrink with based on how we combine. And so, there is not a one-to-one correlation between our same stores written for the network and a sense exactly what our delivered business is going to be for the overall Upholstery business because there is a number of other factors. So, obviously we didn't do the almost 7% growth with just the Furniture Galleries during the quarter. So, our other customers helped us achieve that goal equally.

Understood. Just trying to ask maybe a different way, was there any one or two discrete items that occurred in that remaining 60% or is that just a little bit here and there?

I think, Dillard, if there was one or two discrete item that made the difference, we would call it out. You'd have to do a lot of business with us to make a difference in a $300 million quarter on Upholstery. Some of you'd have to grow $30 million. I'd like to find that person but he didn't exist last quarter. It was the whole tide lifting.

Understood. Thank you for all the detail today.

Our next question is from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your questions.

So, obviously you did very well in the July quarter, so congrats on that. But it is your seasonally smallest quarter. I know, Kurt, you mentioned that the business throughout the course of the year goes in ebbs and flows. You also mentioned that you are doing a better job of honing in processes and tactics in the Retail segment. So, can you help us understand as to how we should think about the organic sales growth for the rest of fiscal 2019?

I don't have any better crystal ball, Anthony, than you do. And with this potential tariff thing out there and consumers buying habits and everything, we have our own targets that we're striving for and we think we've found some things that will help our business grow above last year, but to give you a target, we don't give guidance, but to give you really any insight in the balance of the year with so many moving parts, whatever I would give you, I know I would be wrong. So, I'm not going to help you with that question.

Okay, I figured out, I would ask anyway.

Nice try.

But the processes and tactics that you've talked about for the Retail segment, so without giving too much I guess as far as [indiscernible], can you give us maybe some examples as to what you did differently in the July quarter versus previously for the Retail segment?

You know I tried to address that earlier, Anthony, that there's seven or eight things that go into the mix about the product offerings we have, the promotions we run, the quality of our sales staffs, the percentage of our in-home business. Again, there is not one or two silver bullets. It's a combination of listening more to the customer, making some adjustments on the things we do, holding our team more accountable, there's all kinds of things, and it all happened to work this quarter. Do I say that we found the magic and it's going to be like this every quarter? No, we aren't to that level to declare that. But our team works at all this very hard every day to make improvement and they've found some things that changed the needle a little bit and we're pleased with that, but that is not necessarily a predictive index for the future.

Got it, that's very helpful. And then, so now it's been about a year since you announced your three-pronged e-commerce strategy. Can you give us a sense as to your exposure to online, meaning sales through la-z-boy.com, Wayfair, Amazon, where is that business now overall, the online exposure, obviously excluding Joybird?

I think our comment there, Anthony, would be that we said about a year ago what our strategy was and we've delivered on that. We started selling Amazon six months ago, we were already selling Wayfair a little more than a year ago, we invested in a couple of start-ups, and now with the completion of Joybird, with the acquisition of Joybird we've kind of fulfilled our initial thoughts of what we wanted to do, and now it's a matter of maturing all those businesses, growing with them, getting to understand how we can be more effective, and probably not going to give you a number right now on that but obviously in a lot of these places we're on the ground floor and think we have a lot of potential, but we need to now – and I think we said in the beginning, maybe not all these thoughts of ours or all the things we did would all be winners, and so we now have to see where the needle moves and who is, which part of that business has got the most upside, and that's where we will invest some more, but right now we are happy that in the first year what we said we would do, we got it all done and are looking forward to that segment of online players making a solid contribution to our future.

Got it, okay. And lastly, do you have a timeframe you can share with us as to when you expect to complete the integration process of Joybird?

I would say that it depends on a lot of things. There's system things, there's getting new product launched, something like that, but I think as we get through the next six months or so, we will have a lot of the integration done, maybe not all of it, but I can assure you Joybird wants to move faster than La-Z-Boy is used to doing. So, we've got that extra pressure. But what we don't want to do is rush something and disappoint the customer, not deliver the same experience that Joybird has built with their customer base. So we're going to be a little cautious but it is a high priority because we believe percentage-wise Joybird should be the highest growth business we have here in the next couple of years.

Okay, thank you very much and best of luck.

Our next question is from the line of [indiscernible]. Please proceed with your questions.

I just want to go back to Budd's question. So, he was mentioning, and I just wanted a clarification on the answer, I think he was looking at the segment details that you guys provided [indiscernible] so the corporate expense was down $3.2 million. So, was that all from just the change in how the timing of the incentive compensation accrual? And I think you guys said that that's a bit high. So, I just want a little more detail. So, is that implying like it's $2.5 million to $3 million of incentive comp change? I'm just trying to get a sense of how specific the incentive comp change was.

Yes, it is the most significant driver. So, it's not the full $3 million, but the most significant driver.

Okay. Can you give any more details, because it's a pretty big number when I look at how much your operating income improved year-over-year? And I don't want to take anything away from all your hard work but [indiscernible] – I think your Q said there is the Hong Kong improvement and the commission that your Hong Kong [indiscernible]. So, it was basically those two were the only items, right?

Exactly, those are the only items in the corporate side of things. And I think the key point being, if you think about SG&A overall, from a sheer sales growth gives you leverage obviously, and so you see the improvement on SG&A as a percent of sales. And then importantly though, we do expect to see SG&A 100 basis points higher on the entire fiscal due to – through the quarters you'll see the timing effect of that compensation item, but then also as we bring bonuses, assuming continued performance, as we bring bonuses back up to the level that we would expect to be able to earn and deliver this year.

So there's a change in timing on how we recognize this expense and there is an expectation of a different performance level this year that earns out a lot more than last year.

Yes. And Kurt, by the way, I appreciate. A lot of other companies may have a year that's maybe softer than they think they should have had, they still pay out nearly 100% of target bonus. So I appreciate you guys not doing that and keeping yourselves to high standards. So, congrats on being different than most of corporate America [and I'll let you run] [ph].

We're very transparent.

The next question is from the line of Kincade Webster with Solas Capital. Please proceed with your questions.

I just had a quick one. In sort of about the past two years, the written comps have outpaced delivered comps. I guess did anything in particular sort of contribute to that trend reversing this quarter?

So, with us you have to remember there's always a backlog, and from the time you order the furniture, it can be four to six weeks before you receive it. So, it's not like you want to go get it today, you get it tomorrow, although we do have a lot of products in stock you can get in one week. So, that's always the factor. The factor is always the lag time of the backlog and the seasonality and when the holidays are. So, there is never a one-to-one correlation. Now there will be over a longer period of time, if you look at a year, it would get a lot closer that the written would mirror the delivered, but quarter to quarter there can be fluctuation.

I guess just to get a little bit more specific looking over, I mean it seemed like for a pretty extended period of time over the past two years it was where the written were outpacing the delivered, so I guess there was nothing outside of just timing and any kind of one-time things that contributed to that reversing pretty materially this quarter?

The written was up this quarter in our Company-owned segment, but actually the momentum started before we went into the quarter that gathered all delivered out during the quarter. And just again for clarification purposes, we'll repeat what we said numerous times. We provide the same-store written sales for the entire 351 store network because we think that is the best indicator of the pace of business throughout the country that we can place our hands on. And then we provide the delivered same-store sales for the 150-plus stores that we own. And we are not always tracking the written same-store sales number as our independent dealers. Some quarters we're behind them and some quarters, like this one, we are ahead of them. So, it changes based on various performances and various things that happen around the country. I'm afraid at times we may have confused people with this, but we're trying to give them as much insight as we can on what the future may hold based on the past 90 days written business.

That's helpful, thank you. And I guess just one follow-up for the Arizona acquisition, I guess do those get put straight into the comp base for the Company-owned Retail segment or are they kept outside?

The question was on their comp?

Or do they get put straight into your comparable store base pretty much for Q2?

No, we would treat them like anybody else. Until we own something for a year and have 12 months of history. Even though we have their history from before they wasn't in our number, they won't be in the same-store sales for us for the balance of the year until we anniversary the date we purchased them.

Okay, great. Thank you. That's all I had.

Thank you. Ladies and gentlemen, this will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation.