Good morning, ladies and gentlemen, and welcome to the La-Z-Boy Fiscal 2022 Fourth Quarter and Full Year Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ms. Kathy Liebmann, Investor Relations. Kathy, over to you.

Thank you, Jenny. Good morning and thank you for joining us to discuss our fiscal 2022 fourth quarter and full year results. With us this morning are Melinda Whittington, La-Z-Boy's President and Chief Executive Officer; and Bob Lucian, Chief Financial Officer. 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 the 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 La-Z-Boy's future performance and other matters. Although we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn over the call to Melinda Whittington, La-Z-Boy's President and CEO. Melinda?

Thanks, Kathy, and good morning, everyone. Late yesterday afternoon, following the close of market, we reported record results for fiscal '22. Highlights for the year included record delivered sales and profits for the fourth quarter and the full fiscal year for the total consolidated company. Record delivered sales for our wholesale segment, record delivered sales and profits for our company-owned retail segment, strong delivered sales and profit performance for Joybird, returns of $118 million to shareholders through dividends and share repurchase, the highest level in our history, and the launch of Century Vision, our growth strategy through our centennial year in 2027. All in, these are great results in a volatile environment. Sales were $2.4 billion driven by the strength of our consumer brands, our vast distribution and the strong demand for home furnishings. We delivered $3.11 in non-GAAP earnings per share, 19% ahead of last year and 45% more than pre-pandemic fiscal '19, all while continuing to navigate the challenges of the pandemic, global supply chain disruption, and a tight labor market. And we finished the year strong. Sequentially from Q3, our fourth quarter exhibited momentum in delivered sales and significant operating margin improvement. I'd like to take this opportunity to thank our talented team across the entire company for their hard work, perseverance and dedication. Our employees are amongst our greatest assets, and are responsible for delivering these phenomenal results in challenging times. As we celebrate these outstanding results, we note that written sales for Q4 reflect the consumer impact of inflationary pressures and geopolitical concerns. After a strong February with positive year-over-year growth, we saw significant deterioration of written trends in March, some recovery in April and ongoing volatility. Written same-store sales for our company-owned retail segment decreased 9% for fiscal '22 fourth quarter, primarily due to…

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 operating trends and performance of the business. Non-GAAP results exclude items which are detailed in our press release and in the tables in the appendix section of our conference call slides. Additionally, fiscal '22 included 53 weeks, with the additional week falling in the fourth quarter. For those of you new to La-Z-Boy, our fiscal year ends on the last Saturday of April, and every five or six years, we have an extra week in our fiscal year. On a consolidated basis, fiscal '22 fourth quarter sales increased 32% to a record $685 million versus the prior year quarter, reflecting higher pricing and surcharges, increased unit production and the extra week in the quarter, which increased sales by approximately $49 million. Consolidated GAAP operating income increased to a record $79 million and non-GAAP operating income was a record $65 million, an increase of 24% versus last year's fourth quarter. The quarter had a record non-GAAP operating profit level even without the extra week of results. Consolidated GAAP operating margin was 11.5% and non-GAAP operating margin was 9.4%. GAAP diluted EPS was $1.33 for the current year quarter versus $0.81 in the prior year quarter. Non-GAAP diluted EPS was $1.07 in the current year quarter versus $0.87 in last year's fourth quarter, a 23% increase. Moving on to full year results for fiscal '22. Sales increased to a record $2.4 billion, up 36% versus the prior year, reflecting strong demand, ongoing manufacturing capacity increases, higher pricing and surcharges and the extra week in Q4, which increased sales by approximately $49 million. Consolidated GAAP operating income increased to a record $207 million and…

Thanks Bob. I'm very excited about the future of La-Z-Boy Incorporated. We manufacture and sell great brands, have broad distribution, a strong and growing company-owned retail segment and a talented team in place to execute our Century Vision. Although the macroeconomic environment is volatile and will remain choppy for the foreseeable future, our focus is on the long term, controlling what we can and driving agility through every facet of the organization. Our balance sheet is strong and will allow us to move through this uncertain period while making important investments in our future. We have every intention of growing from our new base and believe the best is yet to come as we deliver long-term profitable growth and returns to all stakeholders. We thank you for your time this morning, and I'll turn the call back to Kathy.

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

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Brad Thomas of KeyBanc Capital Markets. Brad over to you.

Sorry about that, it was muted. Good morning, Bob and Kathy. And first of all, I just wanted to give my congratulations on a strong quarter and obviously, a record year for the Company.

Good morning, Brad. Thank you.

We're getting a lot of questions about recent trends in the industry. And so I had a couple of questions about that. But I was hoping to address maybe first of all, Melinda, I believe you commented that trends have been more volatile of late. Could you give us any more detail on how May and June have been trending so far?

Yes. I mean since year end traffic continues to be challenged across the industry and there's a decent amount of volatility on any given week or month right now. I will tell you that as we look at this going forward, the first thing we continue to be focused on is the production side of things. And what we've been working on over the last couple of years on our ability to produce both to manage this cost to service the backlog that we have and importantly, to get down to shorter lead times to help impact that consumer proposition and drive conversion on the traffic that we do see. As far as the consumer, the entire industry over the last three, four months is certainly seeing a slowdown in traffic. And I think, there's a couple of things driving that, overall, consumer sentiment, no doubt, is challenged. As we talked about and everything from inflation and we can certainly go into some more there. The other piece that I think we don't know the relative impact of each of these is the return of seasonality. So for the last couple of years, we really haven't had kind of a big difference quarter-to-quarter in consumer sentiment. This is the first spring in several years that consumers were getting a regular spring and summer. People are traveling again and all. And so if you go back pre-pandemic, the spring and summer were always significantly slower than kind of the back half of our year. And so that return of seasonality is definitely driving some of it. And then we have to keep in mind that furniture pricing is still quite high, right, across the industry. We're 25% to 35% higher due to all of the input costs than we were pre-pandemic.…

And to follow up on that, Melinda, what are you seeing in terms of the trends at Joybird and how is that brand performing versus La-Z-Boy? Is it performing better? Or is it -- has it slowed down more because it's more D2C or perhaps a customer that might be more constrained by the environment we're in?

Yes. I think if you look at -- so back pre-pandemic times, right, we used to talk about -- Joybird was maybe written trends in the high teens when our older, more mature La-Z-Boy business had written trends in the low- to mid-single digits, roughly, right, directionally. That differential has continued if you look at sort of for the fiscal year, for the fourth quarter and ongoing. We're still -- we're seeing slower or some slowing of the written trend, but it's still positive and significantly stronger than what we're seeing across the entire furniture industry on average.

That's very helpful. And then with regard to the retail customers that you have that have wanted to delay receipt of product, I presume this is a function of their sales having slowed down. How does that work? How long can they delay it out before this starts to turn into canceled orders and what are you hearing from these larger customers?

In the near term, it's really been more -- and again, time will tell here, right? But in the near term, it's really been more a matter of when you think about these retailers spent the last 1.5 years trying to get product from anywhere they could, right, and ordering. And then, as things have started to deliver they've got warehouse constraints in the near term. And in particular, suddenly, where they may be ordered ahead on some stock, that's filling up warehouses, that is slowing down their ability to deliver the orders that are sold through to their end consumer. And so really, the near term has been -- the near-term effects have been more about just flow through and getting the right product in there. You might have a lot of one thing and not as much of another. And that could be from us or for general dealers that could be from a lot of different consumers. So I really see the majority of that shift that we've seen thus far has been much more about sort of near-term shifting as we've gone from this very dramatic, everybody trying to get anything they could for the consumer to suddenly kind of a slowdown with the consumer and just the logistical side of managing that.

Your next question is coming from Anthony Lebiedzinski of Sidoti. Anthony, please ask your question.

So first, in terms of your own production capacity, I just wanted to get a better sense as to how did the quarter progress in terms of your delivered revenue gains. Was it consistent throughout the quarter? Or was there any notable changes as the quarter progressed?

It was fairly consistent -- a slow increase as the quarter progressed. Our latest -- our last plant down in Mexico, Torreón was coming online, and that was allowing us to slowly increase capacity over the quarter as we went through. So we finished the quarter well.

We took some opportunity in the fourth quarter to reposition some lines to make sure -- we've talked for a long time about like our Mexico cells, we're making maybe more simple product as they were training. We started re-pointing cells as well to make sure we're making the right product for demand. And so we feel good about the progress there as well.

Got it. Yes. So Melinda, during your remarks, you said you changed some of the processes in your plants. So is that what you referred to? Or is there something else there as well?

Yes, sir. Yes.

Okay. Got it. Okay. And then just in terms of your inventory, so obviously, like a lot of other companies, inventories have increased. How would you characterize the health of your inventory and kind of given what's going on with traffic and just a macro concerns? How do you feel about the health of your inventory?

We ended the year with the level of inventory we wanted to end the year with. We're still holding that right now given what's going on over in China to ensure that the lockdowns and some of the delays that are occurring from some of the parts and fabric and things like that to come from China don't impact our production facilities. So, we'll continue to maintain a slightly higher level of inventory to make sure that we're able to make product as we're able to. And the inventory, what I'm talking about there is on the raw material side. The inventory from a finished product side, that's generally speaking, being made and being moved out, and we're adjusting production as needed to ensure we don't build up a whole bunch of finished goods inventory as we see customers modify their receipt timings.

Got it. Okay. And then in terms of price increases, obviously, as you noted, pricing has gone up quite a bit. Are you -- yes, so within the guidance that you provided for the first quarter, does that include any additional price increases that you may have taken since the fiscal year end? Or how should we think about additional pricing actions that you may take?

Well, we never come out on future pricing actions we take. We will always continue to look at what's going on with the pricing of raw materials and price accordingly to make sure that we're maintaining our margins. The last pricing we took in February, and that pricing is working its way through the backlog. Part of it is coming in faster than others. But generally speaking, that's working its way through, and will continue to work its way through Q1 and into Q2.

Got it. Okay. And then lastly for me. So you stated that you will open 10 stores in fiscal '23. So is this a new annual run rate? Or how should we think about your long-term plans for store growth?

You'll see some variability in any given year, honestly, some of it right now, it's happening even in our Joybird stores, has been around -- so you don't hit quite the cadence you'd like because of just construction delays. But in general, what we've talked about is that we see the opportunity for about 400 stores. And today, we're at about 350. So -- and we've said we'll do that over our Century Vision time period. So, the 10 run rate is not a bad ballpark number, but there will certainly be some volatility on any given year.

Your next question is coming from Bobby Griffin of Raymond James. Bobby, ask your question.

This is [indiscernible] on for Robby Griffin. First, I just wanted to touch a little bit on the wholesale backlog. It continues to trend well above historic levels and even was up year-over-year at the end of the fiscal year. Can you talk about your expectations for working down that backlog this year?

Yes, I want it to go down. So if you think about what's in the backlog, there are -- I guess I'll start by saying -- there are two things in the backlog. One, our orders that are sold all the way through to the end consumer and so to me, that backlog, well, it's nice to have written orders on your books. That backlog is a dissatisfied consumer that's waiting for their product. So historically, we have been able to deliver customized products to our end consumer in four to six weeks. And that's been out in the four to seven months. We are very pleased that since Memorial Day with a real focus on that custom order to the end consumer as a Memorial Day, we've been able to quote 10 to 14 weeks. So that's real progress. That will make the backlog go down, but that's a good thing. The other thing that's in the backlog then is stock orders. And again, somewhat similarly, these are, for the most part, B2B customers that have placed orders with us on what they believe they're going to need to keep in inventory. When we're out six months on production, they're having to put six months of orders on the books with us for backlog to ensure they have their production space. As we bring this capacity on and get more and more efficient, if we're three months out, we only need three months of orders on the books. If we're one month out, we only need one month. So our goal this year is to bring that backlog down very significantly, ideally to kind of the minimal levels, sort of the four- to six-week backlog that we've had pre-pandemic historically, but on a larger manufacturing base, which would mean more throughputs. Now there's obviously -- there are multiple variables as we've talked over recent years, there's how many orders are coming in and how many orders are servicing. And so, I expect that we'll see some volatility on that as well as we move through the year.

Okay. That's really helpful. And then just a follow-up on that, how much flexibility do you have with your current capacity build out? How do we protect from getting too much capacity?

The way we manage that and the way that we've been planning to manage all along is as we see or if we see demand go down, we will manage it via a combination of reducing overtime that's being run at virtually every single one of our plants right now. We have the opportunity to reduce shifts. And again, in this business, there's some natural attrition that goes on just in the plants because it's such a difficult manual work that if we choose to try to drop our production at the plant, just not rehiring, that allows us to also right-size the plant from a production perspective over time. So, we're going to employ those types of strategies to try to balance out our production so that we balance it out consistent with what we are seeing from incoming orders as well as trying to -- again, what Melinda has talked about, working down the backlog.

Okay. Perfect. And then lastly for me, you guys mentioned beginning to increase investments in marketing. Can you walk us through some of those investments? Is it just a function of additional advertising of existing content? Are you developing new content?

A bit of both. So from a pure share of voice standpoint over the last two years, as a percent of sales, we have been significantly down, and we've called that out for a while because again in a world where the consumer was coming in at record levels already. And then, our backlog was as long as it was, we were choosing not to spend money to exacerbate, the frustration if you will. Again, we still kept some level of share of voice in across a total mix. As we go forward, the just the sheer volume, we're taking back to kind of share of voice levels or heading back towards levels like we had pre-pandemic. The mix of that marketing and the content is not, at this stage, dramatically different. But as I mentioned in my prepared comments, as we look at our Century Vision work and really reinvigorating kind of that consumer focus and being data based on what resonates with the consumer. You will continue to see a shift over time in the content, in the types of marketing mix, and really just how we're reaching the consumer overall because that is part of the work certainly on the La-Z-Boy brand to ensure we're reaching the consumer in a meaningful way, we're helping a broad array of consumers. And certainly, even aging down that consumer in a way that they recognize we have a product that is right for. And go back to -- we always talked about the La-Z-Boy brand is -- people have very positive attributes when they think about the La-Z-Boy brand. They don't always think about the La-Z-Boy brand being for them. And so that's a lot of the database work to ensure we're telling that story well. And then, of course, we've been clear that within the Joybird brand being that it's still quite a young brand, we will disproportionately invest there to continue to grow that brand recognition.

Thank you very much. There appear to be no further questions in the queue. I will now hand back over to Kathy.

Thank you very much. Jenny. Thanks, everyone, for joining our call this morning. If you have any additional questions, please reach out to me. Have a great day. Bye-bye.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.