Good morning, everyone. Welcome to the La-Z-Boy Fiscal 2024 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode and we will be opening for questions following the presentation. [Operator Instruction]. Please note, this conference is being recorded. I will now turn the conference over to your host, Mark Becks, Director of IR and Corporate Development of La-Z-Boy Incorporated. Mark over to you.

Thank you, Jenny. Good morning everyone and thanks or joining us to discuss our fiscal 2024 fourth quarter and full fiscal year. With us today are Melinda Whittington, La-Z-Boy Incorporated's President and Chief Executive Officer; and Bob Lucian, La-Z-Boy's SVP and CFO. 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. A telephone replay of the call will be available for one week beginning this afternoon. Before I 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 the call over to Melinda Whittington, La-Z-Boy Incorporated's President and Chief Executive Officer. Melinda?

Thanks, Mark. And good morning everyone. Yesterday, following the close of the market, we reported results for our April-ended fourth quarter and fiscal year. I am pleased to share that we delivered solid results despite ongoing economic in Furniture and Home Furnishings industry headwinds. Highlights for the quarter included consolidated delivered sales of $554 million, up 22% versus our most recent pre-pandemic fourth quarter, and down 1% versus prior year, which benefited from delivering the above-normal pandemic backlog. Non-GAAP operating margin of 9.4%, non-GAAP EPS of $0.95, strong operating cash flow of $53 million for the quarter, and continued progress against our Century Vision growth strategy, including completing the acquisition of a two-store independent Furniture Galleries network in Florida and signing an agreement to acquire another single-store independent dealer in the Midwest in the first quarter of fiscal ‘25. Highlights for the year included consolidated delivered sales of just over $2 billion, roughly flat versus prior year when adjusting for the fiscal ‘23 pandemic-related backlog deliveries. Gross margin expansion on both a GAAP and a non-GAAP basis across all segments. Strong operating cash flow of $158 million, a healthy balance sheet with $341 million in cash and no external debt, and continued progress against our Century Vision growth strategy, including opening six company-owned stores and the acquisition of 11 independently-owned La-Z-Boy Furniture Galleries stores, and $85 million returned to shareholders through share repurchases and dividends, including increasing our dividend by 10% for the third consecutive year. We're proud of our strong finish to the fiscal year as fourth quarter results exceeded expectations. These were particularly impressive results in the context of the overall Furniture and Home Furnishings industry, which continues to grapple with higher for longer interest rates and housing turnover near 30-year lows, negatively impacting store traffic. La-Z-Boy continues…

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. On a consolidated basis, fiscal 2024 fourth quarter sales decreased 1% to $554 million versus the prior year, which benefited from above normal pandemic backlog deliveries. This sales result represented 22% increase versus the most recent pre-pandemic fourth quarter in fiscal 2019. Consolidated GAAP operating income decreased to $50 million, and non-GAAP operating income was $52 million, a decrease of 5% versus last year's fourth quarter. Consolidated GAAP operating margin was 9.1%, and non-GAAP operating margin was 9.4%, reflecting a 40 basis point decline versus last year, primarily driven by lower gross margin from segment mix, partially offset by lower SG&A. GAAP diluted EPS was $0.91 for the fourth quarter versus $0.79 in the prior year quarter. Non-GAAP diluted EPS was $0.95 in the current year quarter versus $0.99 last year. As I move to the segment discussion, my comments from here will focus on our non-GAAP reporting, unless specifically stated otherwise. Starting with the retail segment, for the quarter, delivered sales were $228 million, a 6% decrease over the prior year's fourth quarter, which benefited from higher deliveries of backlog. Importantly, fourth quarter sales were 50% higher than our pre-pandemic fiscal 2019 fourth quarter. Retail non-GAAP operating margin decreased to 14.2% versus 15.5% in the prior year quarter. Gross margin increased due to a more favorable product mix, but was more than offset by fixed cost de-leverage on lower delivered sales. For our wholesale segment, delivered sales for the…

Thanks, Bob. The momentum in our business is accelerating and we continue to make progress towards achieving our Century Vision goals. Our focus on execution will remain paramount as we continue the expansion of retail through new and acquired stores, improve agility across our supply chain, and drive efficiency and margin expansion throughout our business as the underlying demand environment improves. We will also continue to expand our brand reach with new and existing consumers through our award-winning and innovative brand campaign and our on-trend high-quality comfortable products. Before I conclude the call, I want to thank the entire La-Z-Boy Incorporated team for their hard work and continued progress towards our goals throughout the year, even in the challenging environment. I look forward to the year ahead and getting back to growth. And we thank you all for your time this morning, and I'll turn the call back to Mark.

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

No problem. [Operator Instructions]. Thank you. Your first question is coming from Bobby Griffin of Raymond James. Bobby, your line is live.

Hey, everybody. Good morning. Thanks for taking the questions.

Good morning, Bobby.

I guess first for me, I just wanted to maybe dive into the margin performance in the quarter. It came in nicely above expectations. Was that just a function of the volume side of the business being a little bit better than what you laid out when we start the quarter, or was it some of these manufacturing efficiencies that we've talked about in the past starting to come to fruition and getting more efficient inside the facilities and kind of back to what I would say the normal La-Z-Boy wholesale performance is?

Bobby, I would say it's probably the former more than the latter. We continue to make progress on the efficiencies of our plants, but during that quarter, we're still in the process of our Mexico project where we're moving around production and we're moving our cut and sew facilities and trying to get that all ready to go. So that was occurring and that had some drag costs in Q4. The rest of the business did do fairly well from a plant production perspective. It really was more a function of the higher volume that we got. As you recall, we had a pretty challenging January due to weather, and that pushed more volume into Q4. As a result, that helped to drive the overall margins up a little bit higher than what we had expected.

Okay. And that was actually a good segue to my next one. I was going to ask about the restructuring process, just how is it progressing on time? Are we still expecting the 50 to 60 basis points, I believe, was what we talked about for wholesale margin improvement?

We still expect that improvement to occur, but we are, I would say, one quarter delayed. As we were going through and making all the changes across all the plants, there's a number of plants that are involved in this. We've been going a little bit more prudently and cautiously to ensure that, number one, that we're maintaining the quality, and this is all about our cut and sew operations down in Mexico, that we're maintaining the quality of the product as we bring new people online, as well as ensuring customer service and that we don't fall behind and get behind there. So we're being a little bit more cautious. By the end of Q1, we expect that to be completed, and then we'll start seeing that 50 to 60 basis points we talked about.

Okay. Great. And then on the new store galleries, the 12 to 15, that's all organic and doesn't include if you buy in any of the independents or does it include, I guess, the one that you've already signed?

That's correct. That's a new store opening, separate from any acquisitions that we would do.

So maybe, I guess the question then is, that's a nice step up versus I believe it was six that we opened in FY’24. So Melinda or Bob, can you maybe unpack kind of what you are seeing from the real estate side? Is it just the timing that you now kind of have the pipeline built out that allows you to accelerate it, or are you doing something different from a capital standpoint, putting a little bit more of your own capital up first to kind of accelerate it and then sell them back or something, from a lease standpoint?

Yes. So certainly, our goal has been to go after that pace and get ourselves up kind of a north of 10 a year. This year, we opened six new stores. And as you said, it does take a little bit of time to get that machine going and we've done some things to help move that along. Bob alluded to the fact that where we need to – i 's not going to be our business for the long term, but where we need to, we're leveraging some of that balance sheet to put the capital up, so that we can keep these stores moving rather than be delayed again. And that's just laying the groundwork, because we don't want to open up sites for the sake of opening them and not have good sites, but having that groundwork laid on where we want to be, and then the decision to help that process with using our own capital on a limited basis, those two things are sort of the inflection between six closed this year – or six opened this year versus north of a dozen next year.

Very good. I appreciate the details. I'll jump back in the queue and turn it over to somebody else, but congrats on the strong quarter.

Thanks, Bobby.

Thank you.

Thank you very much. [Operator Instructions] Our next question is coming from Brad Thomas of KeyBanc Capital Market. Brad, your line is live.

Thanks. Good morning, Melinda, Bob and Mark. First of all, congrats on the good year and strong execution and a still tough backdrop. I guess, just as we look at the first few quarters of the year, you are up against these positive comps in 1Q and 2Q, where written same-store sales were positive in fiscal 1Q and fiscal 2Q. And so I guess the question is, you commented on being happy or pleased with what you were seeing out of Memorial Day weekend. But just as we're thinking about the shape of the year and the beginning of the year, how should we take into consideration the fact that comparisons get a little bit easier? Does that really even matter, because the two and three year comparisons are so noisy? But I guess from your comments, it would seem like hopefully same store sales get better from the negative three that you just did in the fourth quarter, but again, I just want to make sure we're not missing anything as we think about timing and comparisons.

Sure. No, I appreciate the question. Yeah, speaking first to Memorial Day and sort of how our May started, we commented as you said, in the prepared remarks about a solid start. I think as we've been in the call this morning, the government's number came out on the industry for May, and they are pretty negative numbers. And I would say, I can say with comfort that we are continuing to outperform the market, so very pleased with that. I think the consumer overall is still bumpy, and we're seeing behaviors like the holidays tend to be stronger and the periods in between tend to be a little bit weaker. So we remain cautious, keeping our eyes on what we can control in this space. But broadly, we feel good about our ability to continue to outperform, and that's reflected in our guidance put out for Q1. But I'd also note that summer tends to be a super slow period for furniture, and we expect between the actions we're taking and then hopefully by the end of our fiscal, a little bit of help out of maybe seeing some interest rate help and seeing some of that start to trickle through the economy. We feel good about being able to grow this year.

That's very helpful, Melinda, and maybe just to follow-up on that. It seems to us that you have many, many encouraging initiatives underway to help drive the business. But just as you think about it across the marketing, the merchandising, some of the store execution, are there a couple of things that you think will be most impactful as you look out over the year ahead?

Yeah, as you call out, our Century Vision, that we're entering the fourth year on now is really around a lot of tightening up on sound foundation, some of the things that have gotten us through our first hundred years, but getting better at them right. So building, we've always had this great supply chain, but making it even more agile and leveraging the learning’s that we've had over the last couple of years of a lot of curve balls thrown at us, that’s one example. Reinvigorating our brand and really investing in both the consumer knowledge to educate us on how to really drive the brand, both in the products and the messaging, and then bringing that to life and investing. We know there are consumers out there still investing in their home, even in a challenging economy, and we believe we're disproportionately capturing them. But if I were to step back and say, what is the biggest pivot for us as a total enterprise? It's really this focus on driving our own company-owned retail and the reason for that is two-fold. We can control that brand experience for the consumer end-to-end. We can avail ourselves of the data from that consumer by interacting with them directly, and from a financial standpoint, we can take advantage of that integrated margin of owning the entire chain from pieces of fabric and steel, all the way to putting that product in the consumer's home. And so we believe that's good for the consumer, and that's good for our financials as well. So really, I would call continuing to expand our reach of our own retail is probably the number one biggest driver.

That's very helpful. Thank you, Melinda. And if I could squeeze in one more here for Bob, just on how to think about margins for the year, would appreciate any color, maybe kind of asking it from two different ways. For one, maybe in a world where all else is sort of equal from a sales perspective, can you help us think about what's going on in terms of cost initiatives and raw materials and how that might impact the margins? Or maybe said another way, if sales remain pressured through the year, because the industry is still challenged, maybe what levers can you pull? How much flexibility do you have to support margins and support earnings in a challenging backdrop? Thanks.

Well, in any kind of a challenging backdrop, we have opportunities for how we are operating our plants relative to the number of shifts and number of hours the plants are working. If things were going to really get more challenged, we have opportunities with how we operate our stores with the hours that they are open, as well as the number of personnel we have in those stores. So there are things that we can do from a margin protection perspective if things get more challenging than they have been. But we're really focusing on the other side of it, which is really focusing on the in-store execution and growing those same store sales. As we do that, we end up getting some of the margin accretion we expect to see in retail, and then we will continue to work on the project that I just mentioned when Bobby was asking his question. We expect to get that 50 to 60 basis points on an annualized basis. We won't get it in the first quarter. But that big project that we have as we've readjusted where our upholstery is being made, as well as where our cut and sew is being done in Mexico, that project is when it again starts up and is finalized going into Q2, we'll deliver some meaningful margin improvement for the overall company that we talked about last year. It's just coming a little bit later than we had expected.

Very helpful. Thank you so much.

Thanks, Brett.

Thanks, Brett.

Thank you very much. Your next question is coming from Bobby Griffin of Raymond James. Bobby, your line is live.

Thank you, everybody. Just a couple of quick follow-ups for me. I guess Bob, I wanted to talk about cash flow and some of the moving parts there. Was fiscal year ‘24 a fairly normal year from a working capital standpoint? So when we look at the $158 million of cash flow from Ops, that's fairly normal at this level of demand?

I would say yes. We made some improvements in inventory. We had some very high external wholesale sales in the fourth quarter, so that caused receivables to go up. But in general, I would say, I would answer, yes.

Okay. And then I guess the build-off of that is, you know if that's the case and we kind of plug in the midpoint of CapEx and modestly higher dividends and maybe inline shares, we're probably trending pretty close to about $160 million in cash flow – I mean, in total cash spent next fiscal year or this fiscal year ‘25, which leaves the cash balance relatively flat year-over-year, rough numbers. So just curious kind of thoughts around that and what you need to see – you, Melinda and the board or everybody there need to see from the economy or the industry to maybe start working down the cash balance a little bit?

I'm not sure how you are doing your math there, but if you think about what we're looking at and again, the acquisitions that we do, particularly the independent furniture galleries, those we can't predict.

Yeah, I didn't include any of those. Yeah, I'm sorry.

Yeah, so with those – and again, as we think about the capital we're doing, the acquisitions we'll continue to pursue when we're able to, along with a good healthy share buyback and a continued dividend, we'll be in excess of the operating cash flow that we would expect to have this year.

Okay, so that – yeah, that was my next. Okay, so you do still feel there's a good pipeline in for acquisitions? Because in the math I just ran through, I didn't include the acquisitions of the independent, so that was the next question. Yeah, okay.

Right. We continue to look for those. We can't predict those. Those aren't call options, but we continue to work with dealers who are interested in selling their business.

Okay, very good. That's very helpful. That's good to hear as well. And I guess that maybe lastly for me is if we could dig in a little more into kind of just the progression of the quarter. It seems like things were strong to start, maybe tailed off a little bit after what would be, I guess, the present-day holiday. And then you called out a nice – you called out a pickup back in May. Is it right to think that May picked up to kind of how things start at the quarter, or could you put any more color around, the May and the quarter-to-date written performance to help us think about how the business is trending here around Memorial Day and into mid-June?

Yeah. I think, I'd go back to sort of the importance of some of these key holidays and so Memorial Day is a very important period for our industry, and so as we noted, really pleased with kind of the solid start into the year with Memorial Day. The balance of the quarter, consumers have better things to do than shop for furniture through June and July. And even from a financial standpoint, we close down our plants for routine maintenance, everything, over July 4th, give our folks a rest. So again, I guess I would go into – we felt very good about May. We've seen the industry data come out on May. It doesn't look like the industry feels particularly good about May and that just points to a challenged consumer. And I'm not in a position to make a prediction of when the consumer broadly is feeling a little less pressure. What I do know is, we are seeing the results of where we're playing offense, where we're investing in messaging, where we're investing in having the right products and the right experience for our consumer, because there are folks out there that are still buying furniture. And we are fortunate and that given the quality of our products and what our brand stands for, that we attract a consumer that tends to be a little more in the upper middle income range and so they still have a little more discretionary spending, if you can convince them that it's worth it. And I think we're doing a good job of that with everything around our brand and our execution. So again, May is off to a solid start. We're going to operate this year prudently. We believe we will get to growth in the year and that helps us with our bottom line. But we expect the year is going to be – still going to be challenged from just the environment that we're operating in, for the majority of the year.

Very good. I appreciate the second chance at questions and congrats again on putting up a good year in a tough operating environment. Best of luck here in the first quarter.

Thank you.

Thanks, Bobby.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session and I will now turn the call back over to Mark for closing comments.

Thanks, Jenny. Melinda, Bob, and I will be in our offices today to take any follow-up questions. Have a great day.

Thank you very much, everyone. This does conclude today's conference. You may now disconnect your phone lines and have a wonderful day. Thank you for your participation.