Good day, and welcome to the La-Z-Boy Fiscal 2025 First Quarter Conference Call. At this time all participants are in a listen-only mode. After management’s prepared remarks there will be a question-and-answer session. I would now like to turn the call over to the Director of Investor Relations and Corporate Development, Mark Becks. The floor is yours.

Thank you, Kelly. Good morning, everyone and thanks for joining us to discuss our fiscal 2025 first quarter. 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 in 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’d 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 these 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 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's 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 July ended first quarter. We posted a solid quarter despite continued furniture and home furnishings industry headwinds and a general malaise in broader consumer discretionary purchases. We were pleased with our total delivered sales results in the quarter, which increased on a year-over-year basis despite continued industry challenges. Highlights for the quarter included consolidated delivered sales of $496 million, up 3% versus the prior year. Wholesale segment sales increasing 5% on growth to external customers. Non-GAAP operating margin of 6.6%, non-GAAP EPS of $0.62, strong operating cash flow of $52 million for the quarter, twice as high as the prior year, $42 million returned to shareholders through share repurchases and dividends, a strong balance sheet with $342 million in cash and no external debt and continued progress against our Century Vision growth strategy, including completing the acquisition of one independent La-Z-Boy Furniture Galleries store in the Midwest and signing an agreement to acquire another two store independent dealer in Florida in our second quarter. Our results for the first quarter were in-line with our guidance. We were pleased as this came against a consumer backdrop that has become increasingly challenging. We’re more focused than ever on adapting and improving our business, and I couldn't be more proud of our resilient sales teams and our increasingly agile supply chain, demonstrating our ability to deliver a truly enriching experience for consumers in transforming their homes. The furniture industry remains challenged. Structural headwinds of elevated mortgage rates and high housing costs and global geopolitical and economic uncertainty continued to dampen big ticket purchases. Nevertheless, our recent quarter again illustrates that an iconic brand, amplified by strong execution and operational agility can still drive business growth…

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 2025 first quarter sales increased 3% to $496 million versus the prior year, primarily driven by higher delivered volume within our wholesale segment. Consolidated GAAP operating income was $32 million, and non-GAAP operating income was $33 million, a decrease of 3% versus last year's first quarter. Consolidated GAAP operating margin was 6.5% and non-GAAP operating margin was 6.6%, reflecting a 40 basis point decline versus last year due to reduced fixed cost leverage within our retail segment, partially offset by gross margin expansion. GAAP diluted EPS was $0.61 for the first quarter versus $0.63 in the prior year quarter. Non-GAAP diluted EPS was $0.62, which was unchanged versus 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 $202 million, a 3% decrease over the prior year's first quarter as the prior year benefited from the delivery of residual backlog related to component shortages. Retail non-GAAP operating margin decreased to 10.3% versus 14.1% in the prior year quarter. This was driven by fixed cost deleverage on lower delivered sales and fixed cost increases supporting our long-term strategy of growing our retail business through new and acquired stores. Gross margin was roughly flat year-over-year. For our wholesale segment, delivered sales for the quarter increased to $351 million, up 5% versus the prior…

Thanks, Bob. In spite of the challenging industry backdrop, we continue to outperform, while also making progress towards achieving our Century Vision goals. Our focus remains on the expansion of our La-Z-Boy brand, driving growth of our company-owned retail segment through execution and new and acquired stores, improving agility across their supply chain and driving efficiency and margin expansion throughout our business. We are well positioned to disproportionately benefit when industry fundamentals improve. Before I conclude, I would like to thank the entire La-Z-Boy Incorporated team for their ongoing hard work and dedication. And I look forward to speaking with you all again in the fall, and I wish you a great end of summer. Now let me turn the call back to Mark.

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

Certainly. The floor is now open for questions. [Operator Instructions] Your first question is coming from Bobby Griffin with Raymond James. Your line is live.

Good morning. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking our questions. First, I just wanted to ask about traffic trends at retail during the quarter and into August. Did you see any notable differences in monthly traffic trends? Or is the improved demand during the holiday promotional period, mainly a function of increased conversion rates?

Yes. Broadly, traffic remains challenged. And I think you hear that across virtually all of the companies that have reported recently. What we definitely see is traffic strengthening around those major holidays. For us, Memorial Day is always one of our biggest holidays of the year, and we saw stronger traffic trends. And then, of course, we do a really nice job in our stores of converting once people are in the door. Fourth of July isn't just traditionally, it is not as big of a holiday for us, but we also saw more challenged traffic trends. And then I think across most of the industry, folks experienced a more challenged July. And so it remains somewhat volatile. And we certainly see people focusing more on holidays and events and deeper drops in between.

Okay. That's helpful. And then switching gears a bit, specifically as it relates to margins. How is the restructuring process progressing today? Do you still expect to achieve 50 to 60 basis points of improvement in wholesale beginning in 2Q from the restructuring? And then that will be offset by the previously mentioned pressure of the casegoods and international wholesale? Or how should we think about margins?

We're making progress against that 50 to 60 basis points. There's been some delay relative to the work we're doing down in Mexico and getting folks hired and up to speed from a quality perspective and a productivity perspective. I expect to get to that 50 to 60 basis points by the end of the fiscal year, and it will slowly improve from Q2 to Q3 to Q4.

Okay. That's helpful. And then lastly for me, have your advertising plans changed at all given the current demand backdrop from where you thought it would be starting the fiscal year?

Yes. I mean it's an ongoing balance of the equation, right? We want to make sure we're out there. We believe in our Long Live The Lazy campaign and the strength of our brand. And so you need to be out there. But at the same time, particularly in the summer months and with where the consumer is right now, sometimes you can be speaking, but nobody is listening. So we're kind of continuously optimizing where we are spending and how much we're spending as we go through these challenging times.

Thank you so much.

Your next question is coming from Brad Thomas with KeyBanc. Please post your question. Your line is live.

Hi, good morning. This is Taylor on for Brad. Maybe if I could just start on the competition or the competitive landscape. Melinda, what are you seeing in terms of competition within the space in terms of pricing and promotions? And I guess related to that, there’s been a number of bankruptcies and store closures in the space. What are your some of your thoughts there as it relates to potentially gaining some share?

Yes. So a couple of thoughts on that. As you mentioned, super fragmented market, both amongst retailers and amongst manufacturers and wholesalers in our space. And these times of sort of all the disruption in the last couple of years has made that very hard for a lot of folks to navigate with all the puts and takes. And so we've seen quite a few folks exit the market in one way or another. And broadly, I would say that is a great opportunity for us, and we have seen that where it is an opportunity to take share in general, in our industry, I think you see more consolidation through those type of opportunities than you do from very successful sort of big acquisitions and that type of thing. And we certainly, our sales teams, particularly on our wholesale businesses are mobilized around being able to offer a strong supply base, when some of those suppliers are going out of business. So that has definitely benefited our business. And part of our agility is being ready to help offer those solutions to both B2B customers and to wholesale and then also to consumers as some retailers drop out. So definitely an opportunity there, tough thing for the industry, of course. And again the fact that we have a very strong balance sheet, and we are here to stay, benefits us, right, in that space. Relative to pricing, input costs are still up pretty significantly versus pre-pandemic. And so we have not seen a lot of sort of crazy attempts to really drop prices. We certainly continue to watch those opening price points because the consumer is challenged, and they may just simply decide not to go into that discretionary purchase. Again, there is always the holiday events to drive activity. But we are not seeing anything real dramatic there. In fact, given that quite a bit of our business is supplied by importers, container rate hikes have actually caused some companies to actually raise their prices in the last quarter or so. And that's something we haven't really had to do or needed to do given our primarily North American-based footprint with the exception in our casegoods business as we alluded to.

Great. That's super helpful. And then maybe one for Bob. I guess on the retail margins side, 1Q was down about 400 basis points or so. And I understand 1Q is usually the weakest quarter of the year. But how should we be thinking about the retail margins as we move throughout the year? And then maybe what your thoughts are longer-term for that segment?

Longer term for this segment, we expect to get ourselves as the industry comes back and we get back to what we expect to do on a regular basis, which is positive same-store comps. We expect that business to be in the mid-teens. And that's our long-term plan, and that will continue to be what we're focused against. In the short-term, the margin that we saw this typically, as you mentioned Q1 is our lowest margin period. We would expect to see that slowly improve and accelerate, as we get into the back half of the year where typically, Q3 and Q4 has the highest margins for our retail segment because that's where you see the highest level of both sales and deliveries for the furniture industry.

Great. Thanks Bob. And then if I could sneak one more in. You had pretty good results within the wholesale segment, 8% increase in the sales to external customers. Can you unpack that a little bit more for us to kind of understand that improvement?

Yes. And I think it's a 5% sales on total sales for wholesale. But yes, so the big thing that is driving that of course, our wholesale business is supporting our company-owned retail, our independently owned Furniture Galleries and then our general dealers, which are multi-brand customers that take a decent amount of our product as well to get to a broad array of consumers. What we saw in this first quarter is those external customers really starting to come back, whereas last year, that was still a much more depressed business. So we've seen sort of sequential strengthening in our retail, even though the challenging last two years. Those external customers took a little bit longer to come back. And so you're really seeing the benefit of that here in this first quarter.

And then the one thing I would add to that is just Melinda mentioned our channel strategy relative to expanding and getting our product available in more stores, including adding new customers, like, for example, what we specifically mentioned Rooms To Go, but there's been some others we've added. Those have also helped to increase the wholesale segment sales.

Great. Thanks so much.

Your next question is coming from Anthony Lebiedzinski with Sidoti & Company. Please post your question. Your line is live.

Yes, good morning and thank you for taking my question. So first, I just wanted to follow up on the last one here as far as the wholesale segment. So what's driving that actually as far as, what would you attribute the wholesale channel actually picking up their sales actually? I guess maybe if there's any way you can quantify as far as on the same store or I know you're adding some new customers. So maybe if there was a way you could parse out like how much of that is coming from new wholesale dealers versus organic? And what are the main reasons for that?

Yes. We don't have a way to parse that out the way you're looking for, Anthony. But the two things that we just mentioned is, one, the new customers that you just talked about and the fact that we now have distribution in more customers and more stores. We're not specifically calling out how many specific stores there are because the wholesale markets are very large markets. So we're losing some mom-and-pops and we are adding customers like Rooms To Go or Furniture Row, et cetera. But that's one component. The other component that Melinda alluded to was back a year ago, that market was still depressed, if you will, the wholesale market was depressed. Our customers were still getting rid of their inventory and they hadn't gotten back to normal order rates. On a year-over-year basis, now this past quarter, they're back to those normal order rates versus what I would call a weaker base. So a combination of those 2 things is what was driving the growth over this past quarter versus a year ago.

I would just build 2 additional items on that external side of things. We tend to talk about some of our newer customers. But as we really focus on strategic partners, we've got some real successes with some of our long-time customers like the Slumberlands of the world that are strong customers for us and we're really working at how we strategically grow our businesses together as well as really sharpening our execution on Comfort Studios, so that's our store within the store concept. And over the last year or so, even with Long Live The Lazy coming out, we are sharpening execution in those branded spaces across the existing network and expanding that network so that the brand really comes through and feels very consistent end-to-end, which is also helping that execution.

Thank you both for the detailed answer. And then actually, as far as the Comfort Studio concept, I know that, obviously, that has grown. Is there a target in terms of how many of those you want to have at some point as part of your Century Vision strategy?

I think it's less about a specific number and more about the right execution. And the reason I say that is we are constantly balancing Comfort Studio opportunities with Furniture Galleries opportunities. So we need to make sure we have a compatible distribution model that really best benefits the end consumer. And so at any given time, as we see opportunities for opening up Furniture Galleries ourselves or independently owned and then balancing those with other partners across external customers and are they ready to be a true Comfort Studio execution? So not a specific target on this.

Got it. Okay. And then as far as the lower traffic, obviously, as you said, it is an industry-wide thing here. Now your website already has a 30% off promotion for Labor Day sales. Are you seeing the benefits of that? Or do you need to get close to the holiday? I mean just wondering when do consumers start to do that? When are consumers actually starting to think about buying or are they actually waiting for the actual holiday?

We are in day two of that. So it's a little early to comment on that one. But you know this industry well, Anthony. For the key holidays of the year, sort of that 30% is off is sort of the call to action that you see across the industry. The depth of that promotion is not different than what we've been doing for years, honestly even in the middle of the pandemic demand to drive a call to action. We are experimenting, as you've seen across many retailers even across many categories on how many days do you expand those promotions for to kind of drive that top of mind. But too early to say anything about how Labor Day will look this year.

Got it. Okay. Understood. Okay. And then lastly, casegoods obviously is a small piece of your business, but it is been impacted by higher container rates. Have you put through the ocean freight surcharges to reflect that? Or are you thinking about doing that to offset the higher rates?

Anthony, we have, we've already implemented surcharges on new orders. However, we operate on a LIFO basis with casegoods. So as those costs come in, they go immediately to the bottom line. So there is going to be a temporary mismatch on the cost coming in, and it is going to take a while before those surcharges take effect, while even they take effect, we actually deliver a product that had those surcharges not when they were ordered.

All right. Well, thank you very much and best of luck.

Thanks Anthony.

Thanks Anthony.

The Q&A session has now concluded. At this time, I would like to turn the floor back over to Mark Becks for any closing remarks.

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

Thank you, everyone. 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.