Greetings. Welcome to the La-Z-Boy Fiscal 2025 Second Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Mark Becks, Director of Investor Relations and Corporate Development of La-Z-Boy Incorporated. You may begin.

Thank you, Holly. Good morning, everyone, and thanks for joining us to discuss our fiscal 2025 second quarter. With us today are Melinda Whittington, La-Z-Boy Incorporated's President and Chief Executive Officer; Bob Lucian, La-Z-Boy's SVP and CFO; Taylor Luebke, VP, Finance and Treasurer. 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 Incorporated's future performance and other matters. Although, we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our Annual Report on Form 10-K. We encourage you to review those risk factors, as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News Events tab on the Investor Relations page of our website and includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn the call over to Melinda Whittington, La-Z-Boy Incorporate's President and Chief Executive Officer. Melinda?

Thanks, Mark, and good morning, everyone. Yesterday, following the close of market, we reported results for our October ended second quarter. We were pleased with the strong results led by our retail segment despite a continued challenging macro environment and sluggish home furniture and furnishings industry. Our total delivered sales grew for the second consecutive quarter, despite these headwinds driven by our iconic brand and outstanding execution across the company. Highlights for the quarter included consolidated delivered sales of $521 million, up 2% versus the prior year. And within these results, our retail segment sales increased 3%, led by acquisitions of independent La-Z-Boy Furniture Galleries, new store openings, and record Labor Day results. GAAP and non-GAAP diluted EPS of $0.71, quarterly dividend of $0.22, an increase of 10%, and continued progress against our Century Vision growth strategy, including opening three new company owned La-Z-Boy Furniture Galleries and completing the acquisition of a two store independent La-Z-Boy Furniture Galleries network in Florida during our second quarter, and signing an agreement to acquire another two store independent dealer in the Midwest, which is expected to close in our third quarter. Our results for the second quarter exceeded guidance on both sales and non-GAAP operating margin. This demonstrates the impact of our outstanding execution and strategic investments, controlling what we can to drive positive outcomes even against an uncertain consumer macroeconomic backdrop. Consumers are gravitating towards our comfortable, high quality custom furniture with strong speed to delivery. And in our Furniture Galleries, our associates build on this foundation and wow the consumer with a superior shopping experience. We're optimistic that we will build on our progress and continue to outperform the industry in the back half of our fiscal year and beyond as we benefit from our strategic investments. The furniture industry remains…

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 second quarter sales increased 2% to $521 million versus the prior year, primarily driven by higher delivered volume within our retail segment and Joybird business. Consolidated GAAP operating margin was $39 million and non-GAAP operating margin was also $39 million, a decrease of 4% versus last year's second quarter. Consolidated GAAP operating margin was 7.4% and non-GAAP operating margin was 7.5%, reflecting a 40 basis points decline versus last year, due to demand challenges in our Casegoods import business and a significant temporary customer disruption in our international wholesale business. GAAP diluted EPS was $0.71 for the second quarter versus 63% -- $0.63 in the prior year quarter. Non-GAAP diluted EPS was $0.71 versus $0.74 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 $222 million, a 3% increase over the prior year's second quarter, primarily due to growth from acquired stores. Importantly, conversion rates, average ticket, and design sales all remained strong, improving year-over-year. Retail non-GAAP operating margin was 12.6% versus 13% in the prior year quarter. This was driven by slightly lower same-store sales and an increase in selling expense and fixed costs, supporting our long-term strategy of growing our retail business through new and acquired stores, partially offset by gross margin improvements resulting from a favorable…

Thanks, Bob and congratulations again to you, and welcome to Taylor. In spite of the challenging industry backdrop, we continue to make progress towards achieving our Century Vision goals and outperforming the industry. Our focus remains on the expansion of our La-Z-Boy brand, driving growth of our company owned Retail segment, improving agility across our supply chain, and driving efficiency and margin expansion throughout our business, both now and as our industry rebounds. I'd like to congratulate our entire team for yet another quarter of outstanding execution at both the tactical and strategic levels. Finally, I'd like to wish you all a happy and healthy holiday season, and thanks for joining us today. With that, I'll turn the call back to Mark.

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

Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Your first question for today is from Bobby Griffin with Raymond James.

Good morning, everybody. Thanks for taking my questions. I guess, Bob, since this is your last call, I got about six or seven, I'm just going to fire-off and make sure I get a little bit more out of you before you go.

Thank you, Bobby.

No, but in all seriousness, congrats on your retirement. It's been fun working with you over the last couple of years. I hope to see you down here in Florida. And Taylor, great meeting you to High Point, look forward to working with you over the next couple of years.

Likewise, Bobby.

So I guess, first, maybe can we just talk a little bit about the Wholesale side of the business. Understand there's some transition going on internationally. So when we look at the difference of the year-over-year step down in EBIT margins on that segment, how much of that international transition and kind of, what I would deem as short-term disruption was the driver of that year-over-year stepdown in margins?

I'd say about roughly half.

Okay.

It was roughly half in between -- but the Casegoods impacts that we've been seeing as well as the international impact that we saw with moving from SCS to DFS in the UK.

Yes. Said another way, if you strip out those sort of unique businesses that we usually don't spend a lot of time talking about, our core La-Z-Boy branded North America business was actually positive on margins for the quarter.

They've always been positive, but they were positive and there was an increase.

Yeah. Correct.

Quarter-over-quarter.

Okay. That's very helpful. And is that growth in the core La-Z-Boy branded margins, is that a reflection of some of this manufacturer efficiencies and the work we've been doing on the plants? Is that starting to show up now? I know we are targeting, I believe, 50 basis points to 60 basis points of total improvement once we're done with some of the manufacturing footprint changes.

Yes, it is.

Okay. And we are -- are we tracking -- we're tracking on towards that goal of 50 basis points to 60 basis points by, I guess, what -- by early ‘20 -- fiscal year '26 -- early fiscal year '26?

Yes.

Okay. Perfect. Just switching gears a little. Melinda, we got to see the High Point showroom -- the new High Point showroom, which was great to see. Can you maybe just talk a little bit about kind of the mood from some of your dealers, kind of how your dealers are thinking about calendar year '25, what kind of the view of the new products were, initial orders, we saw some of the new introductions as well?

Yeah. We were pretty excited about the buzz in our showroom and we heard that from a lot of our customers, and as you say, importantly, those general dealers that carry a lot of brands. I think across the industry, and I've been at multiple industry events even since market, across the industry, it's still -- everyone is still cautious, right? I think the recovery of the consumer, while we know it will be out there eventually as housing availability and affordability improves, we're not seeing a lot of turn on that yet. So like us, people are planning prudently. but we were incredibly pleased. Again, there's a lot of these things that we're doing around really understanding the consumer, making sure we're listening to our consumer and our customer, and having that playback into the products that we are offering and then the selling experience and then the messaging experience really across all of our businesses, particularly in our La-Z-Boy showroom, we received really positive feedback. And there's also a level of just in this ongoing somewhat tumultuous market of the safety of our prudent management of our financials and a 100 year history and the North America footprint that drove additional interest and continues to.

Okay. Clearly, a lot of going on during the quarter. We had the holiday period obviously started and you had the kind of election noise towards the end of it. Anything post-election interesting that you've seen in either orders or commentary from retail -- from customers that's worth calling out. I understand it's a very short period, but just -- obviously, with all the noise leading up to the election, just curious if anything has leveled out and has returned a little bit more normal or something posted.

Yeah. I mean, obviously, as you said, we're super early into this next quarter and we're pleased with another solid start. As we go into the holidays, that's where things -- the double will be in the details on that side of things. And we're super excited about where we're positioned going into the holidays. I still think the consumer is going to be bumping for a while, certainly, for many having the election behind us just provides some level of at least knowledge of where we are and just less noise in the system to be able to get back on air. So I think those are all positives, but I don't think anybody is going to declare victory just yet. I think we will continue to control what we can here and we feel good about that piece of things going into some of the bigger selling seasons.

Okay. And then, Melinda, maybe one last one, notable call out Joybird back to breakeven. You guys have owned it now for a good bit. Just kind of curious on, with it trending back towards breakeven, what you think the game plan is for that brand, the opportunity for it? Is it move-in to more of accelerated growth type investment phase or we kind of still on the plan that we've been talking about before?

Yeah. For Joybird to be achieving what it is right now, just positive sales trends and at least balancing out to that breakeven in a time when a lot of companies like it are actually shuttering. We feel pretty good about that. But obviously, we still have work to do. So we're pleased with the discipline of how we're now operating that business. We're pleased with the consumer reaction, and even as we strengthen execution across kind of all phases of Joybird, including even what does the brand stand for, and what is that messaging to the end consumer. One thing we know for sure is across the stores that we do have those stores are accretive to our business model and that's why we are now actively pursuing a slow, but back to pursuing expansion for Joybird stores as we start to look into next year. So again, it will be prudent. It will be slow and steady. Consumer is still bumpy and that doesn't make any business easy, but we are a little bit back into -- more into growth mode now in Joybird.

Okay. I appreciate the details and congrats on the quarter. I think as we round out earnings season here, we'll see that you're down one same-store written looks very good versus a lot of peers, so congrats on that performance. And Bob, again, congrats on retirement and look forward to staying in touch.

Thank you.

Thanks, Bobby.

Your next question is from Anthony Lebiedzinski with Sidoti & Company.

Good morning, everyone. And likewise, Bob, best wishes for your upcoming retirement and look forward to working with you, Taylor, and the rest of the La-Z-Boy team.

Thanks, Anthony.

So I guess my first -- yeah. So first, I guess in terms of my first question here. Looking at the guidance for Q3, as far as that the margin guidance that you provided, is that -- looking at the high end of your -- if you were at the high end of your revenue guidance, it still implies that the margin would be down from where you reported for Q2. So is that mostly just really -- what's going on in the Casegoods business or what else is driving that?

It's that and what I mentioned in the prepared remarks, it's the Casegoods business, the continued margin compression there as well as the continued transition with getting DFS up to speed. We are not -- we're not nearly at the sales rate that will be within long-term. We probably won't hit that until the end of the fourth quarter, because we've got to get into all those stores and get into the merchandising rotation, etc. So it's -- that's the biggest compression from a margin standpoint that is -- that we're seeing in Q3 versus last year. The other thing, and we -- I also mentioned that we -- our Q3 margins are generally always a little bit lower just because we have so many holidays during that period where our plants are down. So if you just look at historically in non -- what I'll call non-destructed years if we ever had one of those probably in 2019.

I know it's…

We would -- you'd always see that Q3 is slightly lower on margin than Q2 just because we don't have the plants running as much, so we're not able to -- it's more inefficiency in the system there.

Okay. Thanks. And then you guys have talked a while for -- as far as increases in average ticket and also the design piece obviously is a very critical and important piece of your business, can you provide more color on that? And do you think given the industry headwinds that you guys can continue to increase the average ticket?

Yes.

Okay.

I always go back to five -- well, yeah, five years ago, we had a goal of getting to $4 million a store. And that was an incredibly aspirational and an incredibly aspirational goal. Now we're looking at $5 million a store, right? And it really comes down to -- it's each one of those things. It's the absolute execution in the store. It's the -- it's every measure around how much we're doing in the way of design, how equipped our sales associates are to really meet the needs of the consumer and make that a really positive selling experience. But it also wraps around making sure you've got the right product, making sure you've got the right messaging to get people into the store, and then making sure you can deliver on a timely basis. And our custom furniture into your home, in four to six weeks is compelling for consumers, and it's something that you can't get to many places. So I do believe we still have room to go there because each time we achieve one set of goals, we find the next one. And even to your point on, it is just a tough environment right now. What is -- what our sales associates have done is taken that slower traffic that we're seeing across the industry and making sure they're using that as an opportunity to really invest in the individual consumer that does come in and make sure they get an absolutely outstanding experience.

And I'd just add. It's -- think about discipline and inspiration. On the discipline side, the way the stores are operating with their sales process, with their associate training, etc., are helping us to deliver those things. But on the flip side, on the other side is inspiration and we're spending -- continue to spend money on remodels to make the consumer experience that much better and the focus that we have internally on the design and continuing to increase that design is -- those are two things that will ensure that what Melinda just said will continue to allow us to grow.

Got you. Okay. Yeah. Thanks for that. And then, as far as your inventory, it was up 8% from last year. So a bit higher than what we would have expected. What drove that increase and do you think your inventory is in good shape?

The inventory increase was a planned increase. We have been spending a lot of time on ensuring that we have the raw materials that we need to make sure that when consumers or customers order product from us, we're able to get that turnaround time and get it to them as quickly as possible, so we've invested in that. Our stock levels in our regional distribution centers for in-stock product, we've taken that to a little bit higher level going into this season and we've done that with the expectation that this is the busy season. We want to make sure that we're winning with consumers on delivering to them on as fast as possible timing. And then, we typically will always see a little bit of a bump up in Q2 and into Q3, just getting ready with materials coming in from China or Vietnam, due to the Chinese New Year and the Tet New Year shutdowns for those suppliers.

All right. Well, that makes a lot of sense. Well, thank you, again, and best of luck.

Thank you, Anthony.

Thank you.

Your next question for today is from Brad Thomas with KeyBanc.

Hi. Good morning, everyone. First of all, nice quarter, great results in a built-up environment for the industry. Bob and Taylor, congrats to both of you on new opportunities.

Thanks, Brad.

I guess maybe to jump in on a -- the tariff topic. Could you just help us think about how much exposure you might have? How that kind of flows through the business model? How it may impact the P&L, if at all, if we do start seeing tariffs next year?

Yeah. I'll take that one. Obviously, a lot of uncertainty right now on how that will all play out. For us versus our competition, we're in a pretty good position, given that the vast majority of our consumer base is U.S. based, and North America and U.S. Canada, and that the vast majority of our products are manufactured, final assembly here in the U.S. Net versus competition, that puts us in a pretty good spot with some of the tariff expectations that are out there. Certainly, when you get into, we do have operations in Mexico. We do some of our cut and sew there and so forth, and that's an important part of our business. We've managed through tariffs before and as an industry those costs have generally been pretty much passed through to the customer and then the end consumer through surcharges. And so, we've got some experience with that, and I think the key is to stay agile on that. But overall, I think we're positioned relatively well.

That's helpful. And Melinda, you all have done a really good job, I think of working with your wholesale partners. Can you just talk a little bit more about how you're thinking about that opportunity over the next year in a backdrop where many of your manufacturing competitors are, I think really struggling because of volume levels out there right now?

Yeah. It's definitely an opportunity for us. And I think in particular, like, last quarter, you saw year-on-year that general dealer, those retailers that sell multi-brands came on particularly strong year-on-year in our business. So there's maybe a couple of things at play. One, the folks that we are already doing business with, are looking, in many cases, to expand their play with us additional vignettes and so forth. But then also, we really are building those strategic partnerships and over the last year or two, we've added some important new partners. We've talked a lot about Rooms To Go, Furniture Rows, some of those. And we're looking for compatible distribution that's going to help us reach a consumer base that we're not going to reach with our Furniture Galleries, right, truly compatible. And ideally, they are retailers that advertise a lot, we talked about them being noisy. So they continue to kind of spread the word a La-Z-Boy and keep that top of mind regardless of where the consumer wants to shop. But to your very specific point, given that we can provide that surety of our sound financial base and our North America footprint, we are definitely in some additional conversations and we saw at this last market that maybe we haven't been into for a while where folks are seeing that flight to safety. And again, build on that by strong product on-trend, high quality, so it's not a hard sell.

That's helpful. And maybe, Bob, I’ll let you off the hook, we'll try and rope you in here for one last question.

Thanks, Brad.

Just as we think about the balance sheet and the cash balance, you all seem to have some pretty nice momentum halfway through your fiscal year to be growing sales and seeing a trough in earnings. Can you all just talk a little bit about how you think about the appropriate level of cash balance to have going forward?

Longer term, we expect that we've -- pre-COVID, we were in the $100 million range on average. Longer term, we think with the shift of our business to more retail business, more customer deposits on the balance sheet, that we should probably have somewhere in the $200 million, the low 200s range from the millions of dollars of cash on the balance sheet. Over time, I expect us to probably migrate that way. We are also heavily investing in new stores. We've got other capital projects that we're doing, and then we're always looking for opportunities for the Furniture Gallery acquisitions. So I expect a combination of spending on the business and spending on share repurchase will be how we glide path that down to that level over time, while we continue to generate some pretty healthy operating cash flows year-over-year.

Very helpful. Thank you so much.

Thank you, Brad.

Thanks, Brad.

We have reached the end of the question-and-answer session. And I will now turn the call over to Mark for closing remarks.

Thanks, Holly. Melinda, Bob, Taylor, and I will be in our offices to respond to any follow-up questions. Thanks and have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.