Good morning, and welcome to the La-Z-Boy Fiscal 2025 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. 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. Mark, the floor is yours. Thank you, Jenny.

Good morning, everyone, and thanks for joining us to discuss our fiscal 2025 third quarter. With us today are Melinda Whittington, La-Z-Boy Incorporated Board Chair, President, and Chief Executive Officer, Taylor Luebke, La-Z-Boy's SVP and CFO, and Bob Lucian, La-Z-Boy's retiring CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. We will then open the call to questions. Slides will accompany this presentation; 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 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 in an appendix at the end of our conference call slide deck. With that, I will now turn the call over to Melinda Whittington, Inc. Board Chair, President, and Chief Executive Officer. Melinda?

Thank you, Mark, and good morning, everyone. Yesterday following the close of market, we reported results for our January-ended third quarter. Our results reflect the steady progress we've made to build a more agile business and create our own momentum to drive growth in what is still a very challenged furniture industry. We delivered sales growth across each of our segments, led by retail and punctuated by strong same-store sales growth. And within our wholesale segment, our core North American La-Z-Boy brand continues to post sales growth and margin expansion. Highlights for the quarter included consolidated delivered sales of $522 million, up 4% versus the prior year. Non-GAAP operating margin expansion up 20 basis points versus last year. GAAP and non-GAAP diluted EPS of $0.68. And within these total company results, our retail segment sales increased an impressive 11% led by same-store sales growth. Results were also buoyed by acquisitions and new stores as we continue progress against our Century Vision growth strategy. During the quarter, we opened three new company-owned La-Z-Boy Furniture Galleries, completed the acquisition of a two-store independent network in Ohio, and signed an agreement to acquire another two-store independent dealer in Michigan, which is expected to close in the fourth quarter. These strong results reflect delivered sales and non-GAAP operating margin above a year ago and at the high end of our guidance range. Additionally, we posted top-line sales growth for the third consecutive quarter despite the general malaise of the broader furniture industry. Our relentless focus on solving the needs of the consumer with comfort and quality, and controlling what we can control with strong execution, has kept La-Z-Boy top of mind. The environment in which we operate continues to be volatile. And the fundamentals within the furniture and home furnishings industry with existing home…

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 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 third quarter sales grew 4% to $522 million versus the prior year, driven by strong same-store sales, acquisitions and new stores in our retail business, momentum in our core North America La-Z-Boy wholesale brand, and strong sales in our Joybird business. Consolidated GAAP operating income was $35 million, and non-GAAP operating income was $35 million, an increase of 7% versus last year's third quarter. Consolidated GAAP operating margin was 6.7% and non-GAAP operating margin was 6.8% reflecting a 20 basis point increase versus last year. Driven by lower input costs, including reduced commodity prices and improved sourcing, partially offset by the impact of the significant customer transition in our international wholesale business. GAAP diluted EPS was $0.68 for the third quarter, versus $0.66 in the prior year quarter. Non-GAAP diluted EPS was $0.68 versus $0.67 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 up 11% over the prior year's third quarter, due to foundational same-store sales growth, independent La-Z-Boy furniture galleries acquisitions, and new stores. 7% written same-store sales growth was driven by solid conversion rates average ticket design sales all of which once again improved year over year. Retail non-GAAP operating margin was 10.7% versus 10.9% holding relatively stable as we absorb the increased selling expenses and…

Thanks, Taylor. I'm excited about the momentum that is building across our enterprise. Our strong execution even despite a still challenging industry backdrop is leading to both sales growth and margin expansion. We are thoughtfully and efficiently controlling what we can control. And we'll continue to drive our Century Vision strategy with focus on expanding our La-Z-Boy brand reach disproportionately growing our company-owned retail segment, improving agility across our supply chain, and driving efficiency and margin expansion. Before we close our prepared remarks, I'd like to note La-Z-Boy Incorporated has been named to Forbes list of America's best large employers for 2025. This is a remarkable achievement and our first time ranking among this distinguished list. Which is determined using a collection of independent survey data. And finally, I'd like to congratulate and thank our entire team for yet another quarter of outstanding results. With that, I'll turn it back to Mark. Thank you, Melinda.

We will now begin the question and answer portion. Jenny, please review the instructions for getting into the queue to ask questions.

Thank you very much. If you would like to ask a question, before you press the keys. Your first question is coming from Brad Thomas of KeyBanc Capital. Brad, your line is live.

Hey. Good morning, everyone. This is Taylor Zick calling for Brad this morning. Congrats on a good quarter. Just curious, Melinda, if you can speak a little bit more to cadence and the trends cadence of trends throughout the quarter. I know you spoke positive months throughout the quarter with No. No. Barbara being strong, but I think Taylor had mentioned January had a little bit of a shift. So is there any additional color you can provide? And then related to that, any thoughts on what you're seeing so far in this fourth quarter?

Yeah. Morning. So a couple of thoughts. We certainly, you know, we've been talking for a while about the consumer is coming out more around those peak holidays, those key holidays that we've always seen, but even more so here in this kind of malaise industry. So our strength during the quarter was strongest during the holiday period. But overall, year on year strength across all three months of our quarter. As far as February is concerned, I mean, we're still super early in our quarter. Super early in the month, and really still just seeing Presidents' Day results starting to come in from across all of our businesses. You know, overall, again, pleased with execution, feel comfortable with what we're doing there. We didn't see traffic as robust this Presidents' Day across the industry as what we've seen on some of the other recent holidays. But still way too early to tell kind of is that just weather related. You know, last year, the end of January was bad. This year, it's early February. It seems to be bad across more of the states. So, you know, time will tell. It continues to be a choppy environment.

And on the phasing question, I would just point Melinda, it references more to the written trends that more impacted our ability to deliver product as winter weather last year shut down some of our plants. Complicated being able to deliver. Imprecise calculation exactly what shifted, which is why we look at our total back half of the year, which we're really proud you know, to outlook, you know, about a 2% growth year over year across the period.

Gotcha. Thank you. And then maybe if I could just touch on margins, Taylor. Is there any more color you can provide on some of the puts and takes for the 8.5% to 9.5% operating margin you're going to for this fourth quarter. I guess what would get you to the low end and high end and anything to keep in mind. Yeah. I'd start with a couple of points. One is where

incredibly pleased that sustainability of margin progression on our core North America La-Z-Boy wholesale business, which is the one part of the business that was most thrown into, call it, volatility through the pandemic and out of it. And we've seen really good margin expansion now three consecutive quarters. Also, very pleased with where Joybird's at, which you know, this time last year, losing money to now breakeven, which is a good foundation for future growth. And on retail, it's kinda where we want it to be as we, you know, deal with the general malaise in this broader industry, but we're controlling what we can control and standing up new furniture galleries as well as completing independent acquisitions. So those are all positives. Looking into quarter four, you know, And then on the opposite, we have challenges on our international business that's talked in their prepared remarks, which have, you know, from a wholesale segment, you know, a 50 basis point impact on that business. And it will improve over time, but it's gonna take some time to grow our partnership with DFS. So, you know, kinda what we saw in quarter three, we expect to transition to quarter four. And positively looking forward, you know, we're standing up a lot of new stores. We still have three this quarter, three last quarter. I'll look at five to seven in quarter four. Those have a little bit of short-term impacts, but exactly what it's exactly what we said we would do. And then over time into next year, we'll start to see those margins benefit the total segment.

Gotcha. Thank you. And then maybe if I could just, sneak one more in here, maybe for Melinda. You know, you've talked about the strategic partnerships. You've had you know, success with Slumberlands, Room To Go, and others. But can you kind of update us on the progress of those partnerships and maybe speak to, you know, the pipeline potentially, you know, rolling out some more strategic partnerships.

Absolutely. Along a couple of lines. Yeah. Those b to b partners are foundational to us and remain important to our focus. Across some of the smaller some of our smaller partners, we continue to invest in what we call our comfort studios, which is branded space within the space, and we have call it 500 plus of those type of spaces and really making sure the branding comes through with those. So that's something that's been, again, foundation that we're not locking right away from, and in fact, we're refreshing We've got quite a few of those in the pipeline to refresh you know, with updated brand materials and everything. But to your point, those bigger regional strategic partnerships What we're seeing in the industry is those that are doing better in this ongoing challenging environment tend to be of the, you know, multi-branded retailers are those call them, you know, a little bit larger regional entities. And what we like them for a couple of reasons. One, you know, we've talked a lot about partnerships like Rooms To Go. Up here in the north, it's Gardner White in the Detroit area. You know, long-time partners, Slumberland, that advertise heavily, and that's great because that reminds the brand that reminds the consumer about our brand regardless of where they choose to shop. So that really increases our share of voice, as well as helps us get our product, select product out to consumers that we might not otherwise capture with our furniture galleries.

I know recently, we've expanded our furniture row partnership. It's

been about two years into the Rooms To Go. And there does continue to be a pipeline out there. But I think equally as important will be just growing with those existing partnerships and really doing more with those strategic ones as you mentioned.

Great. Thank you. I'll pass it on.

Thank you very much.

Thank you.

And your next question is coming from

Thank you. Good morning, everybody. Appreciate you taking my questions. Congrats on the good momentum during the quarter as well. I guess, the first aspect I want to hit on, we're making some progress in inside the core wholesale segment. So maybe can we talk a little bit about that on the margin front? Some more? Where from an efficiency standpoint, where are we in getting back That business back to the efficient you know, efficiency levels that you kind of are used to in wholesale. And I guess, exclude the international disruption where we can kind of think about it on a core on core basis.

I mean, Bobby, thanks for the question. We're pleased with the progress as mentioned, particularly on our core North America wholesale business. Which has now grown margin. The first three quarters of the year versus the comparable period. So our supply chain from procurement through manufacturing through distribution is making headway across all fronts. So we're really pleased with the progress. End of the day, what really needs to get us back to our longer-term goal is we need volume. Which right now is still depressed from where we used to be, primarily driven by the fundamentals, drive the furniture industry is really a healthy housing market, whether new home starts, existing home sales, which albeit we've seen a little bit of a tick up the last couple of months, is still at decades a decade's low. So we continue to focus on what we can control, which is the improvements and efficiencies that we can drive end of the day, to get over the hump per se, we need some sustained industry growth. To get us there.

And, Taylor, I think you mentioned you're talking to La-Z-Boy brand. What about the non-La-Z-Boy brand and stuff that goes through wholesale? I mean, how is that running today? Is there opportunities there from an efficiency standpoint? And I guess I'm just getting that x the international transition. Are we just basically left with volume and you know, you guys have got the factories back where you want them is what I'm trying to kinda get at.

I would say the general theme on volume is consistent across our entire wholesale segment. I mean, whether it's La-Z-Boy, wholesale, whether it's our England division, whether it's our case goods, it's all impacted by the general industry health. But certainly, we continue to drive ongoing efficiency and improvement on our wholesale business. Again, you saw it this quarter even at the, you know, even at challenged volume levels. Our team in the supply chain is doing two things. They're creating an agility and building an agility for this macro environment that is unlike anything we've had in the past, while still making progress towards, you know, getting back to the kind of margins that we touched on just before the pandemic. So to your point, Bobby, yes, there is still headroom. Volume helps a lot. But meanwhile, every quarter, particularly in that core business, we are seeing progress.

Okay. And then when you think about the international transition taking place there and some of that disruption, Are we past kind of the peak in that disruption? And then I guess I'm getting at, is that become an incremental tailwind, a little bit less of a headwind in FY26 or is there should we assume that that headwind continues for FY26 against the wholesale margin.

I would expect you'll see incremental improvement, but it'll be slow. It'll be slow and steady.

I mean, you've taken our largest customer globally and completely changed them out. So I actually just met with that team at Vegas Market a few weeks ago. They're super happy with where the partnership is, but it's a brand new ground-up partnership, so it's gonna take some time.

And in the meantime, we're not just waiting for it to organically improve. We're driving both that top to top on, call it, commercial levers growth partnership, but we also can action efficiencies across our international organization, including rightsizing our manufacturing capacity, to help, you know, improve those results sequentially looking forward.

Perfect. And then maybe just on the guidance, unpacking it a little further, You know, again, when you look at the midpoint, price roughly flat year over year, you guys just throughout the prior three quarters have grown on a year over year basis. Is that only just the function of the shift Faye, that you talked about? Or did you see kinda something that in the quarter that gives you a little bit more caution than maybe what we were seeing earlier in the quarter. Some of our checks, I guess, have indicated you know, some strength in November, but then a slowdown, you know, to kinda start our kind of as we moved into twenty-five,

Yeah, Bobby. I would answer it in a couple of ways. One is the international we just talked through. We'll have a, again, a shorter-term impact. Quarter four, So that doesn't just alleviate within the next quarter Two, as mentioned, we have plans to stand up five to seven Again, new La-Z-Boy Furniture Gallery stores that has a moment in time call at profit impact. We start to ramp those up and that's on top of six we stood up in quarter three and quarter two. So we have that shorter-term impact on our retail business, which is fine, which is exactly what we said we were gonna do and what we want to do. So those, I think, are the primarily two impacts to the ranges as outlook in the weather shifting again, not as Precise does have some level of impact. As regards to exiting the quarter, know, we saw a strong November as talked in the written remarks, you know, again, more positive balance of the quarter, but as we look forward, we expect the consumer to still be choppy. The fundamentals underneath again, the furniture industry, primarily housing, are still, you know, kinda status quo to where we've been. So all of that together, you know, it affects the guidance range we put up. Perfect. And I guess last thing for me, Joy Bird, nice bright spot in the quarter as well, you know, return to breakeven and it's a nice growth. I think in the very remarks, it mentioned foundation for future growth. So maybe you could unpack that a little bit and what you see from the Joybird brand and you know, is there any update or different view on what the potential is, you know, on a multiyear basis for that brand?

Sure. You know, we as you recall, you know, Joy Bird was on a really nice growth trajectory in the middle of the pandemic, and, you know, along with many many, you know, primarily ecom, digital kind of businesses. We pulled back when a lot of them went out of business. We pulled back to really get the fundamentals right on that business. And I feel like we're there. And that is that's not just on the, like, sort of the mat the financial fundamentals, but it's on the execution of who we are as a brand and how are we gonna bring that to life. And we need to keep in mind how where Joybird's Fifth. To sort of our capabilities as an enterprise is that because of this same North America base footprint, Joybird can offer customization and enable the consumer to really express themselves and enjoy brand stands for that expressive, you know, color color forward, if you will, kind of customized furniture. So I feel good about knowing what the brand stands for as well as the financial discipline you know, as we move forward. So with that, you know, we talked several years ago about seeing a near-term footprint or at least a medium-term footprint to 25 stores. We got to 12 when we paused that. We've turned that funnel back on. Now that takes a little bit of time to start up, but I would see us at a pace of call it three to four stores next year for Joybird. And then, you know, we'll continue we're gonna be we're gonna be cautious because the environment is still challenged. But we feel like the fundamentals are there and we're ready to start investing back into seeing Joybird grow while still keeping a close eye on making progress on that bottom line.

Thank you. I appreciate the details, and best of luck here wrapping up the year.

Thank you. Thank you.

Thank you very much. Just a reminder, if there are any remaining questions Your next question is coming from Anthony Lebiedzinski of Sidoti and Company. Anthony, your line is live.

Questions. And, you know, certainly nice to see the trends in the written sales being up. Just curious, did you guys see any notable differences in terms of your different markets or regions? Anything to call out there as far as the third quarter trends?

Nothing that nothing that really stands out dramatically. Of course, you know, again, at any given time, there's what other weather event or whatever, but nothing dramatic. Cross markets.

Gotcha. Okay. Thanks, Melinda. And then, you know, in the retail segment, your operating margin was down slightly given increased selling expenses and fixed cost. The Okay. Is that primarily advertising, or can you share more details and how should we think about these expenses going forward?

Yeah. Anthony, it's really, you know, a couple of things. It's, you know, the pace of new stores that we've stood up, both in the quarter as well as quarter two. So six stores over a very short period of time. Again, those don't start at a going level. It takes time to ramp up. As well as, you know, over quarter three is one of our bigger written periods around the holidays. So we have more commissions that hit us in the quarter. So I think those are the two primary drivers for retail.

Alright. Thanks, Taylor. And then far as, you know, thinking about the potential impact of tariffs, obviously, your guidance, as you said, excludes any tariff impact. Obviously, it needs to be a dynamic situation, but can you provide any sort of more details as far as how you're thinking about that if there are tariffs on Canada and Mexico and elsewhere? Where, you know, any additional things you can highlight as to how you're thinking about that.

Yeah, Anthony. So on the Terra front, our hope is it's just noise we think at the end of the day, it's gonna more challenge a consumer who's been challenged now for a while. We like a healthy consumer. But with that being said, you know, since November, we've been planning on a wide range of scenarios, whether Mexico, Canada, or other markets. So we've developed a playbook to respond to whatever could happen, which will, again, leverage our global supply chain from sourcing through where we manufacture as well as potential pricing actions to ensure we're mitigating whatever could be put into place. So we're planning for all eventualities and we're acting on only on what's fact. Today, there's not much of that. And what has gone into place, we've taken to ensure we're mitigating the impact.

Got it. Alright. Well, thank you very much, and best of luck.

Thanks, Anthony. Thanks, Anthony.

Thank you very much. Well, we appear to have reached the end of our question the back over to the management team for any closing remarks.

Thanks everyone for joining us. Melinda, Taylor, and I will be in our offices to take any follow-up calls. Thanks, and have a great day.

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