Greetings. Welcome to the La-Z-Boy Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now hand 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 2026 Second Quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Inc.'s Board Chair, President and Chief Executive Officer; and Taylor Luebke, SVP and CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon. 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 adjusted 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.

Thank you, Mark. Good morning, everyone. Yesterday, following the close of market, we reported solid October ended second quarter results. We were pleased to once again deliver modest sales growth, particularly in our Wholesale segment, where we also again delivered margin expansion continuing to create our own momentum in what remains a choppy market. Highlights for our second quarter included total delivered sales of $522 million, up slightly from prior year. In our Retail segment, delivered sales increased slightly and total written sales increased 4% with written same-store sales improving sequentially over the last 2 quarters. In addition, we opened 5 new company-owned stores in the quarter, bringing our total to 15 new company-owned stores over the last 12 months. In our Wholesale segment, delivered sales grew 2%, once again led by growth in our core North American La-Z-Boy Wholesale business. And we made continued progress on our distribution and home delivery transformation project with the consolidation of 2 additional distribution centers. Our GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. We generated strong operating cash flow of $50 million for the quarter, triple last year's comparable period. And we announced a 10% dividend increase marking our fifth consecutive year of double-digit increases. Overall, our operating performance for the second quarter was solid in the midst of a choppy landscape with sales slightly ahead of the midpoint of our guidance and adjusted operating margin that exceeded our expectations. As I noted, total written sales for our company-owned retail segment increased 4% versus last year's second quarter, driven by new and acquired stores. Written same-store sales which exclude the benefit of new and acquired stores, decreased 2% for the quarter, but demonstrated a continued sequential improvement in written same-store sales trends over the last 2 quarters. While consumer…

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted 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 2026 second quarter sales increased slightly from prior year to $522 million as growth in our retail and wholesale business, partially offset by lower delivered volume in our Joybird business. Consolidated GAAP operating income was $36 million and adjusted operating income was $37 million. Consolidated GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. Retail margin deleverage due to lower delivered same-store sales and the impact of investment in new stores was partially offset by stronger wholesale segment margin, which included solid operating trends as well as the 110 basis point benefit of a change in our dealer warranty arrangements during the quarter. Diluted earnings per share totaled $0.70 on a GAAP basis and adjusted diluted EPS was $0.71, flat versus last year's comparable period. As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise. Starting with the retail segment for the second quarter, delivered sales increased slightly to $222 million. Retail adjusted operating margin was 10.7% versus 12.6% due to fixed cost deleverage on lower delivered same-store sales and investments in new stores. For our Wholesale segment, delivered sales for the first quarter increased 2% to $369 million versus last year, driven by growth in our core North America La-Z-Boy branded wholesale business. Adjusted operating margin for the wholesale segment was 8.1% versus 6.8% with 160 basis points improvement driven by…

Thanks, Taylor. We are sharpening our focus on our core businesses and enhancing our agility to navigate the challenging home furnishings environment. At the same time, we're executing on our long-term strategic objectives, and I am more excited than ever about the opportunities that lie ahead. Before I close, I want to welcome the employees of our latest acquisition. And I want to thank all of our employees around the world for their continued dedication to our mission of bringing the transformational power of comfort to more homes. And now 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.

[Operator Instructions] Your first question for today is from Anthony Lebiedzinski with Sidoti & Company.

So first, I just wanted to check in with you about just if you saw any differences in geographic sales dispersion in your markets? Or was it more or less kind of consistent in your operating area?

Nothing dramatic, Anthony. Good morning. On any given week, you might see a little bit of choppiness across different geographies, but nothing significant. Canada continues to be more challenged just with trade tariff situation and some of those areas there. So that is maybe a little more bouncing, but nothing dramatic.

Got you. All right. And then just can you also comment on the extent of your pricing actions? And also, just wanted to get a better understanding of how do we think about unit volumes in Q2 and your expectations for Q3 as it relates to unit volumes?

Anthony, yes. So on pricing, we mentioned throughout the year in our playbook to deal with trade and tariff changes, one of our levers beyond just sourcing adjustments or inventory moves is some nominal pricing actions. So earlier in the year, we took a round of nominal pricing based on trade policies at that time. Given some changes with the 232 in the sectoral tariffs on upholstered furniture within the quarter, we actually took another round of nominal pricing to help offset, but still well positioned competitively versus our peers. Again, 90% of the products we make are in the U.S., so that other 10%, a little bit exposed, but still very well positioned. So in aggregate, through the course of calendar year '25, we're still in the single digits, which everything we hear from other manufacturers or retailers is at the very low end of what we're hearing is out in the market. On volume per se, directly related to pricing elasticity, hard to piece out in this industry, particularly with everything else going on around traffic and other kind of just general consumer uncertainty. But in our quarter, on our main North America wholesale La-Z-Boy business, we saw volume flat year-over-year, which relatively speaks to our pricing is going well in the market.

And then also in terms of the guidance, you talked about friction costs related to portfolio and supply chain optimization costs, can you expand on that and help us better understand the expected impact of this? And when should we should we see less of those friction costs?

Well, a couple of things on the friction costs. So that's a combination of our distribution and home delivery transformation project. We outlined a quarter ago as a multiyear project and hugely excited for the benefit to our network, to our consumers and to the company. Once we're through it, we'll improve all of our stakeholders as well as make us more profitable. In that case, you just have to get a little bit more inefficient in the short term to get way more efficient ongoing with some call it, dual lease costs or they just transition costs as we move out of the, call it, 15 DCs to 3 over time. So manageable, but it's there. On the strategic initiatives that Melinda had mentioned, our casegoods exit, our U.K. shutdown, it's -- we expect to be subsequently out of those businesses or those transitions completed by the end of our fiscal year. So I'm really just talking more about the back half of the year, and particularly quarter 3 as I outlined those friction costs as it relates to those 2 areas.

Got you. All right. And then my last question, so you mentioned expanding into living spaces on Costco. I know last year, you expanded more into rooms to go. How do you guys think about the opportunity there as far as it relates to expanding to other wholesale partners? Just broadly speaking, how do we think about the opportunity going forward?

I think a couple of things. Our focus over recent years has been very much around making sure we've got the right strategic partners that are going to represent our brand well and that are looking to grow and accelerate and give the consumer the right experience going forward. We certainly see that those that are winning out there in a very tough marketplace right now tend to be the more sophisticated kind of midsized regional players and a lot of those are the type of partners that we're working with. It's always important that it's compatible distribution that it's not going to -- it's going to reach a consumer that we're not otherwise going to reach in our furniture galleries. We've had some really good wins. As you noted here in the last couple of months with particularly, as you mentioned, the living spaces, the farmers down in the Southeast, recent Costco, which just puts more eyeballs on the product. I think going forward, because we want to make sure that distribution is compatible with also growing our own retail. What we'll see is probably as much an expansion of growth with the existing base and really building with those as opposed to lots of big additional new customers. But at the same time, the world is always changing, and we're going to make sure we're working with the right partners for the medium term and the long term.

Your next question is from Bobby Griffin with Raymond James.

I guess, first, Taylor, I just want to make sure I understand the impact here of all the different moving parts. So the acquisition of the 15 stores is going to add $40 million of net sales to the enterprise, and we sold off some of the noncore businesses. And I believe in your prepared remarks, you were kind of netting the 2 against each other. So does that -- is it correct to imply that the headwind from selling off the noncore businesses is about $70 million of sales that needs to come out of the wholesale segment?

Yes, your math is correct, Bobby. And note, we're in a process now of evaluating sale or other strategic transactions, but net of, call it, this fiscal year, that should be the impact of the entire enterprises that plus $40 million from the retail acquisition, minus $70 million from the exit of these noncore businesses.

Okay. And then that would -- then you would see the corresponding step-up within wholesale margins from the savings and the better efficiency. So the -- I believe you called it 75 to 100 bps is really kind of just a wholesale margin step-up that segment?

The 75 bps, it's all bucketed together, Bobby, on the retail acquisition, these wholesale moves on noncore as well as they call it, commercial leadership realignment. So all of that together is the 75 to 100 bps to the entire La-Z-Boy enterprise.

Okay. All right. That's helpful. That helps clean it up. And then just secondly, on the tariff aspect has some good commentary. I appreciate that. Does the nominal pricing you guys took here in 2Q, will that cover for the expected kind of modest step-up that we see on Jan 1 in the 232?

Yes.

Okay. So you're all covered now based on what we know today from tariffs?

We've executed our playbook and some of it is also adjusting where we make products to more optimize our network for current trade policies, but as well as additional nominal pricing we put into market at the tail end of the quarter to both cover the current as well as the expected change on January 1. Obviously, we'll continue to be agile if anything changes between now and then. But overall, we feel really good and well positioned with our 90% of our product made in the U.S.

Yes, very good. That's -- you guys got an advantage versus a lot of the industry there. And I guess just on the other side of things, some questions. Inventories were down pretty big this quarter. Is that just some of the efficiency gains starting to flow through? Or just kind of any commentary around that on a year-over-year basis, I was referring to?

Just great work by our supply chain team on being really tight on our inventory management while also protecting in-stock and service levels. I mean we continue to get better year-over-year. So really, it's just the everyday blocking and tackling and just getting smarter. This time, we do have a little bit of a build in the comparator period as we were building some stock to protect ourselves in certain cases on cover availability. But overall, just great work across the organization on getting tighter on our working capital management.

Okay. I appreciate it. And then lastly, I guess, Melinda, this is the big acquisition with 15 stores, so -- and really good to see you kind of get over the finish line. Can you just talk about now with some of the organizational changes, the integration of that? And then also on the retail network, as we think about kind of the next leg of growth here, where are we at from quality of the store base in terms of like which ones -- how many remodels would you like to see and kind of opportunities there for the next multiyear kind of journey?

Yes. A couple of things on retail. We will open estimated about 15 this year, and we have talked about continuing the pace of sort of net new stores in the 10 to 15 range. So we intend to continue that trajectory. As we've talked, we see our way to over 400 stores, and we're about 370 across the network at this point. And those will be more heavily weighted towards company-owned stores as we continue that expansion. From a remodel standpoint, we have invested heavily over the last 5-plus years to make sure that our stores across the network, along with our independently owned are the appropriate reflection of our brand. And so I feel good about the overall use of our fleet, if you will, and we're going to continue to make sure that, that see it that way because it's important that consumers are inspired when they come into our stores, particularly when they're going to come in and participate in design and really think about bringing that product and investing into their home. We will continue to expand our rebranding across all of our stores over the next several years, and we're doing that prudently just given the time right now, but we've had such a great reception to the new branding, and we want to get that out across all those stores. But as I say, we're going to do that prudently as we go. The other way to expand the company owned is, of course, the transactions, like you said. I'm very pleased with the integration of this big acquisition. And how that's all been working together for the company. And I think there's still a pipeline there. Again, those are arms-linked transactions, but there are still a lot of independently owned out there. And I think over time, we'll have more opportunity to expand in that way. And then I can't talk about retail without calling out just the fact that super pleased with in-store execution even in really challenging times. And so we continue to strengthen that execution. And then to your point, make sure that we are appropriately but efficiently supporting that -- those operations as well. And that kind of speaks to your point on overall reorganization. So really good about how that's going right now with our 2 commercial presidents and the move of marketing over into the retail organization. We're already seeing some early wins there. And again, important to be as agile and effective as we can be in what's still going to be, I think, a challenging environment here for a while.

And I guess one final one, if I could sneak one more in. Is the kind of selling the noncore businesses. And then as you think about, given your designers in the stores, the product portfolio they need how do you kind of balance that? I guess, is there opportunities on casegoods for partnerships? Or do you still have some casegood sourcing that could be there, and this is just a different noncore business that was sold? Just anything around that aspect?

The short answer to your question is yes. So casegoods are important to us. So what we do best is manufacture and sell custom upholstered furniture. Our casegoods offerings are super important to enhance that upholstery experience to ensure that in store, we have the ability to service the consumer around whole room and particularly with our design sales. And even in our branded spaces and our comfort studios with our strategic partners. It's important that we have the right casegoods to enhance what we're doing from an upholstery standpoint. That said, it's not our core competency to own the entire design and creation of the casegoods or even our right to win with customers on our wholesale casegoods business. It's just -- it's not our core competency. So we believe there are better places to do that, and we're excited about sort of reinventing that space, recognizing that change is always a challenge, but we are committed to having the right casegoods products in our stores to enhance the upholstery side, but do it in a more efficient way and in a way where we have a real right to win on the design side as well.

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

This is Taylor Zick on for Brad. Melinda, you gave some good color on trends throughout the quarter. While also noting that November was a bit mixed. If I recall, I think last year, you saw -- the industry saw improved demand in November post-election. So just given the comparable month was a bit stronger, how are you thinking about underlying demand trends as you head into your fiscal 3Q?

Yes. Yes, you're spot on. I think the -- first of all, if you just look at -- in the absolute -- the consumer is challenged, and demand remains choppy, and so we need to be agile and prudent as we deal with that. You're absolutely right that the comparison period from post election last year is a challenging one. And so again, that's kind of why we are navigating this in a prudent way and looking to make sure that we are efficient in how we're executing, but doing everything we can to reach those consumers that are out there and driving the strongest absolute results that we can.

Got you. And maybe if I could just follow up on -- I don't think I heard much on the prepared remarks, but just curious on what you're seeing out there in the market relative to promotions and maybe what you're thinking about -- how you're thinking about promotion -- promotional intensity later in this quarter and maybe into 2026 as the industry kind of seems to be flattening out.

Yes. I think to start at the supply side, as Taylor noted, we are -- our pricing has been relatively nominal single digit. And so we're positioned very well. What we've seen from other suppliers, other manufacturers is significantly higher pricing. And so that's going to drive cost into the business overall. We're talking double digits, pretty widespread. Some of that is taking time to ultimately shift all the way out to the end consumer, but we are seeing that. At the same time, if I go back to Labor Day, which was our last big tentpole for the industry. We did see sharpened deeper price points to drive traffic, not overall in absolute bigger discounting, but a lot of again, traffic driving kind of deep attention, getting type of activity increase than from what we've seen, say, like at Memorial Day. So it's a very active marketplace out there and trying to do the right things to drive that traffic and give particularly the increasingly value-conscious consumer an opportunity to take care of their homes and get into our brand. But at the same time, recognize there's still -- you talked about that bifurcated consumer that K-shaped economy. We are still seeing design sales hold up really well. And seeing consumers that are coming in, ready to do whole rooms and leather and power and all those big upgrades. So it is a -- it requires some laser precision to navigate that environment.

Yes. That's great. I appreciate the color. Maybe if I can sneak one in for Taylor. Taylor, you made commentary that capital this year and fiscal '26 would be tilted more towards reinvestment. As you eye up this exit of these noncore businesses, how are you thinking about capital allocation into 2026 between reinvestments and maybe some return to shareholders?

Yes. Good question, Taylor. So right now, a little early to comment to any change in our capital allocation for the year. We're thrilled with where we're at for this year. As we mentioned, we think our best use of cash when it's prudently reinvested back in the business. Last year was a little tilted towards shareholders. Right now, it's a little bit back in the business with this acquisition as well as CapEx on our distribution transformation as well as new store standup. So right now, we're still working through these exits on those businesses that Melinda had mentioned. Any new information as we progress through that, we'll share on capital decisions. But I am thrilled actually with our level of investment back to the business and very pleased to once again return a double-digit increase to our dividend, the fifth consecutive year on which I think speaks a testament to our strong financial footing and confidence in our business moving forward.

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

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