Q2 2020 Earnings Call
Following the presentation.
If you should require assistance throughout the conference. Please press star zero at this time it as my pleasure to turn the floor, but your host for today Ms. Kathy Liebmann ma'am the floor is yours.
Thank you Jeff.
Good morning, Thank you for joining us to discuss our fiscal 2022nd quarter results.
With us today are cordero, leading food waste, chairman, President and Chief Executive Officer, and Melinda Whittington.
Kurt will open and close the call I'm open to will speak to the financial Midway through well then open the call to question slides will accompany this presentation and you may view them through ever 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 would like to remind you that some statements made in today's call include forward looking statements about lazy boys future performance, although we believe statements to be reasonable our actual results could differ materially the most significant risk factors that could affect or future.
Health are described in our annual report on Form 10-K , we encourage you to review those risk factors I suppose the other key information detailed in our FCC filing.
Also our earnings release is available under the news and events tab on the Investor Relations page of our website and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck.
With that I will now turn the call over to Kurt Darrow, La Z Boy's chairman President and CEO . Her thank you Kathy and good morning.
Following yesterday's close of market, we released our second quarter results.
We delivered 447 million in sales on a consolidated basis.
With our largest two segments upholstery and retail turning in solid top and bottom line results.
Written same store sales across the entire lazy boy furniture galleries network increased 3.5% for the quarter.
On top of second quarter increases.
In each of the prior three years and delivered sales for our company owned retail segment increased 5%, reflecting the strength and relevance, although la Z boy brand in today's challenging home furnishings environment.
Fiscal year to date.
Consolidated sales are up 4.5% written same store sales for the La Z boy furniture galleries system increased 4.1%.
And delivered sales for our company owned retail segment are up 4.3%.
Consolidated operating margin for the second quarter increased on both the GAAP and non-GAAP basis.
Led by double digit profitability in the approached three segment.
Also during the quarter, we generated $34 million in cash from operating activities.
And returned 17 million to shareholders in dividends and share purchases.
And yesterday, our board of Directors <unk> Board of directors voted again, the increase the quarterly dividend to shareholders demonstrating its confidence in our various growth strategy and long term prospects as we further solidify our position in the marketplace and continue deliver to deliver strong returns.
To our shareholders.
Before getting into a discussion of each operating segment.
I want to take a moment to talk about what our brand means in this environment.
Macroeconomic indicators are generally positive for the consumer.
Interest rates low end consumer confidence remaining near all time highs.
Both of which bode well for the home furnishing business.
At the same time, however, tariffs and associated rhetoric in the marketplace continues to impact the home furnishings industry.
But for the La Z boy branded business.
25% tariff on Chinese goods translates to to just 4%.
Giving us a competitive advantage.
Due to our flexible global supply chain and North American centric manufacturing.
We believe way furniture galleries network outperforming other channels in this environment.
We believe it's a testament to the overall strength of the La Z Boy brand and how it resonates in the marketplace, coupled with our tariff positioning.
To that end, we're continuing to make investments in our strong brand equity for the long term.
The relaunch of our live life comfortably campaign, which included the introduction of Kristen Bell as our bad as our brand ambassador is tracking to expectations.
We recently recently completed the first phase of our launch which focused on creating a strong connection between lazy boy and Kristin and also showcased the range of furniture, we offer right.
Research shows our advertising is being recognized by consumers at a higher rate.
We're appealing to a broader spectrum of consumers.
And overall, there is a higher likelihood to consider lazy boy.
We're now moving into the second phase of the campaign that will run for the next year and will showcase our free design services and ability to perfectly meet any style or taste.
Now, let's turn to our operating segments.
First.
Our wholesale business.
And the upholstery segment on a sales increase of 1.2% to 321 million gap water operating margin was 10% and non-GAAP operating margin increased to 10.9% up from 10.2%.
non-GAAP margin, primarily exclude some redundant and nonrecurring.
Charges for our supply chain optimization initiative announced in August .
As part of that plan, we closed our Redlands, California plant.
And shifted production to our.
The Osha, Missouri, and Siam spring, Arkansas facilities.
We were also trance.
Transitioning our leather cut and sew operation from our Newton, Mississippi facility due our large cut and sew center in Mexico and believe these moves will allow us to further optimize operations and strengthen our competitive positioning in the marketplace overtime.
While these moves have some short term costs associated with them, we anticipate ongoing annual savings of $4 million to $6 million pretax.
Beginning in fiscal 2021.
Double digit operating margin in the upholstery segment was driven primarily by lower raw material costs, and our ability to offset other increased cost including production inefficiencies.
As we ramp up staffing and training new hires in both Neo show inside him strings to manufacture all the production move from Redlands, California.
The ongoing nature of these staffing in production costs. They are not part of the supply chain optimization cost excluded from our non-GAAP numbers.
And the merchandising side.
We see continued success with our wireless remote option the attachment rate or power recliner orders continues to escalate.
And currently we are enjoying a 21% take rate, which we expect will continue to grow given its unique product features.
No one is sleek and stylish with various memory positions lockout and find me features and a self storing magnetic credo, which consumers love.
We're also seeing a significant increase in our sectional business.
At last month's Highpoint furniture market, we expanded our offerings with two new Super groups.
Which provide for maximum dollars per square foot for the retailer.
As an example, with multiple SK using configurations, a dealer can floor, one vignette, yes, so in multiple ways.
For example, as a sofa section or sleeper.
With these product offerings. We are we are addressing consumer wants and preferences, while also addressing retailer needs.
A quick call outdoor comfort care or customer service team and Newsweek's 2020 ranking of best customer service companies in America Lazy Boy place second in the furniture retail category.
With first place last year Lazy boy is the only furniture brand to be included.
On the winners list two years in a row.
We are proud of our comfort care team as well as far as our partnership with a vast array of dealers, who take great care, the customer and had been recognized for their dedication and consistent focus on customer service.
Turning to our case goods segment.
Sales declined 6.3% an operating margin was 7.5%.
Although the majority of our case goods comes from Vietnam, including all of our bedroom and dining room.
Sales volume and operating margin for the segment were impacted.
By higher tariff costs for certain of our occasional tables, so from China, and we are working to mitigate that issue by shifting sourcing locales.
Additionally, during the period, we experienced delay on some goods from one supplier and this and essentially did that business to one of our better and most reliable suppliers.
Increased ocean freight costs have also affected our operating margin.
Now moving onto our retail segment.
Excuse me.
Our retail segment continues to deliver excellent results driven by improved traffic trends and continued strong execution at the store level.
Sales for the segment increased 6.2% to a 148 million.
And delivered same store sales increased 5% the sixth consecutive increase reflecting a 4.5% compounded annual growth rate.
On a GAAP basis operating margin improved to 5.7% from 4.7% and non-GAAP operating margin increased to 5.8.
From from 5.4 in last year's second quarter.
Across the broader store network, which include both company own and dealer owned stores.
Written same store sales for the 353, La Z boy furniture galleries stores increased 3.5% in the second quarter.
The U.S. doors, continuing delivered strong results quarter after quarter.
However, full network results were negatively impacted by Canada.
Were written second quarter written same store sales declined after a rebound in Q1.
Fiscal year to date, however, written same store sales in Canada are slightly positive and showing marked improvement versus the prior to fiscal years.
As we have said many times previously investing in the lazy voice furniture galleries store system remains of Paramount importance with our core consumer demonstrating a preference to shop in store.
Additionally, the stores provide the best opportunity to showcase our entire product line.
Provide comprehensive service and an excellent shopping experience.
For the quarter across the network, one new store was open and two or remodeled.
Projected activity for the full year includes about 20 projects and we plan to end the year with 357 stores, including four net new.
Now, let me spend a few minutes on Joey bird the ecommerce business, we acquired last fiscal August .
Join bird continues to exhibit fast paced topline growth now for lazy boy it targets, a new consumer through a new channel of distribution.
For the quarter Joy over deliver 21 million in sales up 11.9% versus the prior year.
The business improved its gross margins sequentially versus the prior year by realizing certain sustainable supply chain synergies during the quarter.
This translated to reduced operating loss over Q1 for the larger operating loss and in last year's second quarter as we continue to invest in customer acquisitions to drive sales growth.
We are optimistic about the long term potential for Joy bird and we'll continue to focus on striking the right balance between profits and reinvesting in the business to drive growth.
We expect joy bird to be profit positive in the fourth quarter, the fiscal year, excluding purchase accounting adjustments.
I will now turn the call over to Millender to review our most recent financials.
Thank you Karen and good morning, everyone.
As always let me remind you that we are presenting our results on both a GAAP and non-GAAP basis non-GAAP results continue to exclude purchase accounting adjustments for acquisitions onetime charges related to our supply chain optimization initiative announced in August and the impacts of our recent termination of the company's defined benefit.
Pension plan.
We believe this non-GAAP presentation, better reflects underlying operating trends and performance for the business.
For fiscal 20 for the fiscal 22nd quarter, we recorded 1.6 million pretax or three cents per diluted share and purchase accounting charges, the majority of which related to the acquisition enjoying bird, which is reflected in corporate and other.
We also recorded a $2.8 million pretax or four cents per diluted share charge related to our supply chain optimization initiative, which is reflected in our upholstery segment.
And in addition, this quarter our non-GAAP results excluded a 1.9 million pre tax income or three cents per share benefit related to the company's retirement termination of our defined benefit pension plan.
And last year's second quarter, we recognize $3.9 million pretax or six cents per share in purchase accounting charges.
And as always a full reconciliation of GAAP to non-GAAP is included in our press release and in the Appendix section at the end of our conference call Slide.
Moving to our consolidated second quarter results sales increased 1.8% to $447 million led by our retail segment.
GAAP consolidated operating income was 29.6 million versus 28.5 million in the prior year quarter, excluding purchase accounting charges and the charge for supply chain optimization initiative, our non-GAAP consolidated operating income increased to 33.7.
In dollars from 32.2 million in last year's quarter.
Consolidated operating margin on a GAAP basis was 6.6% versus 6.5 in last years quarter and non-GAAP consolidated operating margin was 7.5% versus 7.3%, primarily driven by favorable raw material prices in the oppose.
And higher sales in the retail segment.
Additionally, as noted earlier joy birds operating loss for the quarter was larger than in the prior year quarter.
GAAP earnings per diluted share for fiscal 2022nd quarter were 48 cents versus 42 cents in the prior year period non-GAAP EPS was 52 cents per diluted share in the current quarter versus 48 cents in last year's second quarter.
non-GAAP results for the fiscal 2020 quarter exclude charges of three cents per share purchase accounting four cents per share related to the company's supply chain optimization initiative and the benefit of three cents related to the fiscal 2019 termination of the company's defined benefit pension plan.
Taking a bit deeper second quarter consolidated GAAP gross margin increased 110 basis points versus the prior year quarter and non-GAAP gross margin increased 120 basis points.
The non-GAAP adjustment for our supply chain initiatives in this years quarter, roughly offset non-GAAP purchase accounting adjustments in the prior year quarter.
Improved gross margin overall was driven by changes in our consolidated business mix due to growth in our retail segment and the contribution from Joburg, both of which carry a higher gross margin that our wholesale businesses and drove an increase of 60 basis points.
Additionally, the upholstery segment margin benefited due to raw material tailwinds and our ability to offset other increased costs.
Our retail segment margin improved slightly and our case goods segment gross margin declined primarily due to higher ocean freight and the impact of higher tariff costs uncertain occasional tables.
Moving on to ask DNA, GAAP and non-GAAP EPS DNA as a percentage of sales increased 100 basis points in the fiscal 2022nd quarter compared to the prior year quarter as non-GAAP adjustments in the comparative quarters roughly offset.
Increases in SGN as a percentage of sales were primarily driven from changes in our consolidated business mix, which increased desk DNA as a percentage of sales by 80 basis points in the quarter, reflecting the growth of retail and the addition of joy.
Non operating income for the quarter was 1.4 million due almost entirely to a onetime benefit from pensions, which we excluded from our non-GAAP results recall in last year's fourth quarter, we terminated our defined benefit pension plan settling all future obligations under the plan.
A combination of lump sum payments to eligible participants who elected to receive them and they transfer of any remaining benefit obligations to a highly rated insurance company.
During the second quarter, the insurance company refunded $1.9 million, representing an overpayment of the expected benefit obligations that were settled at the time of the termination.
The refund was recorded below the operating income line in our consolidated statement of income and was excluded from our non-GAAP results consistent with the treatment of the Q4 impact of this event.
Our effective tax rate for the second quarter was 26.6% compared with 22.9% in the prior year period.
Absent discrete adjustments the effective tax rate in the fiscal 22nd quarter would have been 25.2% and 24.7% and the prior year period.
Our effective tax rate varies from the 21% federal statutory rate, primarily due to our state taxes and we continue to estimate our effective tax rate will be in the range of 25% to 26% for the full fiscal year.
Turning to cash.
We generated 34 million in cash from operating activities in the quarter. We ended the period with $120 million in cash cash equivalents unrestricted cash and 33 million investments to enhance returns to cash during the quarter, we invested 11 million in capital primarily related to machinery.
And equipment and upgrades to our Dayton, Tennessee manufacturing facility.
We also paid 6 million in dividends and spent 11 million purchasing 300000 shares of stock in the open market under our existing authorized share repurchase program, which leaves 5.2 million shares of purchase availability under that authorization.
Our capital allocation priorities remain to invest in the business to drive growth and then provide returns to shareholders with our dividends and discretionary share buyback.
We continue to expect capital expenditures for fiscal 2020 to be in the range of $50 million to $60 million, primarily related to plant upgrades and improvements to several of our retail stores.
And finally before turning the call back to Kurt I went to again remind you of the several items for fiscal 2020, consistent with our call outs in the last quarterly call.
We will continue with our non-GAAP presentation, excluding purchase accounting adjustments as well as the changes related to our the charges related to our recently announced supply chain optimization initiative.
For acquisitions today adjustments continued to be anticipated in the range of eight to 10 cents per share for fiscal 2020 spread roughly evenly across the quarters plus any effect from revaluation of the contingent consideration liability for future earn outs on jaybird, where the payout could raise.
And from zero to $65 million as discussed in previous quarters.
Additionally, our supply chain optimization initiative, we continue to expect charges to be in the range of eight to 11 cents per diluted share spread roughly evenly across the four quarters.
As we work through the operational changes associated with this initiative, we do not anticipate any material operational benefits. This fiscal but expect to realize ongoing operational savings of four to 6 million pretax annually beginning in fiscal 2021, a portion of which we would expect to invest back into.
The business.
And we do not expect any further impacts from the pension termination.
Regarding mix I would remind you that are changing consolidated sales next may affect the seasonality of the consolidated results with July bird and the growth of our retail segment third quarter consolidated sales could outpace RBC level with the fourth quarter historically, our largest corridor.
Regarding SGN a cost trends, we would again note the impact of the changes on our consolidated business mix with retail growing and the acquisition of joint Bird.
The mix impact for the full year is expected to be an SGN a increase in the range of 100 to 150 basis points. The majority of which was realized in Q1, given the timing of the Arizona enjoy great acquisition.
And finally, I reminder, on the back half of the year.
Fiscal 2019 included a one time four cents per share net benefit for changes to employee benefits.
The combination of a seven cents benefit in Q3, and a three cents charge in Q4.
These items have not been adjusted out of our non-GAAP numbers.
And now back to current for his concluding remarks.
Thank you Melinda.
We are encouraged about the results lazy boy incorporated continues to deliver.
Our brand differentiates us in the competitive marketplace supported by ongoing product innovation and excellent service to both.
Dealers and the end consumer.
As we head into the busiest selling season I'm confident we're making the right strategic investments across the business to drive profitable growth and continued to provide returns to all stakeholders.
We thank you for your interest in La Z Boy incorporated.
And I will turn the call over to Kathy to provide instructions for getting into the queue Kathy.
Thank you Kirk.
Yes, we'll begin the question and answer period now will you. Please review the instructions for getting into the Q.
Yes, ladies and gentlemen, the floor is not open for questions. If you have a question. It is star one on your telephone keypad at this time.
Using a speaker phone, we ask that while posing a question you pick up your handset to provide the best sound quality again at a star one for any questions or comments at this time.
Well no first to John Baugh Stifel.
Okay.
Good morning, Ladies 14, thanks for taking my questions.
Jumping right in.
Could you.
Tom and I see.
In the queue, we've got pretty good increase year to date in the stationary upholstery business and.
Meaningful decline, while three 3.5% decline emotion and there was commentary around powering leather being softer then.
If I recall correctly your margins are pretty good on power. Unlike others. So could you maybe discuss.
That assumption correct it sort of what's what's going on there do you think and it is I believe even more pronounced in the retail segment were stationary strong which is good but we'd love to see motion flatter, Rob Im wondering I'm wondering what you're seeing in the marketplace is driving that thank.
That was all one question John one question I got more.
Okay I just wanted to be sure. So you know our mix.
Overtime changes back and forth.
To have all categories have equal strength, all the time is difficult to do.
Our sectional business in the upholstery segment is.
As being is very strong right now people are seeming to want.
The big groups with the deep seeding.
In their rooms were particularly they have Tvs.
And I think thats.
More in favor right now than than motion sofas.
And we also there's a there's a little more competition on motion sofas from some international players.
But there is nothing.
Yes, we don't see it right now is a long term trend.
What what was loss this quarter in the motion business was gained in the upholstery business dollar wise so.
We're not alarmed at it.
It's just one of these things that ebb and flow and we were we're going to be doing some and enhancements and some new ideas to our motion business in April to address this.
But don't don't don't see that it is.
Anything significant and.
The leather.
Business in general in the industry.
Has been affected by the tariffs more than the upholstery business because.
A lot of.
Leather motion sofas, and stationary sofas are coming in from China into most every customer in America.
With at least half if not the full tariff.
Great. Thank you and then maybe a question for me and I know some other costs from the supply chain changes are not being.
Captured in the onetime restructuring type thing or is there does that mean and I realized not all four to 6 million next year will will flow to the bottom line digital reinvested, but might the swing if you didn't reinvesting cannot be even greater in other words those transition costs that are.
Being incurred and regular operating earnings were drag in this number any sense of how much that that is.
Yes, no you're absolutely right.
Now certainly the drag in the quarter. Some inefficiency of transition is nothing nothing in the ore to the order of magnitude of the kind of savings we expect over the longer term, but that certainly is a bit of a a short term headwind as we just work through the as we work through the whole transition.
And we've called out throughout the year, even Brian learn more broadly than the the redlands transition that while we've got a nice tailwind coming from.
Raw material costs.
A lot of or other input costs of can be a bit more challenging and so I think we're doing a pretty good job of of continuing to offset those shows are people cost benefits cost transportation costs that across our business.
I kind of daily focuses for us to be managing.
And the Redlands transition just just added incrementally to that in the quarter.
Okay. Thanks. My last question is yes go ahead.
John just I'd, just like to make recall that the work our team did too.
Idle a.
Plant in California move all the orders.
Higher new people to build the furniture.
Get the majority of it to our consumers at their promise time was that humans effort and we.
We didn't have much disruption, we didnt have long delays for our customers.
And.
The.
It was a real good work by everybody who got that.
We are prepared now to sell the facility and move on.
Great.
I realize there's lot of work behind the scenes there congrats on that just finally, maybe on Joey bird.
You mentioned the customer acquisition cost to think caused the higher year over year loss.
While revenues grew they were 12% rate.
Curious in your path to profit pre.
Pre accounting.
Our acquisition accounting.
One of the levers there and I guess the concern would be the half to cut the customer acquisition span and if you do does that slow that growth rate at all thanks.
Great question.
We.
We have taken the.
Last six to nine months to put together our integration plan.
Of joining the two companies and utilizing each other's strain so.
We are now making the majority of their best sellers and our date, Tennessee plant.
Two.
Provide quicker delivery and less transportation cost of the east coast.
We have those joint bird styles, and all of our regional distribution centers that we use for retail so for the first time Joy word customers.
Can't get product pretty quick.
That is that is not custom.
Number three.
Getting all of our.
Supply contracts that lazy boy has on similar items integrated into Joy bird. So they can enjoy the savings getting them some equipment to cut poly and do all that.
That has taken more time to get it integrated end to get the value of it by the time the product gets to the consumer.
We think theres still a combination of some tightening up of SGN, a and realizing the.
Savings that we have enjoyed yet and the combination combination of those two things can get as profitable with out.
Cutting back on customer acquisition.
Great. Thanks for that detail on good luck.
Thank you John Thank you.
All right next to Bobby Griffin at Raymond James.
Good morning body. Thank you for taking my questions.
Anybody.
Our first wanted to touch on the upholstery segment, and particularly the non lazy boy branded area of that wholesale business it looks like.
The quarter was once again with the lazy board branded stuff outperform that maybe can you talk about what's going on at the other 50% of that segment was that performance relatively in line with how it wasn't the first quarter and is there any expanded thoughts as you can share with us of of what's going on there with England subsidiary and in that area.
Okay, So I'm a little.
Im a little confused that Theres two pass there.
Are you talking about our sales to our sales in one.
Yes here, Yeah, let me hear our dealers non store and then what are other companies within the upholstery segment are doing yeah, I mean, basically I'm trying to connect the dots strong written business that we're seeing across the whole Lazy Boy Gallery network. You know your company owned stores as well as your independent licensees to the 1% just.
Total upholstery growth that we're seeing out of the wholesale segment itself and I guess, that's implying that the network and the lazy Boyd branded galleries are performing better than some of your.
Your nonbranded part of that business.
Okay.
I'll start with that so.
We are pleased with the performance of our retail both the whole network and our company owned the consistency for the last couple of years of their performance has been great to see and.
I think.
They embody everything that the brand has to offer and sets them apart. It's hard to give you anything meaningful on the rest of our distribution. We have some 2000 doors, where our product is sold from small dealers to large dealers and some of them have.
A full array of the La Z Boy brand then there is doors other have just a portion so we don't see any pattern.
But we do see the midsize and smaller dealers are struggling a little bit for growth These days with.
Their inability to.
A market like larger customers their inability to buy containers things of that nature, but I can't really Bobby point to a.
One item that would say this is this is what we need to fix I would also tell you that.
In most of our businesses in the.
Second quarter, there written sales were above their delivered sales and part of that was in the branded business with making the changeover with from Redlands too.
Neil show.
But.
I think thats just the state of the industry. If you look at.
Some of the other public companies that have.
Ben long term players in the industry lot of their sales are not in the positive zone, which is I think just reflective of some of the sluggish no should various points in the home furnishing space.
Bobby I would just add one clarification, you were referring to brand into Nonbranded within our upholstery business. The vast majority of that business is lazy boy branded.
About half of that is going through furniture galleries of which we own about a quarter of them. So we have lazy boy branded business per se, but going through third parties as Curt was referring to and then we also have you know we have some other smaller that are non branded business and they kind of are playing.
In that order, our strongest desire retail than our furniture galleries, and then let's say in a little more struggle as we go to our lazy by brand, but on competitive floors and that out to the kind of non branded business.
Okay. That's helpful anymore like the rest of the industry.
That's helpful and I guess, what I was also trying to connect is is the the two areas that you're seeing a little bit of the weaker or struggles inverse your galleries. Your own galleries has that has that materially changes that are about the same as it was in the first quarter in in the fourth quarter of last fiscal year.
I don't think there's been a material change this isn't though first quarter for now the first quarter phenomena.
This has been.
Truly ever since kind of the tariff thing came on the horizon, There's there's been a little dampening down of growth for certain portions of our distribution.
Okay. That's helpful. And then lastly from me on joint Bird itself can you maybe talk about expectations for the year on on full year sales I think last time, we spoke at the end of the first quarter. We're looking at 95 to 100 million or so this was a number talked about on the call I believe.
And year to date, we're tracking you know about 38 or so is it implies a pretty big ramp.
Can you talk about how sales came in for the quarter, where they a little weaker or better than you expected for joint burden just the pathway for that business to continue to accelerate.
So let's.
Try to give as many data points is again, when we purchased Joey bird a year ago August .
They were trending slightly above $50 million for a year.
In our first six months they did I think 38 million.
For the similar similar timeframe.
And and that is.
Like a retail business that that we also own that is in the weaker half of the 12 month period, given our fiscal year.
So we would expect a sales acceleration in the back half of the year.
And still.
Our targeting that $90 million to $100 million range for this year, if everything goes to our expectations.
I'd like to change and it would be it wouldn't necessarily be joy birds specific good could be economies specific or something like that.
But we still think.
The back half is going to be better we've got a lot of our integration issues behind us we've got product available.
In more places in the first half of the year. So we think thats still a good target of the 90 to 100 million.
Okay, and then did the integration aspect of that limit some of the sales in the first half or is it more just the seasonality of that business that you're referring to.
Oh I'm sure the integration.
Of everything has has caused some disruption you don't put two companies together that.
Were run totally different for a long time and tried to get the best out to make changes really out the plant.
Okay, and all those things.
That doesn't happen, but I don't I don't think we can lay a major portion of the sales Miss the.
They didnt have a very good written month in August .
And never quite able to catch up but since September now all the way here through November they've been on a stronger pace of written sales and I think seasonally.
Perhaps you expect that Q1 is always going to be pretty light and they'll pay us as you move through there.
Okay. That's been very helpful. I appreciate all the detail best of luck onto the remaining part of your fiscal year.
Thank you Bobby.
Hi, Canada Star one for any questions or comments, we will go to Brad Thomas Keybanc capital markets.
Hey, good morning, everybody.
Good morning, good morning.
Wanted to follow up on the upholstery segment and so.
Strong margin performance you've had in that segment in the first half year I was hoping you all could just talk about as we think about the next couple of quarters.
Any.
Differences in that and the puts and takes as we think about.
Profitability in upholstery segment.
My comment on that Brad would be that.
That almost 11%.
One of the highest margins in the industry on.
Manufacturing upholstery so.
We don't take that for granted.
The an excellent job from our supply chain team due to achieve that.
I think we have we said this before our ability to improve above 11% directly related to volume.
If we can generate more volume and the capacity utilization.
Has increased.
So would so would be our profits.
So right now we have.
Some tailwind.
With the raw material situation.
And once our plan in Missouri.
It's all there.
Staff trained and and running at a rate where they don't have to run as much overtime.
That could improve the situation.
But if they make [noise].
The same amount of units that they did the previous year.
They are probably not a lot of.
Extra.
Juice in the margin.
If we get 10% more units or anything above probably five.
Without any other extraordinary things happening you could possibly see a little bit increase in margin.
The one another.
Headwind I spoke to some of the other cost trends were looking at but as we are investing in these plants and it's not a huge number but we will pick up a little more depreciation as we go forward with our investment in a two two largest plans where on the tail end of all of our work in Dayton, Tennessee.
On our largest plant and just kicking off the work and any other show, which between those two are 70% of the volume even a little bit more than that now.
Of our of our total company, but we are making as you know significant capital investments there so that will be a little bit of a noncash headwind going forward.
That's that's helpful and if I can ask assume my question on on the retail segment.
And thinking about its profitability the next couple of quarters.
Obviously, the China's been good to last two but you've had the Arizona stores.
As a tailwind for you.
If you can keep up this this momentum in same store sales, which hopefully you can against some easier comparisons.
Do you feel like you're in a position, where we should continue to see profits in retail going higher the next couple of quarters.
So.
Again.
As we said earlier, it's all seasonal Brad they will do much better historically in the second half of our fiscal year than they do.
In the first and that would be reflected in the comparables.
But.
We even this month so far in November we haven't seen any differential in the pace of our retail business and and while.
Arizona is a tremendous business for us.
At the level of volume their ad.
To keep pace with the same store sales growth as the rest of the organization.
This kind of difficult because we've we've got more opportunities and some other Marcus.
But will be probably adding another store to Arizona here in the near term and doing some other things but.
Arizona has helped the profitability of the business and the size of the over business, but they are not the main driver as same store sales growth.
Got you that's very helpful. Thank you so much.
Thank you.
Well go next to Anthony Lebiedzinski at Sidoti and company.
Good morning again, thank you for taking the questions. So just first I just wanted to clarify.
With respect to case goods you noted the supplier issue that you had so just wanted to make sure how does that issue been totally resolved at this point.
We believe it has Anthony we've we've changed suppliers and half.
If you look historically at our case goods business. The last two or three years. This is the first real hiccup Theyve had.
They've normally been steady and slow growth and doing a little better and double digit margins and I.
I think this is an unusual situation and not a trend line that we think will continue.
Okay, that's good to hear.
So as far as retail you noted that the traffic was up which is unlike a lot of other retailers. So just wanted to get a sense as to.
The average ticket trend plus also a penetration for your in home design program.
I'll go in reverse order the.
Excuse me the penetration in our in home.
Custom business is.
Hovering in that low, 30% and hasn't had a month.
A meaningful change.
From that we think over time, we can build it but right now.
It's been fairly static at a.
Really high number and.
Our performance.
On all the metrics traffic conversion average ticket percentage of in home.
Our all slightly trending up it's the combination of all those that have made the consistency of the 3% to 5% growth.
One is not out shadowing the other we're not getting so much more traffic that the other metrics have gone down it's a combination of those four things and the team is executing at a very high level.
That's good to hear and also as far as the back half of the year. Just just wondering what's your outlook is from promote promotions, whether it's for black Friday or later, it's going to be Presidents' day weekend. Just the overall do you expect to do kind of more of the same types of promotions or anything that you're looking to do.
Differently.
Helpful to get some color on that thank you.
So.
The furniture industry is a highly promotional business and.
And different retailers take different.
Tactics on on how they connect with the customer we think.
Where we're positioned our continued.
Investment in.
Our marketing campaign with Kristen, we think our local media.
That all of our dealers and our own stores do.
We think putting some strong values out in our marketing.
Proposition that draws customers into the stores is good but.
I mean I.
When you start.
Running and we don't do is but the comparison when when you start.
Running 50% off in free Tvs, and we pay the taxes.
Yes.
I don't know how much farther the industry in general can go to try to attract more customers to come in its highly competitive it's highly promotional everybody's got a fine domain they want us women.
We think we found our our niche as continuing to work but.
We.
We won't you won't see anything dramatically different on how we go to market.
Got it okay, well. Thank you so much and best of luck.
Thank you. Thank you.
Well no other questions holding I'll turn the conference back to management for any additional or closing comments.
Thank you everyone for your interest and leasing was incorporated we certainly appreciate your time. This morning. So do you have further questions. Please give me I'll call and in the meantime enjoy the Thanksgiving holiday.
Hi.
Ladies and gentlemen that will conclude today's call. We thank you for your participation you may disconnect at this time and have a great day.