Q4 2020 La-Z-Boy Inc Earnings Call
Please standby we're about to begin.
Good morning, ladies and gentlemen, and welcome to your Lazy Boy, Cisco Twentytwenty full year and fourth quarter Conference call.
Lines have been placed into listen only mode and what will be open for questions. Following the presentation. At this time it it's my pleasure to turn the floor over to Kathy Liebmann. Please go ahead.
Thank you Christine and good morning, Thank you for joining us to discuss our fiscal 2024th quarter and full year results.
With that this morning, our Kurt Darrow, La Z Boy's Chairman, President and Chief Executive Officer, and the Lincoln Whittington CFO.
It will begin includes the calm and the Linda will speak to the financials midway through well then open the call into question.
I 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 called 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 lazy boys future.
Forming although we believe these statements to be reason about 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 and other key information detailed in our FTC filing.
Well so ever 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'll now turn the call over to Kurt Darrow, La Z Boy's Chairman, President and Chief Executive Officer Kurt.
Thank you Kathy and good morning, everyone.
Following yesterday's close of market, we reported our fiscal 2024th quarter and full year results.
Fiscal 20 was indeed, a tale of two cities.
Our performance through the first 10 months of the year was one of the best in our company's history.
Strong retail results, great product introductions and supply chain exxon's, all translating into solid sales.
And earnings growth.
However, all of that change in March when the covert 19 pandemic and related retail closure forced us to cease production pulls our own stores and wait for the economy to reopen.
Now given our philosophy of fiscal conservatism.
We entered the crisis with a strong balance sheet, which positioned us to successfully moved through this uncertain period.
With the health safety, and well being of our employees customers and communities our top priority.
We responded quickly and rolled out an action plan on March 29, and.
That included a series of elements essential to ensure Basie boy not only weather's, the unprecedented store, but emerges with strength.
In addition to temporary plant and store closures are cobot 19 action plan include include a temporary for well furloughing.
70% of our workforce.
Eliminating all nonessential operating expenses.
Significantly reducing capital expenditures suspending the June dividend and share repurchase program and temporarily reducing pay by 50% for senior management and 25% for all other salaried employees.
With our board of directors for growing the cash portion of their compensation.
We also proactively drew down $75 million on our credit facility to ensure liquidity through this period.
As we continue to analyze and prepare for success in the new economic landscape earlier this month.
We took some additional actions to strengthen and align lazy boy to the new external environment.
Well, we were pleased to have brought back some 6000 furloughed workers, we made the decision to permanently close our Newton, Mississippi Lazy Boyd branded manufacturing facility.
And reduce our global workforce by approximately 10%.
All of these actions impacted our various stakeholders and everyone throughout the lazy way organization was affected in some way.
The level set where we are today, we started calendar 2020 with 9800 employees.
And during the worst of the pandemic temporarily furloughed about 6800.
Any end about 10% became permanent reductions.
We deeply regret the impact to those employees, but our decisions are in the long term best interest of the company.
However, as we now move forward our manufacturing facilities in company owned stores are open the vast majority of our workforce will be back to work by the beginning of July.
And our employees are back to full pay without with the exception of the executive officers and board members.
On the manufacturing side for the La Z Boy branded business, we had been ramping up production weekly.
When we restarted our plants from a complete shut down we ramped up to about 50% in may the versus May have 29 team.
And as we head into July we expect to be operating at 80% of year ago volumes.
I'm, so proud of how our team rapidly geared up once we restarted production.
To meet the demand we are experiencing.
Before I begin a review of the quarter I'd like to take a moment the thank our employees for the sacrifices they made through this difficult period and for their commitment to the company.
With no notice, we announce difficult furloughs for a broad population.
And when we restarted operations are brought people back.
They returned with enthusiasm and hit the ground running without missing a beat.
We have an amazing workforce that has my admiration.
I'd also like to say, how proud I mean I'm of the work we did throughout the pandemic to provide support to many organizations.
Moving manufacturing.
And donating hundreds of thousands of mass for healthcare workers and tens and thousands for our suppliers.
Additionally, we are donating $1 million a furniture.
The frontline workers frontline healthcare workers throughout our 1 million thinks campaign, where we are harnessing the collective spirit and creativity of individuals across the internet to say, thank you for those medical professionals.
Who have worked tirelessly to ensures that our safety.
They certainly are true heroes.
Balancing the two very different chapters of the year the company turned in solid financial performance.
We closed fiscal 2020 was 1.7 billion and sales.
Generated 164 million in cash from operations.
They returned $68 million to shareholders through dividends and share repurchases.
Now turning to the results of the fourth quarter.
As noted earlier the company performed very well through February.
However, the shut down of North American coal that 19 has significant impact on our results through the fourth quarter with many retailers across the country close for the last four weeks of the period.
And for even longer during the quarter as well as our manufacturing operations close where the last four weeks of our year.
To provide some perspective.
With respect to one component of our distribution.
For the entire lazy boy furniture galleries network written same store sales increased 10.5% in the third quarter.
And increased 20% in the month of February.
Only to drop 44% in March and 90% in April.
In concert with a pandemic.
As a result for the quarter, we experienced a 19% decline consolidated company sales to 367 million and a GAAP operating income for the period was 13 million and non-GAAP operating income was 34 million.
Even with this dramatic impact for the quarter, we were still able to generate $44 million in cash and return 14 million to shareholders to dividends paid and share purchases made prior to the shutdown.
The remainder of my remarks will detail, our non-GAAP numbers them and Linda will cover the non-GAAP adjustments in her presentation.
Looking at our business by segment, we will start with retail which has become a core competency for the organization and is greatly contributing to the value of the La Z Boy enterprise.
After year prior to cope with the team executed at a very high level with increased conversion.
And design sales with improved engagement with our consumers.
For the quarter at an 8% sales declined to $140 million the segment posted a double digit operating margin driven primarily by prior period written sales delivered during the quarter and lower operating expenses related to the company's coal with 19 action plan.
Let me give you some more context.
For the first three quarters of fiscal 2020.
Sales for our company owned stores were up 8.1%.
For that same period delivered same store sales were up 3.6% with both metrics written and delivered.
Driven by improved traffic trends conversion and strong execution at the store level.
After extremely strong February start.
Which delivered same store sales for the company owned stores with delivered same store sales with a company owned stores increasing 15%.
They were only up 2% in March and declined 52% in April culminating in a fourth quarter delivered same store sales decrease of 10%.
As the majority of the stores were closed the last four weeks or the quarter as state and local restrictions limited our ability to deliver product.
After staggering reopenings due to local guidelines beginning between the beginning of May in mid June.
Well into Q1 of our new fiscal year as of today, all our stores are thankfully open.
However, many are working on reduce schedule in terms of hours opened a number of poised depending on traffic.
We have implemented a series of health and safety procedures to keep our employees in consumer safe.
It is essential for customers to feel comfortable our store environment and we are also offering private shopping appointments outside of regular store hours, if the British shop that way.
As stores reopening we managed to we manage our spend on marketing and overhead in more short term iterations remain very nimble as we as we anticipate what would happen each week.
In the meantime, our teams are rapidly adapting to improve E commerce sales through the shutdown and executed a virtual design program.
Now for the broader store network includes include both company owned and dealer old stores.
In the stays the same store sales for the 354, La Z boy furniture galleries stores in North America decreased 35% in the fourth quarter.
As we noted even.
With a 20% increase for the month the February it was hard to overcome the effect of store closures throughout the period with many stores closed for part of March in the majority of stores.
Both in April as for local guidelines.
Driving written sales.
Same store sales down in March and April 44, 90% respectively.
The challenging fourth quarter impacted the full.
20 year was written same store sales down 3.6%.
Even after a 6.4 increase for the first treat first three quarters of the year.
The leisurely furniture galleries store system is the cornerstone of our distribution and we along with our dealer base are committed to investing in the stores to keep them updated and appealing to the consumer.
We ended the year with 354 stores, including one net new.
And 166 in the new concept design.
Presuming business trends continued to improve we anticipate adding four net new stores over the course of fiscal 21.
Bringing the total store count to 358.
Now onto our wholesale business.
In the upholstery segment on sales on a sales decline of 22% to 253 million non-GAAP operating margin increased 11.8%.
Margins benefited from a onetime $16 million rebate of previously paid tariffs and and favorable commodity costs, mostly offset by higher bad debt bad debt expense due to the art they in furniture bankruptcy and the provision for potential credit losses in the coal at night.
I mean environment.
In ESG today.
Also our SGN a dollar spend for the period were lower due to covert 19 action plan, but higher as a percentage of sales due to decline in volume related to the pandemic.
Throughout this period, we have right sized our marketing investment to balance fiscal responsibility with regaining sales volume and what appears to be increased interest in living room furniture as consumer spend more time at home and shift discretionary dollars do furniture.
During uncertain in challenging times consumers tend to return to brands. They know and trust and we are building on that momentum on the momentum of our live life comfortably campaign featuring brand Ambassador Crystal Bell, who continues to be a highly effective spokesperson for us.
Before turning the case goods I'd like to take a moment and talk about La Z Boy Dot com.
As discussed in the past our core consumer has consistently demonstrated a preference to shop in store.
Without that ability during a pandemic, we did see an uptick and traffic and an increase in sales on La Z Boy Dot com and are happy to provide consumers. This option as part of our Omnichannel offering.
During the year, we strengthened our digital presence and consumer experience introducing a number of innovations that further simplify browsing researching and purchasing including various selling tools that allow consumers to view products in their own home virtually.
Such innovations facilitate easier virtual engagement and were particularly helpful. Why all those stores.
Turning to our case goods segment.
The 20% decline in sales, our non-GAAP operating margin decreased to 1.9%.
Primarily reflecting the impact of cobot 19, and related temporary manufacturing facility in retail closures and an increase in bad debt expense given the current economic environment.
Although the segment faced a number of headwinds through fiscal 2020.
We are better position now with more occasional tables source from countries other than China.
Great rates, starting to ease and a series of new product introductions that had been well receive.
However, we do expect some disruption.
To continue in the import supply chain over the next several months as suppliers come back online following the coal that 19 shutdowns in Asia.
I'll now spend a few moments on joy.
For the quarter Joy Bird sales reported in corporate and other declined 30%.
15.4 million as the business posted a larger operating loss than the prior year period.
Operating performance impacted in the quarter by the temporary closure of the Joy bird manufacturing facility.
And our inability delivered product to consumers due to state and local restrictions related to the pandemic.
On a more positive note joined bridge written sales through the quarter were very strong at a higher order rate for the first for first time visitors to the site.
Well, there Mexico based manufacturing facility reopening in phases throughout may and working its way up to previous production levels in June.
Robert will have a longer tail for deliveries versus the La Z boy branded business.
Expects to deliver these written orders at the end of the first quarter and and some into the second quarter.
We are we're continuing to make improvements across the joy bird business model with the objective to balance investments in growth with bottom line performance and expect Joey birds to deliver value to the La Z boy enterprise over the long term.
I will now turn the call over to Melinda.
Thanks, Kurt and good morning, everyone.
As always let me remind you that we present our results indicate the GAAP and non-GAAP basis, we believe the non-GAAP presentation, better reflects underlying operating trends and performance of the business.
As detailed in our press release and then the tables in the appendix section of our conference calls five.
Excluded from our fiscal 2024th quarter non-GAAP reporting.
Our a non cash non tax deductible in July buried goodwill impairment charge of $27 million, mostly related to the impact of the covered 19 pandemic and future financial projections and a 6 million dollar pre tax net benefit from purchase accounting.
Primarily related to the reversal of the January contingent consideration liability by its full carrying value of $8 million based on financial projections and time since mid January earn out agreement.
In addition to these items also excluded from our non-GAAP reporting for the full year and discussed in previous quarters are pre tax charges from purchase accounting adjustments for the first three quarters of the year.
A noncash impairment charge for an investment privately held startup company.
Net benefit related to our supply chain optimization initiative.
And the benefit related to the prior year termination of the company's defined benefit pension plan.
Fiscal 2019, non-GAAP results for that for full year end fourth quarter exclude a charge for the termination of the company's defined benefit pension plan and purchase accounting charges.
My comments from here, we'll focus on our non-GAAP reporting.
On a consolidated basis fourth quarter sales declined 19% to 367 million in fiscal 2008 Q4 versus the prior year period, reflecting two months of dramatic temporary impacts and the coded pandemic consolidated non-GAAP operating income was 35 million first.
39 million in last year's quarter, and consolidated non-GAAP operating margin was 9.3% versus 8.6%.
Reflecting increases in the upholstery and retail segments offset by a decline in case goods margins.
Results for the quarter included a 440 basis point benefit related to a rebate of previously paid Chinese Kara.
Just entirely offset by higher bad debt expense.
Scott 2019 fourth quarter results include a 40 basis point charge related to changes in employee benefit policy.
Non-GAAP EPS was 49 cents per diluted share in the current quarter versus 64 cents in last year's fourth quarter.
Moving on to full year results for fiscal 2020 sales decreased 2.4% to $1.7 billion again, reflecting strong performance through February and two months of impacts from coordinate team.
Consolidated non-GAAP operating income increased to $139 million kind of 137 million in fiscal 2019, and consolidated non-GAAP operating margin was 8.2% versus 7.8% in the prior year.
Yes.
With results, reflecting improvement in our upholstery and retail segments.
Diluted non-GAAP earnings per share for fiscal $2022.16 versus 2014 cents in fiscal 2018.
Consolidated gross margin for the full fiscal year increased 230 basis points improve gross margin was driven by rebates on previously paid duties.
Which provided a 100 basis point increase to gross margin and changes on our consolidated business mix due to growth and our retail segment and the contribution from jaybird, both of which carry a higher gross margin than our wholesale businesses, which accounted for 90 basis point increase.
We also benefited from lower raw material costs, and the upholstery segment with most of that offset by the temporary shutdown and our manufacturing facility in Q4, I'd to kind of at 19 and inflationary pressures in the broader supply chain.
Moving on to SGN air for the full fiscal.
Lower sales volume for the year SGN as a percentage of sales increased 190 basis points.
And is in our consolidated mix with retail enjoyed very composing a higher percentage of our business increased SGN, a as a percentage of sales by 130 basis points for the year.
Bad debt expense drove an 80 basis point increase on the year, primarily due to the our then bankruptcy as well as a provision for credit losses, given the current economic environment.
In fiscal 2019, we recognized a one time 3.8 million dollar benefit due to changes in play vacation policies. The absence of which we saw the comparative 20 basis point increase in SGN as a percentage of sales for fiscal 2020.
Partially offsetting these increases was a 90 basis point decrease in SGN as a percentage sales related to lower incentive compensation costs as we fell short of our target due to the impact of covet 19.
On a GAAP basis, our effective tax rate for fiscal 2020, with 31.4% versus 26.5% last year.
Impacting this year's effective tax rate was a net tax expense of $4 million, primarily from the tax effect of the nondeductible goodwill impairment charge related to enjoy a bird.
And tax expense of 1.3 million from deferred tax attributable to on just undistributed foreign earnings no longer permanently reinvested.
Absent discrete adjustments DFS effective tax rate in fiscal 2020 would have been 26.5%.
Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes and for fiscal 21 absent discrete items. We continue to estimate our effective tax rate on a GAAP basis will be in the range of 25% to 26%.
Turning to cash we generated $164 million in cash from operating activities in fiscal 2020.
We ended the year with $264 million in cash cash equivalents unrestricted cash, including $75 million proactively John on the company's credit facility to enhance liquidity in response to kind of at 19.
As well as 29 million and investments to enhance returns on cash.
This compares with 132 million in cash cash equivalents unrestricted cash and 31 million in investments to enhance returns on cash at the end of fiscal 2019.
During the year, we invested $46 million in capital primarily related to machinery and equipment upgrades to our date manufacturing facility and investments in our retail stores.
Over the fiscal year, we also paid $25 million in dividends and spent $43 million purchasing 1.4 million shares of stock in the open market under our existing authorized share repurchase program.
Which leaves 4.5 million shares in purchase availability under that authorization.
I longer term 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.
However, as part of our Cobot 19 action plan in an effort to preserve cash in the near term and provide for financial flexibility, we eliminated our expected June dividend and temporarily suspended our share buyback program.
As the company's performance continues to recover we will look to return value to our shareholders through dividends and share buybacks. Once we have evaluated the business recovery for a meaningful period.
We expect capital expenditures for fiscal 21 to be in the range of $25 million to $40 million largely dependent on economic conditions and business recovery.
Our spending for the year, we'll prioritize essential maintenance projects already underway, including plant upgrades to our upholstery manufacturing and distribution facilities technology upgrades improvements to several retail stores and other projects as business conditions permit.
And finally before I turn the call back to Curt Let me highlight several important items for fiscal 21.
We will continue with our non-GAAP presentation with expected adjustments, including purchase accounting adjustments for acquisitions to date, which are estimated to be in the range of three to five cents per share spread evenly over the year.
And we anticipate onetime pretax charges of $5 million to $7 million or eight to 11 cents per share related to our recently announced closure of the new Assembly plant and the 10% reduction of our global workforce.
The majority of which will be realized in the first quarter.
Moving forward savings realized and these closures will be reinvested to drive business recovery.
And finally, I'd like to spend a moment to address the ongoing impact of covered Nineteena business.
Indeed, there was a dramatic hit to our fiscal 2024th quarter due to plant in retail closures, which we have addressed in detail.
But importantly, there is a continued tail to the retail and manufacturing shutdowns, which will impact at least our first quarter, which is already are seasonally slowest period for sales and earnings.
As all of the written sales we didnt have in March and April and even early may during the shutdown.
Resolving no deliveries and no related revenue recognition for May and June.
And then a dip in cash until those receivables are collected even later in the summer.
Well, we incur expenses to reopen and ramp up.
Even with the positive recovery trends results for at least Q1 will be extremely challenged.
The good news is its doors are open and plans are up and running.
Well, we're cautiously optimistic we will need to remain as agile as possible to manage through this near term period.
More broadly speaking.
I would note that no trends should be drawn from our fiscal 2024th quarter margin performance given the many dramatic and unique impacts of coven 19 shutdown.
Plants are ramping up production on a weekly basis, we still have not reached prior year volume levels are even critical sales levels to support our historically strong margins only time will tell if what we're seeing in terms of volume increases is solely pent up demand.
The impact of federal stimulus money or longer term sector rotation with discretionary spending moving from travel and leisure to home in furnishings.
Maybe playing a role in the bounce back in the home furnishings industry that we are experiencing.
Whether that demand is sustainable and what the new normal will be are still questions. Thus, we continue to balance meeting customer demand for our product with financial Prudence.
And now I'll turn back to create for his concluding remarks.
Thank you Melinda.
The most retailers now open.
Thus far we were pleased with consumer traction.
However, as Melinda limited to there is some uncertainty with respect to for future trends.
And it will be awhile before we have a better idea of continuing ongoing run rate.
That said.
For solid positioning in the marketplace through our well known and trusted brand.
Yes distribution network, including the vibrant lazy boy furniture galleries stores system.
World Class supply chain and a strong balance sheet I have every confidence we will emerge with strength in the have the potential for additional market share gains as demand environment improves.
And my more than 40 years in La Z Boy I have seen the company manage its way through many crisis has never seen an event the magnitude of quoted 19.
So where we were in a no revenue environment for an extended period of time.
Well that made our path forward complex and even unpredictable. We're now focused on ramping up the business and importantly, we will take as much in this experience as possible to further strengthen lazy boy and make it more competitive.
I'm confident we will emerge as a stronger wiser and more resilient company.
And we'll provide long term value on returns to our many stakeholders.
Hi, Thank you for your interest in lazy, we incorporate in before turning the call back to Kathy.
I'd like to take a few moments to talk about the passing of Steve can Kate.
Retired from lease avoid about five years after running our case goods business were more than 25 years.
Steve led the case goods group through a comprehensive transition from a domestic manufacturer.
To an important model as the would industry primarily moved offshore.
He was a gentlemen's gentlemen.
Was highly respected within the industry.
A man of great integrity in a friend wall.
You truly cared about every single employee at every level of Kincaid and it was a great leader.
You will be sorely missed by many of us.
Kathy.
Thanks Kurt.
We will begin the question and answer periods now.
Christy please read the instructions for getting into the queue to ask questions.
Thank you both.
Open for questions. If you would like to ask a question. Please press star one on your telephone keypad at any time to join the queue.
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Again, ladies and gentlemen, if you would like.
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And our first question comes from Bobby Griffin with Raymond James. Please go ahead.
Good morning, everybody.
Hope everybody is doing well and your families are staying healthy appreciate you taking my questions.
Thank you Bobby.
So I guess low in the first thing I wanted to touch on as I understand you guys. Typically we don't get into monthly trends, but given the high level by uncertainty and kind of how the recovery is played can we get any color on may or June on written business are delivered business to maybe help us frame up a little is how the recoveries coming back in.
Demands coming back.
Yes.
Good as shot.
Usually Bobby.
You know when.
When you.
Stopped production at manufacturing.
Sites.
Happens pretty quickly and and.
And you can.
Ratchet down pretty fast.
The problem with.
The pace of business and attracting is not all stores opened at once.
As an example of the country of Canada was some weeks behind the use of reopening and so.
Ill come June now I think everybody in North America has been allowed to reopen.
And so that that has.
That has been very beneficial and the rate of sales increases.
Or sales momentum.
From April May and June every month is better than the previous month and momentum is building.
And so the incoming order rates.
For most of the industry that home furnishing industry has seen an uptick in business.
Lot of it related to them issues that.
Linda raised and so the incoming order rate but.
The industry normally operates on a backlog.
And when everybody shut down people cancel orders that there is no backlog in the industry. So the whole industry is trying to ramp up faster and faster to meet the new demand.
And.
We normally have a continual backlog and.
We we deliver it quickly and all but give you. An example in our retail business since we delivered out most of its backlog.
In in March.
When we reopened we don't have a backlog since 50% of our business is custom order. They have they have to sell it at retail we have to manufacture it at our wholesale plants. We have the then ship, but do Idcs and then deliberate so the look theres going to be for quite a while a few.
Months.
Pretty significant lag between the written business and the delivered business.
So thats, what the trends the trends in the whole industry are.
Our very strong of the come back and I'm not saying in you know in May people were ahead of last year, but but every every week every months things things seem to get stronger and stronger people are more comfortable and and I think you'll see a lot of people talk about that but but the course.
Bonding delivered sales are going to leg.
45, or 60 days in many cases I hope that's helpful.
That's helpful. It seems like we can get a quarter to that's basically the opposite it's for Fourq you were written stronger than delivered four quarter chain until we get back on a more normalized cadence.
Business with the manufacturing lag.
Yes, even even even with the.
A lot of things closed the distribution centers were open end continue deliver in March.
No go until we start making more furniture, they don't have much to deliver but thats changing weekly, but it will be awhile before were caught up.
Okay, and the second thing I wanted to touch on was the tariff refund.
Can you can you give us a timeframe would that $16 million a rebate over one year or rebate over two years and the depend on that answer but is that is that fair to think thats at cost that you're not going to has to pay going for now because you've got the exclusion on a permanent basis going forward.
Yes, so let's go back a little better if you recall, it's been we're not quite at two years, yet since the tariffs where were put on and products imported from China.
First they were at a 10% level and then they were at a 25% level and so thats been I guess I think.
September when we last two years on that on all of that going on so we were dealing with a fairly fluid situation on both the rate as well as the products coverage for us that was that.
To some extent, while listening and believe it was good for the industry competitively speaking because we do the vast majority of our you know if our manufacturing here in North America that resulted in only a cost uptick to us and in a 3% to 4% it was less than that we're at 10%. So we've been we've been.
Dealing with that for the better part of the last two years.
Only recently this spring we were able to become aware of and qualify for this temporary rebate exclusion and it is temporary in nature and so that that wrapped up in the fourth quarter that 16 million on two thirds of it.
Relates to the 2020 fiscal year, just by how the tariffs fell over the last two years.
Both in rate and and month.
And so again two thirds of that related to this fiscal we just wrapped up.
And it is temporary in nature I believe the exclusion expires and I want to say August.
And then there's a whole process around again, what will be what can you can try to apply for what might be blast, whether or not you can get it. So it is far from a known going forward.
I think dosing body is we during that time, we've invested a lot of money and time to move things out of China to other countries and to try to.
Spread out our risk and so there was.
We did we did have a.
Tariffs surcharge on our products, but we also had a lot of expense to try to minimize the effective that globally.
Okay. That's helpful. And then lastly from me can you maybe about the impact of high point in April being canceled I have never been and I've only been done this seven years, but I think my prior colleagues to work for once at 37 straight high points. So how do you think cabin in April market canceled will impact industrial.
Kind of how people plan for business in the back half of.
The calendar year.
Well I think the obviously the the right call has made to cancel that was at the height of everything going on in.
And.
I think the.
The.
The fact that none of the stores were opened.
Having a market would have been.
Inconsequential and I would I would bet that most people wouldn't have gone in April given the worry about travel at all so I think I think that the focus is change.
Bobby from worrying about new product to getting deliveries on your best sellers and and shoring up the supply chain and and how is the industry going to get back to normal lead times, which I don't think anybody is that right now I.
I do think.
If there is a october market.
Which certainly they're planning I think you'll see a lot of great new product introductions from the industry, because they've had a whole year to get to get ready for that.
But if there is still the travel ban and they're still.
Concerns and North Carolina's whatever north Carolina's individual situation is with.
There are cases at all.
That everybody is planning advance in the fall.
But also everybody's preparing.
Outside of just the furniture market.
What would we do this didnt happen assistant.
Get the whole challenge of kids going back to college, and how do you do that safe and everything so we're going to environment and and we learn how to do some of it virtually.
Should we be able to do some things I don't think.
I think market is going to be replaced forever, but I don't think anybody wants to rush things and.
And create a.
On unsafe environment, where people can't.
Can be together so it remains to be seen exactly everything that will be happening, but I don't I don't think because of the stores close and everything I don't I think it's had a meaningful effect on on business.
The what consumers see at all I think I think if it went on continually for a couple of more markets that would be a different story, but I think right now it was a.
It was the right thing to do just give it.
Okay I appreciate all the detail on X or Discloser on this quarter best of luck Bancorp.
Thank you. Thank you.
And our next question comes from John Baugh Stifel. Please go ahead.
Good morning, and thanks for taking my questions I never said by the news of Steve's passing of Avanir whole furniture industry executives that will only be missed.
Absolutely.
I was wondering if we could.
So we got a $7.9 million fan of bad debt charge.
And then I guess, we've got this provision for expectations.
Sue Sue does that.
Add up close to 8 million because I think you said the.
Bad debt.
Close to offset some color on on the other and then the other bad debt is that sort of Cecil accounting.
We've got anticipated more.
Or is it no we're seeing bad debt.
Currently and our certain it's going to arise as or any delineation between.
Sure. So so you're right the van write off with their bankruptcy was 8 million. The additional reserve we are bad debt plus about four or $5 million.
[music].
$6 million I guess by the time has completely done. So so yes in combination you're at $14 million in total across those two items. So obviously, our van is it right off that's done the balance of it though it's not see so that's actually not applicable for us until Q1.
But it was more broadly.
I look at just knowing a you know it's an estimate right. There's no specific entities that where that we're looking at right now, but just in general knowing that you have a very different economic environment, and we had to make our best estimate of with aging receivables and out.
Obviously, everything just sort of stocks right. So for for a month or so no cash flowed from a lot of businesses and a and so you had some receivables aging. So far we we've been I think between government interventions and so forth and with the business starting up wellness businesses starting up.
Well here in May and June.
We've been creative pretty favorably surprised I guess at our customers being willing to let you know wanting product again pretty quickly and so needing to find a way to pay to move that product, but that said given the economic environment and giving those aging trends, we had to increase our overall estimate.
Reserve for what could go wrong.
And that's what makes up the rest of that that 6 million dollar number John I would add that John I would add there is a big big difference between this.
This.
Problem and the financial problem 10, 10 years ago.
We had a lot of people in trouble.
Our our business wasn't as good shape and we.
We took a lot of.
Bad debts to help our some of our customers stay in business with the government's PPP money and the small business administration.
Loans are gifts.
Dealers are able to stay fairly healthy and we've been.
Pleased about the.
The lack of.
Right off of things, but you never know and actually getting back open in our case for sure as a manufacturer, but and as retail.
It cost more money than to shut down.
And so there'll be some some cash things and we're just being prudent looking at the future, but no major other things other than our van and thankful for that the government's idea of helping small businesses really reflected in our lack of challenges.
Okay.
I know you don't like talking about individual customers to our advantage go chapter seven and I was wondering if you could.
Help us think about in the fiscal 20.
One how how that may impact revenue year over year.
Including I assume surrounding dealers, where they operated would.
I would pick up some business is there any way to frame up.
That that account year over year on revenue.
Well first of all it was that it was a shame that aren't van.
Ended the way it did they were a longstanding great company and and.
The the private equity firm that audit.
I didn't do any favors and.
I don't think it had to happen with the right management, but but it did so I think we were pacing a little under 40 million, we had been as high as 50, but I think the things had gotten slower art man and so that that's the number high thirtys $40 million that we have.
To overcome.
We are seeing.
Now that Weve reopened all of our Michigan stores, we are seeing some strength in the La Z boy stores capturing.
A portion of that business.
But there is no furniture retailer in the state of Michigan, and Chicago as well after they move there that has quite the breadth and reach that our van had and there.
Strong marketing efforts created demand for furniture in the Interstate so some of that business will go to a little bit to everybody, but unfortunately, we've seen through the years. We've made your dealers away. It goes to other categories not furniture.
So.
Whether when it all gets made up within the.
Then the various retailers there around and how much we will certainly know how much of our lazy boy business, we capture that they were doing.
But I don't I don't expect us to get it all perhaps the first year, but I think we'll get a pretty portion of it.
Okay.
And then my last one is on Joey Bird and.
Appreciate all the production challenges.
The you've been trying to move that model to a profitable model and.
I don't know if that means.
Lining.
Sales are dropping some product that didn't have adequate margin.
Just curious with the the increase in backlog or the order shoot you are taking during a pandemic.
How this affects your path to profitability.
With Joy Bert going forward. Thank you.
Great question and Theres a lot of a good indications that things are improving but we had a double whammy with the.
The joy birds.
Behind the sales for they had strong sales as all internet companies had during.
During the shutdown Britain, Rick, Yes, and they but then Tijuana had the coal with later in the cycle than the United States plus our regional distribution centers.
Deliver 50% of the Joy bird business and they were shut down for five weeks. So.
They were shut down earlier than the plant shutdown, but everything first extended period of time on deliveries was frozen.
So we're throwing out on that and we're and we're trying to get.
Back to normal run rate, but I don't think you'll see a lot of that and.
Bill.
Late.
Q1 in early as Q2, but.
We should see some improved delivered sales remark we.
Results in the future from Joy Bird, if things continue to as they are.
Great Thanks, and good luck.
Thank you John Thank you.
Our next question comes from Brad Thomas with Keybanc capital.
Please go ahead.
Hey, good morning, Curt My and Kathy Thanks for taking my questions as well.
Maybe just a follow up on John's question about Choi bird.
It's been interesting backdrop drop for the DTC brands, whether there has been an increase in demand.
So on one hand, it might suggest that jaybird has better outlook now than it might have had six months ago, I guess could you talk a little bit more about.
How youre thinking about the potential so do I break here.
With what you've observed at least from the written side and how you're thinking about manufacturing side.
As we go forward.
Well from the from the written side you know all all ecommerce players had a great benefit with all brick and mortar stores closed.
How.
The odds are that their pace of business won't stay that high with some stores back open I'm not talking about joint effort in particular I'm talking about that in general when there's some other competition and consumers have a choice. It may not be all E commerce, but we also know that a lot of people who didn't do much online.
What are the pandemic got comfortable doing it if they wanted to eat.
And so that bid the consumer behavior changes, what perhaps as a longer term trend that we're going to be mindful of and.
We've made we made a lot of changes changes in the the offers we have changes in pricing and and the return timeframe everything.
We are we are determined to be one of the first people to have a direct to consumer furniture business that can make some money.
And I've done a lot of things to accommodate that so.
We're optimistic about the.
The changes we've made the.
The opportunity that joy burden will have as.
As they get their deliveries back and so.
We are we're hopeful that this is a turning point this year that.
That sees them not only growing.
A little more rapidly, but also improving the bottom line.
Got you Thank you Kurt.
And moving over to the lazy Boyd business.
Again, I recognize that you don't usually like to get Super granularity, that's not a lot of data to request, but but at this point I guess some stores some of your leases with stores would have been helping for seven weeks I was wondering if you talk little bit more about how they've been performing and maybe what you saw when it first open how they're performing as they get.
Until the second month that they've been up and just as we try to extrapolate what that might mean for the country reopening.
Well, it's different by I think it's different by.
Places in the country that that would that we operate obviously the east coast.
Who was significantly impacted vical that and opened later.
The consumers.
Willingness to to.
Shop, because the stores have only been open.
A few weeks is not the same as it is in places that that never really had.
Along.
Or a history of.
Cases at the time, so at the South seems to have more momentum because of the.
They didnt have as many cases in general but.
The the trend the longer the stores are open.
Brad the more business they are doing and.
But we also we didnt.
Go back to our normal marketing spend day, one because we think.
You don't want to have.
60 people waiting outlaw outside the door, we're trying to balance.
Safety this with our with our consumers.
We have mass for them, if they come in and asking them to wear them. So you do all those things so there's a balancing effect here that.
You got to hit our stride and you have to have all your salespeople comfortable that go back and work and all that so it's getting better all the time, but to give you a number now.
I'd be really relative and then that number of a written sales would manifest itself for 60 days for being delivered so.
But the.
In general the demand rate in the home furnishing business is much higher than anyone in our industry predicted and that's the good sign and that's with people.
Our.
Thinking about their home I think if you sit in your home for 12 weeks and our sequentially. There you see a lot of things you don't like or if you think theres going to be another second wave and you're going to spend more time in the homes. So in a nurse theres corollary breadth of other home products like you read about the paint business at home depot.
All in other places going through the rough because people are doing their projects. So there's I guess, there's pent up demand in the sector rotation all that going on so that's all good.
How long it last and how long will be before.
Deliveries catch up with written.
That's a little longer tail than declaring victory today.
I would just build on that Brad you said you know its stores opened seven weeks, we have very few stores that have hit that seven week, Mark I mean, there in the in the tens and when you think about who is really opening at the very beginning a math so to cards plant. The data. We even have is still very now yeah, obviously I think we've been.
Pleased with traffic coming in the stores, but you know still.
At low when you're trying to compare to what the business trajectory you are on before and you can imagine that when someone does come in the story, though they're motivated to buy a comment there if they're taking a chance to come in you know the a the motivation to buy as a little stronger. So there is quite the myriad of pay upon.
Yes, it is still very challenging signs.
My first couple of early.
That's helpful Melinda and I guess just to pop on that point do you have an estimate for us perhaps cluster later.
As.
The number store days that you will have lost.
In the quarter, just help us fine tune our calculation per written orders.
I doubt and and <unk> and you know that would only be for our company owned stores I did have that number right. Now you know that would sell and be a for about a quarter of our distribution and thought we manufacture for our company owned stores and you know I just point out where we are open.
As Curt mentioned in his remarks, we're still will be eliminated hours or or limited staffing. So there's just there's an incredible amount of variability to those numbers style and weve and Unfortunately, we've had some stores that we've had to close because of some of the protest going on in certain of the major cities.
And Weve thankfully haven't had any damage, but we had employees and rightfully so that didnt feel safe.
Going to their stores for a few days and so there's there's been a number of.
Starts in fits and things going on but but the general trend line is is much more positive than it is negative but it's still.
Work in process.
That's all very helpful. Thanks, so much and good luck.
Thank you.
Well go to Anthony is a bit.
Please go ahead.
Hi, Good morning, everyone and thank you for taking my questions and hope you will stay well and how things so.
Just.
Just wanted to expand a little bit as far as the strong early demand comment.
You are seeing so far just wondering if you could differentiate between the different sales channels.
If you could just give us a little bit more color as to.
The momentum you're saying so far.
Well.
We only have really good data on the stores, we own in pretty good data on our independent raising we store owners, how all the rest of our customers. The other 65% of our business is doing we we can only tell by the orders they send us not what their pace of businesses, but I think in general.
No.
Everybody is surprised at the rate of business. This early after that shutdown.
I can't quantify that for everybody and and again, maybe different regions of the country experienced.
Different rates, but.
But and it's.
And it's building is not just a one month phenomenon, it's been building and you've got.
Now the fourth of July holiday coming coming around the corner so.
There's positive written.
Positive written demand happening throughout the industry and with us with the caveat that that are there is a delayed supply chain. So we're off we're all in a similar problem now every now and I think if you're.
Relying primarily on imports you got to even more challenging supply chain because of the time, though.
But the.
By far the written pace of businesses out.
Pacing the delivered the ability of the factories to keep up because you just don't go from no production too.
100% in.
Five days.
Got it okay. Thank you for that.
And also just wondering guys who will be open stores on your manufacturing facilities.
How should we think about any as far as the incremental cost that and.
As far as.
Enable to be as they sent the.
Manufacturing the products or do you think your socially just as an alpha in the facilities that will be much of an issue.
I don't think Theres I don't think theres much of the issue and as I said in my prepared remarks.
Very impressed with our people.
You know some some people and various industries of.
Have wanted to state.
And collect the.
Increased unemployment and are taking the risk that they'll have a job when that all runs out.
The majority of the vast majority of our people wanted to come back to work and came back with the vengeance and and are now working overtime to help meet the demand and so.
I don't I don't think Theres any.
Issue and then with the closure of our other.
Small facility in Mississippi.
The.
The.
The efficiency of not having duplicate plant should come through.
Overtime as well so no we're not we're not seeing any issues and where we've had.
Minimal number of cases of Cove it.
None none that started in our plants and.
Through the contact tracing not only in the person who tested.
For the Cove it.
We have had to have some people go home and quarantine for awhile, but.
In this in the scope of 9000 people has been relatively small.
Anthony I also mentioned I know, there's been set everything in some press around the high cost of SPP and everything we have.
Not in any way diminished the fantastic work of our health and safety people to ensure and everything from an increase cleaning procedures to to air quality and all but one in our plan. So we don't safety issues or some industries of shoulder to shoulder work, we work and we built our furniture in cell.
Well so by definition.
Smaller groups of people are interacting and so cross contamination. We do have initial is a bit more manageable again not in any way to downplay how important it has to be focus in every minute.
Also in our retail stores, where we're not a mass big box, where there is a really high volume of foot traffic. We have all through this pandemic even to shut down maintain that just a natural rhythm of our retail stores is a situation where and it's a low.
I am a foot traffic in store and so we can keep people say wow their shopping we can keep on plays safe again tons of work tons of protocol around not taking that for granted right right cleaning right right TV, but it's you know somewhat different than some of the industry is and some of the Reid.
Tell us that youve seen more about in the news around just how hard it is too low and how many new efforts have to be.
Put in place at great expense to be able to keep people safe.
Got it okay.
Last question is about the joint but so you called out that the integration is taking a little bit longer than expected.
And you also.
The CR shifting.
The more profitable in that segment, but I guess.
There's a number of internet companies, including the largest the pure play home decor retailer who.
It seems like they only care about the growing revenue without much we bought the profit so how do you balance that.
Effort I know you couldn't talk about the little bit as far as a changes but just.
Number of your competitors that are just much more focused on w. gross profit growth.
So that last week, Anthony we never.
Intended when we bought joint Joburg to focus only on revenue.
And I think the one difference with US then.
Most all the other ecommerce players in the homes base.
We manufacture our own product than we have control over the distribution and we have a system. The joy bird can plug into and take the benefit of having regional distribution centers routes already set up for delivery. So we think the synergies between what lazy boy had in.
The benefits of Joy bird, attracting a different customer at a different channel appealed to us we thought behind the scenes with our world class supply chain that we would offer.
Some benefits that other ecommerce companies don't have and.
We still stand by that there's no reason that this business can be profitable overtime.
Well, thank you and best of luck.
Thank you. Thank you Anthony.
And that does conclude our question and answer session for today's call I'll turn it back over to management for any closing remarks.
Thank you all for joining our call. This morning, if you have follow up questions. Please give me I'll call.
A great day Bye bye.
And that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and have a great.
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