Q2 2021 La-Z-Boy Inc Earnings Call
Good day, ladies and gentleman and thank you all for joining us for this.
Fiscal 2021 second quarter conference call as a reminder, all phone lines are in a listen only mode and for opening remarks, and introductions I'm pleased to yield the floor to Kathy Liebmann with Investor Relations good morning.
Good morning, and thank you Jim.
Thank you everyone for joining us to discuss our fiscal 2021 second quarter results.
With us today are Kurt Darrow, La Z Boy's Chairman, President and Chief Executive Officer, and Melinda Whittington C. S fab.
Kurt will open and close the call and momentum will speak to the financial Midway through well then open the call to questions flow.
Slides will accompany this presentation and you may view them through our webcast link which will be available for one year and a telephone replay of the call will be available for one week beginning this afternoon.
Before we begin the presentation I'd like to remind you that some statements made in today's call include forward looking statements about maybe price future for formats and other matters. Although we believe these statements to be reasonable our actual results could differ materially and 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 FCC filing.
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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 and created as an appendix at the end of our conference call slide deck.
With that I'll now turn over the call 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 and market, we reported strong operating results.
For our fiscal 2021 second quarter roughly.
Reflecting record demand trends and strong execution across all of our businesses.
But before I begin discussing the quarter I would first like to acknowledge and thank our almost 9000 employees who have demonstrated resiliency.
And commitment to safety and.
That's <unk> and their dedication to lazy boy throughout the pandemic with a focus on serving our customers.
I could not be prouder of the team and every member has my respect and admiration.
Now onto the results.
During the quarter, we experienced strong written orders as consumers continue to allocate more discretionary dollars to their homes.
Rather than on travel and other leisure related activities.
The company delivered increases in sales and operating income with.
For the double digit consolidated operating margin.
Reflecting excellent performance across all companies.
Also contributing this quarter was joy bird.
Let's turn profitable for the first time since acquisition feeling and increase in earnings per share.
Additionally, we generated 196 million and cash from operations for the year to date period income.
Increased our company owned store footprint with an acquisition paid.
Paid a dividend and ended the quarter with no borrowings outstanding on our credit line.
All in all for the quarter. These are outstanding results, particularly as our supply chain had to turn on a dime last spring to restart production and after the COVID-19 related shut down.
And continue to ramp up capacity to satisfy unprecedented demand levels.
Why we are increasing production weekly demand acceleration continues to outpace capacity acceleration, creating a record backlog and extended lead times.
Across the La Z Boy Furniture Gallery network written same store sales increased 34% demonstrating the strength of our brand and its appeal to consumers during uncertain times as well as the ability of our store teams across the network to provide a safe shopping experience for.
Consumers.
As I turn to a discussion of our segments My remarks will detail, our non-GAAP numbers, which we believe reflect underlying operating trends and Melinda will cover.
The non-GAAP adjustments.
I'll start with our wholesale segment, which as a reminder, now includes both upholstery and case goods companies as well as our international businesses.
For the quarter, our backlog grew to record levels, but delivered sales declined 2%.
343 million.
This was primarily the result of lower delivery unit volume.
As our ongoing efforts to significantly increase our production capacity to meet demand for.
Offset by a temporary supply shortage of foam, which reduced sales by more than 2%.
However, even with the decline in sales and non-GAAP operating margin increased to 12.2% roughly.
Reflecting tight <unk> cost controls with ongoing cost savings for.
And just roughly offsetting investments and our start up capacity ramping.
Operating margin in the period also benefited as we pulled back on our marketing spend given the strong demand environment.
And had lower expenses, such as travel costs due to current related restrictions.
And lower salary and wages due to the business realignment plan and reduction in force announced last quarter.
[noise] with a surge and product demand our challenge has been to ramp up capacity at.
That all plants and expand our overall production capacity.
Our current backlog for the La Z Boy branded business is five times, what it was at the end of Q2 last year.
And we are quoting lead times of 16 to 26 weeks, depending on product category, which also include an estimate of the delivery time to the ultimate customer.
Our supply chain has done an excellent job to increase weekly production, while identifying new opportunities for both short and long term.
We have added production sales at our three U.S. based upholstery manufacturing facilities as well as additional weekend shifts.
Secondly, we have tougher temporarily reactivated a portion of our Newton, Mississippi Assembly plants the service.
So like Geographics.
We have also added manufacturing sales and available for space at our cut and sew center in Mexico, a log, allowing us to tap into a new labor pool.
And finally, we signed a lease other 200000 square foot facility in Mexico.
South of Yuma, Arizona.
And San Luis Rio Colorado.
Production is expected to start in December with full ramp up extending over the first half for the new calendar year.
As part of our longer term strategic plan, we were looking to expand our manufacturing footprint to more efficiently serve us the western portion of North America.
And we are excited to take this first step with the new facility in Mexico, which we will be calling S.L.R.C.
Once all of these operations are producing and expect to capacity.
Likely later in our fiscal year. These moves will significantly increase our capabilities and capacity to support long term growth.
However.
During our second quarter, the industry experienced temporary supply shortages of foam.
Due to disruption and TD I production, but a key component of this product.
As a result, we were limited and our ability to fully utilize our existing capacity for almost two weeks during the quarter.
We have recently learned of new issues with foam supply and November.
Which will again temporarily limit our ability to maximize output and the third quarter.
While these disruption disruptions. We believe these disruptions are temporary in nature.
They affect the entire industry and other industries that use for them and they highlight the volatility of the global supply chain in these unusual and times.
Now, let me pivot to the commercial side of the lazy boy branded business.
During the pandemic related shut down as you would imagine we saw a significant increase in our online business.
While it peaked during that time today are written E com business remains up some 300%.
Versus pre pandemic levels.
Concurrent with an increase in store traffic and sales.
I would note that our ecommerce business is still a very small percentage of our overall business. We recognize it's critical to have a robust online presence and today's environment.
While the core lazy voice customer continues to demonstrate a preference to shop and store. She typically starts by spending time on our site to research and product and our goal is to facilitate a seamless cross channel experience.
For example, if the consumer wants to come into the store for a higher level of service wants to touch and feel the product and possibly work with the designer, but prefers that make the final purchased from the comfort of our own home, we are working to make that entire process to seamless as possible.
We're also making a series of ongoing enhancements to the omni channel experience from internal process improvements to enable scale.
To customer facing enhancements that simplify and broaden the online experience.
As an example, we are working to simplify the ability to custom.
Customize online.
And sure all products sold in store are available on our website.
Enhance consumer visibility to available inventory and order progress and drive better price inconsistency between online and in store.
This will be a journey and we are excited about growing with the changes in consumer behaviors and the omni channel space.
And the marketing side, we continue to be very pleased with the Kristen was Kristen Bell as our brand ambassador.
One of our objectives is to increase consideration among the new generation of consumers.
35 to 44 year old, which we view as our opportunity customers.
The same time, we want to ensure our marketing campaign continues to resonate with our core 45 to 65 year old customers, who have more disposable income and tend to purchase furniture at higher price points.
Christian and equally appealing to both consumer groups in particular young younger consumers view her as having a great sense of style.
And being we label to them.
This makes our marketing dollars to work harder and be more efficient.
Now turn to the product side.
Last month was the high point furniture market.
Well, we did have some customers visit our show room of growth during pre market and regular market our.
Our merchandising and marketing team did a fantastic job, putting together and interactive virtual market for our customers to see and learn about products and marketing initiatives.
While maintaining personal safety during the pandemic.
Sectionals and power motion continue and popularity and we introduced a comprehensive new stationary leather program.
That allows for customization and quicker delivery times that imported product, which was very well received.
We also introduced a anti microbial fabric collection as part of our expansive hi clean line.
Now, let me turn to the retail segment.
For the quarter delivered sales increased 9% to $162 million and written same store sales for the company on La Z Boy furniture galleries stores increased 36%.
Reflecting strong traffic trends.
And demand as well as stellar execution at store level, including an increase and conversion.
And average ticket driven by increased units and more design sales.
For the period deliver same store sales for the core base of 150 stores increased 6.3%.
Non-GAAP operating margin for the segment improved and 9.4% from 5.8% and last year's comparable quarter.
Resulting from fixed cost leverage on a higher delivered sales volume lower.
Lower spending on marketing due to the already strong demand environment and reduced expenses, including travel related spending due to cold and.
Also during the quarter in September.
We completed the acquisition of six Seattle base, Lazy boy furniture galleries stores, which had approximately $30 million and annual retail sales and COVID-19.
And one distribution center.
As the company has already recording a portion of the Seattle based store volume and its wholesale segment. The acquisition of these six stores is expected to contribute approximately $15 million from additional sales and leaders of the company.
On a consolidated basis based on their calendar year 2019 sales.
For the current second quarter, they added three and a half million dollars from sales to our retail volume segment.
The Seattle stores have historically performed above the network average.
And we believe there are great prospects for the company in this dynamic market.
Overtime, we plan to make investments and the operation, we're store remodels and potential new stores. So that the business can continue to grow and expand its potential.
I now want to spend a few minutes on joy bird, which delivered its first profitable quarter.
Since purchasing joint bird, we have been on a journey to build and strengthen the joy bird business and integrate systems to take advantage of the synergies synergies between Joey bird and lazy boy.
On the front end joint bird.
Gives us a new customer and channel and on the back end our supply chain has delivered value to our regional distribution centers manufacturing Joy bird product at our date and facility.
And combined purchase power.
While these synergies took longer than anticipated. They now have come to fruition and we're very evident and the results for the period.
Sales for the second quarter, which are reported in corporate and other increased 42% to $29 million.
For the period Joy bird improve its gross margin significantly and lowered SG and eight cost driven primarily by a lower marketing spend and other expense reductions.
Britain sales increased 25% and the quarter, reflecting the ongoing strong demand trends that we're seeing across all of our businesses.
We are encouraged by Joy and bird performance for the quarter and optimistic about its trajectory for accelerated growth as we move through the year.
We believe Joy bird is on a run rate to be a $90 million to $100 million business. This fiscal year and expect it will be profitable for the full year.
Moving forward, we will continue to balance investments and top line and growth.
While watching bottom line performance.
I will now turn the call over to Melinda. Thank you Kurt and good morning, everyone.
As always let me remind you that we presented results from both the GAAP and non-GAAP basis, we believe and non-GAAP presentation, better reflects underlying operating trends and filing for the business.
As detailed in our press release and in the tables and the appendix section of our conference call slides and.
Secluded from our fiscal 2021 second quite and non-GAAP reporting higher pre tax purchase accounting charges related to acquisitions totaling $3 million or six cents per diluted share primarily due to a write up of the July very contingent consideration liability based on an updated for.
Our cash and future performance.
And a pre tax charge of $300000 or one cents per diluted share related to the company's business realignment announced in June which included a 10% reduction and our global work force and the closure of our net Mississippi and manufacturing facility.
Last year second quarter, and non-GAAP results exclude a pre tax charge and $2.8 million.04 per diluted share related to the company's supply chain optimization initiative, which included the closure of our Redlands, California facility and relocation of our new Mississippi leather cut and sew.
Well operation and pre.
The tax purchase accounting charge of $1.6 million or three cents per diluted share primarily related to enjoy married and pre tax income income of $1.9 million or three cents per diluted share related to that 2019 termination of the company's defined benefit pension plan.
Now on to our results my comments from here and we'll focus on our non-GAAP reporting unless specifically stated otherwise.
On a consolidated basis fiscal 21 second quarter sales increased 2.7% to $459 million, reflecting record demand across all businesses consolidated non-GAAP operating income increased to $51 million versus.
$34 million and last year's quarter, and consolidated non-GAAP operating margin increased to 11.1% versus 7.5%.
Non-GAAP EPS was 82 cents per diluted share and the current year quarter versus 52 cents in last years second quarter.
Consolidated gross margin for the second quarter increased 240 basis points changes and our consolidated sales next data growth and our retail segment and contribution from July very both of which carry a higher gross margin and our wholesale businesses Joe for the biggest change and my agenda.
Additionally, jaybird experienced a significant improvement in gross margin, primarily resulting from supply chain synergies and improved plant performance.
As she and as a percentage of sales decreased 120 basis points, reflecting ongoing expense management and.
Increase and advertising spend given strong order rates reduce spending including travel and limited furniture market events, Jacob and 19 related restrictions.
And a decline in salaries and wages related to our business realignment plan, including the 10% reduction in force announced and Jan.
This was partially offset by changes in our consolidated next day to day growth in our retail segment and joint Barry both of which carry higher SGN, a cost and our wholesale business as well as an increase and selling expenses and strong written order trends.
On a GAAP basis, our effective tax rate for fiscal 21 second quarter was 26% price is 26.6% and last years second quarter.
Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes credit.
For fiscal 2021 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 year to date, we generated $196 million in cash from operating activities, reflecting strong operating performance and a 100 million dollar increase and customer deposits from rate and always for the company's retail segment and joint right.
We ended the period with $353 million and cash nearly triple the 120 million and cash at the end of last year second quarter and.
In addition, we held 27 million and investments to enhance returns and cash compared with $33 million last year.
During the quarter, we repaid the $50 million remaining balance on our credit line drawn back in March and conduct conjunction with our COVID-19 action plan. We ended the quarter with no borrowings outstanding.
Year to date, we have invested 15 million and capital primarily related to machinery and equipment upgrades to our Dayton manufacturing facility, which have now been completed and investments and our retail stores.
We expect capital expenditures to be in the range of $40 million to $45 million for fiscal 2021, other spending will be largely dependent on economic conditions continued business recovery and liquidity trap and.
Our spending for the year will include upgrades for the upholstery manufacturing facilities and cost for the new production capacity and Mexico technology upgrades and improvements to several retail stores.
Also during the quarter, given solid business trends and our strong cash position, we reinstated our flow line came match for employees as well as full salaries for remaining senior management, thereby reinstating our ongoing cash usage for operations that were temporarily suspended as part of.
Our COVID-19 action plan for.
Regarding cash returned to shareholders yesterday, our board declared a quarterly dividend of 14 cents per share restore and the dividends for the full amount that was in place prior to the pandemic.
Recall as part of our Cove, and 19 action plan to preserve cash and provide for financial flexibility, we eliminated our expected June dividend and temporarily suspended opportunistic share repurchases and.
In August I board of directors elected to reinstate a regular quarterly dividend to shareholders of seven cents per share 50% of the quarterly dividend and paid prior to the pandemic paying $3.2 million to shareholders in the second quarter.
We are pleased to now reinstate the full dividend of 14 cents.
Per share, which will be paid in December.
And finally going forward and we will continue to monitor and assess business conditions to determine when it may be appropriate to resume share repurchases. There are 4.5 million shares of purchase availability under our authorized program.
Before turning the call back to Kurt Let me highlight several important items for the remainder of fiscal 2021.
First a reminder, that our expected non-GAAP adjustments will continue to include purchase accounting adjustments for acquisitions to date, which are estimated to be and the range of nine to 11 cents per share for the full year. This excludes any further adjustments to the jaybird contingent consideration liability.
Good day dependent and labor its ongoing business trajectory.
And our non-GAAP results, let me provide a bit more perspective, and what we anticipate for the back half of fiscal 21.
While we do not intend to provide this level of forward looking perspective regularly we think it is important to operate in the near term given the unusual business trends driven by the pandemic.
We are optimistic about our business for trajectory and confident we will deliver a strong second half based on the factors we can control. However.
However, there is still extreme uncertainty with respect to coordinate team, including the risk of relate and shutdowns impacting our facilities and impacts of global supply chain volatility such as the recent industry wide phone issues well.
What we do now as we have a significant backlog and we are working hard to ramp our production shortening delivery times as we work to service our customers with high quality products and quick delivery.
With the initiatives undertaken to expand output, we will continue to significantly increase production capacity throughout the back half of the fiscal year.
Further to cover raw material cost increases that we are experiencing now we have announced pricing I knew lazy blay written orders beginning in October.
It will be realized and waiters delivered beginning in the fourth quarter, given our significant backlog.
Considering all of these factors accounting for our best current understanding of new from availability issues and provided there are no significant shutdowns for some facilities related to the pandemic, we expect to deliver consolidated sales growth.
In the third quarter of flat to 4% above last year's record high third quarter.
For the fourth quarter of fiscal 21 accounting for continued growth and production capacity announced pricing and the effects of last year's April pandemic related shut down in the prior year's fourth quarter base period, we anticipate fiscal 21 fourth quarter.
Net sales growth of 40% to 45% versus last year's fourth quarter net.
And profit we expect to continue to deliver historically high consolidated operating margins of approximately 9% to 11% for the balance of the year, providing a strong delivered sales volume is achieved.
Included in these margin expectations is the anticipation that enjoy very low sustain profitable operations, even as we test invests and effectiveness to optimize top line growth.
We do expect some volatility and margins quarter to quarter as we manage multiple factors, including input cost increases that we are experiencing now without the benefits of pricing until late in the year.
Beyond the current fiscal year, we have even more and nodes and a continued pandemic affects demand trends and supply challenges, but our business is strong and we are optimistic for the future.
However, I would note that there will eventually come a time and we will have to once again invest more and marketing to drive demand similar to pre pandemic times.
We have been a benefactor of the sector rotation that has taken place over the last several months, which play well for us.
Although this has allowed us to keep our marketing spend at reduced levels and time, it will be necessary to increase it.
There will be other costs that will resume overtime as the pandemic has brought under control as well, including those for travel furniture market and spending for other discretionary projects that were cancelled or postponed due to COVID-19.
That said, we do anticipate being able to deliver strong margin performance over the long term as incremental investments related to bringing on new capacity are completed and we returned to more stable operating patterns.
And now I'll turn it back to Kurt for his concluding remarks.
Thank you Melinda.
As you can see we are very pleased with the agility of our entire organization has demonstrated as it responds to the new operating environment.
Our supply chain team is pulling out all stops to drive production are.
And our merchandising and marketing teams have pivoted to find new ways to showcase product highlight the la Z boy brand and its attributes and target consumers in a manner that will drive growth for the long term.
And our retail team is performing at a very high level, providing a great store experience for customers, while keeping them safe.
And all of our other operating companies, including Joy Bird, England case goods and our international business are also adapting to the landscape and performing very well.
We believe the strength of the La Z Boy brand carries great weight and this environment as consumers tend to gravitate to brands, They know and trust during uncertain time.
With our vast distribution, including a vibrant la Z boy furniture gallery stores and thousands of other distribution points are world class supply chain.
Successful marketing platform focused on expanding our omnichannel offering and our strong balance sheet. She we believe we are extremely well positioned to continue to navigate and thrive and this environment.
Capture market share and return long term value to our shareholders.
We would like to thank all of you for your interest and lazy void. This morning, and I will turn the call over to Kathy to provide instructions for getting into the queue Kathy.
Thank you Kurt will begin the question and answer period now and Jim can you. Please review the instructions for getting into the key to ask questions.
I'd be happy to thank you, ladies and gentlemen at this time, if you would like to ask a question simply press star and one on your telephone keypad pressing star and one will play for your line into the queue and I will open. Your line is one other time also from a reminder, that it for joining US. This morning on a speakerphone. Please return to your handset prior to pressing star and want to be certain that your signal does reach our equipment once again, ladies and.
Gentlemen that is star and one if you would like to ask a question. We'll hear first this morning from Bobby Griffin at Raymond James.
Good morning, Kurt when the Cathy. Thank you for taking my question I hope, everybody is doing well and and staying safe.
Good morning, Bobby.
The first and I want to talk about just the written growth are impressive.
We impressive impressive numbers out of the lease for branded distribution and can you maybe provide a little color on how the non lazy boys brand and distribution performed during the quarter from a return perspective was it was it close to the same or just a stronger anything to help us kind of a sum up your whole entire distribution network.
So.
And and general sense, Bobby all of our businesses have benefited from.
The sector rotation and and.
And what's been going on around the world.
We've had a little more hiccups.
And.
Europe, and our business, particularly and and in Great Britain.
And and our case goods business comes and goes.
On a weekly basis based on inventory availability, because we import all the case goods, but everybody.
In the whole position this quarter contributed mightily to our.
True to our success, obviously lazy boy and the easy way stores are the largest components of that but but everybody else exceeded our expectations for the quarter.
Okay. That's helpful and when you're trying to understand kind of the quarterly progression here given the the big written number and then Threeq you and then work its way into Fourq you well.
When we look at the flat to up for.
And Inc.
Think about that is it is there any way to frame how big of a drag the foam and supply chain or kind of raw materials side of the equation it and understanding.
I'm trying to look more of just from the materials side I understand that the labor and getting things ramped up and the plant takes time, but the shortage of foam and all that how much is that.
Dean sales from Threeq, you delivered sales from Threeq into Fourq you.
Yeah, I would think about it and terms Bobby of and.
We continue to ramp up we continue to ramp up production I mean, I I think it's telling that if you look just on and total sales from Q from Q1 day Q2.
Our sales throughput was up like over 50% right and a consecutive quarter basis, and we'll continue to make.
So really solid progress in Q3, and again in Q4 and.
The broad range of zero flat for 4% for Q3.
Really accounts for the broad range of where the outcomes could be around from and we called out that there was almost a 2% impact of from on the wholesale business in Q2 minutes.
And it's not unlikely that it's in that same kind of range for for Q3.
But and this is literally late breaking news as of this past week, where we thought and.
And this is pretty much under control for the industry and then have line that its not so and that really accounts for that breadth and I would also call out that and.
Q3, as I mentioned in my prepared comments last year was an all time record sales quarter for the La Z Boy and enterprise and so it's a pretty significant base that we're on top of this low.
Okay, and then I guess lastly from me just wanted to quickly touch on capital allocation and millennial Kurt you guys book kind of called it out a little bit and in your prepared remarks, but the cash balance here is significantly above where it has been really throughout history here at La Z Boy.
I understand you somewhat have to work its way down as production ramps up but with that size of the cash balance can you maybe just talk about where your views are and and what did the comfort level of cash and this this uncertainty and.
Great question and the answer is a little bit like the foam issue. The honest answer is we don't know what the next few months, we hear about how.
Bad the pandemic is right now and and that's going to be a tough.
From winter for everybody, so given our conservative nature.
And where we're looking at a lot of opportunities, where we're going and deployed some of that capital. We would look to do an acquisition if it made sense.
We don't want to get ahead of ourselves because I I'm, not yet ready to declare victory over the pandemic and over the global supply disruptions.
And so.
And how fast we've gone from having to borrow some cash to now being flushed with cash I'm not sure anybody would have predicted that quicker for turnaround but.
We've experienced that and.
You know I think.
I think you can.
Be pre assured Bobby that that we're not going to sit and not utilize some cash to advantage our business going forward, but at the present time I'm not I'm not able to give you specifics.
Okay.
Well I'm, not say, Kurt I assured and predict that high for cash balance and that quick turnaround to answer your question.
So, but I would rather stay on.
And I would say the other day.
Bob for the other thing about the fourth quarter is that's when we.
Our hopeful that midway through that quarter that all other things, we've done and I'm not sure there's I'd.
Im not aware and many other furniture manufacturers and added this much extra capacity.
For the for the long term, we're supposed to have a lot of that on line by then so it's all it's the comparison to the previous year, which was a total shutdown, but it's also that.
The extra capacity that we worked so hard on to get the comes into full.
Full support of the organization. So we were whittled down our backlog unless this [laughter].
Extraordinary demand continues at this level, but that's a.
That's the big bubble, we hope to get through and Q4.
Okay I appreciate the details of congrats again on managing through a pretty challenging.
Mumbai from it.
Thank you.
Our next question will come from Brad Thomas Keybanc capital markets.
Thanks, Good morning, Kurt.
And Kathy and congrats on a nice quarter here.
I wanted to follow up on that last line and conversation about the capacity needs and if I do some quick math.
On the sales outlook for the fourth quarter and the high end of the range I think would be about 530 million of revenues in the fourth quarter.
They'd be up.
And maybe that 17% from you just did this quarter and maybe similar kind of increase from where you are and the fourth quarter of two years ago. So I guess.
530 million number kind of a good way for us to think about maybe what the upper limit of sales might be any given quarter at this point with your capacity and maybe describe otherwise and percentage terms. How much you think Kurt you will be raising the bar with some of the investments you're making right now.
Thanks.
Yeah, I'll take the outlet and and we tried to give a bit of a a range and perspective that we don't normally do because we recognize that such and unusual time.
Hi, I'm and so and almost by definition I ranges are showing the potential for outcome of absolutely everything goes right and our best estimate if things don't go as well, but are still within reason both for the third and fourth quarter as as Kurt noted a and B the March two.
And to add capacity and we called out for different items that were that are underway and.
Probably the most significant for the long term is our investment and SLR C, which is a part of our ongoing strategic plan, we've had for a while and how to best service the West coast and each one of those as we've called out before each one of those take some time.
And and so we've made a lot of progress and our existing facilities and on hiring and training we've called out before that training people take six to nine months to really get 'em up for sort of an average throughput.
And so SLR see coming on to line coming on line, you know and the back half and really getting up to full speed and the fourth quarter and will be a a a big chunk of that capacity expansion and that's all folded into that and 40% to 45% uptick on sales that we have given perspective on for the fourth.
Corridor, and again that number obviously benefits from a you know April a year ago being being shutdown, but even if you back that out you will see there is incremental growth even beyond what we're doing and the third quarter and.
Just to add.
Brad we would have the capacity to manufacture that much.
Furniture during the fourth quarter, but it's all dependent on from the supply the global supply chain.
And and maybe we don't and we don't know, but maybe the foam is just the tip of the spear.
Thats a challenge is right now with containers lots of cost going up.
There's going to be huge pressure on demand from Christmas to Chinese new year and so.
And what we're capable of and what we'll be able to do based on how all of our partners.
Supporters, which they've been they've been great, so far and and and we Havent had and any hiccups to date other than the poly issue, but there's still some uncertainty and the and there could be something so we just don't want to get over our skis here and assume everything is going to be perfect.
That makes sense that's helpful.
With respect to the.
Total acquisition could you just talk a little bit more about how that's going so far and as you talk to the independent dealers.
What's your senses.
You know the likelihood of additional transactions in the year ahead. If there is any color you can share.
Well the first comment the Seattle acquisition is going really good.
It was a.
A real smooth transition.
We had some strong ownership and Seattle it had.
Things in good shape and had a great team and and we got things transferred and and they've hit the ground running so its doing what we expected and we will be making some investments in that market soon to upgrades from stores and maybe some new and so we're we're very pleased with that and I do believe as we've had to continue and cadence and.
Yes.
There there will be some other of our licensees that.
We may consider retiring were selling their business. They would have perhaps for this year a record year and maybe in that mode, but.
Yes, we're always.
Given the right circumstances and willing to talk with our dealers and try to figure out what's best for both of US. So that's still a very active part of our longer term growth strategy is to continue.
When available and making sense that we can service it.
Continuing to add stores to our portfolio.
Thats helpful and if I could squeeze one more and around margin.
And I greatly appreciate all the funding.
Financial commentary you've shared about how to think about the next two quarters.
And the commentary that you expect operating margin to be and the 9% to 11% range for the balance of the year.
Any thoughts there anything we should keep in mind as we think about threeq margin versus the for Q margin and it seemed to me that and for Q, you're looking at some very strong sales resource results. Some.
Some benefits from the price increase going through and perhaps that that's for Q margin that is higher and the Threeq you margin.
Is that a reasonable conclusion or are there any other thoughts and we should keep in mind as we fine tune and our models.
Yeah, I think as I as I called out and prepared remarks, probably the biggest thing to think about is.
Already starting to experience higher input costs on.
I'm poly and lumber and non woven on ocean freight.
And we've put pricing in place, but to be a good partners to our customers. We did not put that pricing in place on orders that had already been written that were sitting in our backlog and which is obviously a significant number of orders at this point. So we really won't start to see that pricing Bennett benefit come.
Thrill, and tell where well into the fourth quarter. So as to your point that you know that would be a probably one of the major trends between three and for beyond that as I called out you know we are we are definitely you know pulling back appropriately so but on some of our AD spend right now because.
And now we've got this significant backlog and and we don't want to drive even increasing demand and just frustrates the consumer and the near term. So we've kept our marketing out there to build brand equity across our brands, but you know we're not at a at an all time high and demand driving ad spending.
And which at some point, we'll need to turn back on some of that.
And the same way and market was reduced reduced travel obviously, we'd try and training. There are just a lot of things that businesses are doing today because of the pandemic that well and eventually turn back on to some level, probably not very likely from what I'm seeing that that happens and the balance of this fiscal.
And it's something to keep in mind for the future.
Great. Thank you all so much.
Thanks, Brett.
And once again, ladies and gentlemen, and the audience if you'd like to ask a question that and star and one on your telephone keypad well hear from Anthony Lebiedzinski at Sidoti and company. Please go ahead.
Yes, good morning, everyone and thank you for taking the questions I may have missed and spend but did you guys quantify the the record backlog I think you said it was five times larger than a year ago, but the other stuff you guys gave a specific dollar amount.
We did not but its five times is very significant and why we've gone from delivery and four or five weeks to 20, plus so it's a.
It's unprecedented and.
We're doing the best we can to.
Deal with it it's not a specific lazy boy problem. It is an industry problem.
And our.
Our customers have been very patient and waiting long time for products.
But.
It's a.
Yes, its a.
It's a big number Anthony and that's all I think the the magnitude with the five times and the fact that our.
Our orders are out and to March gives you some magnitude and what what it is but we did not give a number and as we've said in the past sales right from the have right and backlog is is the outcome and things. It's the pace of demand coming in and it's the pace of what were manufacturing take out of that backlog we continue to.
Financially increase our capacity and ability to to make product, but at the same time, we continue to experience pretty pretty amazing demand and so again, hi, as we've said before a high class problem to have but there is no doubt five times and that's for sure.
Lazy boy.
Brand and wholesale business five times the backlog of of this time last year is quite significant and add to that entity that we're going in and traditionally it could be different this year, but we're going now traditionally and the highest seasonality and the.
Buying cycle for furniture between now and February so.
And it may be dampened, a little bit with Covance and dampened a little bit by the extended lead times, but.
We are we are headed into what is typically the.
Strong and we we could add to that backlog, if everything goes away and trending.
Got it okay. Thanks for that color definitely appreciate that so.
As far as Joy birds. So now that you have from improved your supply chain efficiencies what.
What would you say would be kind of the minimum quarterly quarterly revenue run rate for joy for to be profitable.
Well I think we gave you what we expect for the year, we gave you and the $90 million to $100 million pace and and expected to be profitable for the whole year, there will be an ebb and flow a certain months can pending on.
Seasonality, depending on how much marketing investment, we make and we said from the beginning.
We want to join bird.
The growth.
And at a rate above our core businesses.
But we want it and do it without being a drag on the company's earnings I think we've found that middle ground, and so we will be testing and and and watching.
How effective our marketing is for growth without giving up all the bottom line performance. So we need some more time.
Two.
And let this play out but we think.
At a reasonable level of volume, which they've been doing that they can be profitability and the reason for other profitability. This time was not exclusively volume.
Volume there are a lot of structural things there are a lot of.
Coordination between lazy way supply chain enjoy word supply chain that have come for.
Full circle and come into fruition lower cost efficiencies get product to customers faster all those things structurally the business.
Is in a really good shape now and think it will head that way and the future.
Okay. That's good to hear and then as far as the costs for the opening of the new facility in Mexico did did you guys quantify that or are you willing to quantify that.
No. That's that's built into all the numbers that we gave you the other thing capital and.
And on and then for Spain for the balance for the year.
Got it and less AP okay.
The relatively asset light investment with lease space and so that's part of what we're excited about exploring and and just so it is primarily and assembly plant it won't be a stamping its mechanisms they won't be cutting its old frame they will get those from our U.S.
Supply centers so.
It's.
It is not as capital and defensive if you both to build them full.
Facility that handle all the things that day, many OCIO do.
Got it okay. So thanks for that color. So just one of the and lastly follow up on the large cash position that you have so I understand that there is still uncertainty with the pandemic I mean, what would you say if you get better visibility with the pandemic and next year would you guys, perhaps consider doing so.
A special cash dividend or maybe a large repurchase.
Just wanted to follow up about that and see what would you guys think about it.
And just to recap a bit on what current set I think theres a couple of things no doubt I mean this is this is.
And I think the highest cash positions, we've probably ever held and and within the quarter Weve resumed all the normal kind of cash usages internally and externally and that we had softer and the pandemic or back to us for dividend.
And we restarted any capital projects that we had delayed and so as Kurt said there is still so much uncertainty and that we will we will definitely in the near term hold higher cash balances than we have historically have but as always we're looking for those capital investment.
Opportunities and our business.
As well as on the M&A from conservatively given the given no unusual and unprecedented times that we're living and but our focus is to make sure we're investing and our business for growth even past the pandemic and evaluating opportunities there.
And then as far as returns to shareholders, we resumed the dividend.
And no comments on and special dividends or or increased buyback and so for us I want to first fully flesh out and get into this pandemic and.
And looking at the opportunities that we can identified to invest and our business and return value to shareholders through growth.
Got it okay. Thank you and best of luck.
Thank you and thank you.
And ladies and gentlemen that does conclude today's Q, and a Q and Acentia and I'll turn it back to the ladies lazy boys leadership team for any additional for closing remarks.
Thank you everyone for participating in our call today have a great holiday season, and we'll talk to you next quarter.
Bye.
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