Q4 2022 La-Z-Boy Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to that.
Fiscal 2022 fourth quarter and full year conference call.
At this time, all participants have been placed on a listen only mode.
So we'll be open for questions and comments after the presentation. It is now my.
Pleasure to turn the floor.
Over to you Kathy Liebmann Investor Relations.
Thank you Jenny good morning, and thank you for joining us to discuss our fiscal 2022 fourth quarter and full year results.
With us this morning are Melinda Whittington, Lazy boys, President and Chief Executive Officer, and Bob <unk>, Chief Financial Officer.
Melinda will open and close the call and Bob will speak to segment performance and the financial midway through.
We'll then open the call to questions.
<unk> 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 would like to remind you that some statements made in today's call include forward looking statements about <unk> future performance and other matters. Although we believe these statements to be reasonable our actual results could differ materially the most significant risk factors that could affect our future.
<unk> results are described in our annual report on Form 10-K, we encourage you to review those risk factors as well as other key information detailed in our SEC filings.
Also our earnings release is available under the news and events tab on the Investor Relations page of our website and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck.
With that.
I will now turn over the call to Melinda Whittington Lazy boys, President and CEO Linda.
Thanks, Kathy and good morning, everyone.
Late yesterday afternoon, following the close of market, we reported record results for fiscal 'twenty two.
Highlights for the year included record delivered sales and profits for the fourth quarter and the full fiscal year for the total consolidated company.
Record delivered sales for our wholesale segment.
<unk> delivered sales and profits for our company owned retail segment.
<unk> delivered sales and profit performance for Joy Bird rich.
Returns of $118 million to shareholders through dividends and share repurchase the highest level in our history and.
And the launch of century vision, our growth strategy through our centennial year in 2027.
All in these are great results in a volatile environment.
<unk> were $2 4 billion.
Driven by the strength of our consumer brands, our vast distribution and strong demand for home furnishings. We.
We delivered $3 11 in non-GAAP earnings per share, 19% ahead of last year, and 45% more than pre pandemic fiscal 19, all while continuing to navigate the challenges of the pandemic global supply chain disruption and a tight labor market and.
We finished the year strong sequentially from Q3, our fourth quarter exhibited momentum and delivered sales and significant operating margin improvement.
I'd like to take this opportunity to thank our talented team across the entire company for their hard work perseverance and dedication our employees are amongst our greatest assets on a responsible for delivering these phenomenal results in challenging times.
As we celebrate these outstanding results. We note that written sales for Q4 reflect the consumer impact of inflationary pressures and geopolitical concerns. After a strong February with positive year over year growth, we saw significant deterioration of written trends in March.
Some recovery in April and ongoing volatility.
Written same store sales for our company owned retail segment decreased 9% for fiscal 'twenty, two fourth quarter, primarily due to lower traffic.
Written same store sales across the entire lazy boy furniture galleries network decreased 4% in the fourth quarter.
The difference versus retail is mainly due to the base period as many Canadian stores were closed in last year's fourth quarter and this is more dramatically impacted the broader networks that are owned retail segment.
For the full fiscal year written same store sales for the lazy boy furniture galleries network increased 1% and were flat for the company owned retail segment and.
And compared with fiscal 2020, written same store sales for the entire network as well as for our company owned retail segment grew at a compound annual growth rate of approximately 15% over the last two years.
Our Joy Bird business wrote 3% more of this Q4 than last year's fourth quarter and for the full fiscal year <unk> written sales were up 27% and grew at a compound annual growth rate of 44% over the last two years.
As we begin fiscal 'twenty, three we will leverage our strong balance sheet and historically high backlog to continue to grow the business and strengthen our capabilities for the long term. We are focused on first continuing to enhance our manufacturing capability to better serve our consumers and customer.
<unk> with shorter lead times.
In fact over the Memorial day weekend, we were pleased to begin offering customers consumers customized product in 10 to 14 weeks versus our previously quoted four to seven months.
Second focusing on consumer with enhanced marketing and sharper execution to drive traffic and sales conversion.
And third.
Strategically investing in our century vision work to enhance the power of our lazy boy brand with the consumer.
Disproportionately grow the young driver business and strengthen our company's foundational capabilities. So that we continue to profitably grow the company from this new base.
And our first year of century vision execution.
We've expanded our consumer insights organization.
Initiated significant consumer research and launched new TV spots, featuring Lazy Boy brand Ambassador Kristen Bell, who resonates with a broad range of consumers, including a younger demographic.
And in fiscal 'twenty, three we have plans to expand the lazy boy furniture galleries network by about 10, new stores. These investments will allow us to canvass the marketplace improve shop ability and ensure our omnichannel offering enables us to engage consumers wherever they wish to purchase.
I enjoy bird since acquiring the company in 2018, we've more than tripled sales and achieved reliable profitability.
As a relatively new brand with significant opportunity to grow share. We will continue to invest in marketing to build <unk> brand awareness and accelerate growth.
And while we will stay true to <unk> digital routes. The important element of our strategy is focusing on reaching new consumers and enhancing the omnichannel experience, we already have five well performing small format Joy bird showrooms in popular urban workhouse.
And have several more stores slated to open in the first six months of fiscal 'twenty three.
And finally, as we strengthened foundational capabilities across the company, we're improving our ability to execute acquisitions, including opportunistic purchases of independently owned lazy boy furniture galleries stores, which further strengthen our high performing company owned retail segment.
These margin enhancing acquisitions provide the benefit of our integrated retail model, where we earn a profit on both the wholesale and retail sides of the business.
And our strongest ownership of the end to end consumer experience and.
In fiscal 'twenty, two we acquired eight lazy boyfriend ensure galleries stores and I am pleased to note that we have already signed agreements to acquire six stores in fiscal 'twenty three.
In the Denver market and one in Spokane, Washington.
And we are enhancing the agility of our supply chain.
Today, we are producing more furniture than ever a testament to the strong manufacturing Foundation lazy boy developed over its 95 year history.
Building on that strength and recognizing the environment will remain dynamic we are focused on increasing agility across the enterprise to work down our backlog significantly shortened lead times and position lazy boy to successfully complete and win share going forward.
During fiscal 'twenty, two we made a series of enhancements across the enterprise to drive agility and increase production capacity efficiently.
We've added to our experienced team with key leadership from other industries to bring fresh perspectives and we've made structural changes across our supply chain to increase production, including expanding our north American operations with multiple new facilities in Mexico.
These operations will help in servicing our backlog in the short term as they ramp to full capacity and longer term will contribute to our lower cost manufacturing footprint with improved capabilities to service the west coast.
We are also change processes within our plants to maximize output with a better product mix shifted procurement strategies with an expanded supplier base in multiple geographies and are strategically men managing inventories to protect against future parts outages and disruptions.
Sales and operating margin progress made in Q4 reflect these initial moves but there is more work to do in.
In short restructuring the business to be successful and what will continue to be a volatile environment.
As a premier well loved furniture company that ranks number two in a highly fragmented market will become more nimble going forward to ensure we grow out of the pandemic and gain share.
Now, let me turn the call over to Bob to review the results in more detail Bob.
Thank you Melinda and good morning, everyone.
As a reminder, we present our results on both a GAAP and non-GAAP basis.
We believe the non-GAAP presentation, better reflects underlying operating trends and performance of the business.
non-GAAP results exclude items, which are detailed in our press release and in the tables in the appendix section of our conference call slides.
Additionally, fiscal 'twenty two included 53 weeks.
And a week falling in the fourth quarter.
For those of you new to lazy boy, our fiscal year ends on the last Saturday of April .
Five or six years, we have an extra week in our fiscal year.
On a consolidated basis fiscal 'twenty, two fourth quarter sales increased 32% to a record $685 million versus the prior year quarter, reflecting higher pricing and surcharges increased unit production and the extra week in the quarter, which increased sales by approximately $49 million.
Consolidated GAAP operating income increased to a record $79 million.
non-GAAP operating income was a record $65 million.
An increase of 24% versus last year's fourth quarter, the quarter had a record non-GAAP operating profit level, even without the extra week of results.
Consolidated GAAP operating margin was 11, 5%.
Our non-GAAP operating margin was nine 4%.
GAAP diluted EPS was $1 33 for the current year quarter versus 81 in the prior year quarter.
non-GAAP diluted EPS was $1 seven in the current year quarter versus <unk> 87.
Last year's fourth quarter for 23% increase.
Moving on to full year results for fiscal 'twenty two.
Sales increased to a record $2 4 billion.
Up 36% versus the prior year, reflecting strong demand.
Ongoing manufacturing capacity increases higher pricing and surcharges.
Extra week in Q4, which increased sales by approximately $49 million.
Consolidated GAAP operating income increased to a record $207 million and non-GAAP operating income was a record $191 million.
22% increase versus fiscal 'twenty one.
The year had record non-GAAP operating profits, even without the extra week.
Consolidated GAAP operating margin was eight 8% and non-GAAP operating margin was eight 1%.
GAAP diluted EPS was $3 39 for fiscal 'twenty, two versus $2 30 in the prior year.
non-GAAP diluted EPS was $3 11 for the year versus $2 62 in fiscal 'twenty, one a 19% increase.
As I move to the segment discussion.
My comments from here will focus on our non-GAAP reporting unless specifically stated otherwise.
Starting with our wholesale segment delivered sales for the quarter grew to a record $513 million a 34% improvement.
Paired with the prior year period and increased 24%, excluding the extra week.
The growth was driven by pricing and surcharges as well as higher unit volume.
non-GAAP operating margin for the wholesale segment was eight 8% versus 10, 2% in last year's fourth quarter.
This was driven by increased material costs.
Differences in channel mix.
And plant inefficiencies related to increasing manufacturing capacity, partially offset by pricing and surcharges.
Sequentially from Q3, non-GAAP operating margin increased 230 basis points, reflecting many of the changes made to drive agility across our supply chain.
Case goods began to receive a steadier stream of product from Vietnam in April following the country's COVID-19 related shutdown with elevated freight costs continuing to impact operating margin during the first two months of the quarter.
We expect case goods operations to normalize in the first half of this fiscal year as we work consistently receive products shipping to consumers and realized rate pricing.
For the quarter, our retail segment delivered sales were a record $233 million.
A 20% increase over prior year's fourth quarter, and 12% higher excluding the extra week.
Same store delivered sales were 16% higher versus the year ago quarter.
Retail posted record high non-GAAP operating profit dollars and non-GAAP and non-GAAP operating margin increased to 13% versus 12, 2% in the prior year quarter.
Driven primarily by fixed cost leverage on the higher sales volume.
As Linda noted growing lazy boy furniture galleries network is a key element of century vision and we look forward to our company owned retail segment, continuing to grow and becoming an even larger contributor to our long term success.
I'll now spend a few moments on jewelry birds, which is reported in corporate and other.
<unk> delivered a great quarter with record delivered sales of $53 million, a 40% increase versus the prior year quarter, and a 30% growth rate adjusting for the extra week of sales.
For the quarter drove her delivered profitable growth with an improved gross margin versus last year's fourth quarter.
During the quarter with Joy bird business exhibited multiple positive sales metrics, including written sales.
Web conversion.
Retail store traffic.
Average order value and average sales price.
Moving forward, we will continue to invest in marketing, both digitally and through new channels to drive brand awareness customer acquisition and disproportionate growth of this relatively young brands.
Putting all of this together consolidated non-GAAP gross margin for the entire company for the fiscal year decreased 390 basis points versus the prior year.
The decrease was due primarily to higher raw material and freight costs.
Costs related to increasing manufacturing capacity.
Labor challenges in the unavailability of component parts, which resulted in plant inefficiencies.
Costs were partially offset by pricing and surcharge actions, which were increasingly realized in the second half of the fiscal year as they begin to flow through the backlog to delivered sales.
Consolidated non-GAAP SG&A as a percent of sales for the year decreased 300 basis points.
Primarily reflecting fixed cost leverage on the higher sales volume across all our businesses.
Our effective tax rate on a GAAP basis for fiscal 'twenty, two was 25, 9% versus 26, 3% in fiscal 2021.
Impacting our effective tax rate for fiscal 'twenty, two was a net tax benefit of $7 million from the tax effect of the fair value adjustment of contingent consideration liability related to the Joy Bird acquisition.
We expect our effective tax rate to be in the range of 25% to 26% for fiscal 'twenty three.
Turning to cash for the year, we generated $79 million in cash from operating activities.
Finishing the year strong with $34 million cash generation.
In Q4.
We ended fiscal 'twenty, two with $249 million in cash.
No debt and held $27 million in investments to enhance returns on cash.
During the year, we invested $72 million and higher inventory levels to help protect against supply chain disruptions and support increased production and delivery sales.
We also spent $77 million in capital during the year.
Primarily related to retail store upgrades.
Bolstering manufacturing capacity in Mexico.
Plant upgrades at our manufacturing and distribution facilities and technology projects.
In Q4, we continue to buy back shares spending $15 million repurchasing more than 400000 shares of stock in the open market.
Leaving $7 5 million shares and our existing authorized share repurchase program.
For the full fiscal year, we returned $91 million to shareholders via share repurchase and $28 million through dividends, including $7 million paid in dividends in the fourth quarter.
Yeah.
Before turning the call back to MS. Linda Let me highlight several important items for fiscal 'twenty three.
Please keep in mind that fiscal 'twenty, three will be a 52 week year and comparisons will be against the 53 week fiscal 'twenty two period.
Additionally, comparability will will be affected as always by fiscal 'twenty threes first quarter containing 12 production weeks.
Reflecting our annual one week shutdown in July .
While we maintain our long term commitment to steady sales and margin progress. We anticipate results may vary during fiscal 'twenty, three as macroeconomic factors and geopolitical events impact consumer confidence and furniture demand.
Despite this volatility we remain focused on driving demand to outperform the industry.
Strengthening our agility.
Working to reduce our large backlog and continuing to navigate through supply chain disruptions to better service the demand for our highest value products, which disproportionately sell through our furniture galleries stores.
We will prudently navigate through the current environment in the short term, while executing against our Central Division strategy to drive long term profitable growth.
With the height of the pandemic behind US, we expect seasonality to return to the industry as consumers revert back to normal spending patterns and focus less on home furnishing purchases during the summer months.
As a result, we will likely experience lower than year ago written sales during Q1 and Q2 for both our direct to consumer businesses and our wholesale customers as they experienced fluctuating consumer demand and related inventory adjustments.
As we continue to service our existing backlog and improve delivery times. We are also beginning to increased investments in marketing to drive demand for our strong brands to leverage their power in the marketplace.
In addition, we expect a slight decline in delivered sales per week in our wholesale segment driven by a number of larger customers, which have temporarily delayed receiving product due to warehouse constraints we have.
These delays to clear up in the second quarter.
Taking all these factors into consideration we now expect delivered sales for fiscal 'twenty, three first quarter to be up 7% to 10% versus the first quarter of fiscal 'twenty, two and a range of $560 to $575 million.
Additionally, we expect consolidated non-GAAP operating margin to be in a range of six 5% to seven 5%.
Finally, we expect non-GAAP adjustments for purchase accounting charges for the year to be in the range of $1 <unk> per share.
Capital expenditures are expected to be in the range of $85 million to $95 million for fiscal 'twenty three as we invest to strengthen the company for the future consistent with our century vision strategy.
Our capital allocation strategy over the long term is to invest approximately half of operating cash flow into the business and returned the other half to shareholders through dividends and share repurchases.
This 50 50 split may vary in any given year.
In the near term, including fiscal 'twenty, three we have numerous strategic investments to make as we execute century vision and.
Dissipate capital allocation to be more heavily weighted to investments in the business, where our rois are two to three times our cost of capital.
And now I will turn the call back to Melinda.
Thanks, Bob.
I'm very excited about the future of lazy boy incorporated we manufacture and sell great brands have broad distribution, a strong and growing company owned retail segment and a talented team in place to execute our century vision.
The macroeconomic environment is volatile and we will remain choppy for the foreseeable future. Our focus is on the long term.
Trolling, what we can and driving agility through every facet of the organization.
Our balance sheet is strong and will allow us to move through this uncertain period, while making important investments in our future we.
We have every intention of growing from a new base and believe the best is yet to come as we deliver long term profitable growth and returns to all stakeholders.
We thank you for your time this morning, and I'll turn the call back to Kathy. Thank.
Thank you Melinda will begin the question and answer periods now Jenny. Please review the instructions for getting into the queue to ask questions.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We also while posing your question you. Please pickup your handset if listing on the speaker phone to provide optimum sound quality. Please hold while we poll for questions.
Thank you. Your first question is coming from Brad Thomas of Keybanc capital markets spread over tea.
Just checking on mute Brad.
Okay, but that was needed good morning, good morning, Bob and Kathy and first of all just wanted to give my congratulations on a.
Our strong quarter, and obviously a record year for the company.
Good morning, Brad Thank you.
We're getting a lot of questions about recent trends in the industry and so I had a couple of questions about that but I was hoping to address.
Maybe first of all Melinda I believe you commented that.
<unk>.
That's.
Trends have been more volatile of late could you give us any more detail on how may and June had been trending so far.
Yes.
<unk> share in traffic continues to be challenged across the industry and there is a decent amount of volatility on any given on any given.
Weak and four months right now.
I will tell you that.
As we look at this going forward.
Sure.
The first thing we continue to be focused on is the production side of things and what we've been working on over the last couple of years on our ability to produce.
Both to manage to manage cost to service the backlog that we have and importantly to get down to shorter lead times to help impact that consumer proposition and drive.
Drive conversion on the traffic that we do see as far as the consumer the entire industry over the last three four months is certainly seeing a slowdown in traffic and I think theres a couple of things driving that.
Overall consumer sentiment no doubt is challenged.
And as we've talked about in everything from inflation and we can certainly go into some more there the other piece that.
I think we don't know the relative impact of each of these is the return to seasonality. So for the last couple of years, we really haven't had kind of a big difference quarter to quarter in consumer sentiment and this is the first this is the first spring in several years that consumers were getting our regular spring and <unk>.
Our people are traveling again at all and so if you go back pre pandemic the spring and summer were always significantly slower than kind of the back half of our year and so that return of seasonality is definitely driving some of it.
And then we have to keep in mind that furniture pricing is still quite high right across the industry were $25 to 35% higher.
Due to all of the input costs.
Than we were pre pandemic and again that those are all across the industry.
So what we're doing about it like I said the first one is really making sure we're managing.
Our own production capacity, so that that proposition is better and we have shorter lead times over memorial day.
We are now quoting 10% to 14 weeks on custom furniture versus versus four to seven months.
We're increasing marketing spend back up to levels more consistent with what we were doing pre pandemic youll recall over the last two years, we backed off significantly because there was really no reason to drive the consumer into an urgency to purchase and then bring them in store and have them frustrated by lead times.
And then we're also really focused on in store execution. So while traffic is lighter and our conversion remains strong with the excellent work that we're doing in our stores.
That's why we talked about I think the reality across the industry is.
Some challenge on traffic right now is the consumer some of that more temporary than others and.
And so we're working on what we can control.
The other piece, we have is of course.
For a portion of our business, we're selling direct to the consumer.
Sure.
More than half of our business we're selling.
<unk> capacity and so we're seeing a little bit of our customers sort of adjusting their stock inventory right now.
But still healthy pull through on the custom side, so that remains our focus on that side as well.
And to follow up on that what are you seeing in terms of the trend that.
Dewey burden on hall.
Is that brand performing versus lazy boy is it performing better or is it has it slowed down more because it.
We'll need to see you perhaps.
Secondly, it might be more constrained by the environment we're in.
Yes, I think if you look at so.
Back that pre pandemic times, we used to talk about Joy bird was maybe written trends in.
In the high teens win win in our older more mature lazy boy business had written trends.
The low to mid single digits, roughly right directionally that differential.
Has continued if you look at sort of before for the fiscal year for the fourth quarter and ongoing we're still we're seeing.
Slower some slowing of the written trend, but it's still still.
Positive and and significantly stronger than what we're seeing across the.
The entire furniture industry on average.
That's very helpful and then with regard to the.
Retail customers that you have that have wanted to delay.
Pete.
<unk>.
I presume this is a function of their sales having slowed down.
How does that work how long can they delay it out before that starts to turn into.
Canceled orders in.
What are you hearing from these larger customers.
Near term, it's really been more and again time will tell here right, but in the near term, it's really been more a matter of how you think about these retailers spent the last year and a half trying to get product from anywhere they cut right and ordering and then.
As things have started to deliver they've got warehouse constraints in the near term and in particular suddenly where they may be ordered ahead on some stock.
That's filling up warehouses that is slowing down their ability to deliver.
The orders that the orders that are sold through to their to their end consumer and so really the near term has been the near term effects have been more about just flow through.
And getting the right product in there you might have you might have a lot of one thing and not as much of another.
That could be from us or for general dealers that can be from a lot of different consumers. So I really see the majority of that shift that we've seen thus far has been much more about sort of near term shifting as we've gone from this very dramatic everybody trying to get anything they could for the consumer to.
Suddenly kind of kind of a.
The slowdown with it with the consumer and just the logistical side of managing that.
That's very helpful. Thanks, so much and best of luck.
Thank you.
Your next question is coming from Anthony <unk> of Sidoti Anthony Please ask your question.
Yes, good morning, and thank you for taking the questions.
So firstly in terms of your good morning. So in terms of your old production capacity just wanted to get a better sense as to how did the quarter progress in terms of the delivered revenue gains was it consistent throughout the quarter or was there any notable changes as the quarter progressed.
It was fairly consistent.
Slow increase as the quarter.
Our latest our last plant down in Mexico, <unk> was cut was coming online and that was allowing us to slowly increase capacity over the quarter. As we went through so we finished the quarter well.
Got it.
Took some opportunity in the in the fourth quarter to reposition some lines to make sure we've talked for a long time about like our Mexico sells were making.
We're making maybe more simple product as they were training we've started re pointing sells as well to make sure we're making the right product for demand.
And so we feel good about the progress there as well.
Got it got it yes. So so yeah Melinda you. During your remarks, you said you changed some of the processes in your plants. As so is that what you referred to or is there something else there as well, yes, Sir yes.
Okay got it okay. Thanks for that and then.
Just in terms of your inventory. So obviously liked a lot of other companies they all inventories.
Increased.
How would you characterize the health of your inventory kind of given what's going on with traffic.
Halt macro concerns.
How does how do you feel about the health of your inventory.
We ended the year with.
The level of inventory, we wanted to end the year with.
We're still holding that right now given what's going on over in China to ensure that the lockdowns in some of the delays that are occurring from some of the parts and fabric and things like that that come from China.
Impact our production facilities. So we will continue to maintain a slightly higher level of inventory to make sure that we're able to make product as well.
We're able to have your inventory what I'm talking about there is more on the raw materials side. The inventory from a finished product side Thats generally speaking being made and being moved out and we're adjusting production as needed to.
And sure we don't build up a whole bunch of finished goods inventory as we see customers.
Modify their receipt timings.
Got it Okay and then.
In terms of.
This increase this obviously as you've noted.
It has gone up quite a bit are you.
So within the guidance that you provided for the first quarter does that include any additional price increases that you may have taken since the fiscal year right or how should we think about additional pricing.
Actions you may take.
Well, we never comment on future pricing actions, we take we will always continue to look at what's going on with the pricing of our materials and price accordingly to make sure that we're maintaining our margins. The last pricing. We took was in February .
And that pricing is working its way through the backlog parts of it is coming in faster than others, but generally speaking that's working its way through and we'll continue to work its way through Q1 and into Q2.
Got it Okay and then lastly from me. So you stated that you will open 10 stores in fiscal 'twenty. Three so is this a <unk>.
New annual run rate or how should we think about your long term plans for store growth.
You will see some variability in any given year honestly some some of it right now it's happening even in our joint bird stores has been around.
You don't have quite the cadence you'd like because of just construction delays, but in general what we've talked about is that we saw that we see the opportunity for about 400 stores and today. We're at about $3 50, So and we've said we will do that over and over our center.
Revision time period so.
The 10 run rate is not a bad ballpark number, but there'll certainly be some volatility on any given.
On any given year.
Got it thank you and best of luck.
Thanks, Anthony Thanks Anthony.
Your next question is coming from Bobby Griffin of Raymond James Please ask your question.
Good morning. This is all kind of minutes on for Bobby Griffin. Thank you for taking our questions.
Wanted to touch a little bit on the wholesale backlog it continues to trend well above historic levels and even was up year over year at end of the fiscal.
Fiscal year can you talk about your expectations, we're working down that backlog.
<unk> this year.
Yes, I wanted to go down.
So.
If you think about what's in the backlog there are.
I guess I'll start by saying.
There are two things in the backlog one or.
Orders that are sold all the way through to the end consumer.
And so to me that backlog, while it's nice to have.
Written orders on your books that backlog is.
Just satisfied consumer that's waiting for their products. So historically, we have been able to deliver customized product to our end consumer in four to six weeks and thats been out in.
In the 4% to seven months, we are very pleased that since memorial day with a real focus on that on that.
That custom order to the end consumer as a memorial day, we've been able to close 10 to 14 weeks. So that's real progress that we'll make the backlog go down but that's a good thing the other thing thats in the backlog than is stock orders and again somewhat similarly these are.
Part b to be customers that have placed orders with us on what they believe theyre going to need to keep in inventory.
When were out six months on production, they're having to put six months of orders on the books with us for backlog to ensure they have their production space as we bring this capacity on and get more and more efficient.
We're three months out we only need three months of orders on the books for one month out we only need one month. So our goal this year is to bring that backlog down.
Very significantly.
<unk> to kind of the the minimal levels sort of the four to six week backlog that that we've had pre pandemic historically, but on a larger manufacturing base, which would mean more throughput now theres. Obviously, there are multiple variables as we've talked over and over recent years.
So there is how many orders are coming in.
And how many orders you're servicing and so I expect that we'll see some volatility on that as well as we move through the year.
Okay. That's really helpful. And then just a follow up on that how much flexibility do you have with your current capacity build out how do we protect from getting too much capacity.
The the way the way, we manage that and we've been planning to manage all along is as we see or if we see demand go down.
<unk>.
We will manage it would be a combination of reducing overtime, that's being run at virtually every single one of our plants right now we have the opportunity to reduce shifts.
And again in this business there is some natural attrition that goes on just in the plants, because it's such difficult manual work.
If we choose to try to drop our production at the plant just not rehiring that allows us to also rightsize.
The plan from a production perspective.
Over time, so we're going to employ those types of strategies to try to balance out our production. So that we balance it out consistent with what we are seeing.
Incoming orders as well as try it again and you just talked about working down the backlog.
Okay, Perfect and then lastly for me.
Guys mentioned beginning to increase investments in marketing can you walk us through some of those investments is it just a function of additional advertising of existing content are you developing new content.
A bit of both so from a pure share of voice standpoint over the last two years.
As a percent of sales we have been.
Significantly down and we've called that out for a while because again in a world where the consumer was coming in.
At record levels already.
And then.
Our backlog was as long as it was we were choosing not to spend money to exacerbate.
The frustration if you will.
Now again, we still kept some level of share of voice on across a total mix.
As we go forward.
Just the sheer volume, we're taking back to kind of share of voice levels are heading back towards levels like we had pre pandemic.
The mix of that marketing in the content.
<unk> is not at this stage dramatically different but as I mentioned in my prepared comments.
As we look at our century vision work and really reinvigorating kind of that consumer focus and being data based on what resonates with the consumer you will continue to see a shift over time.
In the content in the <unk> and the types of marketing mix.
Really just how we're reaching the consumer overall because that is part of the work certainly on the lazy boy brand to ensure.
We're reaching the consumer in a meaningful way we're helping.
A broad array of consumers and certainly.
Even aging down that consumer in a way that they recognize we have product that is right for them.
Go back to we always talk about the lazy boy brand is.
People will have very positive attributes when they think about the lazy boy brand. They don't always think about the lazy boy brand being for them.
And so that's a lot of the database work to ensure we're telling that story well and then of course, we've been clear that within the <unk> brand being that it is still quite a young brand.
Proportionally invest there to continue to grow that brand recognition.
Thank you that's very helpful best of luck on them.
First quarter and balance of the year.
Thank you.
<unk>.
Thank you very much there appear to be no further questions in the queue I will now hand back over to Kathy.
Thank you very much Jim.
Many thanks to everyone for joining our call. This morning, if you have any additional questions. Please reach out to me have a great day.
Bye bye.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you.
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