Q1 2020 Earnings Call

Please standby.

Good day, ladies and gentlemen, and welcome to your La Z Boy fiscal 2021st quarter results Conference call. Today's conference is being recorded all lines have been placed on the listen only mode and the floor will be open for your questions and comments. Following the presentation. If he should require assistance throughout the conference. Please press star zero at this time. It is my pleasure to turn the floor over to Ms., Kathy Liebmann director of Investor Relations Ma'am the floor is yours.

Thank you Cynthia and good morning, Thank you for joining us to discuss a school when 24th quarter results.

With us this morning are Kurt Darrow, La Z Boy's Chairman, President and Chief Executive Officer, and Melinda Whittington CFO .

Kurt will open and close the call and Melinda will speak to the financial Midway through we'll then open the call to question 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 would like to remind you that some statements made in today's call include forward looking statements about lazy boys future performance. Although we believe these statements to be reasonable our actual 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 view 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 on 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 Kurt Darrow, La Z Boy's chairman President and CEO .

Thank you Kathy and good morning, everyone.

After yesterday's market close.

We really solid fiscal 2021st quarter results.

Demonstrating the strength of the leisure boy brand within today's challenging home furnishings environment.

As well as the power of our global supply chain.

Our retail segment delivered strong sales momentum and also nearly doubled operating profit.

The broader La Z boy furniture galleries network posted increases in the first.

Quarter written same store sales on a one two and three year basis.

Within wholesale upholstery wealth sales were flat.

We still delivered GAAP operating margin of 9% and a non-GAAP operating margin of 9.5%.

Additionally, we generated $19 million in cash from operating activities and returned 18 million to shareholders through share purchases and dividends.

But before getting into a discussion of each operating segment I would like to take a few minutes to share some of the highlights of our La Z boy branded business.

With respect to the brand platform.

The launch of our advertising campaign, featuring New brand Ambassador Christian Kristen Bell is on track.

While early in the process market research reveals that once customers have seen the campaign. They are more interested in and more likely to consider lazy void.

Additionally, the research highlights an uptick in those indicating the la Z boy brand is relevant to them.

And fits their style.

During the quarter, we increased our marketing spend on the campaign launch and are confident the campaign will deliver strong results over time as we continue to invest in the strong brand equity of lazy boy.

And other marketing news, we launched an augmented reality app for Apple mobile devices to deepen engagement with consumers as usage of the mobile channel increases in popularity.

And we are also testing a virtual virtual reality experience as part of the design program in select stores.

To better help consumers visualize the potential for their various rooms.

On the product and innovation side.

The wireless hand remote option for power motion furniture power motion furniture introduced in April .

Has placed on retail floors above our expectations.

Additionally, our eco friendly conserve fabric.

Which contains at least 30% of recycled plastic bottles spun into yarn and averages 110 bottles per sofa.

He has met with great consumer response at the retail level and our previously launched I clean stain resistant fabrics are pacing at almost 25% of our total unit sales.

These are great examples of our team working to bring innovative products to the market, while addressing customer needs and preferences.

I will now turn to our operating segments.

First our wholesale business.

In the upholstery segment on flat sales due principally to lower sales for our England subsidiary and our international business.

GAAP operating margin improved to a solid 9% and non-GAAP operating margin increased to 9.5%.

Primarily due to lower raw material costs and supply chain efficiencies, which were offset by other increased costs.

The non-GAAP margin prop primarily excludes charges for our supply chain optimization initiative announced two weeks ago in which our review in a few minutes.

In the case goods segment on a 4.4% decline in sales operating margin was 9.6%.

Although we do source the majority of cases from Vietnam.

Orders from retailers are down in response to consumer reluctance to make purchases of bedroom and dining room furniture in this volatile tariff environment.

Additionally, due to a fire at one of our major suppliers plants, we have experienced some inventory delays and some product, resulting in lower shipments for the quarter.

This plant is back up and running and while product is in the queue for production, we expect delays to last for another quarter or so.

Now moving onto our retail segment.

Our retail segment continues to deliver excellent results driven by strong execution at the store level.

Sales for the segment increased 19.9% and operating margin increased about 90%.

On a GAAP basis operating margin improved to 5.9% from 3.7% and non-GAAP operating margin increased to 6%.

From 3.8% in last years first quarter.

Delivered same store sales to increase 3.5% and margin performance was driven by improved leverage of fixed cost.

On the higher same store sales.

In addition to the core stores contributing to sales and operating margin improvement performance for the period was driven by $19 million in sales from the 10 stores. We acquired last August nine of which are in Arizona.

And as a note. These stores are not included in the delivered same store sales number.

But will begin to be next quarter next quarter.

Across the broader La Z Boy Furniture Gallery network, which includes both company owned and dealer owned stores.

Written same store sales for the 352 Lazy boy furniture gallery stores increased 4.7% in the first quarter.

I am also pleased to report that since 80 in retail Terry tariff has on finished goods.

Coming into the US was lifted in may.

Sales have begun to rebound in for the first time since fiscal 18 Q3, the Canadian Lazy boy furniture galleries posted a written same store sales increased in line with the us based stores.

Investing in our La Z boy furniture galleries store system remains of Paramount importance.

As our core customer demonstrate the preference to shop in store.

Additionally, the stores provide the best opportunity to showcase iron our entire product line.

Provide comprehensive service and excellent shopping experience.

For the first quarter across the network, one new Agey boy furniture galleries store was opened four were remodeled and two were closed.

Projected activity for the full year includes more than 20 products projects and we plan to end the year with 358 stores.

Including five net new.

Now, let me spend a few minutes on joy over the E Commerce business, we recall, we acquired last fiscal August .

Join bird continues to exhibit fast paced topline growth and for lazy boy it targets, a new cost consumer through a new channel.

For the quarter Joy over delivered $17 million in sales, finishing out our first 12 months of ownership at about $76 million up from the $55 million when we acquired the company last summer.

Based on George growth trajectory to date, we see it tracking in the range of $95 million to $100 million in delivered sales for fiscal 2020.

Sequentially for the first quarter.

George sales were lower due to seasonality as expected.

But marketing investments related to customer acquisition are fairly consistent quarter to quarter.

And we were not able to leverage the spend with the sales decline in the quarter.

However, written orders for the period were solid in line with the pace of seasonality that we have seen in the prior quarters.

Indicating we should see a seasonal uptick in delivered sales in Q2.

On the integration side, we are slightly behind on synergy realization with respect to cost savings, although our supply chain teams have made a lot of progress increasing the tio on a plant's capacity.

Delivering tijuana built product to our regional distribution centers and manufacturing some joy boot product in our Dayton, Tennessee plant, all of which shorten lead times and lower costs.

All of this translated to join bird posting a larger operating loss for the first quarter that each of the prior three quarters ownership.

We still expect joy were to be profit positive by the back half of the fiscal year.

Excluding purchase accounting adjustments and we will continue to focus on striking the right balance between profits and reinvesting in the business to fuel growth.

Now, let me shift gears, a little to address the supply chain optimization announcement made earlier this month.

Over the past decade, we had Doug we've done extensive work across our supply chain to improve efficiencies and productivity, which has increased our capacity our production capacity.

With available capacity at our existing North American plants.

We made the decision to close our smallest lazy Boyd branded facility in Redlands, California and transition its production to two larger use facilities.

We also announced we would transition our leather cut and showing an operation.

From our new Mississippi plant to our large cut and sew Center in Mexico, which was opened 10 years ago, and where we employ a 1500 people to make approximately 25000 kits per week.

These moves are expected to cost, 5% to 7 million pre tax in fiscal 2020 and will be excluded in our non-GAAP results.

We then anticipate ongoing annual savings of $4 million to $6 million pretax beginning in fiscal 2001.

We do regret the impact to those employees impacted.

We greatly appreciate their contributions and thank each of them for their years of dedicated service.

We will provide outplacement assistance to them during this transition period.

While these decisions are not easy to make they are the right moves for the company for the long term as we further optimize operations and strengthen our competitive positioning in the marketplace.

Our commitment to service remains strong and our dealers and their consumers will continue to receive excellent service with quick and on time deliveries as we transfer these offer as we transfer these operations.

With 3.7 million square feet of North American manufacturing space for the La Z boy branded product.

And about 5000 employees in those facilities, we do have the capacity to not only service existing business, but expand our volume as we execute our growth strategies.

And finally before turning the call over to Melinda.

Ill dress tariffs because it seems that we can have a quarter without a word on tariffs.

As mentioned earlier, the 10% retaliatory tariffs on finished goods going into Canada was lifted in may.

And we are already seeing that business begin to rebound.

Regarding tariffs on materials coming from China on June Onest, we increased our pass through charge.

On product to account for the increase in tariffs on these goods from 10% to 25%.

As discussed in prior quarters. This tariff impact several items, we source, including most of our cover for our upholstered products.

As a reminder for lazy boy approximately two thirds of our cover is converted into cut and sew kits in our Mexican based facility.

And is therefore, not subject to the Chinese tariff, leaving just one third of the kits.

Subject to the tariff.

While the current tariff is at 25% due to supply due to our supply chain strategy our pass through charge.

To custom result is roughly only 3.5% on non powered upholstery and about 4% on power products positioning us well from a competitive standpoint.

Thus far.

Although it's still fairly early we have not seen any material impact to demand elasticity.

The new list for 10% tariff Skus will go into effect on September 1st.

Includes a small amount of components that we import and we do not expect a material impact from this new tariff.

And finally for our case goods business, we have an all import model with the majority of our wood furniture stores from Vietnam. So those goods are not subject to terrorists either.

We do however source some smaller occasional tables from China was our subject to the 25% tariff.

As mentioned earlier, we are seeing a dampening of demand for case goods across the industry as a result of tariff rhetoric in the marketplace and its effect on the consumers inclination to purchase bedroom and dining room furniture.

I will now turn over the call to Linda to review our financials.

Thanks, Curt and good morning, everyone.

As always let me remind you that we are presenting our results on both a GAAP and non-GAAP basis non-GAAP results continue to exclude purchase accounting adjustments for acquisitions and we are now also including the one time charges related to our supply chain optimization initiative that Curt discussed a moment ago.

We believe this non-GAAP presentation, better reflects underlying operating trends and performance of the business.

For the fiscal 21st quarter, we recorded $1.5 million or two cents per diluted share and purchase accounting charges, the majority of which related to the acquisition or joint bird, which is reflected in corporate and other.

We also recorded $1.5 million or two cents per diluted share for severance charges related to our global supply chain optimization initiative, which is reflected in our upholstery segment.

And as always a full reconciliation of GAAP to non-GAAP is included in our press release and in the Appendix section at the end of our conference call Slide.

Moving to consolidated first quarter results sales increased 7.5% to $414 million, reflecting strong retail performance a combination of core growth and the August 2018 edition of the Arizona base Lazy Blake furniture Gallery.

As well as the impact of joint Board, which we acquired in fiscal August 20 pulling.

GAAP consolidated operating income was $23.4 million versus 23.2 million in the prior year quarter.

Excluding purchase accounting charges and the charge for supply chain optimization initiatives non-GAAP consolidated operating income increased to 26.2 million from $23.3 million in last year's quarter.

Consolidated operating margin on a GAAP basis was 5.7% versus 6% in last year's quarter and non-GAAP consolidated operating margin was 6.3% versus 6.1, primarily driven by favorable raw material prices in the upholstery segment and higher leverage of fixed cost in our retail segment.

These benefits were partially offset by changes to our consolidated business mix with the acquisition of joint bird and the growth of our retail segment as we have discussed previously.

This created a 160 basis point drag to operating margin the combination of 300 basis points higher as CNN, partially offset by gross margin benefit of 140 basis points from the mix.

Additionally, as Kurt noted earlier joint birds operating loss for the quarter was larger than each of the prior three quarters and this had a more significant drag on profit.

Then in the prior periods.

GAAP earnings per diluted share for fiscal 2020 first quarter were 38 cents versus 39 cents in the prior year period non-GAAP EPS was 42 cents per diluted share in the current year quarter versus 39 cents in last years first quarter.

As a reminder, GAAP and non-GAAP EPS for fiscal 2019 first quarter included a three cents per share benefit from currency changes.

And non-GAAP results for fiscal 2021st quarter, excluding charges of two cents per share for purchase accounting and two cents per share related to severance for the company's supply chain optimization initiatives.

Digging into the results a bit more deeply first quarter consolidated GAAP gross margin increased 200 basis points and non-GAAP gross margin increased 230 basis points.

Again, the gross margin increase was due to changes in our consolidated business mix driven by growth in our retail segment and the contribution from jaybird, both of which carry higher gross margin than our wholesale businesses.

As well as improved gross margin in our upholstery segment, primarily due to lower raw material prices and supply chain efficiencies, which offset other higher input costs.

GAAP results also include the recognition of the severance liability for our supply chain optimization initiative that resulted in a gross margin decreased 40 basis points.

They did cost for January .

Changes in our consolidated business mix increased SGN as a percent of sales by 300 basis points for the quarter, reflecting the growth of retail and the addition of joint Board. This impact was partially offset by fixed cost leverage on higher sales volume in our retail segment.

Our effective tax rate for the first quarter was 22% compared to 22.8% in the prior year period absent discrete items, the effective tax rate in fiscal 21st quarter would have been 25.2%.

Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes, and we continue to estimate our effective tax rate, excluding discrete items will be in the range of 25% to 26% for the full fiscal year.

Turning to cash we generated $19 million in cash from operating activities in the quarter. We ended the period with $114 million in cash cash equivalents and restricted cash and $33 million in investments to enhance returns on cash.

During the quarter, we invested 12 million in capital primarily related to machinery equipment and upgrades to our Dayton manufacturing facility.

We also paid 6 million in dividends and spent 12 million purchasing 400000 shares of stock in the open market under our existing authorized share repurchase program, which leaves 5.5 million shares of purchase availability under that authorization.

Our capital allocation priorities remain to invest in the business to drive growth and then provide returns to shareholders with our dividends and discretionary share buyback.

We continue to expect capital expenditures for the fiscal 2020 year to be in the range of $50 million to $60 million, primarily related to plant upgrades and improvements to several of our retail stores.

On the balance sheet the company adopted the Fas These new leasing standard during the quarter, which resulted in an increase in assets and liabilities of $314 million under this standard. The lessee is required to record an asset for the right to use the underlying asset for the lease term and a corresponding discounted liability for the contractual lease payments.

And finally before I turn the call back to Curt I'll remind you of several items for fiscal 2020, which we also mentioned in our last quarterly call.

We will continue with our non-GAAP presentation, excluding purchase accounting adjustments as well as the charges related to our recently announced supply chain optimization initiative.

For acquisitions to date adjustments are anticipated to be in the range of eight to 10 cents per share for fiscal 2020 spread roughly evenly across the quarters plus any effect from revaluation of the contingent consideration liability for future earn outs on Joy group, where the payout could range from zero to $65 million as we've discussed in previous quarters.

Additionally, in non-GAAP for our supply chain opted to optimization initiative.

Charges are expected to be in the range of eight to 11 cents per diluted share for the year spread roughly evenly across the four quarters of fiscal 2020.

As we work through the operational changes associated with this initiative, we do not anticipate any material benefits in this fiscal year, but we expect to realize ongoing operational savings of $4 million to $6 million pre tax annually beginning in fiscal 2021, a portion of which we expect to reinvest back into our businesses.

On tariffs as we've mentioned the tariff environment remains volatile and uncertain and we plan to continue to pass through tariffs as a surcharge on our wholesale business.

Resulting in higher selling prices, but with some risk to elasticity.

Regarding mix as we've noted our change in consolidated sales mix may affect the seasonality of consolidated results with Joy bird and the growth of our retail segment third quarter consolidated sales could outpace or be level with fourth quarter, which has historically been our largest quarter.

Regarding SGN a cost trends, we would again note the impact of changes in our consolidated business mix with retail growing and the acquisition of Joy Bird.

This mix impact for the full year is expected to be in SGN, a increase in the range of 100 to 150 basis points majority of which was realized in Q1, given timing of the Arizona enjoy bird acquisitions.

And finally for comparability on the back half of the year.

Fiscal 2019 included a one time four cents per share net benefit for changes to our employee benefits programs. This was comprised of a seven cents benefit in Q3, and a three cents charge in Q4 of fiscal 2019.

And now I'll turn the call back to Kurt for his concluding remarks.

Thank you Melinda.

Going forward the shootings environment remains challenging.

Amid tariff uncertainty geopolitical concerns stock market volatility facility. In addition to ups and downs of the consumer confidence index over the past couple of months.

But against that backdrop, we continue to believe lazy voyages competitively well positioned with a strong brand multichannel distribution, including a growing retail business.

And a world class supply chain, which we continue to strengthen.

Additionally, we are optimistic about the long term growth perspective prospects for Joy bird as our ecommerce strategy and business evolve.

With a strong balance sheet, we will continue to make prudent and strategic investments.

Deliver long term performance and provide returns to our shareholders.

We do thank you for your interest in La Z Boy incorporated and we will turn over the call to Kathy to provide instructions for getting into the queue for questions. Thank you again.

Thank you the floor is now open for questions. If you do have a question. Please press star one on your telephone keypad at this time.

Questions will be taken in the order they were received.

If you are using a speaker phone, we ask that while posing your question you pick up your handset to provide favorable sound quality.

If at any time. Your question has been answered you can remove yourself from the queue by pressing once again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time.

Please hold while we poll for questions.

Our first question comes from John Baugh Stifel. Please state your question.

Thank you good morning, and congrats on the quarter results environment also providing them.

Particularly in street, the Siemens spread performance between the lazy boy.

Upholstery brands and England.

What do you think that's attributable to.

Well good morning, John .

I think the lazy boy stores have.

Performed very well in fact, we've had seven of the last eight quarters with in the system with same store sales comp, which is not the trend in the industry.

Then I think our consistency too.

Floor execution.

Investing in the brand.

Having some innovative products.

I think.

A lot of that is what's setting us apart so England does not sell any product to the lazy boy stores and you know our.

Our wholesale business is.

Not as strong as we'd like it to be right now, but I think it's reflective of a lot of the general trade.

That is this having a little more difficult time and that reflects in England's number two is that who is thats who is our main customer.

Okay.

And you mentioned, Chris and sell and Thats on track.

Curious.

Where are you with that.

What's causing the roll out of what if any clarity or correlation of you seem to be going is that campaign.

Traffic or sales.

The lazy point branded stores.

First of all I would say, we're very pleased with the launch.

We're very pleased with the way she comes across the on media.

A lot of additional.

Coverage and social media, which we never had before but frankly, John it's been 90 days and we only launched her in May.

It's going to take the time to really we've got some early reads, but we will give you some more color later in the year when we have more time.

With her on the air and we'll spend.

Considerably more money in the back half of the year on marketing due to the seasonality in the holidays.

So we'll get more exposure, but.

We're.

We're getting great reviews on her from customers that have lover personality and that.

And that she comes across as a.

Very authentic spokesperson, but it's too early to really.

Say anything that we would read.

Is is a definite trend yet.

Okay, and then quickly you mentioned, Canada could you remind us again, what the prices went up and it sounds like you came back down as what you've learned about the elasticity relates to Canada.

Cost are priced well I wish I wish it was that simple because there are two factors so the Canadian retailers.

Our we're paying.

All the tariffs that are U.S. dealer would pay on finished goods coming up to their country.

And then the retaliatory tariffs came into effect, which was 10%.

And that seems bad, but when the Canadian dollar was $1.40 to one dollar.

You combine the two of them.

It was it was extremely difficult so I havent looked in the last week or two about the currency difference, but just having that tariff come off.

Has to be a big relief and it showed up immediately so yes, there is a point where and we're feeling fairly good right now about only passing on 3% to 4%, but if we had to pass on 25 or 30 I'm sure. It would have a huge impact to our volume and that's what they experienced and keep in mind. The Chinese tariffs are on component parts. So that 25, as Curt said becomes a three and a half 4%.

Uptick for us that Canadian tariff was a finished goods tariff so that was 10% of the entire value of a finished good product.

Okay. That's helpful. And lastly, just quickly you mentioned international is that the UK or other parts, what's what's loans and how much of a drag is that.

On on the overall upholstery business.

Well, it's actually everywhere Jon it's a you know, it's it's with our Asian businesses with our European business, particularly the UK.

There's just so much uncertainty but.

On the overall basis, the international business is not that big of a.

Part of our sales mix. So a hiccup there is not I would say material.

But.

We like it a lot better when they are contributing positively that negatively.

Understood Congrats again.

I'll defer to others.

Thank you John .

Our next question comes from Brad Thomas of Keybanc Capital markets. Please state your question.

Hi, good morning, Curt on and Kathy and let me add my congratulations as well on a good quarter here.

Thank you.

I just wanted to follow up on some of John's questions and maybe talking about trends here in the United States.

Obviously very very strong results.

Out of your Lazy Boy network and I guess I was hoping you can help us to think about how some of the us dealerships major dealers minor leaner smaller dealers have been performing.

Are they adding additional LIBOR floor space.

Where their inventory levels, how are they doing if you kind of.

Piece apart some of the international headwinds that you're seeing that in upholstery division.

Thanks, and good to answer that Brad and a couple of ways. One we since we own 40% of the stores and.

And our independent dealers are.

Report in a lot of data so that we know what's going on.

I can speak chapter and verse about what's happening inside the 355 lazy boys doors.

But when it comes to.

Our other 2500 dealers.

Exactly what they're doing from day to day their metrics, we can tell how much they buy from us and.

But.

Having any insight into the inventory levels that they carry we just we just don't have that kind of data and but we have seen a trend of particularly the smaller dealers and enrollment Erica.

We have seen a trend of them struggling more with.

The cost of doing business the.

Trying to keep their web sites up to date doing all the things that.

It was required today of a marketing furniture.

And so I think I think that is part of the problem the impact that the e-commerce channels have had on.

On.

On the business and this year they've taken.

But we have I'm not casting a shadow on the entire book, we have dealers that are independent dealers, both big and small who are having solid growth with us and we have one's going the other way.

The net result is.

In the aggregate if you take out the La Z boy stores.

We're not seeing the growth weve been accustomed to.

That's helpful.

And if I could move over to margins.

Yes, I think the upholstery segment had an 80 basis point benefit from from raw materials.

I guess could you talk a little bit about.

You know the cadence of that.

Is that a tailwind that could get bigger over the next couple of quarters or is this a run rate and it may continue at this pace going forward, how should we think about that.

Yes, clearly, we're very pleased with the margins we were able to achieve in upholstery. This corner on on essentially a flat top line you know we mentioned coming into it.

Three months ago homologous, there's only two months ago [laughter] given that your end, but we we talked about the fact that we would see some tailwinds from raw materials, but we continue to see other cost increases between people cost healthcare cost transportation and so forth and so we're very pleased with how we were able to offset those costs with other supply chain efficiencies.

In the quarter, but looking forward. In addition, theres a lot of uncertainty out there has certainly been the topic of the conversation and volume in the end cures a lot of variables and so you know we need to continue to see the strong business top line to be able to consistently deliver on those strong bottom lines, both for upholstery and our retail business.

That's helpful. Thank you so much.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

We will take our next question from Anthony Lebiedzinski with Sidoti and company. Please state your question.

Yes, good morning, and thank you for taking the question. So first I just wanted to get a better sense as to the same store sales of traffic versus.

Unit volumes, if you could provide some color on that.

Good morning, Anthony.

So our traffic is trending up.

And we are.

As is our close rate and our average ticket. So those are the three big drivers.

We're doing more in home design, we're we're selling more room packages.

And and that is driving the ticket.

And with.

Less.

Customers coming into stores nationally over the last few years conversion has been a big.

A focus of ours to be sure we.

Maximize the share of wallet of every customer that comes through the doors.

And in terms of the penetration level of your in home design, where are you guys now.

I think.

Across the network.

It is in the low 30% of our sales.

Certainly not 30% of our customers, but 30% of our sale delivers.

A huge.

Dollar value to our.

A small percentage of our customer delivers a high 30% dollar value to our total revenue.

Got it Okay, and then switching over to join bird.

Are you ready, making products from Dayton, Tennessee, and if you are what percentage of the product sales are flowing through the <unk>.

We are making.

Some of their best sellers in our plant and Tennessee.

A lot of that.

Effort has gone to getting our regional distribution centers that support our retail business stocked with the joint product.

And I think we'll report at the end of the next quarter that a lot more has started to go out too.

The consumer as we ramp up the transition.

And the teams are working incredibly hard to make this transition but.

Now getting.

Getting to different companies and different systems and different.

Ways to go to market.

100% in sync overnight.

Doesn't happen so.

We're confident we'll get it worked out there is great cooperation and learnings on both sides.

But theres still a lot of work to do and.

One of the reasons were little bit behind it's just because of the complexity is.

We are systems have to be integrated and thats taken longer than we anticipated.

The other stood and lastly, just longer term strategically how are you thinking about that.

Your store base.

It's just.

Given overall the traffic trends across retail.

With less foot traffic.

Just longer term just any updated thoughts on your store base.

I believe that we still feel we have the opportunity to grow the store base to eventually 400 stores someday.

And as I mentioned earlier.

We have.

Experienced.

Seven of the last eight quarters.

Same store sales growth throughout the network.

Our dealers are investing in remodeling their stores opening new stores the company is.

But it's not easy and that's no guarantee whats happening today is going to continue in the future but.

If you if you don't invest in your stores. If you don't update if you don't have compelling product or a message.

It's going to be tougher and tougher you to perform well and we keep working at it.

Everything we do in our retail business one step at a time there is no single silver bullet that takes a combination of a number of things but.

We don't think.

Retails going away.

We think perhaps some inefficient or.

Bad retail probably will but our customer today it could be different in 10 years, but our customer day continues to tell us she likes to shop at our stores.

And so we are continually do we're continuing to foster that and and try to build those bigger retail network is.

Got it well, thank you very much and best of luck.

Thank you Anthony.

There appear to be no further questions. At this time I will now turn the conference back over to Kathy Liebmann for closing comments.

Again, thank you for your participation in our call. This morning should you have follow up question.

Touch with me, Thanks, again and have a great day.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect disconnect. Your lines at this time and have a great day.

Okay.