La-Z-Boy Incorporated (LZB) Q1 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the La-Z-Boy Fiscal 2013 First Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Ms. Kathy Liebmann, Director of Investor Relations of La-Z-Boy Incorporated. Ms. Liebmann, you may now begin.

Thank you, Rob, and good morning, everyone, and thank you for joining us to discuss our fiscal 2013 first quarter results. With us today are Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer; and Mike Riccio, our Chief Financial Officer. Kurt will begin today's call, and then Mike will speak about the financials before turning the call back to Kurt for his concluding remarks. We will then open the call to questions. A telephone replay of the call will be available for one week beginning this afternoon. These regular quarterly investor conference calls are one of La-Z-Boy's primary vehicles to communicate with investors about the company's current operations and future prospects. We will make forward-looking statements during this call, so I will repeat our usual Safe Harbor remark. While these statements reflect the best judgment of management at the present time, they are subject to numerous future risks and uncertainties as detailed in our regular SEC filings, and they may differ materially from actual results due to a wide range of factors. We undertake no obligation to update any forward-looking statements made during this call. And with that, let me turn over the call to Kurt Darrow, La-Z-Boy's Chairman, President and Chief Executive Officer. Kurt?

Thank you, Kathy. Good morning, everyone, and thanks for joining us for this morning on our call. Yesterday afternoon, we reported our first quarter results for fiscal 2013. We posted a 7.6% consolidated sales increase for the quarter, a 9.2% same-store written sales comp for the La-Z-Boy Furniture Galleries store system and a delivered sales comp of 17% in our own company-owned retail segment. We also continue to improve the performance of our retail operation, narrowing its loss for the 14th consecutive quarter. And in addition to increasing sales in all 3 business segments during the quarter, we more than doubled our operating income, reflecting our ability to leverage our lean cost structure. We are pleased with our results, particularly given the seasonality that impacts the industry during the summer months. And as we noted in June when we reported strong written orders for the fourth quarter, the pace of delivered sales in our upholstery and retail segments accelerated during the first quarter as the strong written orders from the past several months flowed through to our delivered sales this period. As we move into the fall, which -- we believe we are well positioned to capitalize on what is typically a stronger selling season. Our marketing initiative is driving more qualified consumers to our stores and dealers. Our operating structure is lean, and we are in good service position with respect to fabric and leather inventory. Importantly, we are using our financial stability and resources to invest in the business at all levels, including our increased marketing spend, our infrastructure, inventory levels, new stores, as well as remodeling stores, to continue to drive growth while keeping a keen focus on retail profitability and conversion on our additional volume. Let me take a few moments to discuss our 3 operating segments. Sales for the upholstery segment increased 9.5% for the quarter, and the operating margin for the period was 6.5% compared with 5.1% in the last year's first quarter. Our brand platform marketing initiative, featuring Brooke Shields, continues to gain traction, and we believe it is driving a well-qualified consumer to our stores and our dealers, one who has become more knowledgeable about the breadth of our offering. We've seen the success of the marketing initiative with stationary furniture growing at a faster rate than our traditional motion business and consumers stepping up to buy more full room groups rather than one piece at a time. Our advertising year technically begins in September, and we have already kicked it off with 1 of 4 new commercials, featuring Brooke, with another one about to begin airing just ahead of Labor Day. We also produced several new print ads and our digital content for the web. As we reported last quarter, our plan is to be on the air for about 30 weeks during this coming year, which is more than double what we were when we initiated the campaign less than 2 years ago. The fact that La-Z-Boy and our dealer base are committing additional resources to the campaign speaks volume for our collective belief and success. Although we are increasing our advertising spend with the additional air time, as a percentage of sales, on an annual basis, it should remain fairly consistent. We are also pleased with our Internet traffic, with unique visitors to our website up 20% during the quarter, and that is just to our core site. Our mobile site is also seeing very high traffic. In terms of e-commerce over the past 18 months, we have seen solid year-over-year increases in online sales, although it's still a small piece of the business as most consumers want to touch and feel furniture before they purchase it. But the fact that they are going to our website, and importantly, we have noticed a fairly high correlation between our weekly web traffic and our retail sales, which indicates that a significant percentage of our customers are visiting our sites and doing research and selection on the web before visiting a store. And finally, the pace of same-store sales for the La-Z-Boy Furniture Galleries network remains strong at 9.2%, which bodes well going forward. This quarter marked more than 1.5 years of high single-digit same-store sales increases, and as we said last quarter, we believe this is the single most important metric supporting our belief that we are gaining market share. On the operating side, our facilities are lean and efficient, and we increased our operating margin during the period on the increased volume. Moving in the remainder of the year, we believe we will realize even greater efficiencies through our manufacturing facilities compared to the first quarter when our plants were closed for one week of vacation and scheduled maintenance. As I mentioned earlier, we are keen to invest in opening new stores to drive growth throughout the company. And with the performance of our marketing initiative and solid same-store sales comparison, our dealer base is also interested in adding additional stores. During the first quarter, 2 stores were opened within the La-Z-Boy Furniture Gallery network, another one was relocated and one was remodeled. Two stores were also closed during this period. For the second quarter, the plan is to open 3 new stores, relocate 2 and remodel 2. For all of fiscal '13, there are plans to open 6 new stores, relocate 4 and remodel 9. And the company will represent approximately 40% of all these projects. Opening stores to obtain better penetration throughout North America is integral to our growth strategy. With under-stored markets, as well as several dark markets, there is significant opportunity for us to build out our store system and increase our distribution, while growing market share within our upholstery business. In our casegoods segment, sales for the quarter increased 1.4%, and the operating margin for the segment improved to 3.7% from 1.6% in last year's first quarter. During the quarter, we experienced better sales performance with our occasional furniture as consumers across-the-board continue to show reluctance with respect to making higher-ticket casegood purchases, such as full bedroom and dining room groups. History tells us that new homes tend to drive the purchase of those room groups, and until housing starts to strengthen in a meaningful manner, we believe this portion of the casegood industry will continue to face challenges. During the period, we continue to work on the cost side of the business, and that, combined with better merchandising and more effective promotions, enabled us to deliver a better performance for this segment. At the same time, our team is working to broaden the price points of new furniture introductions, particularly at Kincaid and American Drew, to enable us to appeal to a wider consumer base, enable us to gain space on dealers' floors. Additionally, as we mentioned last quarter, we introduced several new American Drew bedroom groups at the April Furniture Market, which were well received. Production of those groups will begin this month in our Hudson, North Carolina facility, which will provide for higher capacity utilization and should increase operating efficiencies at the plant. Now let's turn to the retail segment. For the quarter, delivered sales for the retail segment increased 17% compared with the first quarter of last year. In addition to our ongoing order rate, the increase was partially the result of fourth quarter written orders for the company-owned stores flowing through to the first quarter. During the period, we continued to increase the average ticket, which led to higher margins, and we increased our close ratio, both of which drove our results this quarter. As I mentioned earlier, we continue to improve our performance in this segment and are steadily moving towards profitability. Assuming sales comps continue at a steady pace, we believe we will see profitability in the latter half of this fiscal year. The caveat is that would be if volume decline or performance was temporary offset by significant new store start-up costs. As I mentioned earlier, we are opening stores in the company-owned retail segment including 3 new stores in the Pittsburgh, Pennsylvania market. During the first quarter, we opened one new store, and for the full year, we will open 4. At the same time, we are also refreshing approximately 20 existing stores with paint, carpeting, new fixtures and accessories to give them a more current up-to-date look and feel that is more in keeping with the new concept design. We believe now is the time to invest in our company-owned store network as opportunities arise that are in line with our cost formula. In addition to driving volume with new stores, opening stores that better penetrate markets where we already have a fixed cost structure will also improve our performance in this segment. Last week, we announced that we intend to acquire 9 La-Z-Boy Furniture Galleries stores and a distribution center in Southern Ohio. The stores are in Cincinnati, Columbus and Dayton and a combined annual revenue in calendar 2011 of approximately $30 million. We are purchasing them from 2 retiring dealers, Elliott Hilsinger and Walt McBeath, who agreed that selling the stores to us would be in the best interest of their employees, providing for the greatest stability and continuity of the business. I would like to take a moment to thank Elliott and Walt who, since 1975, when they opened their first store, have built a vibrant business throughout Southern Ohio. They have been excellent to work with over more than 35-year period, and we appreciate their commitment and dedication to the La-Z-Boy Furniture Galleries store system and to our company. We wish them all the best in their retirement, and again, we thank them. The 9 stores and distribution center will become part of our retail segment, bringing our company-owned store count to 94. We are paying approximately $18 million in cash for the operation, which has been a solid and consistent performer, and we expect it to be accretive to our earnings. The transaction is expected to close in October. I will now turn the call over to Mike to review of our financials. Michael?

Thank you, Kurt. As Kurt mentioned, for the fiscal 2013 first quarter, net sales increased 7.6% compared with last year's first quarter. Net income attributable to La-Z-Boy Incorporated was $4.4 million or $0.08 per diluted share versus $45.5 million or $0.85 per diluted share, of which $43.4 million or $0.81 per share was attributable to reducing our valuation reserves against our deferred taxes. For the quarter, cash used for operating activities was $15 million, which is typical for our first quarter. We also transferred $15 million into longer-term investments and restricted cash accounts during the period to increase our return on investments and reduce cost on our letters of credit. As a result, we ended the period with $113 million in cash and equivalents and decreased our total debt to $7.8 million. Our inventory increased during the quarter, primarily as a result of our planned increase of fabric and leather levels to improve our in-stock position as we move into the traditionally stronger fall selling season. Liabilities decreased during the period, mainly due to our fiscal 2012 annual bonus payout and the seasonality associated with the summer period. Receivables also decreased compared with the fiscal 2012 year-end due to one less week of shipments resulting from the one week shutdown of our plants. During the quarter, we purchased 300,000 shares of stock in the open market under our existing authorized share purchase program that now has approximately 4.5 million shares remaining. The purchase of shares essentially offset the shares issued during the period through stock option exercises. Going forward, based on anticipated cash flows, we will continue to be opportunistic in the marketplace with respect to share purchases and are mindful of offsetting dilution from share options. Capital expenditures for the first quarter of fiscal 2013 were $5 million and are expected to be in the range of $25 million to $30 million for fiscal 2013, reflecting upgrades through our IT systems, including our ERP implementation, new stores and remodeling of existing stores, the normal replacement of machinery and costs relating to the land acquisition for our new World Headquarters. During the quarter, we accrued $3 million more in incentive compensation costs relating to the profit sharing and stock compensation plans versus last year's first quarter. The increase relates to the 3-year performance-based share plans, our new profit-sharing plan and stock option costs reflecting our improving performance and awards granted. If our performance trend continues, we would expect the quarter-over-quarter comparisons to be higher in the second and third quarters and as we reach the fourth quarter, more in line with last year's accrual. For the quarter, our effective tax rate was 37%. In last year's first quarter, the tax rate was greatly impacted by the release of a portion of valuation allowances relating to the U.S. federal and state deferred tax assets. Going forward, for modeling purposes for fiscal 2013, we expect our effective tax rate to be in the range of 36% to 38%. I'll now turn the call back to Kurt for his concluding remarks.

Before moving on to closing remarks, I want to take a moment to comment briefly on the announcement we made last week regarding the options we are exploring to build a new World Headquarters here in Monroe, Michigan. This year, we are celebrating our 85th anniversary of the company, and we have spent the past 85 years in our current location. While it has grown over that period and has served us well, it is time for us to build a new corporate campus to house our some-500 corporate employees. We are excited about moving into the location that is in concert with our evolving image as a truly global organization and where we can host customers, partners and suppliers from around the world. Contingent upon approval of state and local incentives, at this point in time, we are focused on a land purchase agreement with the Sisters of the Monroe-based Immaculate Heart of Mary order, and the proposed concept would involve the acquisition and development of a significant tract of land currently on their Monroe campus. Importantly, we, as a company, are committed to developing a LEED-certified building, utilizing recognized sustainable building practices, and revenue from this agreement will enable the order to continue the development of their campus as a learning lab for sustainable living, as well as to sustain the mission and assist with the congregation retirement needs. Because the project would be a large undertaking for us, it will only be feasible here in Michigan with financial support and assistance from the state and local community. As things evolve, we will update you on our progress. But suffice to say, we are excited about this new undertaking. As we move into the fall, which is typically a stronger selling season for furniture, we remain cautiously optimistic. We firmly believe we are well positioned to continue to build our market share, given the strength of our brand, the success of our advertising campaign, our vast network of La-Z-Boy branded distribution outlets and plans for store growth. Furthermore, we believe we are poised to capitalize on an improving economy, particularly as housing and consumer confidence strengthens. Importantly, we are in a position to strategically invest in our business, and we remain committed to doing so with our investments in new stores, infrastructure and marketing spend to ensure we position ourselves for growth and differentiate ourselves from the industry landscape. We want to thank all of you for being on our call this morning, and now I'll turn things back to Kathy.

Thank you, Kurt. We will begin the question-and-answer period now. Rob, please review the instructions for getting into the queue to ask questions.

[Operator Instructions] Our first question is from the line of Brad Thomas of KeyBanc Capital Markets.

Wanted to just follow up on the performance on -- in the casegoods segment. I think this is the first quarter in over a year that there had been growth in that segment. Obviously, we'd all love that to continue. What do you the think has cause the turnaround here, and how sustainable do you think it is, Kurt?

Well, that's a good question, Brad. As I mentioned in my comments, in our business this quarter, and it's been improving the last couple, we put more emphasis on occasional furniture and tables and things of that nature that are more item specific because the industry and our own casegoods group is struggling with the large bedroom and dining room offerings. The mood still isn't to make large purchases of those products, and they are very influenced by new housing starts, which obviously aren't going on. So little more emphasis on occasional furniture has helped us. And that's not to say we're not selling bedroom and dining room, but we're certainly not selling at the pace we would if there was more robust housing.

And so when you drill and look at units versus the ticket, is there anything going on there that's helping to stabilize the business?

Well, no, actually, we're probably selling more units because of the cost of the occasional furniture at lower dollars. So our unit count is up significantly but it's not -- our average selling price is probably down.

Got you. And then just secondly on SG&A. Mike, I think you said in the quarter the consensus comp was up $3 million year-over-year, and that if you continue to have good results in the second quarter and third quarter, it would be up again. Should we expect a similar magnitude of an increase in 2Q and 3Q, or what are the drivers that we should look for in terms of how we model that?

I think what I'm just trying -- progressively, it'll probably get more in line as the year goes on. But there will be -- and again, as long as sales continue to be driven the way they are and we're able to do the things we want to do, that's what I'm referring to. And first -- the second quarter will be an interesting quarter with all the other things going on in the world, but it'll progressively get more in line with the prior year. But -- so I guess you just have to kind of model increasing differential as the year goes on.

So to be clear, it should be less than that $3 million, unless you all have a phenomenal quarter?

Yes. That depends on performance, Brad. But yes, if we stay at a pace we've been on, the first quarter should be the biggest differential year-over-year as we see it today. But again, that's a moving target every quarter based on our performance.

Right, and in some cases, our stock price. So it's a lot of moving parts, so we're trying to give the best information we have at the time as we move forward.

Our next question is from the line of Budd Bugatch of Raymond James.

This is actually Chad filling in for Budd. Quick question, I guess, with regard to the Ohio stores. Can you help maybe quantify for us the level of profitability of those stores? And, Kurt, you talked about getting to profitability in retail in the latter half of this year. As -- once you have those stores in the fold, what kind of quarterly revenue run rate do you have to hit to get to breakeven?

Well, let me tackle the first part of your question first. The performance of these stores would place them in the higher tier of our performing retail stores today. We've always talked about our Baltimore-Washington market being our best market in terms of operating leverage, and this Southern Ohio market would be at that level. And so I haven't really done the math. I mean, I believe that we always talked about a volume level in our current 85 stores somewhere above $60 million, $62 million, given the 85 stores. Now we keep opening new stores and spending some money so that level is going to go up. But we were modeling and planning for the core 85 stores to become profitable without the Southern Ohio acquisition in the second half of the year. Everything goes like we expect with the Southern Ohio, that just gives us a little more impetus to have a little higher profitability here as the rest of the year and next year rolls out. So again, it's -- for us, because of our high occupancy cost on the core stores, it's all about volume. And as long as we can continue at this pace, we should be able to get there. But I -- there's -- that is probably the wildcard.

Okay. And I know raw material costs were a drag in the quarter. Mike, can you quantify for us in terms of dollars what that was, and are you still thinking that $16 million or so is the right number for the full year in terms of the headwind?

Yes. We haven't really gone into quantifying quarters. We've just given the annual amount, and we're kind of in a quandary right now where things aren't really coming down all that much. But we're not -- so we're trying to refigure that as we look at the second quarter, look at our contracts. We'll probably be giving a more of a flavor of that going forward. But I don't think we have enough insight into what's going to happen in this quarter to know if it's going to continue to go up or it's going to subside and plateau out. So we're still working through that. But we don't do as many long-term contracts so we don't have as much visibility in all of our supplies. And the economy has just kind of decided what it wants to do on its own going forward, so we're just trying to get as much visibility as we can. The quarter was impacted. The rest of the year, we still believe that $16 million to $18 million is the number that's out there. We're just not so sure that we'll some relief from that in the near future.

Okay. And just similar to what we've heard from you in recent quarters, you talked about ticket and conversion and day-to-day comp drivers, and I know traffic has typically been a bit negative. Was that the case again this quarter? Is there an event -- has there been any significant change in terms of the cadence in traffic from what you've been able to tell?

No, there really hasn't, Chad. Our traffic was essentially flat, and that's why I talked a little bit about our web traffic and the interest in -- I just think there's, underway, a fundamental change in the way people shop, particularly for big-ticket and furniture and using the Internet to get more research to narrow down your choices. I just don't believe people are physically shopping as many stores as they did 10 years ago. And we like this correlation of watching our web traffic and our same-store sales. We'll see it if that continues here and continue to report on that. But no, we're just being more productive with the traffic we're getting, and I think that's a testament to our sales teams. I think the customer who is coming into La-Z-Boy stores today is more knowledgeable of the product and services we offer, and that helps our close rate. But we're watching that but the traffic still is relatively flat.

Our next question is from the line of Todd Schwartzman of Sidoti & Company. Todd A. Schwartzman - Sidoti & Company, LLC: Did you quantify the expected accretion of the Ohio stores?

We have not. Todd A. Schwartzman - Sidoti & Company, LLC: All right. Would you like to take a stab at that?

We would not. No, we -- it's just -- suffice to say that this is a good business. We're pleased to be in a position to purchase a profitable retail business. A lot of our work to date has taken over unprofitable ones and turning them around. This is not a turnaround strategy. We have a gentleman going to run that business for us that's been running it for the 2 owners for the last few years, so we expect an easy transition. But this is a very solid business that we're pleased to have as part of our portfolio. Todd A. Schwartzman - Sidoti & Company, LLC: So these stores, just to reiterate, these are at or near the top of the heap with -- along with Baltimore and D.C., is that correct?

Their earnings, their operating income on their sales would be in the top tier, along with all the stores we have in our portfolio. Todd A. Schwartzman - Sidoti & Company, LLC: Would you care to round out the top 5, Kurt, just to give a sense of geographical strength?

No, it's not really geographical strength. It's the condition the businesses were in when we bought them and our ability to get stores relocated and the markets done. And all my comments the last 5 minutes have been about within our own 94-store, now, network. It's not about the whole 312 stores. But within our own network, these will be a solid contributor to our retail division. Todd A. Schwartzman - Sidoti & Company, LLC: Understood. Can you maybe say a little bit about the effective pricing in 1Q, ASPs, promos, and maybe kind of talk about the extent to which traffic and close ratio improved in July over June?

Well, I -- we're -- we give you our statistics on our retail business for the quarter. I don't want to get into month-to-month and go into that kind of a detail. But we took a price increase in the spring. It's starting to flow through but we've also, as Mike indicated earlier, with our $16 million to $18 million anticipation of raw materials, we got about 20% of that in the first quarter, and we are seeing some fluctuations with pricing right now on raw materials, but nothing to the extent that we would change our mind on our expectations. So that seems to have flown through, and it hasn't caused a hiccup in volumes. So we are hoping that if raw materials will moderate here going forward, we'll be able to go through a year here without having to take major price increases like we've had the last couple of years. Todd A. Schwartzman - Sidoti & Company, LLC: So poly pricing, for example, is within a reasonable -- the fluctuation area is within a reasonable band at this point?

Yes. Both poly and steel are within a reasonable -- yes, poly and steel. The one that's jumping a lot is -- and hard to get contracts on is plywood.

And the leather -- our cover costs are fluctuating as well. We just -- we talked more about the steel, the poly and the plywood, but the cover fluctuates pretty significantly at times, too, especially in leather. Todd A. Schwartzman - Sidoti & Company, LLC: And speaking of covers, Mike, how -- any update on the Mexican operations?

Todd, I'll handle that. We gave you, for 3 years, quarterly updates on how Mexico was progressing and it's at a mature state now. It's part of our 6 operations within our branded business, so we don't report out on our individual plants in the branded business. And so unless there would be a major change or some kind of hiccup, you won't hear us reporting out, specifically, on Mexico because we think it's ramping up. And the huge savings that we had year-over-year, now it's going to be -- as we drive volume, we should convert better. We should be able to cover our fixed overheads. But there's nothing significant to report on that, and we decided we're just going to talk about the business in total instead of singling out Mexico. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. And finally, how should we think about -- for the balance of the year, how should we think about the incremental manufacturing efficiencies that you're expecting?

We're still on the -- there's all kinds of oddities that'll happen there, and we've talked about the compensation. But we're still expect to -- on the incremental dollars, to convert at the 20% to 30% realm. We've talked a little bit about the fact that we opened more stores up and we spend a lot more time refreshing stores. And building for our future, we may have some offset to that incremental volume. But it is still our call that 20% to 30% is incremental operating margin that we'll receive on incremental dollars that we sell.

[Operator Instructions] The next question is from the line of Matt McCall, BB&T Capital Markets. Matthew S. McCall - BB&T Capital Markets, Research Division: So I'm actually going to call upon that last question. Mike, you said 20% to 30%, the target. Just understanding some of the puts and the takes, I think, Kurt, you said that ad spending is going to remain flat as a percent of sales. I'm not sure if that's been a leverageable item in the past. Mike, you just mentioned the incentive comp. The other thing I wrote down was the improved utilization in Hudson. And then I'm still not sure how to look at price cost. It sounds like cost is okay. I didn't understand the price element of that. Are you at parity there? Are you going to get some net benefit, net paying? So if you net all those out, is -- were you saying net of all those, we're at 20% to 30%, or we start at 20% to 30% and then we have to adjust for all those?

So let me take a stab at that, Matt. First of all, some of these investments we're making, the marketing spend and the stores, we're expecting to do more volume or we wouldn't be making the investments. If we don't do more volume, our conversion will go downslide. We won't have -- there will be no more sales, but our conversion would go down. So we're taking the position that these investments are going to generate more sales that can help our conversion. We're -- on the pricing issue, we mentioned that we took price to counteract the raw materials, and we took enough price to not only cover the raw costs, but also to cover our margin. So we expect our pricing and our raw material build to be neutral. And so I guess the last wildcard is the compensation, which has been higher than normal based on improved performance, and that may have some effect. So let's say on an average, we would like to be in that range, in the higher end of the 20% to 30%. It might put us down a couple of points, depending on how we're doing things. But we aren't -- we haven't seen enough evidence yet to say that as the pace – if the pace of business continues like it's been in the last few quarters, we're still believing that we can convert at these levels. Matthew S. McCall - BB&T Capital Markets, Research Division: Okay. And this might be repeating myself a little bit. But the corporate overhead number, as I look back the last 4 years, Q1 to Q2, it's gone anywhere -- it's gone up anywhere from 15% to 70%. So just trying to understand what the seasonal impact is on that item that you break out. Can you tell us how to look at that as we look out into Q2, and what would make it go higher?

Well, in this quarter, as if you -- we just put our Q out last night, if you look in there, we had a $1 million reserve reversal that we talked about last year, in our last year Q, and that affected corporate and other relating to an environmental reserve on an acquired company that we were able to get out of that obligation. So that was in last year. And then this year, we had the additional comp that went into corporate and other that made it a little more skewed on the year-over-year adjustment. So going forward, we don't have any of those other one-offs in the prior year of any significance, and we'll just have the compensation going forward that'll be reflective. And we think that we'll be on a steady cadence after that is what our current anticipation is. I don't know of anything that's significant that I can give you that would make a difference there at the present time. Matthew S. McCall - BB&T Capital Markets, Research Division: Okay. So just look at that incentive comp on a year-over-year basis and look at the cadence of last year as a guide.

That's the best information I can give you right now, yes. Matthew S. McCall - BB&T Capital Markets, Research Division: Okay, that's fine. And then -- and, Kurt, I've asked this before, but can you talk -- I think there was a question about traffic and ticket and conversion. What about mix and then what about demographics? What have you been able to learn from, if anything, from who's coming in the door, who's buying and then what they're buying? Any deltas in the growth rates of some of your products? I think you mentioned casegoods but I'm more talking about on upholstery side?

Well, good question, Matt. I mentioned in my call that we -- because if you look at the marketing we're doing with the brand platform and the things that Brooke is talking about, we are trying to change people's perception of La-Z-Boy, that we have more than recliners, that we have style, that we can do a full room. And we've been on constant gait. You're not seeing Brooke talk about the La-Z-Boy recliner and pushing that because we think people recognize this. And what's nice to see is the result of the continuum of our marketing is that we are seeing much faster growth rates, higher growth rate in sofas, occasional chairs, the non-reclining products than we are with the reclining products. Both are growing. But our pace of growth in the living room business, if you will, the stationary business is accelerating at a pace higher, which correlates to all the things we're talking about with our marketing. Matthew S. McCall - BB&T Capital Markets, Research Division: Okay. And then just anything on the demographics that you've been able to learn?

Well, I think it's still a little early, and we've got some research we're going to do this fall. The La-Z-Boy customer typically tended to trend to be slightly older and slightly higher income. We're trying to see if we can attract a little bit younger customer without hurting the core customer we had. But we haven't done the quantitative research on that for me to really make any statements. Matthew S. McCall - BB&T Capital Markets, Research Division: Okay. And, Kurt, one more, let me sneak it in, that some competitor is obviously having issues out there. Is the opportunity -- is there an opportunity related to that? And if there is -- I'm assuming there is. But if there is, is it tied more to the potential for new floors for La-Z-Boy, or is it basically the existing floors will benefit from vacated chair, if you will?

Well, that's the quandary question that has been a debated a lot in our industry. It doesn't always seem that when a dealer goes out of business in a certain community, that all that business transfers to somebody else. That doesn't seem to happen that way. Or all the people that went bankrupt over the last decade, that business would all fall in the laps of everybody else. And if you get less people promoting furniture and give them less choices, furniture doesn't remain as top of mind on people, and they spend their money elsewhere. So it's not an end sum game of how that business translates. I do think we have had -- we have benefited some from some of our competitors having challenges in having more floor space on our existing dealers. We have a very strong dealer base. We are very committed to the distribution we have and having an environment where they can grow and make money. We're not out there pursuing a number of brand-new accounts because most of them would have a conflict with our existing dealers. As long as our existing dealers are growing and promoting the line and doing the things we think, we're going to give them the opportunity to capitalize on any change in the marketplace.

And, Matt, I just want to just add one overlying comment. When we talk about our conversion, we're talking about an annual conversion. Our problem is -- not problem, but our issue is, is any quarter over any other quarter, there's some fluctuations in how we spend marketing one quarter versus another based on when the holidays fall. There's maybe some compensation one quarter over the another because the way we recruited last year. So I just want to make sure you understand that our conversion rate, we think, over the full year will be there. There may be some instances within a quarter over another quarter that things may get a little pared based on the way things were last year and the way we're trying to set up our marketing and those type of things, as well as the other comp. So just kind of laying that out there.

Our next question is from the line of John Baugh of Stifel, Nicolaus. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: I wanted to jump into the retail segment. And as I look at the last couple of quarters prior to this one, I think your volumes in retail were $58 million and $56 million, and the EBIT loss was materially lower. Is there some timing here? Is it store opening expenses? Is there something that explains the increase in EBIT drag in that segment?

Good question, John. It is primarily store cost in terms of new stores. We recognize all the cost early before you get any volume. We opened a store in St. Louis this quarter, and we had some costs that we're opening -- we opened in the -- we opened already a store this month, in August, in Pittsburgh, and some of those costs we incurred during the quarter. We're remodeling some stores. We're doing this refresh program at about 20 stores over the course of the year. So yes, there's a little more cost of getting the -- of making an investment in our stores that don't have quite the -- now later in the year, we should get the improved sales and you should see that flip over here as we stop -- as we get some stores up and we stop having those initial costs, then we start benefiting from the volume. But in this quarter, the biggest differential on the comparison was new store start-ups. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So if we were to somehow be able to look at the operation without remodeling new store expenses, et cetera, there wouldn't have been a change in the contribution margin, if you will, or the profit?

Correct. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then I thought I heard an $18 million number thrown around in discussing the purchase of the 9 stores, is that -- can you clarify that number?

Yes. We're buying the enterprise, including their inventory, their customer deposits, all that. We're buying the enterprise in Southern Ohio for $18 million, and we reported on that in our Q. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So it'll be an $18 million cash outlay. And there won't be an earnout there, that'll be it?

That'll be it. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then, Kurt, if you can just comment on the -- largely, we got a variable expense model in casegoods, but you've referenced this remaining plant and increased production. Is that something we should get excited about in terms of leveraging EBIT margin from here? Because that's the low and fixed cost piece. And if you get more production through there, that could really enhance margin.

True. I would say, John, that we're making these moves. We're trying to put some more product in there. There is an appetite in -- with some customers and some consumers about the Made in America story, and it does differentiate us. We can do more finishes and some other things. But the plant has had a tremendous drop in volume over the last 5 years, and we have to get back up to a level that's acceptable. This is one move in that direction, if the product sells and we -- and it meets our volume expectations, it would be a good thing, if it doesn't -- so we've got a year or 2 here to make up our minds about what the model should be. I like the fact that we have some flexibility with having a domestic facility. But we won't continue to operate the facility at a loss forever, and we're trying to see where that breakpoint is. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And Kurt, is the production that you're talking about with these Drew bedroom suites, is that to -- basically samples? Or have you got samples placed and are you starting to get orders?

No, no. We introduced this in April. And we've got solid orders, and we've got great placements. And this is just starting to get them out on the floor. So we don't have any sell-through yet, but these will all be on the floor in September and October in anticipation of selling through the holiday season.

There are no further questions at this time. I would like to turn the floor back now to management for closing comments.

Thank you, everybody, for participating on our call this morning. Should you have follow-up questions, I will be available. Give me a call and have a great day. Thank you.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.