La-Z-Boy Incorporated (LZB) Q2 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Welcome to the La-Z-Boy Fiscal 2013 Second 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, Andrew. Good morning, and thank you for joining us to discuss our fiscal 2013 second 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 1 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, and good morning, everyone. Yesterday afternoon, we reported our second quarter results for fiscal 2013. Sales for the quarter increased 4.8%. Same-store sales for the La-Z-Boy Furniture Galleries store network increased 13.3%, and we experienced a 16.1% delivered sales increase in our company-owned retail segment, which included new stores opened or acquired during the quarter. Without the new stores, the delivered comp for the company-owned retail segment was a healthy 10.2%. Notably, our progress in retail operations continues to improve and we expect to achieve profitability in the second half of this fiscal year. Additionally, demonstrating the faith our management team and Board of Directors have in our business model and positioning in the marketplace, we also announced yesterday that we reinstated our quarterly dividend. We are pleased with the results our business model and strategy are delivering. Four years ago, during the severe macroeconomic downturn, we made difficult but necessary decisions and reduced our cost structure significantly. This on the heels of completing the conversion of our La-Z-Boy branded facilities to the cellular production process and beginning the move of our cut-and-sew operations to Mexico. With these strategic initiatives behind us and a successful brand advertising campaign underway, La-Z-Boy has been in a position to be more aggressive in strengthening our business in an environment that today is still somewhat challenging. Our same-store sales numbers demonstrate we are building market share and we will continue to leverage our lean operating structure while investing in our business to ensure we deliver return to our shareholders through profitable growth. Of particular note, if you would look back to calendar year 2010, our 300-plus La-Z-Boy Furniture Gallery stores were doing about $850 million at retail on an annual basis. Assuming we continue with the same pace of volume that we've experienced over the past 18 to 24 months, those same stores should generate about $1 billion -- $1,000,050,000 at the retail level this calendar year. Approximately $200 million more than the same -- through the same number of stores. This has been accomplished against the backdrop of a modest home furnishings retail market over the past 2 years, which adds to the significance of our progress. Now let me spend a few minutes on each of our 3 operating segments. Sales for the Upholstery segment increased 7.5% for the quarter, and the operating margin for the period was 8.4% compared to 8.7% in last year's second quarter. This month, we anniversary-ed 2 years of the Live Life Comfortably campaign featuring Brooke Shields. Since launching the advertising campaign, we have enjoyed double-digit sales -- same-store sales increases for the La-Z-Boy Furniture Galleries network, and importantly, increased sales of our stationary line of furniture at a faster rate than sales for our core recliner and motion business. Highlighting La-Z-Boy as a brand that offers a wide range of stylish upholstered furniture, rather than just solely recliners, is exactly what the campaign was meant to do and we intend to capture an even larger share of the stationary market going forward. At the same time, we are committed to continue investing in the campaign, as it is driving a more qualified consumer to our stores, and that, combined with our Internet presence, is showcasing all we have to offer. For the advertising air that began this September, we plan to be on the air for approximately 30 weeks, several weeks ahead of last year, and more than double where we were 2 years ago when we initiated the campaign. We believe that continuing to invest in the brand campaign will deliver ongoing volume growth and indeed contributed to the 13.3% same-store sales increase for the period. In the second quarter alone, we were on the air for 4 additional weeks, and that increased our quarter-over-quarter advertising spend by $1.6 million, which impacted the conversion on the period sales increase. Importantly, for the year, we anticipate our total advertising spend as a percentage of sales to remain fairly consistent. Investing in our business is paramount to driving sales growth and expanding our distribution and share of upholstery market throughout North America is integral to our strategy. Both the company and our La-Z-Boy Furniture Gallery dealer base believe that now is the time to open more stores. During the second quarter, throughout the network, 3 new stores were opened, 2 were remodeled and 2 were relocated. For fiscal 2013, in total, the network plans to open 6 new stores, relocate 4 and remodel 5, with the company representing about 40% of those projects. Now turning to casegoods. In the segment, sales for the quarter decreased 3.9% and the operating margin for the segment declined to 2.6%. As with the first quarter, occasional furniture sales outpaced the larger ticket dining room and bedroom groups as consumers remained reluctant to make the higher ticket purchases of full bedroom groups. As we mentioned in our last quarter's call, we believe this portion of the casegood industry will continue to face challenges until housing starts to strengthen in a meaningful way. Our Hudson, North Carolina facility began this quarter producing several new American Drew bedroom groups, which is increasing our capacity utilization at the plant, and we are in the process of converting this facility to a new production model that is similar to the cellular structure employed at our La-Z-Boy branded facilities. We believe this new method of production will allow us to be in a better position to service our customers, while reducing cost and finished goods inventory. Additionally, during the quarter, we closed our lumber processing operation, which lowered our cost structure, and we will now source all wood parts. Importantly, we believe that maintaining domestic production, providing it operates profitably, will allow us to increase service to our customers by being able to more quickly deliver a customized product. We believe the changes we have made to our casegoods operations will save us approximately $1.5 million per year providing our volume remains at today's levels. Now I'll spend a few moments on our retail segment. For the quarter, we posted delivered sales increase of 16%. As referenced in my opening remarks, without new and acquired stores, our delivered increase was 10.2%. On October 1, we completed the acquisition of the Southern Ohio market, consisting of 9 La-Z-Boy Furniture Galleries stores and an accompanying warehouse. The business has been a solid performer over the years with revenues of about $30 million in calendar year 2011, and we expect it to continue to be accretive to our earnings as it was for the month of October. We paid about $16 million in cash for this operation. We are pleased with the consistent performance of our retail segment. This quarter marked the 15th consecutive period of improvement, and our loss of less than $600,000 is our best performance on our quest towards profitability. For the quarter, we experienced increases in the average ticket, units per ticket and In-Home Design sales, all of which contributed to an increase in our gross margin. Additionally, we saw an increase in both floor and web traffic. We believe these metrics reflect that our brand advertising campaign is working, we are educating the consumer to understand that La-Z-Boy offers more than recliners and that she can furnish her entire room at La-Z-Boy with stylish upholstery and complementary accessories. During the period, we continue to invest in our store system and opened 2 new stores, remodeled 1 and relocated 1 at a cost of approximately $500,000. The 2 new stores are in the Pittsburgh, Pennsylvania market, where we have been without distribution for several years. But because we have been advertising nationally for the last 2 years, there was an awareness of and an appetite for La-Z-Boy. And we are very pleased with the pace of business experienced by those stores from Day 1. We will continue to look for opportunities to build on existing markets and enter dark markets like Pittsburgh where there is a need for multiple locations. As we've said in the past, we believe that branded distribution is a cornerstone of our strategy, particularly as the landscape continues to contract and change. Furthermore, we believe North America has room for approximately 400 La-Z-Boy Furniture Galleries stores, so there's great opportunity for us to grow our own Retail segment, as well as the dealer side of the business. As we move forward, we believe the Retail segment will be profitable, so for the second half of fiscal 2013, barring any unforeseen changes in the pace of business. Our team is doing many of the right things: Improving the selling processes everyday to increase volume and gross margins, scouting new locations to increase distribution and grow, and keeping a watchful eye on our cost structure. Now I'll turn things over to Mike to review our financials.

Thank you, Kurt. As Kurt mentioned, for the fiscal 2013 second quarter, net sales increased 4.8% compared with last year's second quarter. Net income attributable to La-Z-Boy Incorporated was $6.6 million or $0.12 per diluted share, after a $0.03 per share restructuring charge, relating to the conversion of our casegoods plant to an import model for parts versus the manufactured parts model. This is compared with $7.9 million or a $0.15 per diluted share in last year's second quarter. The $0.03 per share restructuring charge reflected the write-down of certain fixed assets and inventories related to the closure of our lumber processing facility. As we mentioned earlier, we are now outsourcing all component wood parts that will then be assembled and finished at our Hudson, North Carolina facility. We did generate $13 million in cash from operating activities during the quarter, and ended the period with $87 million in cash and equivalents after acquiring the Southern Ohio business and increasing our longer-term investments and restricted cash. Our restricted cash has been established to collateralize our Letters of Credit, which further reduces our interest cost. At the end of the quarter, our total debt was $7.7 million and our debt-to-capitalization was 1.6%. As Kurt also noted, we declared a quarterly dividend to shareholders in the amount of $0.04 per share payable on December 20 to shareholders of record as of December 10, 2012. During the quarter, we accrued $3 million more in incentive compensation cost versus last year's second quarter, relating to the continued improvement in sales and operating results for the full year period. Due to our improved performance the past couple of years, our year-over-year increase in compensation expense has been significant, but we expect the expense to have less of an impact in the second half of the fiscal year compared to our first half. Also, we continued our journey to replace our legacy computer system with the JD Edwards E1 system. At this time, some of the expenditures are being capitalized, but as we complete the design phase of certain functions, we'll expense more of the cost over the next 2-year period. These 2 items, along with our continued investment in our marketing campaign, hampered our ability convert at the levels we expected for this quarter. Capital expenditures for the first 6 months of fiscal 2013 were $11.6 million and are expected to be in the range of $25 million to $30 million for fiscal 2013, reflecting upgrades to our IT systems including our ERP implementation, new stores and remodels of existing stores, the number of replacements of machinery, and cost relating to the land acquisition and development relating to our new World Headquarters. For the quarter, our effective tax rate was 36%. Going forward, for modeling purposes for fiscal 2013, we still expect our effective tax rate to be in the range of 36% to 38%. I will now turn the call back to Kurt for his concluding remarks.

Thank you, Mike. We are pleased with the progress we have made over the last several years. The environment has been difficult and ongoing macroeconomic challenges exist, but we have been executing on our strategic plan, controlling our controllables and positioning ourselves to capitalize on an improving economy. Our brand advertising campaign is strong. We continue to introduce compelling product values with a focus on innovation. We've improved our retail performance and we are investing in our business. In addition to opening our stores and building out our vast network of branded distribution outlets, we are investing in many facets of our business, including our marketing campaign and our infrastructure to ensure we achieve profitable growth and return value to all of our shareholders. We very much appreciate you being on the call today, and now I'll turn things back over to Kathy.

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

[Operator Instructions] Our first question is from Budd Bugatch of Raymond James.

This is actually Chad filling in for Budd. Kurt, you talked in the release about the higher ad spend and the incentive comp increases impacting earnings and it sounds like the incentive comp increases will be of a lower magnitude over the next couple of quarters. Can you quantify maybe, or give us a reasonable range of what to expect for the incentive comp year-over-year in the second half? And then maybe repeat what you said earlier about ad spend. It sounds like flattish year-over-year for the full year as a percentage of sales? So would I read that as not being as big of a year-over-year impact in the second half as well?

I will answer both the questions but I'll start with the second one first. We are going to be spending more money on marketing. We have additional weeks of our brand platform being run as we go forward. And obviously, the intent is to drive the additional sales so if we continue to pace our business like it's been, while we'll be spending more money, we should get the return on sales. And now that is outside of whatever advertising we spend on the new market in Cincinnati and the new market in Pittsburgh. We'll be advertising with those stores and spending more money, but again, we have the volume to back it up. So we will be spending more money, but we think the residual benefit for more sales, as a percentage of sales when the year is over, we don't expect our percent of sales for advertising to be much different than the previous year. It could be up slightly but nothing significant. As far as the incentive compensation is concerned, it has been a big number for the first half of the year, it's been around $6 million. And this all depends on continuing performance, because these things have a continuing life on them. But we would think, what we know right now, that number should be somewhere around half to slightly more than half of the increase that we've had in the first half of the year.

Okay, that's helpful. As I looked at the segments, upholstery margins were lower year-over-year despite a pretty healthy sales increase, and you did give us a lot of helpful detail in the Q filed last night. But you had called out in there 3 factors that impacted the upholstery gross margin, I think, higher health care, costs related to the ERP implementation and then some other manufacturing costs to improve customer service. Can you quantify or give us a little bit more color around those 3 items in particular? By my math, it had to be at least a couple of million dollar drag. And then, are those costs that will persist, moderate? How do we think about it going forward?

Very good question, Chad. I would say that those in the aggregate aren't any more significant than the 2 that really have the biggest impact was the incentive comp is in the upholstery business. It's probably half of the $3 million for the year, and the marketing, the $1.5 million that we spent up is in there. So those 2 things are singularly more than any of the 3 things that we highlighted in the outline. But they were -- they did cause some issues in the quarter, but not as significant as the comp or the marketing.

And Chad, just to clarify, that's what we're talking about for our conversion. We're just pointing out for our gross -- because obviously, most of these costs were in our SG&A, but for the gross margin, those items affected our margin where these other one are affecting our operating margin.

But our gross margin was still up for the quarter if you add back the restructuring. So it wasn't that significant.

Sure, okay. And then on the delivered revenue, the 4.8% sales growth felt a little bit light given how strong the written business was last quarter. Was there any delivery or production issues or anything that impacted reported revenue and, I guess, if so, does that mean backlog improved sequentially or any thoughts there?

I want to put them into context, that number. First of all, I think the thing that people have to understand is, we have enjoyed a great run here for a couple of years with our double-digit same-store sales increases at the La-Z-Boy stores. But the La-Z-Boy store business is less than half of the entire upholstery segments business. So I think some people are starting to equate the 2, that they should line up our delivered sales in upholstery with the growth of the stores, and that is not. What that tells you is that some of our other distribution, particularly the medium and smaller dealers, are not enjoying the same success. But we had a pretty good pace of business for the quarter. Our sales were up in Upholstery, 7.5%. Casegoods business was down. And so I think that it's just reflective of the math of part of our distribution base being up and part of it being down. Although we did have the best written comparisons in Upholstery in the month of October, which should flow over into our quarter here in the third quarter.

Okay, that make sense. Last question for me and I'll defer to others is that you called out positive foot traffic in the release which I think is a positive change versus the trend you've seen in recent quarters. Any color around that or to what do you attribute that improvement?

Well, it was positive and actually it was a little bit of a surprise to us on how positive it was. I'm not going to give a number, but going from slightly down to flat, this was a pleasant surprise. But I also would say that being on TV another 2 weeks this quarter -- the last quarter than the year before I think had a lot to do with that. And I think just the consistency of our message and the continued investment in expanding our TV campaign, I think the cumulative effect of that is starting to show up in our traffic comps.

Our next question is from Mr. Brad Thomas of KeyBanc.

Just a follow-up on some of the previous line of questioning. Kurt, can you just talk a little bit more about what the trends are that you're seeing in the other channels that you sell to. Has there been any slowdown are you picking up more market share from them, from their company operated stores? If you can just give us a better sense on what's happening there, in those other channels distribution, would be helpful?

Well Brad, I don't know that I want to go into the kind of detail there for competitive reasons, but I think the midsized to smaller dealers are having a little more difficulty in spending the money on marketing, in being consistent with their advertising and I just think that our stores are -- not just ours, but our whole network are being a little more aggressive there in the higher population markets. We do have our major customers that are also up, so this is not -- you can't paint a brush as the same as across all of our distribution fights. But obviously, the La-Z-Boy stores are doing a little bit better right now. And I don't believe it's a -- taking share in similar markets. We don't have that many markets where there's cross competition that, that would be the case. It's just I just think being in the Metropolitan areas where there's more buying power is benefiting the store program at this point.

Got you, that's helpful. And so as we think about the cadences of the total company revenue, it does seem like sales were strong at the end of the quarter. The written business in the La-Z-Boy segment obviously accelerated relative to last quarter. Is there reason for optimism to think that perhaps the revenue growth should improve from this 5% level that you saw this quarter? Or how are you thinking about the top line out for the back half?

We're still in -- we're 1 month into the new quarter and it's an important quarter because of the holidays, and our crystal ball is not any better than anybody else's. The only comment I'd make on that, Brad, is our pace of business through the month of November has remained consistent with previous trends. And so, I think that bodes well for us, but I don't want to make any comments beyond that.

Great. And then just lastly, Kurt on the cadence in the casegoods business, I know you indicated that it would be almost $1.5 million in annual savings. Is it reasonable to expect that about half that rate coming in the back half of this year? Or is there anything that might change the timing or the magnitude of how that might flow through?

Well, I think the safest thing to do is to look at next fiscal year and anticipate all that savings. I'm sure we'll get some of it in this year but I don't think it will start in the third quarter all fall. There's things that have to get changed, there's parts that are coming in, there's selling off of some inventory in this and that. So I wouldn't bake it all in the second half of this year, but it's certainly our expectations that in '14, the whole thing falls, converge down to the bottom line.

The next question comes from Mr. John Baugh of Stifel, Nicolaus. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: I wonder if we can just start with the charge and where that falls out on the consolidated income statement, and then where is it, if it is captured on the segment?

So John, right now, I would say the majority of that charge is in the cost of goods sold. And we, as a practice, have -- keep the restructuring out of the segment. It's down -- as you look at our segment disclosure in our 10-Q, you'll see a separate line item for restructuring that stays outside the segment cost. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And so, while we're looking at that segment number on Corporate and Other, does that have the higher bonus accrual in it or is that embedded in the segment numbers or both?

It's both. The portion of it that relates to the Upholstery business will be in there is the portion of it in all of our Retail, and then Corporate would have their portion of it as well. So it is spread throughout the segments appropriately based on where the employees are employed or reported. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And then, Kurt, maybe on -- a comment on Bauhaus in England or your other Upholstery business, was the issue just that La-Z-Boy branded product going to independent distribution was lower or was there some drag from the nonbranded as well?

So there wasn't really a drag, John. But typically the -- particularly, England, their customer has been the medium-sized and smaller dealers, so they don't have this volume governor like the branded group has at the La-Z-Boy stores right now. But no, neither one of the upholstery -- neither one of our other Upholstery companies were a drag on our growth this quarter. It's just the -- it's just as you get out and get the different mix of dealers, some are seemingly having more success than others. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: So those would be close to the 7.5% upholstery number as well as those 2 brands?

Yes, that's -- that would be accurate. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay, and then on inventories, there was a meaningful increase, what do we attribute that to?

The acquisition of the Ohio market added some inventory to our finished goods, us getting in a better position to service over the holiday periods. We added some inventory. And then -- and we're just trying to keep our flow in the raw materials. A majority of our increase is in the raw materials, because of the order rate that we talked about, as well as our delivered sales being up, so we're just trying to be prudent not to run out of our most popular fabrics during this holiday season while we are hoping for the increase in those sales. So it was a planned increase and some of that needed to be done in order to be servicing our customer better.

And John, you won't see much change in that. In fact you might see it go up just a little bit more because of Chinese New Year and the end of January where we have to bring in things in advance or have some pickups there. But I would think it would get down closer to last year's levels with the differential being the sales increase by year end. So this was the plan, this was -- we wanted to have enough fabric and leather to service on a more timely basis and we made the investment to do so. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay, great. And then, just want to make sure I'm clear, this same-store written sales figure, up 13.3% for the quarter, that's written, so it's not delivered, correct? And then, I would assume that's part of this inventory build that you've got some levels increased backlog, at least in the La-Z-Boy store network, correct?

Well, I mean, I don't want to make this any more complicated, but some of that written has been delivered because some of that written was written in August. So it's a quarter of written and -- but over time, it isn't an exact flow through, but over time, your written and delivered will average out to being the same as you catch up. And the basic philosophy, John, and because our dealer stock inventory, as well as the company owned stores, if a customer comes into the store and sees a product on the floor in the exact fabric and configuration she wants it, the odds are that the dealer has that backed up in their warehouse and can deliver that within a week. If it's a special order, by the time you get to the customer, it could be 6 to 8 weeks, so we have a 60-day lag there on maybe 1/3 of the business going through the stores that aren't sold exactly off the floor. So you'll always have that carryover quarter-to-quarter. But it's fairly consistent, John. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And then on casegoods, if I understand correctly, so the charge is not in the segment numbers. So the 2.6%, I think, EBIT margin was the sort of ongoing or operating number. And that number bounces around a little bit because, obviously, the sales there continues to drift lower. Was there something with the plant, you mentioned you were making some more product ramping, does that have an impact there? I guess I'm wondering, can we bank on a sort of 4% to 5% EBIT margin in that business going forward regardless of where sales are? Or is that sales-sensitive or process-sensitive or something else?

Well, there's a lot of questions in there. I think we are still comfortable with the mid-single digit range for casegoods on an annual basis. I think you have to accept that the casegoods industry -- the casegoods business in our industry is the most challenged. If you read all the numbers about growth and expectations, certainly, bedding has been leading the industry for the last couple of years. Upholstery, and particularly motion Upholstery is a high performer, but casegoods, especially the larger collections of bed and the dining room, have been challenged, not just at the La-Z-Boy companies but in most casegoods companies. And so the move we made really to go to a parts production system should actually negate some of our dependency on running the rough mill and running the lumber area and things of that nature. So it should be -- it should flex with volume and we should be able to deliver that profit. I'm sure making the changes to shut down the wood room and do some of those things impacted our efficiencies for the quarter. But they have historically performed in that range, and we don't see anything that would cause us to believe at this point that it would be much different. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And my last quick question. Any more details on the acquisition? You mentioned you have paid $16 million, $30 million of revenue and it's accretive. Is there -- do you want to get any more refined than that? And I have a suspicion you won't, but is there anything in terms of ongoing cost saves or sale synergies or something we should expect out of those 9 stores?

I think you'll see, as our results go on, that this is a solid contributor. It would rate at the top tier of our market performers that we have running for the company, and we're extremely pleased to have bought a profitable retailer rather than having to take something and turn it around, which has been our history. So there are some more detail in the Q about the acquisition cost and what we did under Note 2, but that's as far as we're going to go, John.

[Operator Instructions] The next question comes from Mr. Todd Schwartzman of Sidoti & Company. Todd A. Schwartzman - Sidoti & Company, LLC: What was the impact of Sandy in the quarter? I haven't heard much discussed about that. Did it hurt you guys in any way?

Well, Todd, that's a good question. First, I think, we, like the rest of America, our hearts go out to the people that are affected. I know they've got a long way to come back, and I'm impressed by the relief work that everybody is doing. So that's foremost on our mind. As a general statement, the Hurricane Sandy is not going to have a significant impact on -- it didn't have a significant impact on our operations this quarter, and we don't think it will going forward. We had about 40 of our stores closed for a couple days. We had 1 store that didn't get back up for about a week and we had a few dealer stores that we know had challenges. But it was isolated to that New Jersey-New York area and we -- luckily we're back in business quickly. So, and it has a significant impact on the people involved, but luckily it's not going to be that meaningful to us. Todd A. Schwartzman - Sidoti & Company, LLC: Were those couple of days, Kurt, week days?

They were. Todd A. Schwartzman - Sidoti & Company, LLC: I guess, I would have asked the question regardless, but I think in particularly in light of the fact that you saw an increase in store traffic. It's somewhat surprising for me since I think it's been, and correct me if I'm wrong, I think it's been a number of quarters now since you've seen growth there, and it's not just La-Z-Boy, it's industry-wide. So I'm just wondering what -- to what you attribute the increase in traffic even if it was minimal, when in fact you've seen declines in recent quarters?

I don't know how to answer that question, Todd, any differently than what we have. We believe the consistency of our marketing, the additional weeks that we were on the air for the quarter, the aggressiveness of our message in the local markets at the Retail area, we just believe that we're cutting through some of the clutter and making a difference. But we were pleasantly surprised to see a pretty good uplift in traffic for the quarter. Todd A. Schwartzman - Sidoti & Company, LLC: Last question, Kurt. You sound somewhat sour or cautious maybe still regarding the macro environment. Can you speak to the fact that we were now probably a couple of years in at least to a pretty strong recovery in the apartment rental market. And now we've got probably over a year since the recovery began in single-family constructions, so that should certainly all go well as we get into next fiscal year for La-Z-Boy. But what are you seeing that gives you reason for pause? Is it your consumers', potential consumers' ability to secure a mortgage? Is it choppiness that perhaps others aren't seeing? What contributes to your outlook on the world at this point?

Well, I wouldn't say our outlook is sour. I just think there's probably 2 factors going on. I think, number one, the whole country doesn't know what the impact of the fiscal cliff and our debt and all that is going to do in the tax rates, and so you see a lot of things going on in the month of December to try to adjust that way. So I think that uncertainty doesn't help. We like where consumer confidence is going, we like those kind of numbers, but I think there is that uncertainty over the economy. I think our biggest reason for just being cautious is the housing market is still -- it's showing growth, it's showing big numbers percentage growth, but historically, it is still extremely weak. And while the number of unsold homes have come down and there's a lot of good trends, people are still having trouble getting mortgages. And I would say, Todd, particularly in the casegoods business, they are very dependent on a lot of movement in house formations, new houses, the predominant time when people buy new bedroom and dining room furniture is when they move into a new residence or a new home. And so we just -- we want to make sure the pace of this housing is real and we want to make sure that things are good. But no, we're not sour, and obviously, we're having some success in this economy. But compared to the times in '05, '06, '07 of the -- of better growth and better GDP growth, that's not exactly where the economy is so maybe we're just being cautiously optimistic. I'd rather use that line than sour.

Currently, the last question comes from Matt McCall of BB&T Capital Markets. Matthew Schon McCall - BB&T Capital Markets, Research Division: Let's see. So let me talk about the SG&A and a lot of that in the commentary you've given is I mean your basis but really and where my model fell shorter, was too aggressive, was on that SG&A line. So when I look at sales of 7% sequentially, SG&A was up 10% sequentially. Can you talk about the sequential change in SG&A? I know you've addressed it a lot year-over-year, but was there a big change in some of those items on a sequential basis?

So I think you've got the extra $1.5 million of marketing that we've called out. You got $500,000 of new store and some remodels in there. And sequentially, the comp was the same. But for the quarter, I think a way to think about this is you've got, between the comp, the incentive comp, the marketing and the new stores, you've got $5 million worth of primarily SG&A running through the quarter. Matthew Schon McCall - BB&T Capital Markets, Research Division: And that's compared to the previous quarter?

That's compared to the previous quarter. Sequentially, the comp is the same, but these other things are not. The marketing and the new stores are not. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay, Kurt. Sorry if I missed that. On the corporate overhead, it's a tough number to model purposely obviously but if I look back historically, it looks like Q2 has been kind of the peak for the year, Mike is that the way to look at corporate overhead? Is it what did you do, 89 -- $8.9 million this quarter? Is that a good run rate going forward? How would you tell us to look at that in the back half?

I guess the way to answer that, we're not -- the compensation cost we've been talking about, that has some impact on the corporate overhead. We are pretty consistent in our corporate overhead. The E1 project some of that does go through corporate as well, and not the operating companies because of how we're building the system. But I don't know of anything that would make any other quarter that far out of whack with where we're at other than the compensation. Matthew Schon McCall - BB&T Capital Markets, Research Division: So the compensation -- you did say that was not going higher, that should be kind of flattish. But you said it on a year-over-year basis, that it's the same thing sequentially?

Sequentially, we're probably running at the same rate as we had sequentially. We're saying that the comparison to last year won't be as significant. Matthew Schon McCall - BB&T Capital Markets, Research Division: Right. I was trying to compare that $8.9 million you just reported. It sounds like that might be a good number to use.

Sequentially, if that's what you're referring to, I don't know of anything that's out of whack from that to make sequentially that much different. Matthew Schon McCall - BB&T Capital Markets, Research Division: All right and then, the store growth plan that you -- I've tried to compare what you said last quarter to what you're saying this quarter. Was there any change in the store growth plans? It seemed like there was a number like 19 for the year, and now it seems like it's a little lower than that. Is there -- are there some delays or is it -- or am I misunderstanding what you're saying?

No, I think a couple of things may have got pushed in to the first quarter of next year. We've talked, Matt, about 15 projects, including new stores, remodels and relocations, and that's a pretty good number. We've got another store to open before Christmas in Pittsburgh, our third store, and we're remodeling our big store in Paramus which had to take a timeout because of Sandy for a few weeks to get back to remodeling. So, but we're -- we've got a number of things that we're negotiating on and looking at and it's a top priority for us, but we'll give you some more color on our store growth for fiscal '14 when we get closer to the new year starting, but that 15 project number is probably the most accurate one to use at this time. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay, so just a timing thing. And then finally, on the retail margin. You called out gross margin improvement, you mentioned more in home, higher ticket, higher units per ticket. As you talk about the profitability expectations for next year, how much do those items come into play? I would call those maybe mixed or ASP benefits versus just growth in SG&A leverage? I'm assuming it's a combination of both, but I guess it's the first time I've heard it called out in that specific way on the gross margin improvement side.

We're just trying to give you some color into what's driving some things. I don't believe the rate of improvement that we've seen in our gross margins at retail are going to continue for the next couple of years. Our team has done a very good job of getting what we think are very good gross margins in the retail business, and we've taken them up probably 400 to 500 basis points from a couple of years ago and I'm not sure we'd be able to do that again. But we're always pushing the envelope, how much more gross margin can we get before you affect volume? And what else can you do for add-ons and options and everything at the store level? But the majority of the push to profitability here at retail is going to have to come from volume. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay. And I'm going to sneak one more in. You highlighted the targeted margin, you're still -- you're sticking with the mid single-digit in casegoods. Can you review the outlook, just kind of your thinking on the margin potential for those 2 businesses?

Well, that hasn't changed. But I think, I know some of you are concerned about the conversion this quarter and I want to remind everybody, we've talked about our conversions on an annual basis and we've talked about our segment operating targets on an annual basis. And we have a much stronger second half of the year, with more volume and much higher percentage of profit in the second half of the year. And so, we are still sticking to our high single, low double-digit operating margins in Upholstery, the mid single digits on casegoods, and for this year, getting our Retail business to break even. We will modify that target here as we move into next year, where we expect the profitability to be, but those have been our targets for the last 18 months and we see no reason at this point on an annual basis. And on these conversions, from quarter-to-quarter, we may not quite convert at the midpoint of that, depending on where we make investments. And we think making investments for the long term, that will give us some benefit downstream, we're going to continue to do that. But eventually those investments have to flow through to the bottom line and we believe they will. So I want you to keep this conversion and our operating targets looked at on an annual basis, not necessarily a quarterly basis. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay, Kurt. And just to clarify on the Retail, you said break even for the full year. Is that getting to breakeven by the end of the fiscal year or for the fiscal year, you'll be breakeven, that target, so I don't misunderstand.

At this point, we think there's again, this all depends on the pace of business. And you're getting me close to making some guidance here. But we think the pace of business, that if we're profitable in the second half the year, we haven't lost that much money in the first half, we think there's an outside chance that the segment could get close to breakeven for the entire year.

The next question comes from Sean O'Malley of Wedge Capital Management.

Just a couple of questions. Can you give us any update on the timing or magnitude with respect to the corporate headquarters project?

Sure, I'll be glad to. So we are still working through some zoning and some due diligence with the various governmental bodies on some incentives that have been offered, and trying to get that all tied up by the end of the year. We would say that our partners in this, the state of Michigan, the city of Monroe, the county, they've all been very supportive and very helpful and everything is going as we all envisioned. So on a timing basis, hopefully, that all gets wrapped up by the end of the year and we would commence with buying the land, and then breaking ground in the springtime would be an ideal timeframe for us. And we don't have a final plan built, approved, signed off on, and we don't have all the incentives totally completed. So I think it would be premature for us to talk about the net expense of the company going forward. We'll be glad to do that once we get all the details done, but the timing would be closing on the property early in '13, starting to build in the spring, and it's probably a 2 to 2.5-year project to get completed.

Okay, and then with respect to the dividend, we think it's great that you're reinstating it here and I think it's a very good use of capital. But looking at the magnitude of it, at $0.04 a share, we're talking about $8 million a year or so right now. You have about $80 million in net cash on the balance sheet, operating cash probably at $60 million to $80 million a year. Capital needs, probably $40 million or less. It seems like you have a lot more room there in terms of returning capital to shareholders. Is there a reason for your caution, or do you have some additional growth plans that would require additional uses of capital? What was the board's and your thinking there?

Well, I think we want to keep probably a little more cash on hand and maybe some of our shareholders would appreciate that we want to keep our financial flexibility. We do have some CapEx targets here for the next couple of years with heavy emphasis on stores, with finishing up our ERP, with building the new headquarters. And we want to be in a position to start the dividend, hopefully, continue to raise it as things continue to improve, if that's what ends up to be. You may accuse us of being a little conservative, but we want to get started. Before we suspended the dividend in '08, the company had a history of paying a dividend for 122 consecutive quarters, and we hope the trend we're starting here would do that again. So we hear your question, but at this point you might just call us a little conservative.

And we still expect to be mindful of dilution and looking at our stock buyback program as well to make sure that we're keeping that down as well.

Currently, there are no further questions.

Thank you, everybody, have a great day. And if you need to give me a call for a follow up, please do so. Bye-bye.

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