La-Z-Boy Incorporated (LZB) Q4 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the La-Z-Boy Fiscal 2013 Fourth Quarter and Year-End 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 begin.

Thank you, Kevin. Good morning, everyone. Thank you for joining us to discuss our fiscal 2013 fourth quarter and year-end results. With us this morning 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 fourth quarter and year-end results for fiscal 2013. All in all, it was a good year for La-Z-Boy. We increased sales by $101 million, turned the retail segment profitable, experienced a 12.7% increase in same-store sales for the La-Z-Boy Furniture Galleries network and increased our operating income by 36%. We also generated $68 million in cash from operations after making $23 million in contributions to fund our pension plan. We reinstated our quarterly dividend and continued our share buyback program. Additionally, we opened 10 new concept design stores across the network, entered new markets in our company-owned retail segment and increased sales of our stationary upholstery business. These successes have resonated in our financial performance and valuation. In addition to earning $0.85 per share for fiscal 2013, we closed the year with $174 million in cash, cash equivalents and investments, and our market capitalization surpassed the $1 billion level this year, rebounding from the low point of approximately $30 million back in early 2009. Today, our positioning in the marketplace is as solid as it ever has been. La-Z-Boy is the most recognized brand in the industry. After years of repositioning our company to succeed in this environment, we are poised to maximize the value of our operating model and integrated retail strategy. Key to our plan for growth is a focus on branded distribution, particularly the buildout of the La-Z-Boy Furniture Galleries store network, the channel through which we are experienced the strongest momentum. As housing and the overall macro environment continue to improve, we are well poised to capitalize on those trends and leverage our lean operating structure. Now let me turn to a discussion of our quarter and our 3 operating segments. First, upholstery. Sales in our upholstery segment increased 8.4% to $289.4 million. The operating margin for the quarter increased to 10.7% compared with 10.1% in last year's fourth quarter, demonstrating the efficiencies with which we are running our manufacturing facilities and the opportunities to leverage our lean structure with additional volume. In terms of sales, we continue to enjoy strong same-store sales increases across the La-Z-Boy Furniture Galleries store network, which posted an 11.2% increase this quarter after a 10% comparative in last year's fourth quarter. We believe this is not only indicative of the ongoing success of our marketing campaign but also reveals that we are gaining market share. Importantly, sales of our stationary product line continue to grow at a faster pace than our core recliner business, and that is one of the key objectives of the Live Life Comfortably campaign, as we educate the consumer of our vast and stylish upholstered product offering. Although our recliner business continues to increase, our opportunity to build share in the stationary area is significant given the size of that market where we have a much smaller share than we do of the recliner market. We continue to enjoy strong sales with our product -- our power product as well and at the same time, have had good success with upgrading customers to our memory foam offerings. We are continuing to invest in the advertising campaign to drive ongoing volume growth although are mindful to keep our advertising spend at a consistent percent of sales. Additionally, as I mentioned earlier, at the core of our growth strategy is the plan to expand our branded distribution channels from today's level of 878 outlets to approximately 1,000, including the La-Z-Boy Furniture Galleries stores and our Comfort Studios, which is our store-within-a-store format. When completed, we expect these branded locations will represent about 80% of the volume for the La-Z-Boy branded business. With a significant change in the distribution landscape occurring over the last several years, most notably marked by traditional furniture retailers vacating the space, branded distribution has become increasingly important for us. We also believe it provides the best opportunity for the consumer to see our full line of furniture and experience an enjoyable shopping experience with the salesperson who is professional and knowledgeable about our product line and all of the customization opportunities. We have identified approximately 80 potential locations throughout the United States and Canada for the La-Z-Boy Furniture Galleries store expansion, which would bring our total store count to about 400 locations. Split between our independent dealers and the company, our plans call for us to complete this buildout over the next 5 years. We have termed this our 4-4-5 strategy: 400 stores averaging $4 million in sales per store over the next 5 years. And we are continuing to grow our Comfort Studio count to 600 locations in North America. Historically, the La-Z-Boy branded business has provided the greatest return of all of our companies, and we believe it will continue to do so as we take advantage of the improving economy and solid momentum of our business to open more stores. We are thrilled that our dealers are sharing in the success of the business, and they, too, are willing to invest in their own store systems to increase their penetration sales in their own respective markets. During fiscal 2013, 6 new La-Z-Boy Furniture Galleries stores were opened across the network, 5 stores were remodeled, 3 stores were relocated and 5 stores were closed. For fiscal 2014, the network, including company owned and dealer owned, is planning for approximately 20 store projects including new openings, remodels and relocations. Going forward, all stores will be in the new design format, which today numbers 14 of our 313 stores. As we build on our base of branded distribution outlets over the next 5 years, volume should increase, and we will enjoy the benefit of leveraging the fixed-cost structure associated with our manufacturing operations. As we have mentioned before, we have the ability to manufacture in our La-Z-Boy branded plants approximately $250 million to $300 million of additional wholesale volume without any brick or mortar, allowing for a meaningful conversion on the incremental sales. Now turning to casegoods. Sales for the quarter decreased 8.7%, and the operating margin declined to 0.8%. This segment of the furniture industry faces ongoing challenges within the current macroeconomic environment, although we expect it to benefit from a further strengthening of the housing market. Given our variable cost structure in this segment, we were slightly profitable on the decline in volume for the quarter. In May, we announced a voluntary recall of beds sold by Lea Industries, our youth furniture company. During the fourth quarter, we placed most Lea beds on hold for several weeks when we discovered an issue with the side rails. Although the beds did pass testing and met industry standards, after we were notified of the failures in the field, we reported the issue to the Consumer Product Safety Commission and Health Canada and worked with them to develop stronger rails. Lea's inability to supply product for several weeks negatively impacted our results for the quarter. Our occasional furniture continues to exhibit the greatest strength in this category given its lower price point and the ability to purchase one piece at a time versus an entire room group, which is typically associated with the bedroom and dining room furniture. Moving forward, our casegood team is working to expand our occasional offerings while at the same time, working to improve our speed to market for new introductions of bedroom and dining room collections. Now let's talk a few minutes about our retail segment. For the quarter, sales increased 32.5% over last year's fourth quarter. Excluding the recently acquired Southern Ohio market and new stores, our delivered stores on the core to lift [ph] 79 stores reported in last year's fourth quarter was up 12.5%. The business earned an operating profit of $4 million or a 5.4% operating margin for the quarter versus an operating loss in last year's fourth quarter of $1.1 million, which equated to an operating margin of negative 2%. Additionally, the segment was profitable for the full 2013 fiscal year with an operating income of $4.1 million, equating to an operating margin of 1.5%. During the quarter, our results reflected an overall improvement in retail sales metrics, including an increase in traffic, average ticket, units per ticket and In-Home Design sales. Our results were also driven by a favorable merchandising mix. We have a great retail team who has worked long and hard to our help turn around this operation. With a profitable retail business, the strength of our integrated retail model, where we benefit from a blended wholesale-retail margin, will become more evident. With a mid-single-digit operating margin target for retail and a low double-digit operating margin target for our wholesale upholstery business, the combined margin should be a strong number for our industry. With respect to the company's ownership of La-Z-Boy Furniture Galleries stores, at the end of the quarter, we owned 94 of the 313 stores in the network. As we execute our 4-4-5 strategy, we believe we will own a greater percentage of the stores than we do now, likely in the 40% range versus today's 30%. I will now turn over the call to Mike to review the financials for the fourth quarter.

Thank you, Kurt. Consolidated sales for the fourth quarter of fiscal 2013 increased 9.8% to $360 million from $327 million in last year's fourth quarter. Consolidated operating income increased 55% to $26 million versus $17 million in the comparable period last year, and we reported net income attributable to La-Z-Boy Incorporated of $18 million or $0.33 per diluted share, which included a $0.03 per share benefit as a result of improvements in our foreign tax rates and utilization of state NOLs due to our retail profitability that previously had valuation allowances. This compares with last year's fourth quarter results of $20 million or $0.37 per diluted share, of which $0.19 per share related to anti-dumping duties. For the quarter, we generated $35 million in cash from operations, and this was after making a $20 million discretionary cash contribution to more fully fund the pension plan as we move to derisk ourselves. We're under no obligation to make this contribution, but we are moving towards a more liability-driven investment strategy for our pension plan, which will better match our assets to the duration of our liabilities and reduce future volatility in our funding and liability. We ended the year with $131 million in cash and equivalents, $30 million in investments and $13 million in restricted cash. Our total debt stood at $8.1 million, and our debt-to-capital ratio was 1.6%, down from 2.1% at the end of fiscal 2012. During the quarter, we purchased 300,000 shares of stock in the open market under our existing authorized share purchase program. And for the year, we purchased approximately 700,000 shares. This leaves us with 4.2 million shares remaining in the program. We also paid a $0.04 dividend in December and March and announced another dividend of $0.04 that was paid on June 10, 2013, to shareholders of record on May 30, 2013. For the quarter, incentive compensation costs were $2 million higher when compared with last year's fourth quarter, relating to continued improvements in sales and operating results for the full year period. For the year, our incentive compensation was up almost $9 million over fiscal 2012. And as we look into fiscal 2014, we do not believe the cost of our various compensation programs, as a percent of sales, should be that different when compared to fiscal 2013. Capital expenditures for the quarter were $4.1 million and were $25.9 million for the full fiscal 2013 year. CapEx for fiscal 2014 is expected to be in the range of $60 million to $70 million, which includes the normal replacement of equipment and costs related to opening new La-Z-Boy Furniture Galleries stores, as well as the construction costs associated with our new World Headquarters. The ongoing business-related costs will be in line with our depreciation and amortization and will reflect continued investment in our E1 system as we finalize our multi-year project to replace our legacy computer systems over the next 2 years. Much of the cost to date has been capitalized, but now that we are in the implementation phase for a good part of the project, some of those costs will now be expensed. The estimated cost for the World Headquarters is expected to be approximately $57 million, spanning an 18-month period. How the actual expenditures are split over the 18 months will be dependent upon weather conditions and how the project progresses over the time period. For fiscal 2014, we expect raw material prices to increase in the range of $11 million to $13 million. To offset the expected increase, we put through a price increase at the April Furniture Market that went into effect on May 1, 2013. Due to the timing of orders, we will realize the full impact of the price increases in the second quarter. Now for the year, our effective tax rate was 33%, which reflected some foreign tax benefits as well as use of some state NOLs relating to our retail segment that had valuation reserves recorded against them. We continue to record a favorable manufacturing deduction against our federal statutory rate as well, and as a result, we expect our fiscal 2014 effective tax rate to be in the 35% to 37% range. As a reminder to everyone, as we talk about next year, our first fiscal quarter is typically the weakest in terms of sales and earnings due to a general slowdown in the industry related to the summer months. Due to the slowdown in demand, we shut down our manufacturing facilities for 1 week in July for vacation and maintenance. Because of this lower volume, in general coupled with 1 week without production and shipments, we historically have converted at a lower rate for the quarter. As mentioned many times before, our conversion target on incremental volume for the full year is 20% to 30%, and we will see variances quarter-to-quarter throughout the year based on volume. Additionally, it is important to keep in mind that not every additional dollar of volume converts in the same way. For example, sales from the 3 new Pittsburgh stores or the 9 stores acquired in Southern Ohio are not truly incremental given the operational fixed costs that come with those additional sales, so they do not convert in the same manner until we anniversary the opening or the acquisition. Sales from existing stores, for example, additional -- I'm sorry, excuse me, for the example on additional sales from one store or in the Chicago market or Washington, D.C. market are truly incremental because of the fixed costs already associated with each market. So volume helps to leverage those costs, and we are able to convert at a higher rate than we do for sales that come from new markets. And now I'll turn the call back to Kurt for his concluding remarks.

Thank you, Mike. As I mentioned last quarter, we are excited to build the new World Headquarters in our hometown of Monroe, Michigan. Tomorrow is the ground-breaking ceremony, and we look forward to beginning work on a headquarter building -- headquarters building that will allow our team to work in a more collaborative environment that fosters inspiration and creativity. Before closing, I would also like to mention that La-Z-Boy Incorporated was named to Forbes List of America's 100 Most Trustworthy Companies based on transparency, conservative accounting practices and prudent management. We are gratified and humbled by this designation. We've done a lot of work to transform our company and it has been a difficult and long journey. While meeting significant and varied challenges along the way, we have built a solid operation and integrated retail platform designed to drive growth and profitable conversion on that growth. We believe our future is bright, and as we move forward, we will stay intently focused on continuing our lean journey to further strengthen our business. We are also well positioned to capitalize on an improving economy and the housing market. Our team is working hard to deliver another solid year in fiscal '14, and I would like to take this opportunity to thank the entire organization for their hard work and dedication last year. We appreciate you being on our call today, and I will turn the call back to Kathy for our question-and-answer period.

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

[Operator Instructions] Our first question is coming from Brad Thomas from KeyBanc Capital Markets.

Well, I wanted to first ask about the retail segment, a nice turning point in that segment becoming profitable for the last 2 quarters and for this year. Kurt, in your prepared remarks, you mentioned the plan of improving the sales per store to $4 million. If my calculations are right, you ended the year at about $3 million per store. Is that where you were?

So there's 2 numbers there, Brad. The $4 million is for the network overall, and the network overall was somewhere between $3.5 million and $3.6 million per store on average. To be accurate, I'll have to -- we'll have to get back to you on the exact math on the company stores. It's a little lower than that, but I think it's better than the $3 million. And the problem with new stores, half a year, things of that nature, I think it's more in the $3.2 million, $3.3 million range. But we are not at the average. Given the troubled markets we took over, we're not at the average of the system overall, but we're closing the gap every quarter.

Got you. Okay. So that -- where I was going with this was I was just trying to get a sense of what sort of growth rate you all were targeting in that retail segment. From a mid-3s, it would imply, what, about a low single-digit revenue growth rate per year in that -- on a same-store basis?

Yes. And again, that's the average, and we've got stores in small markets, and we've got stores in very large markets. We do a lot more business in that. But when you get 400 stores, we're trying to get the dollars per square foot up above $275, $280.

Yes, yes. Perfect. And then I know the new format has gotten very good customer feedback and won some awards in the industry, but could you talk, Kurt, maybe a little bit more about what you're seeing out of those 14 stores that are in your new format and what kind of a lift you could get as you open more stores in that format?

I would answer the question in this regard, Brad. I don't think we have enough time yet and enough stores to make a judgment. I mean, we opened some stores in Pittsburgh that didn't have any. They're doing well. We don't what they would have done in the old format. A couple of the other stores have been in markets where there wasn't a store before like Attleboro. So we will have another 15 or 20 of these type stores a year from now, and we'll really get some traction on both relocations, remodels and new stores. And we'll report out on that, but it's too early to tell. It's all been positive but so is the general trend of the business, so you have to separate those 2 as well. So as the year -- as fiscal '14 rolls on, we'll give you some more color on that as we feel more confident about the numbers.

Great. And then just a clarification on the headquarters. Mike, in your prepared remarks, you mentioned the 20% to 30% flow-through margin. I would assume that includes any impact from spending on the headquarters this year. And then just to be clear, what do you think the SG&A, the P&L impact from the headquarters could be in this upcoming fiscal year?

Well, there should be no depreciation from the headquarters in fiscal 2014 because we will not start depreciating that until after we move in. So all the costs that we'll spend should not be affecting our P&L in this next quarter, in the -- next year, I'm sorry. In the 2015 year, we'll have to give some -- we'll know by then when we think the project will be completed, and we can give some better guidance on that. But -- and again, as I said, the 20% to 30%, we do look at that on an annualized basis because there is variances on quarter-to-quarter. But does that answer your question?

Yes, that's helpful.

Our next question is coming from Budd Bugatch from Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division: A couple of questions if I could. Now let's talk to casegoods because that's an area where I think there's still opportunity for significant improvement. First, can you review on the bed issue maybe what that -- how that impacted the quarter? I don't think I heard any numbers associated with that. Would you care to give us some color on that?

I think there's some color on that in the 10-K, but it wasn't -- it isn't significant. It -- we had to hold up existing product from shipping, and we're catching up on some of that. But whatever that was will shift from the fourth quarter into the first quarter this year. But in the total, to total realm of the corporation, Budd, it was not significant. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And casegoods, I think, I would agree with you that I think that they do come back as we get improvement in the housing, and housing continues to gain traction. Can you give us your thoughts of strategically what you're thinking on that? And am I right that Hammary is -- if occasional is the best performer, that would indicate that Hammary is the best performer and maybe could you rank order how the Lea and Drew are doing and Kincaid?

Well, I think the problems of the casegoods business are twofold. I think the industry, in general, has struggled with it given the macro conditions and the fact that there's been no housing in the last 4, 5 years. And we're looking forward to that dynamic changing. But if you look at our casegoods numbers, although they're not what we want them to be when you compare them to the other public companies that are primarily casegoods, they're not that far out of line. So I think it's an industry channel issue, and I also think we have some problems of our own and some mistakes that we've made that we need to correct that we're about to do. But I -- but it's -- in the rank order of business the last few years, certainly, bedding has been a big leader in the industry with upholstery right underneath it. But casegoods is a distant, distant third. Budd Bugatch - Raymond James & Associates, Inc., Research Division: No, I understand that. I'm not arguing that. I just thought there's still an opportunity there now with housing starting to come back.

And you are correct that... Budd Bugatch - Raymond James & Associates, Inc., Research Division: Let me move on to just CapEx -- Mike, I may have missed it. Your CapEx plan for this year and the next 2 years is -- did you quantify the out years as well? And could you just review that for me?

I quantified the 2014 year. We're giving a wider range than normal because I just don't know how much of the building will transpire into this year versus next year on the new office. So I gave a $60 million to $70 million. So what we're really trying to say is our normal operating CapEx for just keeping the business running will be somewhere in the depreciation and amortization rate. And then the additional amount will be based on whatever we complete on the building for this year. And then next year will be the differential, but we still expect to spend most of our depreciation and amortization rate going forward on the capital in the outlying years. Of course, when we start depreciating the building, that will add and then we'll have to reduce that at that point in time. That won't hit the same rate. Budd Bugatch - Raymond James & Associates, Inc., Research Division: So the capital for the new headquarters I thought was gross of $50 million and a net of $35 million. Is that a right way to think about it as after you look at the incentives that are being provided?

So how we're putting that is the gross is around $57 million. The net, because of the way the incentives get played out over an 8-, 9-year period, it'd be hard to net that against that because some of it we won't receive until the outlying years of 5, 6, 7, 8, 9. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. So now how is the board thinking about the dividend? You reinstated the dividend, I think, for the December quarter. What do you think that looks forward to? I think you're above now the $125 million net cash threshold that you wanted to set up as a target.

Well, Budd, we talk about the dividend, the use of cash, the stock buyback program every quarter, and we will continue to maintain a conservative position. But we're not going to be adding to our cash reserves as we go forward between spending the money on the business, buying back shares or paying a dividend. We will be turning the cash back to the shareholders if we don't have something in the business that we think we can effectively invest it in.

[Operator Instructions] Our next question is from Todd Schwartzman from Sidoti & Company. Todd A. Schwartzman - Sidoti & Company, LLC: Could you provide a little more color maybe on how you plan to rectify the -- at least the company-specific issues that you've had with respect to casegoods?

Well, I don't want to say too much about it, Todd, because some of it is -- I'm not sure I want my competitors to know our next moves. But we are -- we have introduced some groups in the last couple years that have had pretty good placements but haven't retailed. I think our -- some of our styling has been a little off and the target -- and hasn't hit the targets that we were trying to reach. So I think we started to make some changes with last market's introductions, and we'll have to see what the results are. But it's -- obviously, it's the most challenged businesses, and it's getting -- now that we've got retail on a solid platform, it's getting more attention. But I'm optimistic that with the improvement in the housing market that we also get a little help from the segment itself to help with the velocity of sales in the industry. Todd A. Schwartzman - Sidoti & Company, LLC: But as far as that portion that you can control or think you can control, it sounds as if it's as much, if not more so a product than distribution. Is that correct?

Well, I think it's a combination. I mean, one of the challenges of the casegoods business compared to our upholstery business is in the upholstery business, our various companies truly have an opportunity to sell all types of distribution, including the top 100 or the major, major dealers. In the casegoods business, for the most part, many of the top 100 dealers go direct. So that the pie is smaller on who our casegoods companies can sell to because in a lot of cases, the retailers go to the same factories that the industry gets their product from. And so that narrows the opportunity. It's still a big enough opportunity to have a solid business, but it is not the same that we have with the upholstery segment. Todd A. Schwartzman - Sidoti & Company, LLC: Got it. Just switching to the core upholstery business, would you rule out philosophically pursuing the acquisition of another brand, strategic acquisition of another brand of upholstered furniture?

Todd, I don't -- at this point and now that we're in a pretty good position to play a little offense, I don't think we would rule out anything. We are always open to listen and are always inquiring about opportunities. But the history of the industry the last decade or so and the companies that accumulated a lot of brands, which La-Z-Boy was one of them, didn't quite turn out the way everyone thought. So we would be more diligent about our research and what we really thought the synergies would be. We'd have to see what the legacy costs were and anything of that nature, what the management team was made of. But just because we had a bad experience, doesn't mean we don't have an open mind. But it would have to be a clear winner for us to avoid making the mistakes we made in the past. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. On the retail side, how many total stand-alone stores do you plan to have open at the end of the year? Just want to get a handle on your projections for net openings.

Well, we're doing 2 things, Todd. And you can see even this year, we closed 5 stores, and I think we'll close that many next year. And we have some stores that are tired. We have some stores -- this is throughout the network. We have some stores that need to be moved, and we're taking a little firmer position now that the economy is better that older stores just can't continue to extend their leases without being remodeled or moved, something of that nature. So of our total of 20 projects next year and we think the remodels could be significant, too, a significant uplift in sales, but of our total projects next year of 20 plus, we'll -- our net store count will probably only go up between 7 and 10 stores because of closings. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. That's helpful. On advertising, it sounded as if you were suggesting or maybe you just said outright that you expect advertising cost as a percentage of sales to remain about flat for fiscal '14.

Yes. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. What was the percentage in Q4?

So I -- we don't really talk about them in the quarter, but for the year, Todd, we -- in our total marketing, now this is for the corporation and this is all of our brands and everything, but our total marketing spend was $54 million, and it was around 4% of our sales. So just -- and this is not a prediction, but if we grew our business next year 10%, we could spend another $5 million in marketing and keep the percentage in that 4% range. So that's how we've tried to look at this as we've – and we're spending -- we have to remember when we first started with our Brook Shields campaign, we were on the air 13 weeks a year, and now we're somewhere in the mid-30 weeks a year on TV. So we've increased quite a bit with the funding of that, and we will raise it again next year. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. On the raw material inflation, the $11 million to $13 million number, is anything particularly problematic? Could you maybe speak to the magnitude of poly versus particleboard versus other woods versus all others?

There is not one that is of a magnitude of 50% or 60%. They're all in the -- a similar range but -- and again, our caveat here is we don't have yearly contracts and things could change as the year goes on, but this is our -- what we build our plan on, our best guesstimates and what we took our price increase on last April. I would say the one part of the raw material chain that has had a lot of increase of late is leather, and to fact where if the increases keep coming in, we may have to make another adjustment. But the availability of hides and tannages and everything has changed pretty substantially here with the auto business and the shoe business and everybody. So we're watching that. That's probably the one that's highest on our radar to see what's happening with the price of leather. Todd A. Schwartzman - Sidoti & Company, LLC: And what's of average unit price hike that you've implemented?

Well, we took enough increase across all of our companies and all of our -- we took enough price increase to handle the raw material increases and protect our margins. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. Just wanted to follow up on advertising, and then I'm done. You're talking about increasing investment in the brand, advertising platform to educate consumers. Just want to be clear. Are you -- is just -- is that just a reference to continuation of the Brook Live Life Comfortably? Or is there going to be some perhaps smaller concurrent campaign to go with it?

No, we're very pleased with the Brook campaign, and I think -- and you can see it in our performance that our same-store sales has been above the industry averages. So that's not something we're going to tinker with until we start getting less results. We will be spending more money online, interactive on all the various other ways to communicate with the customer. So most of the money that we used to spend in print is now being diverted to either TV or online, and that, I think that's a trend you'll see not only with us but within the industry.

Our next question is coming from Barry Vogel from Barry Vogel & Associates.

First question, Kurt, is how would you characterize -- categorize current competitive conditions in the upholstery industry?

Well, that's a pretty broad question, and I -- there's -- I can't begin to tell you how many different people make upholstery, and every day, everybody tries to come up with a new mousetrap and fights for floorspace. So I don't think the competitive environment today is any different than it was 2 or 3 years ago or is going to be any different than it's going to be in 2 or 3 years from now. So it's a competitive industry. There's always people that come up with new ideas, and you got to stay sharp.

Okay. And as far as the comment about where you have $250 million to $300 million of additional capacity that is underutilized. Is that primarily all in the upholstery plants [indiscernible] plants?

It is. Yes. It's all in the upholstery. The reference was all about the upholstery plants, Barry. You got to remember, we took out cut-and-sew and moved it to Mexico in all of our plants, and that space is available to us to build future cells to build more product. So we've got the physical building. We don't have the cells set up, and we don't have the extra workers to do it. But if business continued to grow at the pace it did this year for the next couple years, we could easily handle the increase without having to make a major capital investment.

Now on that same issue, what would maintenance CapEx be going forward?

Well, as Mike said, our CapEx, on taking out the new headquarters, our CapEx typically is going to be in the $20 million to $25 million range a year, which aligns with our depreciation and amortization. And then for the next 2 years, it'll be quite higher than that because of the investment we're making in the building.

Okay, that's good. And I have a couple of quick questions for Mike. Can you give us a D&A number for fiscal '14? That's the first question.

It should be pretty much in line with this year. I don't know of anything that's going to significantly -- it may be a little bit more increased because of some of the capital items in our E1 system, but it's in the $23 million, $25 million range.

And as far as your pension contributions, what would be a good guesstimate for pension contributions for the New Year?

We have -- because of our discretionary contributions, we have no requirements for next year. So as we -- and we're pretty well funded based on our current liabilities, so it's not our expectation to make any more funding in our pension plan next year. But if we find a reason to do that to help offset some of the other costs, we will. But that's not -- we don't have any requirements right now.

All right. So that would enhance your cash generation versus last year because you made a decent contribution to your pension assets?

Right. That's correct, Barry.

Okay. Now you mentioned the systems, I think -- I don't know if you call them ERP costs. Can you give a little color on how that would play out as you brought them into your P&L?

I'm just trying to give people some indication that we will have some additional costs. It's not going to be millions of dollars every quarter, but it will impact our operating results in some fashion next year. And as we work through the year, I'll be giving a little bit more color on it as we compare to each quarter. But it'll be out there. We just have a lot of people working on it, trying to get it done in the amount of time that we're allotted ourselves in the next 24 months. So I'm just trying to make people aware that, that's just one more thing that we'll have out there that's different than this year.

Okay. And as far as the dividends, the stock buybacks, the acquisitions and all that stuff, which would you say was the likely one of those items that you would spend some of your tremendous balance sheet on in fiscal '14 given what [indiscernible]...

We've been pretty consistent in our message on that, is that we will invest in the business first and make sure that we do everything we need to do to succeed at our sales growth targets and getting our 4-4-5 strategy. Then, we'll focus on -- we'll pay the dividend, and we'll buy back shares as we feel we need to, to keep dilution under control and utilize those funds accordingly.

So the current stock price wouldn't dissuade you from buying back shares under that circumstance?

That's correct.

[Operator Instructions] Our next question is coming from John Baugh from Stifel. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: You mentioned mix, I believe, in your prepared comments of upholstery improving. Could you give some color? Was that ASP? Was that a certain product type?

Well, the comment there, John, is that we do a fair amount of business in special orders, and we do a fair amount of orders in In-Home Design work, both of which carry better margins than selling something off the floor. And we're also selling a little higher price mix, so we're being able to trade the customer up with more options, with memory foam cushions, with power, things of that nature. So all those things accretively added up, help the mix, help the average sale and help the margin. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And Kurt, how is your stationary business? Is that still pacing motion?

Yes. Our stationary business is growing, in broad terms, about twice as fast as our motion business. But that shouldn't be that surprising because we have a much -- the stationary business is the largest part of the furniture upholstery business. We have the lowest market share in that compared to motion and recliners, so we've got the most room to run and to grow in that category of any of the 3. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And my final question is you're growing faster than the trade for sure and -- even though market share data is tough. But you -- have you done a recent survey of who's coming through the door? Any sense of a change in your customer mix, demographic, income level, et cetera?

Yes. John, you asked that question last quarter, and I answered it that we would be doing a research project this summer to understand the impact of that. And we've got that underway. We've also got a project about the share of wallet study that most retailers do. We'll have those results in early fall, and we'll be glad to share them with at that point. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: All right. I'll ask the question again next quarter.

That does conclude our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thanks, everyone, for participating this morning. Should you have follow-up questions, please give me a call, and I will be available. Have a great day.

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