La-Z-Boy Incorporated (LZB) Q2 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the La-Z-Boy Incorporated Second Quarter Fiscal 2014 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kathy Liebmann, Director of Investor Relations and Corporate Communications. Thank you. You may now begin.

Thank you, Jessie. Good morning, and thank you for joining us to discuss our fiscal 2014 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 remarks. 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. Yesterday afternoon, we reported our second quarter results for fiscal 2014. We continue to be pleased with the momentum we are experiencing in our business. For the quarter, we posted a double-digit sales increase compared to last year's second quarter, a double-digit written same-store sales increase for the La-Z-Boy Furniture Galleries network of stores and a double-digit operating margin in our wholesale upholstery segment. We also achieved a 4.4% operating margin in our retail segment, more than doubled our consolidated operating income, generated $19 million in cash from operating activities, purchased shares in the open market and announced a 50% increase in our regularly quarterly dividend to shareholders. In total, a strong quarter reflective of the solid foundation we have built to position the company for ongoing growth and profitability as we aggressively pursue our integrated retail and operational excellence strategies. I'll take a few moments now to discuss each of our 3 operating segments. First, wholesale upholstery. Sales on our upholstery segment increased 14.2% for the quarter versus the same period last year. And we recorded a 9.8% written same-store sales increase for the La-Z-Boy Furniture Galleries network of stores, demonstrating the success of our marketing and merchandising initiatives. In fact, we have recorded same-store sales increases in each of the last 36 months. Over the last couple of years, we have had a steady cadence of new product introductions to appeal to a wider base of consumers, which has dovetailed nicely with our Live Life Comfortably marketing campaign. At the High Point Furniture Market last month, we introduced a new collection called Urban Attitudes. Without question, it is the most significant collection we have launched in 10 years in terms of product styling and relevance. The collection consists of 8 sofa styles, an assortment of 10 chairs and ottoman accent pieces, 114 different fabric SKUs and 3 finishes, including a new one in graphite. Urban Attitudes can be characterized as an eclectic mix of furniture with clean, simple lines and standout details. It is targeted at a more style-conscious demographic, as well as younger consumers and those living in smaller spaces, such as apartments or condominiums. We received a great deal of -- a great reception from the collection from our dealers, and we look forward to showcasing the product on retail floors in the coming months. Importantly, our Stationary line of furniture continues to exhibit strength, which is one of the key objectives of the Live Life Comfortably campaign. While we are indeed continuing to grow our motion upholstery business and maintaining our leadership position in that category, as well as growing our product line -- excuse me, our Power line, our main objective is to increase our share in the stationary portion of the market, which is the largest segment of the overall upholstery market and offers significant opportunity for La-Z-Boy to continue its growth trajectory. We will continue to invest in our Live Life Comfortably campaign, featuring Brooke Shields as a brand ambassador, as we believe we are expanding the awareness of our broad product line and style quotient among a wider base of consumers. On the operating side of the business. Our solid margin of 11% demonstrates the efficiencies with which we are running our manufacturing facilities. As we have mentioned before, we have the ability to run $250 million to $300 million more in wholesale volume through our existing La-Z-Boy-branded manufacturing footprint without adding any brick and mortar, giving us the ability to further leverage our fixed cost structure with additional volume, as we experienced this quarter. We are also working diligently on the execution of our "4-4-5" strategy. That is, to have 400 stores averaging $4 million in revenue per store in a 5-year time period, as we believe building out the branded channel offers the best growth and return opportunity for us. During fiscal 2014 and 2015, we are planning for 20 to 25 store projects throughout the network including new stores, relocations and remodels. We are delighted that our dealers are eager to open stores as well as they see growth potential in their respective markets, having experienced more than 3 consecutive years of monthly sales increases. At the same time, the company will open stores in DART markets and will add stores in its existing markets. For example, this year, we are opening stores in Southeast Michigan. We will open our third store this Saturday and the fourth will be open by next summer. Next year, our plans are to go to the Minneapolis market and we will continue to open stores in the markets identified through our research. Once completed, the company expects to own approximately 40% of the potential 400 La-Z-Boy Furniture Galleries stores. While net store growth is of paramount importance to us to reach our 400-store goal, we are also working simultaneously to remodel, and in some cases, relocate almost 60 old-format stores throughout the existing network. All stores, whether new, remodeled or relocated, will be in our new concept design format. Today, we have 23 new concepts design stores out of our 314. And during the second quarter, we opened 3 new stores and closed 1. Now let me turn to our casegoods segment. Although the casegoods business continues to be challenged in this macro environment, we are refreshing our product line to appeal to an expanded base of consumers, specifically those who are interested in more transitional and smaller-scaled furniture. As an example, with many homes being built without formal dining rooms, we are adjusting our product lineup to reflect the shifting preferences of today's consumers. At this past Furniture Market, we introduced a number of more contemporary and traditional -- and transitional collections, which were well received by many dealers, and we'll continue to introduce additional collections over the next year to bring our product line from a style standpoint to one that is more consistent with today's market. We also launched a new direct container program where dealers can mix various Kincaid, American Drew and Lea products. This will increase our speed to market, help develop our customer base in the western portion of North America and allow us to provide better and faster service to smaller dealers. While the segment posted a slight decline for the quarter, we are making progress with various initiatives to move the business forward. And now, let me turn to our discussion of our retail business. Our retail segment completed a year of profitability while posting its 19th consecutive quarterly improvement over prior year performance. For the period, retail delivered sales increased 20% compared with last year's second quarter and with the southern -- with the Southern Ohio stores contributing 7.3 percentage points of the sales increase. Our operating margin for the quarter was 4.4% compared to a negative 0.9% margin in last year's second quarter, primarily as a result of better absorption of fixed SG&A expenses due to higher volume. This volume was attributed to a higher price mix, driven by favorable merchandising. And on relatively flat traffic, we increased the average ticket as well as other key metrics. During the quarter, we acquired 3 stores in the Las Vegas market and announced our intention to acquire 2 stores in the Youngstown, Ohio market, which we closed on last week. We are also opening a store in the Buffalo market later this week, which was run by an independent dealer and closed during the summer. All 6 stores are expected to be accretive to our business and are strategically located in areas where they will be serviced by our existing distribution centers and managed by teams already in place in nearby or adjacently owned company markets. Also we opened our new Ohio-based distribution center during the quarter, which gives us 5 major DCs strategically located throughout the United States. As our company-owned retail segment continues to grow and be profitable, the benefit of our integrated retail strategy will become increasingly evident where we will earn money on both the wholesale and retail side and push the blended or integrated margin into the mid-teens. Now I'll turn the call over to Mike to go through our financial performance.

Thank you, Kurt. Consolidated sales for the fiscal 2014 second quarter were $366 million, up 13.7% compared with last year's second quarter. Consolidated operating income increased 141% to $25.4 million from $10.6 million in the fiscal 2013 second quarter. And earnings per diluted share were $0.31, of which $0.01 per share was attributable to the reduction of certain valuation allowances against the company's state deferred tax assets versus $0.12 per diluted share after a $0.03 in restructuring charges in the prior year's quarter. You may recall last year, we closed our lumber processing operations at our Hudson, North Carolina facility and began sourcing all wood parts. For the period, our operating margin increased to 6.9% from 3.3% in last year's second quarter. Our gross margin improved 2.7 percentage points in the second quarter compared to the prior year quarter, partially the result of our retail segment increasing in size as that business carries a higher gross margin than our wholesale businesses. Also increasing our gross margin was better absorption of fixed costs in our upholstery segment as increased volume improved our plant efficiencies. On the retail side, as Kurt mentioned, the operating margin improvement was driven by better absorption of fixed SG&A expenses due to the higher volume. For the period, incentive compensation costs were $3.1 million higher than the second quarter of fiscal 2013. This was the result of the improvement in our consolidated financial performance and the increase in our stock price for the quarter as several of our share-based compensation awards are liability-based awards and their cumulative expense to date is adjusted at the end of each quarter based on the share price on the last day of the reporting period. Our improvement in operating income divided by our increase in sales over the last year's second quarter resulted in a 33.7% conversion. If you take out the restructuring charge from last year, our conversion on the incremental volume was 27%. During this reporting period, we generated $19 million in cash from operating activities. We ended the quarter with $136 million in cash and cash equivalents, $30 million in investments to enhance returns on our cash, and $13 million in restricted cash. We used cash during the quarter to pay our $0.04 per share dividend, and we also purchased approximately 300,000 shares of stock in the open market under our existing authorized share purchase program and have 3.5 million shares remaining in the program. We plan to continue to be opportunistic in the market with respect to buyback activity. Capital expenditures for the second quarter of 2014 were $11.1 million, compared with $6.4 million in last year's second quarter. Construction of our new World Headquarters is moving along on schedule and the project is expected to be completed in 13 months. We expect total CapEx for fiscal 2014 to be in the range of $45 million to $50 million with about $20 million to $25 million relating to the new building. As construction on the new headquarters has progressed, we have a better understanding of how and when capital expenditures will be made relating to the project. The remaining CapEx spending in fiscal 2014 relates to the new stores, transportation and equipment, routine maintenance and our ongoing costs relating to our ERP implementation. And lastly, our effective tax rate for the second quarter of fiscal 2014 was 32.4%, compared with 36.1% for the second quarter of fiscal 2013. The decrease in the effective tax rate was due to the release of valuation allowance relating to state deferred tax assets where we moved from a 3-year cumulative loss to a 3-year of cumulative income in that jurisdiction. This resulted in a tax benefit of $0.01 per share. Absent the discrete item, our effective tax rate for fiscal 2014 second quarter would have been 35.8%. For the year, we are still expecting our tax rate to be in the range of 35% to 36%. And now I'll turn the call back to Kurt for his concluding remarks.

Thank you, Mike. In closing, we are pleased with the direction the company is moving, and our team is working creatively, effectively and collaboratively to continue to drive opportunities to maximize our growth and improve our performance result -- our performance results as we move into calendar year 2014. We do appreciate all of you being on our call today, and we'll turn things back to Kathy for our Q&A.

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

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

Wanted to just first ask about Urban Attitudes. The line looks great at High Point. I was wondering, Kurt, if you could talk a little bit more about the initial response and order rate that you would expect to see and then the timing with which you think you should be on floors and start to make an impact from a P&L standpoint?

Well, I'll answer the first part of that question, first, Brad. It will take a good 6 months to get it on all the floors that want to have it and the dealers have to clear out older inventory, make room for it and they'll do that with clearance sales in January and February to get it all placed. And we won't put a whole lot of marketing behind it until we're sure it's on significant enough floors so the consumer can see it. So I wouldn't expect much impact until late in our fourth quarter, and basically, it's -- most of the impact is going to be in '15.

Great. And at what point would you -- do you get a sense for what the orders look like? And how many of your dealers are going to want it on their floors?

Well, I think the market was only a month ago and it takes 30 to 60 days for dealers to wind up all their commitments. But it exceeded our expectations of the enthusiasm in the breadth of product that dealers were committing to. So we expect broad distribution of this collection, and we expect great things from it.

Great. If I could just add one follow-up then on the new concept stores. I know it's still early and we keep clamoring for data. Do you have enough, at this point, to quantify to a greater degree what the lift you get from these new concept stores is?

What we plan to do, Brad, is, in February, we'll give you most of the data you've been clamoring for. I want to get through the calendar year. I want to get a full year under our belt. As you know, November, December are big months. And then we will give you some information on how each of our store segments are doing and their comparison to one another and what our plans are in growth of those categories for the next year. But let us get through the calendar year and that's something we'll cover in detail on the next call.

The next question is coming from the line of Budd Bugatch with Raymond James. Budd Bugatch - Raymond James & Associates, Inc., Research Division: I guess, the question I have is just talk a little bit about the unfolding of the quarter. There were a lot of things going on that you couldn't control in this quarter with respect to the way the consumer was feeling about himself or herself in the quarter. And maybe if you can talk a little bit about how you separated -- or your performance separated from what was going on in the overall economy and how that developed.

Well, as far as pacing of our business, Budd, through the quarter, we saw a slight deceleration in October on written sales. It isn't anything to be alarmed about, but a number of our customers, and we saw to a slight degree in our own retail business, the couple of weeks of the government shutdown was not a positive contributor. And so that remains out there on the horizon about the future deadlines that we're faced with in Washington. But luckily, the consumer recovered pretty nicely after those -- that slight period. But there's no denying for that 2-week period that we experienced -- I might say, we, not just our stores, but our network of dealers experienced some disruption. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And you've seen the recovery since then? I've heard that as well from others in the industry.

We have. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay, that's very good. Casegoods has been an area of frustration for you even though it is not as meaningful as, certainly, as opposed to your retail operations. And I know you've voiced some plans there. Can you talk about what the opportunity is you see there? And how should we look at that? And I saw the intercompany sales of casegoods, which tells me that designers are using your product in the stores, if I read that in the financials properly and maybe you can confirm or deny that, too, or let me know if I'm off base.

Well, Budd, I would just say that we certainly need a casegoods business and component to our overall business. And it's increasingly becoming more important for the network of stores. It gives us other opportunities as we develop future collections and product assortments that we have casegoods in our mix. We sell a lot of bedroom and dining room through our In-Home program, and so we have no intentions of abandoning the casegoods business. To what degree our categories are represented and what we do as we organize the business going forward, we've made a lot of changes, continue to make a lot of changes, but we're committed to having a presence in the casegoods category. And I would say that we have some -- we have had some specific company issues in having the right product mix and being as competitive as we'd like to be. But we watch what happens with our competitors in the category. And it's widely known that the casegoods business has not been as robust as upholstery or the mattress business since we've moved on from The Great Recession and there's a lot of reasons for that, but -- we wish it was better, but we understand the state of the industry in that category and are judging ourselves accordingly. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Well, you have 4 -- I think 4 business units inside casegoods. Can you perhaps review what you think -- and I don't want to go into too much detail, but what you think needs to be done in those? Or which one has the most particular need?

Well, we're continuing to evaluate that. Like I said, we've talked a lot about our product refresh program. We did some things this market with mix containers and direct containers to folks. So we're not standing pat. Probably the most difficult business of the 4 is the youth business. There's a lot of competitors, it's more price sensitive than some of the other businesses, but we've been in that business a long time and are continuing to make changes there. So we're satisfied where we're at today with our mix. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. Just 2 other quick questions. Mike, did you give us a feel on tax rate for the fourth quarter? I know you gave for the overall year, how does that factor into Q4?

Well, we've been right along the 35% to 36% range on a normalized tax rate, absent discrete items. And so I don't see any change in that unless there are any other discrete items that come about. So the 35% to 36%, if you take out the discrete item that we talked about this time, we're still in line with that. Budd Bugatch - Raymond James & Associates, Inc., Research Division: I understand. And for the year, is it with the discrete item or without the discrete item that your 35% to 36% is...

It would be without the discrete items is where we're at. Budd Bugatch - Raymond James & Associates, Inc., Research Division: And so it's -- do you see any...

So the third and fourth quarter should be between the 35% and 36% rate going forward. Budd Bugatch - Raymond James & Associates, Inc., Research Division: Okay. And Kurt, last question for you is your view on share repurchase. I think it's been basically to offset dilution. Is that still the way that you and the board thinks about it?

That is. We are continuing -- you saw we bought 300,000 shares this quarter and we will continue to be opportunistic in the market to keep our dilution flat. And between the 2, with our increased dividend, we're doing what we think is prudent to return value to the shareholders, yet make sure we have the capital to invest in our business.

The next question is coming from the line of Todd Schwartzman with Sidoti & Company. Todd A. Schwartzman - Sidoti & Company, LLC: Wanted to ask about Urban Attitudes. Is it 100% of the products within the program that are new? Or if not, can give us an idea of the mix, please?

Good question, Todd. 80% of it is new. We took a couple of styles that were already in the line and included them in the collection because they had the style quotient and the style attributes that the rest of the collection had. And we think being displayed in the stores, those existing styles with the new collection, made more sense. But the majority of everything in Urban Attitudes is new. Todd A. Schwartzman - Sidoti & Company, LLC: Kurt, can you talk about the inventory impact of the ramp of Urban Attitudes and throughout the year? I know you said it's going to be in terms of -- you gave us a bottom line impact, more of a fiscal '15 event. But what can you tell us in the more immediate term as far as what we might expect, if any, regarding clearance sales and the impact of making way for the new merchandise?

Todd, I don't think there's anything significant in that. It's -- from our standpoint, we probably discontinued as many styles and fabrics SKUs as we introduced, so our overall product line is not growing. We think we have sufficient product. And with our dealers, they change out every season 20% to 25% of the floor, so this would be a natural evolution. We did not introduce as many motion sofas or as many chairs in this market because of the push on Urban Attitudes. We kind of understand how much our dealers can swallow in any one season as far as introductions and their sensitivity to markdowns and closeouts, but this is an emphasis on Urban Attitudes, but it isn't logistically overwhelming to make the transition. Todd A. Schwartzman - Sidoti & Company, LLC: So of those discontinued styles, those that have already been discontinued, how much of that have you already moved out?

Well, that varies by dealer and it varies by location. This is a normal operating process for us to identify slow-moving styles early in the process, take progressive markdowns. You won't see any impact to our financial performance by the phasing in and phasing out of product. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. And how much additional gross margin expansion opportunities remain at this point?

My answer to that, Todd, would really all determine -- be determined by volume. And we have, particularly in manufacturing, a sizable fixed cost business and the more volume you can run through there, the better off we'll be. So that is the determining factor. As I said before, we don't have a big project of 2 and 3 -- $20 million and $30 million of cost reductions like we did a few years ago, although we are finding ways to be more efficient, more productive and watch our costs, but right now, for us, our performance will be primarily directly related to how we do volume-wise. Todd A. Schwartzman - Sidoti & Company, LLC: Got it. Mike, you had guided, if I heard it correctly, to CapEx of $45 million to $50 million for the year, is that correct?

Yes. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. Now that seems to be -- to have moderated a little bit from prior expectations. I guess, is that the case? And if so, is it just more clarity now? Or has there been any reduction anticipated in any specific area?

Well, Todd, over the year, I've tried to explain that the biggest unknown is when we'll spend the money on the building. What we have found is now that the project is pretty well underway, that more is being pushed into the next year. We're still in the $20 million to $25 million in our normal CapEx, which is our depreciation and amortization. The difference is probably about $10 million to $15 million is moving into next fiscal year of that spend. So it's not that we're spending any differently, it just moving from one year to another. And we'll still spend that money next year, but it's just -- we'll end up starting in May, June, July when it really picks up. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. So the total estimated cost of construction of the headquarters has not changed at all?

That's correct. Todd A. Schwartzman - Sidoti & Company, LLC: Okay. I guess, lastly, just looking at the Internet and the growing effect of web shopping on the part of furniture consumers, is it -- do you guys ever talk about the usefulness of continuing to look at physical foot traffic as a metric? Is that something that you think might be losing its predictive value? Maybe is there now a traffic equilibrium or normal state that will maybe not vary much from one quarter to the next because of the effect of web shopping?

Well, Todd, my response to that would be that, obviously, the consumers are using the Internet more and more to get information to be educated, to help narrow down their physical shopping the number of stores. And so we have got a very professional website we update it all the time. In fact, there's some new videos on the website that I would encourage all of you to go look at. They talk a lot about the company and our people and give a lot of information, and we're always finding ways to keep people on the site longer and be more interested in it. And so we can't -- you can't really tell the difference. We track our hits on the website, we track our same-store traffics and we're going to continue to do that for a while. It's very hard to equate one-to-one where the customer is coming from. We -- you have to be available for the customer the way she wants to get her information, whether it's mobile, whether it's online, whether it's on the smartphone, whether it's Twitter, the La-Z-Boy shows up in all of those areas, in every part of social media. We're investing more and more money in there and you just -- it's just a basic requirement now that you're at her disposal and that's what we're doing as a company. Todd A. Schwartzman - Sidoti & Company, LLC: Kurt, have you, in any way, changed the ways in which you track the effectiveness of your web presence?

Well, yes. I mean, it's a fast-moving business and you get more sophisticated as you go on. But we have pretty good data on all the things that we do and where we spend our money and what kind of return we're getting. And it's pretty sophisticated.

The next question is coming from the line of Matt McCall with BB&T Capital markets. Matthew Schon McCall - BB&T Capital Markets, Research Division: So continuing on Urban Attitudes a little bit, Kurt, do you plan on marketing that any differently to attract that Urban customer who may not think of La-Z-Boy and Urban together?

Absolutely. You'll see it very pervasive across all of our social media and our website. And I would imagine, although this has not been totally fleshed out yet, but I imagine you'd see some TV commercials with Brooke Shields talking specifically about Urban Attitudes. And we're not quite ready to reveal all of our plans on that, but it'll be a focal point of our overall marketing plan. Matthew Schon McCall - BB&T Capital Markets, Research Division: And then on the distribution front, is the current retail -- your current retail distribution footprint, is it Urban enough to connect with that targeted customer?

Well I think, I mentioned in my opening comments, Matt, it's -- there are 2 phases to this: one is a little stronger nod to more fashion and stylish furniture. But the other thing is, is that the furniture in the collection and a lot of it is smaller than our average offering, it speaks to those people, whether they're Urban or not, that lives in condominiums and apartments and have smaller spaces and we think the day in most places of McMansions are over, and we have sofas large enough that we can't get them through standard doorframes. So this not just for a customer looking only for style, but there's also a size quotient here that we think will appeal to a lot of people. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay, okay. That's helpful. And one for you, Mike. You mentioned ERP again. Can you update us on the timing there? Your progress to date? And any issues, thus far, and just when do you expect it to be completed?

So what we are -- no changes to our current project status. We're still moving along and moving into our first plant in the fourth quarter. So right now, we don't see any changes in that. It'll still be the next 15 months or so that we're focused on getting all that done. It'll be a lot of our plants will be done over the next 12 as we move forward into that. So I would say another 15 months or so, we'll be pretty far along on that. I'm not sure...

We would hope, Matt, by the end of fiscal '15, we would have this substantially completed. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay. And pretty smooth so far?

As smooth as you can possibly do in something of this magnitude.

Smooth is all relative. But we have no big obstacles at the present time. Matthew Schon McCall - BB&T Capital Markets, Research Division: Okay, perfect. And one kind of out of the left field here. What's the square footage of the new building?

The square footage is a little larger than 200,000 square feet.

Our next question is coming from the line of John Baugh with Stifel. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: I was wondering -- and Kurt, this is not a Q2 question, it's more of a, I guess, "11 consecutive quarters of nice written comp" question. And you talked about traffic being relatively flat in many of those quarters and mix improving. I was wondering if you'd go into little more detail with us again, not necessarily Q2 year-over-year, but if you wanted to go back 3 years about -- is it the stationary versus motion? Or it's Power driving higher motion price point? Any and all color on what's driving that ticket.

Well, you were on a roll there, John. You might as well just continue. You had 2 or 3 of the elements already outlined. It's a combination. It's back to the earlier question about people are shopping less places, but they come in more informed, so they're more prone to buy. It's Brooke bringing us a customer that has a better understanding of our product offering. It's a shift in our mix to more stationary. Even though our motion and chair business is growing, the stationary business is growing faster and it is -- carries a higher price point. Obviously, Power the last 2 years has substantially increased the average price on the items that come with Power. So our close rates have improved over the 3-year period. So there's 7 or 8 factors here that are allowing our performance to improve, and we think there's still opportunity to build on all those -- our In-Home business has increased. Our custom business has increased. So it's a multitude of factors that we measure that we watch. But right now, they're all going in a positive direction. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: And maybe coming at this a little different direction. A lot of investors ask me, where are we in the cycle? Or how much have we recovered to date or -- obviously, they're trying to get at how much opportunity is in front of us? Would you hazard a guess on whether we're in the first inning, fifth inning, eighth inning or something of recovery?

My answer to that would be that it seems that from the industry projections that we are privy to and we see, that this year, either our fiscal year or a combination as we head into calendar year '14, that the industry will be back to its prerecession levels. So that's great. But that means we really have only gotten back to where we were in 5 years. So as the consumer confidence stays where it's at and the economy hopefully improves, I think there's a few years of opportunity here in the industry because we went down so much. And I don't think the $85 billion number that is out there in the industry, I don't think that's a ceiling on where the industry can grow. With a lot of our dealers opening stores, not just the La-Z-Boy store owners, but a lot of other of our major customers expanding, I think the next couple of years are -- barring anything else happening to the economy or politics or anything, I think the furniture industry should be fairly opportunistic. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then my last question is for Mike and a modeling question. As we look at Q3 and 4 and we look at the retail segment, could you give us a feel for non-comp revenue, i.e., revenue in retail that's going to be a licensed dealer you acquired that wasn't in the numbers a year ago? Or new store and what that might total in dollars or percentage gain year-over-year in each quarter?

If you look at the averages that we've been talking about over the last couple of years on $3.5 million to $4 million a store, I think you can use that as kind of a basis for our 6 of additional stores that we're adding. Of course, if they were being sold before at our intercompany, eliminations will increase a little bit as well since those stores weren't currently in our retail environment. But I think if you used those as a basis for your starting point, that should get you going at least on what those stores are doing. The problem is what we don't talk about is the stores that we close or that we've eliminated as much. But for the most part, we think we've done most of the close -- closing of those stores and don't expect a significant number of net decrease over the year. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: So you're saying, essentially, to keep math simple, $4 million, which should be the high end, but that's 24 multiplied by 6, and then obviously a quarter's worth of that would not be way out of the ballpark?

It would not be way out of the ballpark.

The other thing to consider, too, John, is that's the 6 stores we acquired, but we're opening a new store in Southeast Michigan Saturday. We have a dealer opening a new store Saturday in Rochester, New York. We have other dealers. So in addition to what we've acquired, there will be some other stores opening in the second half of the year that we believe will be a net add to our store count. John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just to be clear, on this revenue, both the stores you're going to open and acquired stores, we have to be careful about not assuming the 30% contribution margin, but just attribute that 30% contribution to whatever comp estimate or organic growth?

I'm glad you asked that question, John, or raised that, yes. I mean, going forward here, as we buy stores or open stores, not all of our revenue is incremental. We have the costs associated with operating those stores. So it's really the incremental would be the same-store increase on the base. And so these stores, while they should perform better than store 1 because of the infrastructure and all, they -- we don't get the same conversion on these types of stores that we do on the base.

[Operator Instructions] Your next question is coming from the line of Kristine Koerber with DISCERN Investment Analytics.

A few questions. First, can you provide some color on the price point margin on Urban Attitudes products? Does that going to vary that much?

No, it's right in our wheelhouse. And the price of the sofas and chairs and everything are maybe slightly above average, but nothing outside. We're not -- these sofas are not $500 at retail more expensive than what we traditionally sell, and our margins on those are consistent with the rest of our business.

Okay, that's helpful. And then as far as the direct container program, is that something that's being offered to all the dealers? And are there incentives for the dealers?

Well, the incentive is they get a mixed container. So for smaller dealers, to buy a container just from one of our 4 companies, it eliminates a lot of smaller dealers who only need to buy 1 or 2 collections and they'd like to fill it out with other things. So getting all 3 of our major casegoods companies with the exception of there are occasional provider, it gives us a lot more flexibility to have a broader presence on dealer's floors and they will get the product quicker and the freight expense to them will be much lower.

Okay. And then as far as commodity prices, is there any meaningful changes in commodity prices that we should be aware of?

Overall, with us, there's no meaningful change. We had seen some increases in leather, particularly the better leathers because of the demand with the car industry and the shoe industry and things of that nature. But it's nothing out of what we plan for and it should not have any real impact on our planning or our margins here for the back half of the year.

It appears there are no further questions at this time. I would now turn the floor back over to Ms. Liebmann for any concluding comments.

Thank you, everyone, for participating on our call today. We appreciate your interest in La-Z-Boy Incorporated. If you have any follow-up questions later today or over the next few days, please give me a call and I will make myself available. Have a great day.

Thank you.

Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.