Good day ladies and gentlemen and welcome to your La-Z-Boy fiscal 2022 first quarter conference call. All lines have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. If you should require assistance throughout the conference, please press star, zero to reach a live Operator. At this time, it is my pleasure to turn the floor over to your host, Kathy Liebman, Investor Relations. Ma’am, the floor is yours.

Thank you Taran and good morning everyone. Thank you for joining us to discuss our fiscal 2022 first quarter results. With us this morning are Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer, and Bob Lucian, CFO. Melinda will open and close the call, and Bob will speak to segment performance and the financials midway through. We’ll then open the call to questions. Slides will accompany this presentation and you may view them through our webcast link, which will be available for one year, and a telephone replay of the call will be available for one week beginning this afternoon. Before we begin the presentation, I’d like to remind you that some statements made in today’s call include forward-looking statements about La-Z-Boy’s future performance and other matters. Although we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain non-GAAP measures which are also included as an appendix at the end of our conference call slide deck. With that, I’ll now turn over the call to Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer. Melinda?

Thank you Kathy, and good morning everyone. Yesterday afternoon following the close of market, we reported our fiscal ’22 first quarter results, a quarter marked by multiple successes as well as some expected challenges. Across the La-Z-Boy enterprise, we delivered all-time record high sales of $525 million, making and selling more furniture in the quarter than we ever have in modern history, even with production running only 12 weeks in the quarter due to our annual one-week maintenance shutdown in July versus 13 weeks in most quarters. Demand across all businesses also remained high and backlog remains at record levels. Written same store sales for the La-Z-Boy Furniture Galleries network increased 10% versus the prior year quarter and has grown at a compound annual growth rate of 13% across the last two years since pre-pandemic, demonstrating the continued strength of demand for our La-Z-Boy branded products. Written same store sales for our company-owned retail segment increased 22% versus the prior year period, and at a compounded annual growth rate of 16% over the last two years. Joybird continued on its strong growth journey, writing 31% more business than in last year’s first quarter and growing at a compounded annual growth rate of 35% across the last two years. On the manufacturing front, we continued to increase capability to build and deliver more furniture to better service continued strong demand and are in the process of increasing our sell count across the La-Z-Boy branded business. Also during the quarter, we continued to return value to shareholders with a dividend payment and $36 million of share repurchases, and we’ve recently expanded our repurchase authorization. At the same time, we are experiencing challenges in our wholesale business. We continue to have inefficiencies at the plant level as we open additional upholstery capacity and…

Thank you Melinda, and good morning everyone. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe a non-GAAP presentation better reflects underlying operating trends and performance of the business. Our fiscal ’22 first quarter non-GAAP results exclude purchase accounting charges which are detailed in our press release and in the tables in the appendix section of our conference call slides. On a consolidated basis, fiscal ’22 first quarter sales increased 84% to a record $525 million, reflecting strong demand, capacity increases, and a comparison to the fiscal ’21 first quarter when we restarted our plants at reduced capacity after a month-long shutdown, and most retailers were closed for a portion of the quarter due to COVID-19. Sequentially from fiscal ’21 Q4, first quarter sales increased even with our annual one-week maintenance shutdown in July. Compared with the pre-pandemic fiscal ’20 first quarter, sales increased 27% for a compounded annual growth rate of about 13%. Consolidated GAAP operating income increased to $34 million and non-GAAP operating income increased to $35 million. Consolidated GAAP operating margin was 6.5% and non-GAAP operating margin was 6.6%, reflecting expected significant short term pressure on wholesale margins as the realization of previously announced pricing actions trailed escalating input costs and we continued to invest in capacity expansion. GAAP diluted EPS was $0.54 for the fiscal ’22 first quarter versus $0.10 in the prior quarter. Non-GAAP diluted EPS was $0.55 in the current year quarter versus $0.18 in last year’s first quarter. My comments from here will focus on our non-GAAP reporting unless specifically stated otherwise. I will now turn to a review of our results by segment. Demand for product across all businesses remains robust. Starting with our wholesale segment, delivered sales for the quarter grew 76% to $393…

Thanks Bob. We continue to operate in a very volatile environment with COVID uncertainties, high input costs, ongoing supply chain disruptions, and continued strong demand curves. Our team is doing an outstanding job of managing the competing priorities of our various stakeholders, including our customers, shareholders, and employees. We expect capacity expansion efforts will enable strong business growth as we move forward, and we are focused both on near term tactics while designing our future for our 100th year and beyond. I believe the best is yet to come for La-Z-Boy Incorporated. We thank you for your attention, and now I’ll turn the call back to Kathy.

Thank you Melinda. We’ll begin the question and answer period now. Taran, please review the instructions for getting into the queue to ask questions.

[Operator instructions] We’ll take our first question from Bobby Griffin with Raymond James. Please go ahead.

Good morning everybody. Thank you for taking my questions.

Good morning.

Morning Bobby.

I guess the first question or first area I want to hit on is just the production capabilities and the throughput. Just want to make sure I’m understanding your comments correctly and thinking about it the right way. Are you guys thinking that weekly production capabilities should continue to build sequentially as you bring more people in the plants or capacity comes on, etc., so when we look at the second quarter and recognizing you have a record level backlog, we would expect 13 weeks of throughput at at least the same rate that we saw here in 1Q, is that fair?

That’s fair, yes. For our wholesale business with between folks training and just continuing to pick up pace, as well as the sells we are continuing to open, that is a very fair assumption.

Okay, and then I guess secondly, it’s unprecedented times naturally with raw materials and the pandemic and things like that, so putting the surcharge in your backlog, even though it’s the first time, with the environment is not necessarily that surprising. But just curious on what the feedback’s been given that it’s something that’s not typically done, and any commentary around that.

Yes, as you said, it’s unprecedented times, and it’s not an unprecedented action in the current environment. We’ve seen a lot of manufacturers take similar actions The challenge is always balancing the needs of our various constituencies, right, between our shareholders, our customers and our employees, and as you mentioned, the situation with multiple cost components inflating at historic levels and historic pace for an extended period, we held off as long as we could, honestly. It was not a light decision to make, but we have taken that decision and are looking to share the challenges across our businesses, both with our own retail as well as with our customers. It’s been a challenge and we’re working through that, but we’re confident that if you think about that backlog, a healthy portion of the backlog can still be priced to the end consumer, and that would be the way certainly even on our own retail business that we’ll be looking to recoup some of that, because we do the same, right - we charge our own retail from our wholesale business as well, so working with our business partners, the opportunity to take a price increase to the end consumer on a healthy portion of that backlog would be the way to mitigate a portion of that overall increase.

Okay, that’s helpful. Then I guess lastly for me, in the comments you mentioned half the cash flow back in the business through capital expenditures and M&A and investments like that, but maybe can you talk a little bit on your M&A strategy? Has that changed recently now coming post pandemic here, and maybe just refresh us on how you think about M&A.

Yes, I think two things. We have always said that opportunistically we would be interested in purchasing a higher portion of our furniture galleries, and you saw that with the Long Island transaction here this quarter. We continue to interact with our furniture gallery owners to the extent that they’re interested in a transaction like that, and it does give us the opportunity to drive some synergies on the overall network. We also over time, as I mentioned, as we look at our next six years or so, we want to take the learnings we’ve had from certainly the Joybird acquisition, where we now have a business model that we’re proud of and ready to continue to grow and get better at how we would do that sooner. We’ve always said we’re not a bet the farm acquisition kind of organization, but the opportunity to take our learnings in some of those key skill sets that we have, primarily the supply chain know-how that we have, and potentially create value by some tack-on acquisitions over the next six years or more is certainly an area we’ll continue to look at, particularly given the higher cash balances that we’ve accumulated over the last year or two.

Thank you. I appreciate the details. Best of luck here going through the rest of the calendar year.

Thank you.

Our next question comes from Anthony Lebiedzinski with Sidoti. Please go ahead.

Yes, good morning, and thank you for taking the questions. Just wondering with the price increases on the backlog, any sort of notable changes as far as order cancellations that you can point to, or have you not seen that?

We have not seen that yet, Anthony. We’re continuing to monitor the situation, but we’ve seen no change in the cancellation rates that we typically see.

Got it, that’s great to hear. You mentioned that the backlog is at a record high level. Did you guys quantify that, or maybe I missed it?

We did not quantify it. I’ll tell you it’s higher than it was, than what we did quantify for folks in the 10-K, so orders came in stronger than we were able to make, even though we were making more than we made in the previous quarter.

Got it, okay. Given the extended lead times that people are waiting for custom furniture, just wondering have you guys seen any changes as far as what people are buying? Are they shifting more to in-stock merchandise versus custom furniture, or just wondering have you seen any change as to what people are buying.

No real changes, Anthony. The lines begin to blur a bit because there are situations where the customer’s come in and chosen not to customize, but they may place an order on something that normally would have been a stock order, so those lines blur a bit. But as far as what folks are ordering, no big changes.

Got it, okay. Lastly, a little bit more of a housekeeping question, but on the wholesale revenue piece, if you could just broadly speak about unit volume increase versus price increase, what you saw in the quarter.

From a delivered sales standpoint?

Yes.

Okay. I’d say that the volume was--the sales were probably 3% to 4% up due to pricing in the quarter versus the prior year.

The vast majority of the uptick is volume. We mentioned that our stacked pricing at this point is up to high teens, but what’s actually coming through on delivered, because of the backlog, is call it a third or less of that.

Got it, okay. All right, well thanks and best of luck.

Thank you.

We’ll take our next question from Brad Thomas with Keybanc Capital Partners. Please go ahead.

Hi, good morning everybody. A couple of follow-up questions, if I could. Was wondering if you could talk a little bit about written orders and the cadence in the quarter and how you’re feeling about the trends. You referenced still feeling like the demand backdrop is very healthy. I know as we get into August, end of June and July, you were up against months where your written orders had been up, I believe in the 30% range last year, so just curious how growth was shaping up as you were lapping those difficult comparisons.

Yes, like you say, you’ve got a strange base of comparisons for this quarter, right, because we were essentially shut down--most of our customers were shut down in May a year ago, mixed openings finishing up in June and everyone going to town in July. But broadly, what I would say is we are not seeing--this year, right, if I look at this year, we are not seeing month to month any significant drop-off in the order rates at this point.

Got you, so as you’ve lapped, are you still posting some growth in the written orders as you lap these tougher comparisons?

In Q1, the answer is yes, so across what Melinda just described as a strange period of very low in May and then increasing in June and July, so across the Q1 quarter we did see an increase.

Which is, again, both a good thing and a challenge. What that says is we’re really not seeing the slowing. You have to expect some of that will come at some point, but it’s also a bit of a challenge on why our backlog continues to grow, because even though we are manufacturing more furniture, incrementally each week, each month that demand pace continues to be solid.

Yes, okay. Then to follow up on the earlier question on price versus unit, if we look at the written orders of 10.4% in the July quarter, your pricing as of now is running up high teens, as you mentioned, does that mean basically on a run rate basis, we’re starting to get to flat or negative year-over-year on the unit basis? I’m just trying to think about mathematically how it works and break the order trend apart a little bit here.

Yes, units overall will continue to increase - what we are producing, units continue to increase each quarter. Now, on any given--when you get into the nuances, like we’ll see some challenges likely in our case goods business as we go forward this next quarter because a healthy portion of that is imports out of Vietnam, and you know the challenges there, so the devil’s in the details on some of those pieces. Our U.K. business has heavy orders, lower delivery in the near term, so on the fringes there’s some overall ups and downs, but if you think about the biggest chunk of our business, which is what we’re manufacturing for North America on the La-Z-Boy brand, as well as for the Joybird brand, units continue to increase sequentially and year-on-year.

Okay, great. Just a last one from me on gross margin. With the price increases and now the backlog price increase, does this set up this first fiscal quarter as kind of the low water mark for gross margin to where it may still be down in the October quarter, but at a lesser rate than what you saw in 1Q? Is that the way to think about the cadence going forward here in margin trends?

Yes, that’s correct.

That’s correct, yes.

Okay, great. Thank you so much, and best of luck.

Thank you.

Thank you.

That concludes our question and answer session. We’ll turn the floor back to our presenters for closing remarks.

Thank you everyone for joining us this morning. Should you have any follow-up questions, please give me a call. Thank you and have a great day.

Ladies and gentlemen, this does conclude today’s teleconference. We thank you again for your participation. You may disconnect your lines at this time. Have a great day.