Greetings. Welcome to the La-Z-Boy Fiscal 2023 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Bob Lucian, Chief Financial Officer of La-Z-Boy Incorporated. Mr. Lucian, you may begin.

Thank you, Holly. Good morning everyone and thank you for joining us to discuss our fiscal 2023 fourth quarter and full-year results. Before we get started, I like to take a moment to introduce Mark Becks, who recently joined La-Z-Boy as our new Director of Investor Relations and Corporate Development. Many on this call will know him, given his diverse background in [hardline] [ph] retail research and consumer and retail investment banking advising global public and private brands. Mark's contact information can be found in yesterday's press release. Welcome, Mark.

Thank you, Bob. Good morning, everyone. It is a pleasure to be with you. Joining Bob and me on the call this morning is Melinda Whittington, La-Z-Boy’s President and Chief Executive Officer. Melinda will open and close the call and Bob will speak to segment performance in the financials midway through. We will 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 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 will now turn the call over to Melinda Whittington, La-Z-Boy's President and Chief Executive Officer. Melinda?

Thanks, Mark, and good morning, everyone. Thank you for joining us to walk through our fourth quarter results. I'm excited to share that we have delivered a second consecutive year of record results during continued economic and industry volatility. Yesterday, following the close of market, we reported record results for fiscal 2023. Highlights for the year included: record consolidated operating profits, operating margin, and earnings per share for the fiscal year; delivered sales were also a record for a 52-week fiscal year; record delivered sales profits and operating margin for our company-owned retail segment; strong cash flow generated from operating activities of over $200 million; improved delivery lead times back essentially to pre-COVID levels, and continued progress against our Century Vision growth strategy. All-in, we’re proud of our performance against a challenging macro backdrop. Sales were $2.3 billion, up 2% after adjusting for last year's 53rd week. Strong top line results led to an all-time non-GAAP operating margin of 9.5%, a 140 basis point improvement versus fiscal year 2022. Improvements in profitability drove record full-year non-GAAP earnings per share of $3.86, 24% ahead of last year, and 80% more than pre-pandemic fiscal 2019. Importantly, our supply chain team has collectively reduced delivery lead times back to pre-pandemic levels, enabling our customers and consumers to experience our brand promise once again. Custom furniture with speed to market, a key differentiator in our fragmented marketplace. The success achieved in fiscal year 2023 is a testament to the continued hard work and perseverance of our dedicated and talented teams across the enterprise. I'm proud of the leadership team we have built and the bench we are developing across the company. Our employees have been and continue to be among our greatest assets and we're the key drivers of these amazing results. Going a…

Thank you, Melinda. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. Non-GAAP results exclude items, which are detailed in our press release and in the tables in the appendix section of our conference call slides. Finally, please note that the comparison year of fiscal 2022 includes 53-weeks of business, whilst fiscal 2023 included a normal 52-weeks. On a consolidated basis, fiscal 2023 fourth quarter sales decreased 18% to $561 million versus the prior year quarter, reflecting lower delivered unit volume, partially offset by favorable product and channel mix in the effects of pricing and surcharge actions. Excluding the extra week in the prior year’s fourth quarter, worth approximately $49 million, fourth quarter sales decreased 12%, reflecting lower delivered unit volume as the backlog returned to pre-pandemic levels. Consolidated GAAP operating income decreased to $54 million and non-GAAP operating income was $55 million, a decrease of 15% versus last year's 14-week fourth quarter on the lower sales. Consolidated GAAP operating margin was 9.6% and non-GAAP operating margin was 9.8% reflecting a 40 basis point improvement versus last year. GAAP diluted EPS was $0.79 for fiscal 2023 fourth quarter versus a $1.33 in the prior year quarter. Non-GAAP diluted EPS was $0.99 in the current year quarter, versus a $1.07 in last year's 14-week quarter. As I move to the segments discussion, my comments from here will focus on our non-GAAP reporting unless specifically stated otherwise. Starting with the retail segment, for the quarter, retail's delivered sales were $243 million, a record for the fourth quarter. A 4% increase over the prior year’s fourth quarter and a 12% higher sales adjusting for prior year’s extra week led by a 7% increase…

Thanks Bob. I'm more excited than ever about the future of La-Z-Boy Incorporated. At our core, we have great brands, a strong and growing company-owned retail segment, and an increasingly agile supply chain. We are instilling a renewed focus on the consumer and new product innovation and have a talented and focused team in place to execute our Century Vision strategy, growing ahead of the industry and delivering double-digit non-GAAP operating margins over the long-term. While the macroeconomic environment will remain volatile, our balance sheet is strong and will allow us to move through this uncertain period, while making important investments to strengthen our business for the future. We have every intention of growing from our normalized post-COVID base, gaining share, and believe the best is yet to come as we deliver long-term profitable growth and returns for all stakeholders. We thank you for your time this morning and I'll turn the call back to Mark.

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

Certainly. [Operator Instructions] Your first question for today is coming from Anthony Lebiedzinski at Sidoti and Company.

Good morning and thank you for taking the questions. So, first, just a housekeeping question if I may, you know, in terms of the quarterly sales breakdown, maybe Bob you can speak to the pricing versus volume for the quarter?

In specific percentages?

Well, or if you don't have those numbers in front of you, just maybe more in general terms?

I don't have those numbers right in front of me right now. You're saying, if this is for Q4 four, you're saying?

Yeah. Just curious as far as you know, for pricing, you know, as far as pricing and surcharge actions, obviously, those help the revenue numbers versus unit volumes, which were down. So, I was just wondering if you had. If not, we can follow-up later, if you don't have that in front of you.

Directionally, Anthony, all of our big pricing, so you'll recall the industry over the last three plus years priced up about 30% and we were more or less in-line with that. If I look at Q4 a year ago versus now, you know, all of those surcharge, all those increases in pricing, there’d be no actions taken in that was more than a year behind and that, so that would be true on our wholesale business and then pass-through to retail as well. What you would see in pricing and it's why it's not as big of a driver as some of what you saw over the last couple of years is, certainly mix. Mix is strong and as we were, you know, as we were kind of going through and delivering well in our retail business, when mix is strong to retail, that tends to help us, because, you know, the average product sold in our retail stores and our Furniture Galleries tends to be a bit stronger and we did, as we talked even last quarter across all of our businesses and wholesale start to take some, you know, some specific, you know, re-merchandizing actions, you know to make sure we were competitive in the marketplace. So, you know, you'd have a, you'd have a bet of on certain products. A bet of pricing down Q4 last year versus Q4 this year, but compared to what you've seen in the last several years back, there's not, you know, there's not huge drivers in those numbers of pricing changes.

Got it. Yes, thank you for that color Melinda. So, you know, as far as inventory levels, your retail partners that you sell into on a wholesale basis, can you comment on that? I mean, I know, last year it seemed like there was, you know, or even earlier this year, a lot of. [I think bloated] [ph] inventory levels with I think, you know, a lot of uh retailers is saying that they have too much inventory. So, what is your sense now as to, you know, are we in better shape now of, versus earlier this year, you know, just wanted to get some color on that, please?

Yeah, Anthony things are better than they were early this year. First couple of quarters this year was extremely difficult for folks to take on product because their other inventories were so high. So, things have gotten better. I wouldn't say it's back to normal, what we hear from some of our customers, some customers are actually back to normal inventories, but they're planning on going to lower than that. And the reason why is, in the current environment, with a potential recession in the future, folks are actually looking at lowering what they've normally been – they've normally been carrying from an inventory standpoint. So, if they used to carry 10, and they're back to 10, they're looking at continuing to move that down into like 7. I'm making up numbers as an example of a reduction, and that will reduce their risk from a cash flow – improve their cash flow and reduce the risk if we get into a recession. So, they are trying to right size their inventories with the consumers as the consumer demand is a little bit volatile right now. So, we're seeing that type of activity and we are still seeing some smaller dealers with just too much and they haven't gotten – if their number needs to be 10, they're still at 12 or at 13. So, we're seeing a combination of those things. It's still much better than it was in Q1 and Q2. That's encouraging to hear. And then, you know, in terms of your own retail segment, it did very well once again here in this quarter. How should we think about the sustainability of these trends? And then as a follow-up as far as the retail segment, I know you talked about opening up to nine stores, I assume that's on a gross basis or is that, are you – or is that not of any closings that you're planning to do?

Yeah. So, overall retail, you know what we've continued, obviously, the market is volatile, the furniture industry, you know, is volatile, but what we continue to see quarter-after-quarter, particularly in our Furniture Galleries and very specifically in our company-owned retail that where we're playing offense, where we're investing in the marketing, where we are out executing the consumer is still buying. And so, that is very much our intention is to keep that going. We believe very much in our company-owned retail as a huge differentiator for us, because we best know the consumer there, which can inform everything about our product and our approach. But it also gives us full control end-to-end from raw material to end consumer delivery of that experience. And so, we do believe our retail will be a disproportionate growth factor over the long-term. And to your point, you know that's organic, that's inorganic, that's executional excellence. So, part of that is, as part of our Century Vision, we've talked about across the network. We're at about [three] [ph] – call it in round numbers, when we started Century Vision, we are around about 350 stores and we believe current footprint, everything else being equal, there's room for about 400 at the current, kind of style and footprint that we have. So, our overall intention is to net, you know, close to 10 new stores a year across the Furniture Gallery. Now, to your point on any given year, you know, this past year, we were a bit under that as we were starting that machine up and we'll still, you know, aggressively close underperforming stores, you know, rather than keep them open just to track a number, but yes, we do intend to net increase our stores both total Furniture Gallery network, as well as company-owned.

Well, sounds good and thank you very much and best of luck.

Thanks Anthony.

Thank you, Anthony.

Your next question for today is coming from Zachary Donnelly with KeyBanc.

Hey Bob. Hey Melinda. Thanks for taking our questions. So, I know you mentioned that comps were positive in February, were negative in March with the bank failures that kind of took place during that time and then turned back to positive in April. I just want to make sure first I have that right? And then, kind of following April, can you provide any, sort of information or detail on how comps are performing following the end of the quarter?

Yes, so I'll take that Zach. First of all, yes, you have that right. There was a little bit of mid-quarter, kind of trend slow down, but then we were back on again. And of course, these are, you know, these are trends on our retail business, right, where again we're playing offense to make sure we're driving strong results. As far as, you know, how we were a couple of weeks into our new fiscal year here, you know, Memorial Day, I think for the industry, results were mixed, given overall lower traffic trends. And again, some of that is still getting back to normal seasonality. It's always been a slower period. But I think across the industry, we're definitely seeing the consumers slower this year. In our own retail though, you know, we felt like Memorial Day was solid, pretty much in-line with our expectations and you know, our intention is to keep playing offense and keep those comps coming in, you know, positive and ahead of the industry.

Got you. Thank you. I appreciate that. And then on the wholesale segment, I know you mentioned that favorable channel and product mix, kind of help offset lower delivered unit volume with product mix and channel mix, can you maybe just remind us on product whether or not upholstery or case goods, kind of helps you out there and then on channel mix as well within the wholesale? If you saw any benefit from La-Z-Boy Network of Furniture Galleries versus major dealers versus retailers outside of the network, that would just be really helpful?

Sure. Yeah, let me clarify. When we talk channel mix, for us – the vast majority of our business is really upholstery. So, when we talk channel and product mix, it tends to be more around, are you talking about like an opening price point based chair versus are you talking, you know, a high-end you know, sofa sectional with power and leather and all those type of things. So, you know what we're manufacturing in our wholesale business, let's say, you know, ballpark a little over half of what we're manufacturing is selling through furniture galleries and those tend to be, you know, higher cost product, higher value product that tend to be more upgrades, more custom, more bells and whistles added to the product, whereas the other, kind of less than half of our business that tends to sell through general dealer channels. So, entities that sell product, you know, a variety of manufacturers, product, right? We're one of a series of brands, those tend to be less customized, maybe more opening price point and type product. So, what we see is, when our Furniture Galleries are doing well and when our own retail is doing well, you tend to get a product mix that is the higher-end product of what we offer. Is that cleared up?

Yeah, that clears that up. Thank you very much. And then I know, last time we [have spoken] [ph], you kind of mentioned that you weren't really seeing any sort of huge discounts or promotions within the furniture space and you know, La-Z-Boy themselves were keeping to more targeted promotions more so at entry price point assortments and things of that nature. Is that still the case today or are you seeing competitors become more promotional, maybe given the more volatile economic backdrop?

We've seen a slight increase in some promotional activity and we've taken some additional steps during the fourth quarter that we announced that market as it related to ensuring that we remain competitive across our portfolio of products, and how we merchandise our products to the different customers and to the different channels. So, we've seen a little bit of that, but it's not a major concerning factor for us right now. We keep our eye on it obviously, but it's not having a major, what I'll call a negative impact on our margins and our sales at this time.

Got you. Thank you. That's it for me. I really appreciate the time. Thank you.

Thanks, Zach.

We have reached the end of the question-and-answer session and I will now turn the call over to the management team for closing remarks.

Thank you for joining us on the conference call. And Melinda, Bob, and I will be available to answer any questions, should you have any follow-ups. Thanks and have a great day.

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