To note, for our fiscal 2027 full year, comparability to prior year will be affected by two items
Management
the full year impact of our exit of the wholesale case goods business, which was completed last month, and which delivered approximately $60 million in annual sales in fiscal 2026, and the half-year impact of our 15-store retail acquisition, which was completed at the end of October last year. We expect to open approximately 10 new La-Z-Boy stores during the coming year, of which the majority will be company-owned, as well as three to four new Joybird stores. We continue to monitor the evolving tariff and trade policy environment and adjust accordingly. We are in the process of applying for refunds for IEEPA tariffs through the standard CBP system and will determine next steps as we monitor our progress. As a reminder, 90% of our upholstery production is based in the U.S., which continues to be a competitive advantage as we are able to deliver customized upholstery with speed to market and limits the impact of tariffs on our business relative to some in our industry. We expect capital expenditures to be in the range of $90 million-$110 million for the year, with continued investment in our distribution and home delivery transformation manufacturing-related investments and investments in our La-Z-Boy retail stores, including new stores and remodels. Lastly, we expect capital allocation to be balanced between investments back into the business and return to shareholders. With that, I will turn the call back to Melinda. Melinda Whittington Thanks, Taylor. We ended fiscal 2026 on a strong note, and we're creating our own momentum and investing for long-term success. We're adapting our business with key strategic initiatives to even better position La-Z-Boy Incorporated for our next 100 years. While the timing of a strengthening in our industry remains unclear, we are well-positioned to continue to gain share now and disproportionately benefit when the industry does resume to a more normalized growth trajectory. Before I conclude the call, I want to thank the entire La-Z-Boy Incorporated team and our many partners for their hard work and commitment to navigating the current environment, delivering strong results, and strengthening for the future. We are focused on continuing to drive value for all of our stakeholders, and I'm excited for the year ahead. Now I'll turn the call back to Mark. Mark Becks 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. Operator Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Bradley Thomas with KeyBanc Capital Markets. Taylor Zick Hey, good morning. This is Taylor Zick on for Brad. Thanks for taking our question. Maybe first, Melinda, you had a pretty good quarter here. You called out the strength in April continuing those positive trends here in May. Just kind of curious, first, what you think is helping to drive some of that strength here towards the end of the quarter and into, I guess, fiscal 1Q. Curious if you want to comment at all on maybe what you're seeing so far here in June. Thanks. Melinda Whittington Sure. Good morning. I would say, overall, I'll step back and say we know that consumer behavior overall remains choppy. There's a lot going on, right, in both continued housing trends as well as just overall consumer sentiment. Everything that we are doing is around driving our own momentum in that environment. When I look at the strong results in the last couple of months, April into May, it's around that execution, right? It's around having the right product, the right messaging, outstanding in-store execution, speaking to the consumer, meeting to them where they're ready to buy. As we've talked in the past and even in some of our ongoing innovation work, we have to meet some of the consumers that are aspirationally trying to get into the brand and have some sharpened price points, particularly on these big tentpole events. At the same time, we still have a really strong design business and some incredible in-store execution that's driving some larger tickets. It's that flywheel of all those pieces that I think is delivering the results that we've seen recently. As we kind of continue on, we're still early into June. As an industry, we know we have some of these bigger tentpoles. Our focus is around the Memorial Day holiday that we just passed, and then July 4th coming up as the next big one, and we're looking to continue that momentum even up against a backdrop that will remain choppy. Taylor Zick Great. Then maybe if I can squeeze one in for Taylor as well. Your operating margins here for this first quarter kind of came in near 10%, which is significantly above where you had guided for the quarter. Maybe just if you can comment on what you saw that kind of went right during the quarter that really pushed you above that guidance range. Then as we head into your fiscal first quarter guidance, maybe can you kind of help us kind of understand some of the puts and takes here, given the outperformance in fiscal 4Q. How does that help you kind of inform the guide for fiscal 1Q as well? Taylor Luebke Thanks, good morning, Taylor. Let me hit Q4 first. We're incredibly pleased with the strong results for the quarter against an uneven backdrop, particularly on the strength of our retail business, both written delivered sales as well as margin expansion. Even a solid quarter on the wholesale segment with expanded operating margin versus the prior year. We continue to operate with excellence across our enterprise and really drive our own momentum, as Melinda said. Delivering to consumer every day obviously helps with the results, but also just an everyday cost discipline as well as optimization helps deliver strong margins. You mentioned over-delivery. The real reason for the over-delivery versus our range was the benefit of kind of the inventory trends as well as pricing on our case goods business prior to us completing that sale in May, which I'd mentioned is non-repeatable. Kind of strip that out, we are at the high end of our guidance range for the quarter, which again, incredibly pleased with, especially with where the world is right now. As we pivot into Q1, I think let me level up and then I'll come back down. As we approach our fiscal year 2027, our objective as we go into any year is to grow our organic sales behind our core business and expand our operating margin, again, towards our long-term objectives of to outperform the industry by 2X and to get to double-digit margins over the long term. That's our objective for the year. As we enter the year, really proud of where our retail business is and their performance, as Melinda had mentioned. I think we are seeing some near-term pressure on our wholesale business, largely, as well as Joybird. One is demand's still choppy, particularly on the B2B side, although we have plans to mitigate. We think it's short-term. Also, as you can see in the news or PPI or other measures, inflation has ticked up a bit, and we're absorbing some of that in the short term, which is manageable. It's there. I would just say that's intentional for us as we're really looking to maximize demand over the summer selling periods, but it's short term. While we may have waited versus other kind of peers out there, we have taken action to address kind of the inflationary input cost called post Q1. Those are kind of the near term kind of headwinds on the wholesale side, which will mitigate ongoing as well as the strength of our retail. I would say lastly, Melinda had mentioned, outside of the into year two of our distribution, and home delivery transformation project, we have announced, which I'm proud to, a continued optimization of our supply chain, where we'll consolidate two of our smallest plants into our broader U.S. network over the course of the year. That adds some friction costs. Again, manageable, but additional initiatives that we have underway. Taylor Zick Got you. Understood. That's helpful. Thanks, Taylor. I'll turn it over to Holly. Thanks so much. Melinda Whittington Thanks. Operator Your next question for today is from Bobby Griffin with Raymond James. Bobby Griffin Hey, guys. Thanks for taking the questions. Hey, Taylor, I wanted to go back to, I guess, some of the margin commentary and kind of better understand the core performance. If I back out the wholesale dynamics with the inventory and the pricing, as you note, I think you guys still come towards the top end of your guidance, which is very healthy, but that would imply some margin pressure, I think, versus last year. Call it like EBIT would've been closer to like an 8.8% margin versus the 9.4% of last year. That year-over-year pressure, what drove that? Is that the supply chain investments around the home delivery optimization, or is that deleverage or what else could potentially be driving that as I try to look at this quarter on a more normal versus normal basis? Taylor Luebke Yeah. Hey, Bobby, and good morning. Thanks for the question. One again, proud of where we came in. On your kind of peeling back on in on the core, I would say, it's some continuation of what we've been talking for the last three quarters, which is one, we have some friction costs with our distribution and home delivery transformation, also while proud of sequential improvement on our same store sales, it's still negative, which does have deleverage impact underneath. As well as we'd mentioned kind of the results for the Joybird business, deleverage impacts on the lower delivered quarter. Those are really the reasons. It's not anything new. It's what we've been managing through the year. We've seen incremental improvements across most of them. As we approach this year, our intent is to grow our core business behind sequential improvement, turn to positive same store sales, and improve our profitability. Bobby Griffin Okay, that's helpful. Then Taylor, yeah, the Form 10-K actually called out some of the distribution costs from the work you guys are doing on the supply chain. I think it was a 70 basis point headwind, to gross margin for wholesale. As you look at FY 2027, does that stay the same or does that actually now start to decrease as we get further into the project? How does that headwind appear as you continue to work through that multi-year project? Taylor Luebke Let me back up and just talk where we're at in the entire multi-year project, and I think it'll answer the question. This is a four-year multi-year transformation of what started with 15 distribution centers that will transition down to three centralized hubs, which the benefits are enormous across our enterprise, both consumer as well as internal from profitability as we, one, can meet consumers with broader delivery radius. Two, it reduces our square footage by 30%, and three, it reduces our mileage traveled of heavy furniture by 20%, all while having better, call it more productive, inventory storage, et cetera. Year one, we just completed, very pleased we completed the western phase. We're now in year two, which is another similarly big year where we will get close to completion of our Midwest, and eastern hubs. I would call year one and year two as roughly equivalent, where we had noted there are some friction costs, which we still intend to grow margin despite of. We're turning more towards break even positive year three with the full benefit of, call it that, 50 to 75 basis points benefit in year four as we complete the project. Bobby Griffin Okay. I got two more, and I promise one of them is for Melinda, so I might just pick on you, Taylor, there's a lot going on this team now. Melinda Whittington I'm feeling hurt, Bobby. Bobby Griffin No, it's encouraging what's taking place and you kind of, I don't want to call it rebuilding, but you're kind of flexing the organization. Taylor, when we stack up that change, the new supply chain optimization that you called out today, minor, but still consolidating plans, plus the sale of case goods and the margin benefit there. Understanding this is down the road and there's a lot that can change from the industry, but like what does all that add up to be on a potential margin lift, and what is the base case for us to kind of grade it against? Taylor Luebke One, I would say, Bobby, I am as pleased as I've been with the transformation and the agility across the enterprise, whether it's the distribution and home delivery, whether it's the continued plant optimization, whether it's just honing the portfolio. Appreciate the words. We've sized some of these, which we intend to realize over the coming years. Others, it's just in the background as part of like the everyday cost improvement, continuous improvement to drive towards our double digit sustainable margin over the long term. We've talked before, like we see our way absent any kind of normalized market growth to bridging where we've been to about halfway to that double digit where, frankly, the other half we do need some just general healthy housing fundamentals, and industry growth to leverage our fixed cost base as across both our store fleet and our supply chain operations. The two new announced today on the smaller upholstery plants will be kind of also what we're working on to bridge that half to our double digit over the long term. Bobby Griffin Okay, that's helpful. Melinda, just I thought the Joybird comments were interesting with the supply chain slash the new stores. I mean, written sales still negative, but you guys opening up new stores I think probably implies you're seeing something there. Just curious kind of what you see out of the new stores when you do open it. Is there a lift to the DMA? Is that part of the path to help turn the written? Just curious kind of the strategic aspect there. Melinda Whittington Yes, certainly. I'm glad I finally got a question, Bobby. Bobby Griffin Sorry. Poor Taylor, I picked on him pretty good here today. My fault, Taylor. Melinda Whittington No. Thanks for highlighting Joybird. Stepping back, Joybird fits very well into our portfolio as being a direct-to-consumer brand, vertically integrated. Fits very well with expanding kind of our offerings as La-Z-Boy Incorporated strategically. Joybird has an outsized consumer awareness already that we're proud of and we see the path to really grow. It's been challenged, certainly, against sort of the current economic backdrop and with a particularly sensitive consumer to all the uncertainty out there. We continue to sort of hone that. What we see, though, is that the brand is very strong, that every time we open a store, and because that consumer is so digitally native and that brand started online, we know where to open those stores. When we do open a store, they're almost immediately accretive to the overall Joybird portfolio. What we need to continue to do, though, is in this time and at this size, is make sure that all of the support behind Joybird is right-sized and structured in an agile way for sort of this choppy consumer environment. You may remember, Bobby, probably in the middle of the pandemic, we had done some work. We were going to start to fully synthesize Joybird manufacturing into our La-Z-Boy plants. We actually backed off of that in the middle of just the pandemic and the backlog and everything, and decided not to distract all the operations. This is sort of retooling and bringing back to life that project, which will give us a new level of agility on being able to support Joybird from behind the scenes, right? To the front, we'll continue on that pace of expanding the brand reach of Joybird, carefully, right, with the store positioning. Even over the last year, we opened up with some of our best strategic partners across our other brands, opening up just a small wholesale presence so that we can keep expanding that reach of Joybird in a really efficient way to some markets that aren't likely gonna make sense for a store at sort of the size and scale of the business today. We watch it closely, because it is definitely in an investment phase for us and has continued to be. Bobby Griffin Very good. I appreciate all the details. Congrats on the work with inside the organization and the supply chain. Understand it's gonna take a little while, but it does look like we're making real progress and it's showing up. Thank you for taking my questions. Melinda Whittington Thanks. Taylor Luebke Thanks, Bobby. Operator Your next question for today is from Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski Thank you, good morning, everyone, and certainly nice to see the strong finish to fiscal 2026. Just a quick follow-up on Joybird. You talked about wholesale strategic partnerships. What have you seen thus far, what do you think is the opportunity there, if you could expand on that? Melinda Whittington Yeah. It's complementary to our core business. What we're looking at is similar to our La-Z-Boy brand. We want to make sure that we're only expanding with partners that are going to appreciate and treat the brand for what it is, one of the few true consumer brands, supported by our own marketing and brand support. One of the few true consumer brands manufactured still in our industry. We're working with those partners. It's a metered rollout to make sure that we're learning as we go along the way. As I mentioned in some of my previous comments, it's focused on getting the brand out to some areas that probably don't make sense to support with their own stores. We're in a learning phase, so far, demand has exceeded maybe our willingness to expand, because we want to make sure that we're learning as we go there. We're very pleased with what that's done so far, our strategic partners are very pleased with what they've seen as well in bringing some new news into their stores, frankly, as they're offering a variety of brands. Anthony Lebiedzinski Got it. Yeah. Thanks for that, Melinda. Taylor, I know you touched on this a little bit, as far as foam costs and transportation costs, can you just comment on that? Are you looking to do any pricing actions to try to offset this? How should we think about that? Taylor Luebke Thanks, Anthony. Yeah. I think first and foremost, there have been some news in supply, particularly on the poly suppliers and issues over the past couple months. I'd say most importantly, we have no supply risk. We fully meet the demand in front of us, which is positive. We do see, particularly on poly, but also just broader-based inflation, a lot linked to kind of petroleum crude inflationary pressure in the near term, which I had mentioned, I think, in my earlier comments, at least on the quarter one kind of outlook. We see it. We've intentionally chose to just bear it in quarter one, which is manageable as we're trying to really drive consumer demand, particularly over the summer selling periods. We have taken actions to mitigate ongoing. We have announced very nominal pricing across our businesses to largely effective for our kind of quarter two onward to mitigate the pressure. Anthony Lebiedzinski Got you. Okay. Lastly, as far as timing of new store openings for both La-Z-Boy and Joybird, will those be kind of evenly spaced out during the year, or will there be any significant variation quarter to quarter? Taylor Luebke No significant variation. Obviously, everything in real estate is subject to permits and timing and weather. Generally speaking, no significant changes versus prior years. Anthony Lebiedzinski Got it. Well, thank you very much, and best of luck. Melinda Whittington Thank you. Taylor Luebke Thank you, Anthony. Operator We have reached the end of the question and answer session, and I will now turn the call over to Mark for closing remarks. Mark Becks Thanks, Holly. Melinda, Taylor, and I will be in our offices to take any follow-up calls. Thanks, and have a great day. Operator This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.