La-Z-Boy achieves $522 million in Q2 sales, announces strategic exits and successful store acquisitions to strengthen market position

UNKNOWN - (00:00:00)

Platinum in what remains a choppy market. Highlights for our second quarter included total delivered sales of $522 million, up slightly from prior year. In our retail segment, delivered sales increased slightly and total written sales increased 4% with written same store sales improving sequentially over the last two quarters. In addition, we opened five new company owned stores in the quarter bringing our total to 15 new company owned stores over the last 12 months. In our wholesale segment, delivered sales grew 2% once again led by growth in our core North American La-Z-Boy wholesale business and we made continued progress on our distribution and home delivery transformation project with the consolidation of 2 additional distribution centers. Our GAAP operating margin was 6.9% and adjusted operating margin was 7.1%. We generated strong operating cash flow of $50 million for the quarter, triple last year's comparable period, and we announced a 10% dividend increase marking our fifth consecutive year of double digit increases. Overall, our operating performance for the second quarter was solid in the midst of a choppy landscape with sales slightly ahead of the midpoint of our guidance and adjusted operating margin that exceeded our expectations. As I noted, total written sales for our company owned retail segment increased 4% versus last year's second quarter driven by new and acquired stores. Written same store sales, which exclude the benefit of new and acquired stores, decreased 2% for the quarter but demonstrated a continued sequential improvement in written same store sales trends over the last two quarters. While consumer trends remain challenging for our industry, we continue to be agile and hone our execution. We saw our strongest results of the second quarter in October where we achieved positive written same store sales. However, results in early November remain mixed and for Joybird, total written sales for the quarter were a positive 1% increase versus year ago, demonstrating significant improvement versus the prior two quarters and driven by strength in retail store performance. We also have made substantial progress against our strategic initiatives focusing on our core vertically integrated North American upholstery business. We completed our 15 store acquisition in the Southeast US region, expanding our ownership of important growing markets. We announced the planned exit of non core businesses and including Kincaid Case Goods, American Drew Case Goods and Kincaid Upholstery and we announced the proposed closure of our UK manufacturing facility. Notably, we expect all of these exits to be substantially completed by the end of our fiscal year and we have strategically realigned our senior commercial leadership as well as realigned our corporate staffing to more efficiently support our streamlined business. These strategic initiatives are a clear demonstration of our proactive approach to driving our own momentum in what remains a challenged marketplace we remain agile and committed to strengthening our business to prudently navigate the current environment while at the same time best positioning ourselves for the next hundred years to expand a bit more on these important Century Vision strategic initiatives. We were thrilled to complete our acquisition of the 15 store network in the Southeast US region at the end of October. These acquired stores are located in attractive markets Atlanta, Georgia, Orlando and Jacksonville, Florida and Knoxville, Tennessee and our ownership of these markets will enable new store growth on top of the already high performing existing store base. This is the largest independent store acquisition in our company's history and will add an estimated $80 million in annual retail sales and roughly 40 million net to the total company on a consolidated basis. Recall our wholesale segment already manufactured and sold products to this business and therefore already recognized the wholesale portion of these annual sales. Given the strong profitability of this network, immediate sales and profit accretion and opportunity for further market expansion, this is a very attractive investment for our company as an important pillar of our Century Vision strategy. Over the last several years we have maintained a consistent cadence of independent dealer acquisitions and we see opportunity for a continued pipeline over time. With roughly 40 independent dealers and nearly 150 independent stores still in our network. New store growth is another key lever to growing our retail business and our strong balance sheet gives us the flexibility to make disciplined investments even in more challenging macroeconomic conditions. We opened five new company owned stores in the quarter and closed three and opened 15 new stores in the last 12 months and closed five as we deliver the most significant period of new retail store growth in our company's history. Looking back even a bit further, over the last 24 months we have added 20 new company owned stores as we continue to expand our La-Z-Boy store network towards our target of over 400 stores and with this recently completed acquisition, company owned stores now represent 60% of the current 300 La-Z-Boy store network, a significant increase from 45% of the approximately 350 store network just five years ago. We were also pleased to open our 15th Joybird store just last week in Easton Town center in Columbus, Ohio, one of the Midwest premier open air shopping and dining destinations. We remain on track to open three to four new Joybird stores this fiscal year and are pleased at the ramp up and performance of our Joybird retail stores in wholesale. Our refined channel strategy is also contributing to our sales momentum as we expand our brand reach with compatible strategic partners. We recently added Living Spaces, a top 100 furniture retailer with over 40 stores across Western states. We also launched La-Z-Boy product at Costco on floors and over three.