Ladies and gentlemen, and welcome to your La-Z-Boy Fiscal 2020 Full Year and Fourth Quarter Conference Call. All lines have been placed in a listen-only mode and the floor will be opened for questions following the presentation. At this time, it is my pleasure to turn the floor over to Kathy Liebmann. Please go ahead.

Thank you, Christy, and good morning. Thank you for joining us to discuss our fiscal 2020 fourth quarter and full year results. With us this morning are Kurt Darrow, La-Z-Boy’s Chairman, President and Chief Executive Officer; and Melinda Whittington, CFO. Kurt will begin and close the call, and Melinda will speak to the financials mid-way 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. 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. 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 & 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 Kurt Darrow, La-Z-Boy’s Chairman, President and Chief Executive Officer. Kurt?

Thank you, Kathy, and good morning everyone. After the market closed yesterday, we shared our fiscal 2020 fourth quarter and full year results. Fiscal '20 was certainly a tale of two halves. The performance during the first 10 months was among the best in our company's history, marked by strong retail outcomes, successful product launches, and efficient supply chain operations, all contributing to significant sales and earnings growth. However, everything changed in March when the COVID-19 pandemic and associated retail closures compelled us to halt production, close our stores, and await the economic reopening. Fortunately, with our commitment to fiscal conservatism, we entered this crisis with a robust balance sheet, enabling us to navigate through this uncertain time. Prioritizing the health, safety, and well-being of our employees, customers, and communities, we swiftly implemented an action plan on March 29 that included necessary measures to ensure La-Z-Boy not only survives this unprecedented situation but also emerges stronger. This plan included temporarily closing plants and stores, furloughing 70% of our workforce, eliminating non-essential operating expenses, significantly cutting capital expenditures, suspending the June dividend and share repurchase program, and temporarily reducing salaries by 50% for senior management and 25% for other salaried employees, with our Board of Directors forgoing their cash compensation. Additionally, we proactively drew down $75 million from our credit facility to maintain liquidity during this time. As we analyze and prepare for success in the new economic environment, we recently took further steps to strengthen La-Z-Boy's position. We were pleased to have reinstated approximately 6,000 furloughed employees. Unfortunately, we have made the difficult decision to permanently close our Newton, Mississippi manufacturing facility and have reduced our global workforce by around 10%. These actions have had an impact on our various stakeholders, and everyone in the La-Z-Boy organization has felt the effects. To clarify, we began calendar 2020 with 9,800 employees and temporarily furloughed about 6,800 during the peak of the pandemic, and ultimately, around 10% of those positions have become permanent reductions. We sincerely regret the impact on those employees, but these decisions are in the company's long-term best interest. As we move forward, our manufacturing facilities and company-owned stores are open. The vast majority of our workforce will be back by early July, and employees are returning to full pay, except for executives and Board members. On the manufacturing side for La-Z-Boy's branded business, we have been steadily increasing production. After restarting our plants from a complete shutdown, we ramped up to about 50% in May compared to May of 2019. As we approach July, we anticipate operating at 80% of last year's volumes. I am incredibly proud of how our team quickly adjusted once we restarted production to meet the demand we are witnessing. Before reviewing the quarter, I want to express my gratitude to our employees for their sacrifices during this tough period and for their dedication to the company. We announced difficult furloughs with little notice to a vast number of employees. When we resumed operations or brought employees back, they did so with enthusiasm and quickly resumed their work. Our workforce is exceptional and has my gratitude. I would also like to highlight the efforts we made throughout the pandemic to support various organizations, including the manufacturing and donation of hundreds of thousands of masks for healthcare workers and tens of thousands for our suppliers. Furthermore, we are donating $1 million worth of furniture to frontline workers through our One Million Thanks campaign, where we harness the collective spirit of individuals online to express our gratitude to the medical professionals who have worked tirelessly to ensure our safety. They truly are our heroes. Reflecting on the two distinct phases of the year, the company achieved solid financial results. We finished fiscal 2020 with $1.7 billion in sales, generated $164 million in cash from operations, and returned $68 million to shareholders through dividends and share repurchases. Now, regarding the fourth quarter results, as mentioned earlier, the company performed very well through February. However, the COVID-19 shutdown in North America significantly impacted our fourth quarter results, with many retailers closed in the final four weeks of the period and our manufacturing operations halted during the same time. To provide perspective on one aspect of our distribution for the entire La-Z-Boy furniture gallery network, written same-store sales rose 10.5% in the third quarter and jumped 20% in February, only to fall 44% in March and 90% in April due to the pandemic. Consequently, for the quarter, we saw a 19% decline in consolidated company sales to $367 million, with GAAP operating income at $13 million and non-GAAP operating income at $34 million. Despite this significant decline, we still managed to generate $44 million in cash and returned $14 million to shareholders through dividends and share repurchases made prior to the shutdown. The non-GAAP numbers will be detailed in the remainder of my comments, with Melinda discussing the adjustments in her presentation. Starting with our Retail segment, which has become a key strength for the organization and significantly contributes to La-Z-Boy’s overall value, we executed at a high level prior to COVID, achieving increased conversion and design sales, as well as enhanced engagement with consumers. For the quarter, the segment experienced an 8% sales decline to $140 million but still posted a double-digit operating margin, primarily driven by written sales from previous periods and reduced operating expenses due to our COVID-19 action plan. To give more context, for the first three quarters of fiscal 2020, written sales from our company-owned stores rose 8.1%. During the same period, delivered same-store sales increased by 3.6%, thanks to improved customer traffic, conversion rates, and strong store execution. Following an exceptionally strong start in February, with delivered same-store sales for our company-owned stores up 15%, these numbers fell to 2% in March and dropped 52% in April, leading to a 10% decrease in delivered same-store sales for the fourth quarter, as most stores were closed in the last four weeks of the quarter due to local restrictions. After staggered reopening based on local guidelines from early May to mid-June, all our stores are now operational, though many are working reduced hours and staffing depending on foot traffic. We have implemented numerous health and safety procedures to ensure the safety of our employees and customers. It is crucial for our customers to feel comfortable in our store environment, and we also offer private shopping appointments outside regular hours for those who prefer that option. As stores open, we are managing our marketing and overhead expenses in a more flexible manner as we adapt to weekly changes. Meanwhile, our teams are quickly adjusting to enhance e-commerce sales during the shutdown and have implemented a virtual design program. Regarding the overall store network, incorporating both company-owned and dealer-owned stores, written same-store sales for the 354 La-Z-Boy furniture gallery stores in North America decreased 35% in the fourth quarter. Despite a 20% increase in February, the negative effects of store closures throughout the period were hard to overcome, with many stores closed in part of March and almost all shut in April, leading to substantial drops in written same-store sales in March and April of 44% and 90%, respectively. The challenging fourth quarter has affected the entire fiscal year, resulting in a 3.6% decline in written same-store sales, despite a 6.4% increase in the first three quarters. The La-Z-Boy furniture gallery store system is vital to our distribution network, and we, along with our dealer partners, are committed to investing in the stores to keep them appealing to consumers. We concluded the year with 354 stores, including one new location and 166 in the new concept design. Assuming business trends improve, we expect to open four new stores in fiscal '21, bringing the total to 358. Now, turning to our wholesale business, in the upholstery segment, we experienced a 22% sales decline to $253 million; however, non-GAAP operating margin rose to 11.8%. Margins benefited from a one-time $16 million rebate on previously paid tariffs and favorable commodity costs, though these were mostly offset by increased bad debt expenses due to the Art Van furniture bankruptcy and provisions for potential credit losses related to COVID-19. Although our SG&A expenditures for the period were lower due to our COVID-19 action plan, they rose as a percentage of sales due to reduced volume connected to the pandemic. During this time, we have adjusted our marketing investments to balance fiscal responsibility with the goal of regaining sales volume, as consumer interest in living room furniture appears to be increasing as people spend more time at home. Historically, consumers return to trusted brands during challenging times. We are building on the success of our Live Life Comfortably campaign, featuring brand ambassador Kristen Bell, who has proven to be an effective spokesperson for us. Before moving to case goods, I want to touch on La-Z-Boy.com. As mentioned earlier, our target consumer typically prefers to shop in-store; however, during the pandemic, we saw higher traffic and increased sales on La-Z-Boy.com, allowing us to provide consumers with this option in our omni-channel offering. Throughout the year, we enhanced our digital presence and consumer experience by introducing several innovations that simplified browsing, researching, and purchasing, including various tools that allow consumers to virtually view products in their own homes; these innovations greatly aided virtual engagement while our stores were closed. Now, regarding our case goods segment, which saw a 20% sales decline, our non-GAAP operating margin fell to 1.9%, mainly reflecting the impact of COVID-19, the related temporary closures of our manufacturing facilities and retail locations, and increased bad debt expenses in the current economic landscape. Despite facing several challenges throughout fiscal 2020, we are better positioned now with additional sources for occasional tables outside of China. Freight rates are beginning to stabilize, and our new product launches have been well received. However, we anticipate some ongoing disruptions in the import supply chain in the coming months as suppliers ramp up operations post-COVID-19 shutdowns in Asia. I will now spend a few moments discussing Joybird. For the quarter, Joybird, reported in corporate and other, saw sales decline by 30% to $15.4 million, with a more significant operating loss compared to the same period last year. The decrease in operating performance was driven by the temporary closure of Joybird's manufacturing facility and our inability to deliver products to consumers due to state and local restrictions. On a more positive note, Joybird's written sales for the quarter remained strong, with a higher order rate from first-time visitors to the site. With the phased reopening of their Mexico-based manufacturing facility throughout May and returning to previous production levels in June, Joybird will have a longer timeframe for deliveries compared to the La-Z-Boy branded business, expecting to fulfill these written orders by the end of the first quarter and into the second quarter. We continue to refine the Joybird business model to align investments and growth with profitability and anticipate Joybird will enhance the value of the La-Z-Boy brand in the long term. I will now turn the call over to Melinda.

Thanks, Kurt, and good morning everyone. As always, let me remind you that we present our results in both the GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects underlying operating trends and performance of the business. As detailed in our press release and in the tables in the appendix section of our conference call slides, excluded from our fiscal 2020 fourth quarter non-GAAP reporting are; a non-cash non-tax deductible Joybird goodwill impairment charge of $27 million, mostly related to the impact of the COVID-19 pandemic and future financial projections, and a $6 million pre-tax net benefit from purchase accounting primarily related to the reversal of the Joybird contingent consideration liability by its full carrying value of $8 million based on financial projections in terms of the Joybird earn-out agreement. In addition to these items, also excluded from our non-GAAP reporting for the full year and discussed in previous quarters are; pre-tax charges from purchase accounting adjustments from the first three quarters of the year; a non-cash impairment charge for an investment in a privately held startup company; and the benefit related to our supply chain optimization initiative and the benefit related to the prior year termination of the company's defined benefit pension plan. Fiscal 2019 non-GAAP results for the full year and fourth quarter exclude a charge for the termination of the company's defined benefit pension plan and purchase accounting charges. My comments from here will focus on our non-GAAP reporting. On a consolidated basis, fourth quarter sales declined 19% to $367 million in fiscal '20 Q4 versus the prior year period, reflecting two months of dramatic temporary impacts from the COVID pandemic. Consolidated non-GAAP operating income was $34 million versus $39 million in last year's quarter and consolidated non-GAAP operating margin was 9.3% versus 8.6%. Reflecting increases in the upholstery and retail segments offset by a decline in case goods margins. Results for the quarter included a 440 basis point benefit related to a rebate of previously paid Chinese tariffs almost entirely offset by higher bad debt expense. Fiscal 2019 fourth quarter results include a 40 basis point charge related to changes in Employee Benefits policies. Non-GAAP EPS was $0.49 per diluted share in the current quarter versus $0.64 in last year's fourth quarter. Moving on to full year results for fiscal 2020, sales decreased 2.4% to $1.7 billion, again reflecting strong performance through February and two months of impact from COVID-19. Consolidated non-GAAP operating income increased to $139 million from $137 million in fiscal 2019. And consolidated non-GAAP operating margin was 8.2% versus 7.8% in the prior year, with results reflecting improvement in our upholstery and retail segments. Diluted non-GAAP earnings per share for fiscal 2020 were $2.16 versus $2.14 in fiscal 2019. Consolidated gross margin for the full fiscal year increased 230 basis points. Improved gross margin was driven by rebates on previously paid duties, which provided a 100 basis point increase to gross margin and changes in our consolidated business mix due to growth in our retail segment and the contribution from Joybird, both of which carry a higher gross margin than our wholesale businesses, which accounted for a 90 basis point increase. We also benefited from lower raw material costs in the upholstery segment, with most of that offset by the temporary shutdown in our manufacturing facilities in Q4 due to COVID-19 and inflationary pressures in the broader supply chain. Moving on to SG&A for the full fiscal year, our lower sales volume for the year, SG&A as a percent of sales increased 190 basis points. Changes in our consolidated mix, with retail and Joybird composing a higher percentage of our business, increased SG&A as a percent of sales by 130 basis points for the year. Bad debt expense drove an 80 basis point increase on the year, primarily due to the Art Van bankruptcy, as well as a provision for credit losses given the current economic environment. In fiscal 2019, we recognized a one-time $3.8 million benefit due to changes in employee vacation policies, the absence of which resulted in a comparative 20 basis point increase in SG&A as a percent of sales for fiscal 2020. Partially offsetting these increases was a 90 basis point decrease in SG&A as a percentage of sales related to lower incentive compensation costs, as we fell short of our targets due to the impact of COVID-19. On a GAAP basis, our effective tax rate for fiscal 2020 was 31.4% versus 26.4% last year. Impacting this year's effective tax rate was a net tax expense of $4 million, primarily from the tax effect of the non-deductible goodwill impairment charge related to Joybird and tax expense of $1.3 million from deferred tax attributable to undistributed foreign earnings no longer permanently reinvested. Absent discrete adjustments, the effective tax rate in fiscal 2020 would have been 26.4%. Our effective tax rate varies from the 21% federal statutory rate, primarily due to state taxes, and for fiscal '21 absent discrete items, we continue to estimate our effective tax rate on a GAAP basis will be in the range of 25% to 26%. Turning to cash, we generated $164 million in cash from operating activities in fiscal 2020. We ended the year with $264 million in cash, cash equivalents, and restricted cash, including $75 million proactively drawn on the company's credit facility to enhance liquidity in response to COVID-19, as well as $29 million in investments to enhance returns on cash. This compares with $132 million in cash, cash equivalents, and restricted cash and $31 million in investments to enhance returns on cash at the end of fiscal 2019. During the year, we invested $46 million in capital, primarily related to machinery and equipment, upgrades to our Dayton manufacturing facility, and investments in our retail stores. Over the fiscal year, we also paid $25 million in dividends and spent $43 million purchasing 1.4 million shares of stock in the open market under our existing authorized share repurchase program, which leaves 4.5 million shares in purchase availability under that authorization. Our longer-term capital allocation priorities remain to invest in the business to drive growth and then provide returns to shareholders with our dividends and discretionary share buyback. However, as part of our COVID-19 action plan, in an effort to reserve cash in the near-term and provide for financial flexibility, we eliminated our expected June dividend and temporarily suspended our share buyback program. As the company's performance continues to recover, we will look to return value to our shareholders through dividends and share buybacks once we have evaluated the business recovery for a meaningful period. We expect capital expenditures for fiscal '21 to be in the range of $25 million to $40 million, largely dependent on economic conditions and business recovery. Our spending for the year will prioritize essential maintenance projects already underway, including plant upgrades to our upholstery manufacturing and distribution facilities, technology upgrades, improvements to several retail stores, and other projects as business conditions permit. Finally, before I turn the call back to Kurt, let me highlight several important items for fiscal '21. We will continue with our non-GAAP presentation with expected adjustments including purchase accounting adjustments for acquisitions to date, which are estimated to be in the range of $0.03 to $0.05 per share spread evenly over the year. We anticipate one-time pre-tax charges of $5 million to $7 million or $0.08 to $0.11 per share related to our recently announced closure of the Newton assembly plant and the 10% reduction of our global workforce, the majority of which will be realized in the first quarter. Moving forward, savings realized from these closures will be reinvested to drive business recovery. Finally, I'd like to spend a moment to address the ongoing impact of COVID-19 on our business. Indeed, there was a dramatic hit to our fiscal 2020 fourth quarter due to plant and retail closures, which we have addressed in detail. But importantly, there is a continued tail to the retail and manufacturing shutdowns, which will impact at least our first quarter, which is already our seasonally slowest period for sales and earnings. All the written sales we didn't have in March and April and even early May during the shutdown, resulting in no deliveries and no related revenue recognition for May and June, and then a dip in cash until those receivables are collected even later in the summer although we incurred expenses to reopen and ramp up. Even with the positive recovery trends, results for at least Q1 will be extremely challenged. The good news is that stores are open and plants are up and running. While we're cautiously optimistic, we will need to remain as agile as possible to manage through this near-term period. More broadly speaking, I would note that no trends should be drawn from our fiscal 2020 fourth quarter margin performance given the many dramatic and unique impacts of COVID-19 shutdown. While our plants are ramping up production on a weekly basis, we still have not reached prior year volume levels or even critical sales levels to support our historically strong margins. Only time will tell if what we are seeing in terms of volume increases is solely pent-up demand, the impact of federal stimulus money, or longer-term sector rotation with discretionary spending moving from travel and leisure to home and furnishing, all may be playing a role in the bounce back of the home furnishings industry that we are experiencing. Whether that demand is sustainable, and what the new normal will be, are still questions. Thus, we continue to balance meeting customer demand for our products with financial prudence. Now I'll turn back to Kurt for his concluding remarks.

Thank you, Melinda. When most retailers are now open, thus far we are pleased with consumer traction. However, as Melinda alluded to, there is some uncertainty with respect to future trends. It will be a while before we have a better idea of the continuing ongoing run rates. That said, the solid positioning in the marketplace through our well-known and trusted brand, our vast distribution network, including the vibrant La-Z-Boy furniture gallery store system, world-class supply chain, and a strong balance sheet, I have every confidence we will emerge with strength and have the potential for additional market share gains as the demand environment improves. In my more than 40 years at La-Z-Boy, I have seen the company manage its way through many crises, but I've never seen an event of the magnitude of COVID-19. While we were in a no revenue environment for an extended period of time. Now that made our path forward complex and even unpredictable, we are now focused on ramping up the business and importantly, we will take as much from this experience as possible to further strengthen La-Z-Boy and make it more competitive. I am confident we will emerge as a stronger, wiser, and more resilient company and will provide long-term value and returns to our many stakeholders. I thank you for your interest in La-Z-Boy Incorporated, and before turning the call back to Kathy, I'd like to take a few moments to talk about the passing of Steve Kincaid, who retired from La-Z-Boy about five years ago after running our case goods business for more than 25 years. Steve led the case goods group through a comprehensive transition from a domestic manufacturer to an import model as the wood industry primarily moved offshore. He was a gentleman's gentleman, was highly respected within the industry, a man of great integrity, and a friend to all. He truly cared about every single employee at every level at Kincaid and was a great leader. He will be sorely missed by many of us.

Thanks, Kurt. We will begin the question-and-answer period now. Christy, please read the instructions for getting into the queue to ask questions.

Thank you. Our first question comes from Bobby Griffin with Raymond James. Please go ahead.

So I guess, Kurt and Melinda, the first thing I wanted to touch on is, I understand you guys – typically, we don't get into monthly trends, but given the high level of uncertainty and kind of how the recovery is played, can we get any color on May or June, written business or delivered business to maybe help us frame up a little of how the recovery is coming back and demand is coming back.

Yes. I'll give that a shot. Excuse me, Bobby. When you stop production at manufacturing sites, it happens pretty quickly and you can ratchet down pretty fast. The problem with the pace of business and the tracking is not all stores opened at once. As an example, the country of Canada was some weeks behind the U.S. reopening. And so, come June now, I think everybody in North America has been allowed to reopen, and so that has been very beneficial. And the rate of sales increases or sales momentum from April, May, and June, every month is better than the previous month and momentum is building. And so, the incoming order rate for most of the industry, the home furnishing industry has seen an uptick in business, a lot of it related to the issues that Melinda raised, and so the incoming order rate, but the industry normally operates on a backlog. And when everybody shut down, people canceled orders that there is no backlog in the industry. So, the whole industry is trying to ramp up faster and faster to meet the new demand. And we normally have a continual backlog, and we deliver it quickly, and all, but to give you an example, in our retail business since we delivered out most of its backlog in March, when we reopen, we don't have a backlog since 50% of our business is custom order; they have to sell it at retail, we have to manufacture it at our wholesale plants, and we have to then ship it to our DCs and then deliver it. So, there's going to be for quite a while a few months, a pretty significant lag between the written business and the delivered business. But the trends in the whole industry are very strong on the comeback. And I'm not saying that in May people were ahead of last year, but every week, every month things seem to get stronger and stronger as people are more comfortable, and I think you'll see a lot of people talk about that. But the corresponding delivered sales are going to lag 45 or 60 days in many cases. I hope that's helpful.

Yes. That's helpful. It seems like we can get a quarter or two, that's basically the opposite of Q4, where written stronger than delivered for quarter two until we get back on a more normalized cadence of business with the manufacturing lag.

Even with a lot of things closed, the distribution centers were open and continued to deliver in March. Now, until we start making more furniture, they don't have much to deliver, but that's changing weekly, but it'll be a while before we're caught up.

Okay. And the second thing I wanted to touch on was the tariff refund. Can you give us the timeframe, was that $16 million rebate over one year or a rebate over two years? And depending on that answer, but is that fair to think that's a cost that you're not going to have to pay going forward now because you got the exclusion on a permanent basis going forward?

Yes. Let's take a step back. It's been nearly two years since the tariffs on products imported from China were implemented, initially at a 10% rate and then increasing to 25%. We're approaching the two-year mark in September, and during this time, we’ve encountered a constantly changing situation regarding the tariff rates and the products affected. We found that this was not favorable for the industry from a competitive standpoint, especially since we conduct most of our manufacturing in North America. It resulted in a cost increase of about 3% to 4%, which is less than the 10% that we initially expected. We have been managing this situation for nearly two years. Recently, we became aware of a temporary rebate exclusion that we were able to qualify for, which applies only to a limited time. In the fourth quarter, we recognized a $16 million rebate, with two-thirds of that amount relating to the fiscal year 2020 due to how the tariffs were applied over the past two years. This exclusion is temporary and is set to expire in August. Following that, there will be a process for applying for any future exclusions, which is uncertain.

During that time, we invested significantly in moving operations from China to other countries to diversify our risk. We experienced a tariff surcharge on our products, but we incurred substantial expenses to mitigate the global impact of that.

Okay. That's helpful. Lastly, can you talk about the impact of the cancellation of High Point in April? I've only been in this for seven years, but I know my previous colleague attended 37 consecutive High Points. How do you think the cancellation of the April market will affect the industry and assist people in planning for their business in the latter half of the calendar year?

Well, I think obviously the right call was made to cancel. That was at the height of everything going on, and I think that the fact that none of the stores were open, having a market would have been inconsequential, and I would bet that most people wouldn't have gone in April given the worry about travel and all. So I think that the focus has changed Bobby from worrying about new product to getting deliveries on your bestsellers and shoring up the supply chain and how is the industry going to get back to normal lead times, which I don't think anybody is at right now. I do think if there is an October market, which certainly they're planning, I think you'll see a lot of great new product introductions from the industry because they've had a whole year to get ready for that. But if there's still the travel ban, and there's still concerns, and North Carolina's, whatever North Carolina's individual situation is with their cases and all, everybody is planning events in the fall, but also everybody's preparing outside of just the furniture market. But what would we do if this didn't happen in distant, get the whole challenge of kids going back to college and how do you do that safe and everything? So we're in a new environment and when we learn how to do some of it virtually, would we be able to do some things? I don't think market is going to be replaced forever. But I don't think anybody wants to rush things and create an unsafe environment where people can't be together. So it remains to be seen exactly everything that'll be happening, but I don't think because of the stores closed and everything, I don't think it's had a meaningful effect on business and what consumers see at all. I think if it went on continually for a couple more markets that would be a different story. But I think right now it was the right thing to do to skip it.

And our next question comes from John Baugh with Stifel. Please go ahead.

I was saddened by the news of Steve's passing of a venerable furniture industry executive and will definitely be missed.

Absolutely.

I was wondering, if we could, so we got a $7.9 million Art Van bad debt charge. And then I guess we've got this provision for expectations to, does that add up close to $8 million? Because I think you said that the bad debt close to offset. So color on the other. And then, the other bad debt, is that a sort of CECL accounting? We've got to anticipate it more or is it, now, we're seeing bad debt currently and are certain that's going to rise. Is there any delineation between them?

The Art Van write-off due to their bankruptcy amounted to $8 million. We also set aside an additional reserve for bad debt that ended up being around $4 million to $6 million by the time it was finalized. Altogether, this brings the total to approximately $14 million for those two items. The Art Van write-off is complete, but the remaining amount isn't subject to CECL until the first quarter. Our approach was based on a general assessment, considering the different economic conditions we are facing. Though there's no specific group of entities causing concern right now, we needed to account for the current economic climate and the aging of receivables. For a period, many businesses experienced cash flow disruptions, leading to aging receivables. However, thanks to government interventions and the resumption of most businesses in May and June, we've been pleasantly surprised by the eagerness of our customers to purchase again, which means they are finding ways to pay for those products. Given the current economic environment and aging trends, we decided to increase our overall estimate and reserve for potential issues, contributing to that additional $6 million.

John, I want to emphasize that there is a significant difference between this situation and the financial crisis we faced a decade ago. Back then, many people were struggling, our business was not in as strong a position, and we incurred a lot of bad debts to support some of our customers. Thanks to government initiatives like the PPP and SBA loans, our dealers have managed to remain relatively stable, and we are pleased with the minimal write-offs so far. However, there are uncertainties, especially as we reopen our manufacturing and retail operations, which is more costly than shutting down. We are being cautious as we plan for the future. Aside from Art Van, we are grateful for the government's support for small businesses, which has contributed to our lack of obstacles.

Okay. You don't like talking about individual customers, but Art Van did go Chapter 7. And I was wondering if you could help us think about in fiscal '21, how that may impact revenue year-over-year, including us and surrounding dealers, where they operated would pick up some business? Is there any way to frame up that account year-over-year on revenue?

It was unfortunate that Art Van ended the way it did. They were a well-established company, and the private equity firm that acquired them didn't help the situation. With the right management, it might not have ended this way. We were tracking just under $40 million in revenue, having previously reached $50 million. Business had slowed down at Art Van, and that is the amount we need to recover. However, now that we have reopened all our Michigan stores, we are noticing some positive trends, with our La-Z-Boy store capturing part of that market. No other furniture retailer in Michigan or Chicago currently offers the same range and reach that Art Van did. Their effective marketing drove demand for furniture in the state. While some of this business will be distributed among several retailers, it's unfortunate that over the years, with major retailers closing, business has shifted towards other categories beyond furniture. It remains to be seen how much of the La-Z-Boy business we can reclaim from what Art Van previously serviced. While I am not expecting to recover all of it in the first year, I believe we can capture a significant portion.

Okay. And then, my last one is on Joybird, and I appreciate all the production challenges. You've been trying to move that model to a profitable model. And I don't know if that means declining some sales or dropping some product that didn't have adequate margin. But just curious with the increase in backlog or the orders you are taking during the pandemic, how this affects your path to profitability with Joybird going forward? Thank you.

It's a great question. There are signs of improvement, but we faced significant challenges with Joybird's sales. They experienced strong sales during the shutdown like many internet companies. However, Tijuana's situation affected us later in the cycle compared to the United States, and our Regional distribution centers, which handle 50% of Joybird's business, were shut down for five weeks. This shutdown occurred before the plant's closure, and for a long period, deliveries were stalled. We're addressing this issue and working to return to a normal run rate, but you probably won't see significant improvements until late in Q1 or early Q2. However, if conditions remain stable, we should see better delivered sales results from Joybird in the future.

Our next question comes from Brad Thomas with KeyBanc Capital Markets. Please go ahead.

Maybe just to follow-up on John's question about Joybird, it's been an interesting backdrop for the D2C brands, whether there has been, an increase in demand. And so, on the one hand, it might suggest that Joybird has a better outlook now than it might have had six months ago. I guess, could you talk a little bit more about how you're thinking about the potential for Joybird here, with what you've observed, at least from the written side and how you're thinking about the manufacturing side, as we go forward?

Well, from the written side, all e-commerce players had a great benefit with all brick-and-mortar stores closed. The odds are that their pace of business won't stay that high. With some stores back open. I'm not talking about Joybird in particular, I'm talking about that in general, when there's some other competition and consumers have a choice, it may not be all e-commerce. But we also know that a lot of people who didn't do much online prior to the pandemic got comfortable doing it if they wanted to eat. So the consumer behavior change is what perhaps was a longer-term trend that we're going to be mindful of. We've made a lot of changes in the offers we have, changes in pricing and in return timeframe, everything we are determined to be one of the first people to have a direct-to-consumer furniture business that can make some money. I've done a lot of things to accommodate that. So we're optimistic about the changes we've made, the opportunity that Joybird will have as they get their deliveries back. So we are hopeful that this is a turning point this year that sees them, not only growing a little more rapidly but also improving the bottom line.

And moving over to the La-Z-Boy business, again, I recognize that you don't usually like to get super granular, and there's not a lot of data to work with. But at this point, I guess some stores, some of your La-Z-Boy stores would have been open for seven weeks. I was wondering if you could talk a little bit more about how they've been performing. Maybe what you saw when they first opened and how they're performing as they get into a second month that they've been open, just as we try to extrapolate what that might mean for the country reopening here?

It's different depending on the regions where we operate. The East Coast was heavily affected by COVID and reopened later, which impacts consumers' willingness to shop since the stores have only been open for a few weeks. In contrast, the South appears to have more momentum due to lower case numbers. The longer the stores are open, the better business they are doing. We didn't resume our typical marketing spend immediately because we want to prioritize safety for our customers. We provide masks for those who come in and encourage their use. There’s a need to find a balance as we work toward getting all our salespeople comfortable returning to work. Things are improving consistently, but providing a specific number right now wouldn't be very useful, and any sales figures wouldn’t be realized for 60 days after being delivered. Overall, demand in the home furnishing sector is much higher than what anyone in our industry anticipated, which is a positive indicator. People are thinking more about their homes, especially after spending extended time indoors. If you've been at home for 12 weeks, you might notice things you'd like to change, particularly if you fear another wave of stay-at-home orders.

I would just build on that Brad, you said, when stores open seven weeks, we have very few stores that have hit that seven-week mark. I mean, they're in the 10s, eight? When you think about who was really opening at the very beginning of May. So to Kurt's point, the data we even have is still very new. Obviously, I think we've been pleased with traffic coming in the stores, but still low when you're trying to compare to what the business trajectory you are on before, and you can imagine that when someone does come in the store, though, they're motivated to buy, if they're taking the chance to come in, the motivation to buy is a little stronger. So there's quite a myriad of very positive and still very challenging signs, what we're seeing in the first couple of weeks.

That's helpful, Melinda. And I guess just to follow up on that point, do you have an estimate for us perhaps across the network of a number of store days that you will have lost in the quarter just to help us fine-tune our calculation for written orders?

I don't have that information. That number would only apply to our company-owned stores, and it represents about a quarter of the distribution for what we manufacture for these locations. Additionally, as Kurt pointed out in his remarks, we will still have limited hours or staffing where we are open. Therefore, there is a significant amount of variability in those figures.

Unfortunately we've had some stores that we've had to close because of some of the protests going on in certain of the major cities, and we've thankfully haven't had any damage, but we had employees and rightfully so that didn't feel safe going to their stores for a few days. And so there's been a number of starts and fits and things going on but the general trend line is much more positive than it is negative, but it's still a work in process.

And next we'll go to Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

So I just wanted to expand a little bit as far as the strong early demand comment of that you are seeing so far, just wondering if you could differentiate between the different sales channels. If you could just give us a little bit more color as to the momentum you're seeing so far?

Well, we only have really good data on the stores we own and pretty good data on our independent, La-Z-Boy store owners, how all the rest of our customers, the other 65% of our business is doing, we can only tell by the orders they send us not what their pace of businesses. But I think in general, everybody is surprised at the rate of business this early after the shutdown and I can't quantify that for everybody and again, maybe different regions of the country have experienced the different rates, but it's building and then you've got now the 4th of July holiday, coming around the corner. So there's positive written demand happening throughout the industry and with us with the caveat that there's a delayed supply chain. So we're all in a similar problem now. And I think if you're relying primarily on imports, you've got an even more challenging supply chain because of the time now. But, by far, the written pace of business is outpacing the ability of the factories to keep up because you just don't go from no production to 100% in five days.

Got it. Okay. So thank you for that, Kurt. And also just wonder guys, with the open stores and your manufacturing facilities? How should we think about any as far as the incremental cost to that and as far as are we able to be as efficient in the manufacturing of products or do you think you're socially distant enough in the facilities that that will be much of an issue?

I don't think there's much of the issue, and as I said in my prepared remarks, I'm very impressed with our people. Some people in various industries have wanted to stay and collect the increased unemployment, and we're taking a risk that they'll have a job when that all runs out. The vast majority of our people wanted to come back to work and came back with a vengeance and are now working overtime to help meet the demand. And so I don't think there's any issue, and we've had a minimal number of cases of COVID. None that started in our plants, and through the contact tracing, not only the person who tested for the COVID, we've had to have some people go home and quarantine for a while, but in the scope of 9,000 people, it's been relatively small.

Anthony, I'd also mentioned, there's been some press around the high cost of PPE and everything. We have not to in any way diminished the fantastic work of our health and safety people to ensure everything from increased cleaning procedures to air quality and all, but one in our plants we don't face the issues of some industries have shoulder-to-shoulder work; we work and build our furniture in cells. So by definition, smaller groups of people are interacting, and so cross-contamination where you do have an issue is a bit more manageable, again not in any way to downplay how important it is to be focused in every minute, also in our retail stores, we're not a mass big box where there is a really high volume of foot traffic we have all through this pandemic even through shut-down maintained just a natural rhythm of our retail stores is a situation where it's a low volume of foot traffic in store. And so we can keep people safe while they're shopping. We can keep our employees safe. Again, tons of work, tons of protocol around not taking that for granted, right cleaning, right PPE. But it's somewhat different than some of the industries and some of the retailers that you've seen more about in the news around just how hard it is to and how many new efforts have to be put in place at great expense to be able to keep people safe.

And my last question is about the Joybird. So you called out that the integration is taking a little bit longer than expected and you also, obviously, are shifting to try to be more profitable in that segment. But I guess, there's a number of internet companies including the largest pure play home decor retailer who seems like they only care about the growing revenue without much regard to the profits, so how do you balance that effort? I know you couldn't talk about that a little bit as far as the changes, but it's just a number of your competitors that are just much more focused on revenue growth versus profit growth.

So let's make sure, Anthony, we never intended when we bought Joybird to focus only on revenue. And I think that's one difference with us than most of the other e-commerce players in the home space; we manufacture our own product, and we have control over the distribution and we have a system that Joybird could plug into and take the benefit of having regional distribution centers, routes already set up for delivery. So we think the synergies between what La-Z-Boy had and the benefits of Joybird attracting a different customer in a different channel appeal to us. We thought behind the scenes with our world-class supply chain that we would offer some benefits that other e-commerce companies don't have. And we still stand by that. There's no reason that this business can't be profitable over time.

And that does conclude our question-and-answer session for today's call. I'll turn it back over to management for any closing remarks.

Thank you all for joining our call this morning. If you have follow-up questions, please give me a call. Have a great day. Bye-bye.

And that does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time and have a great day.