Earnings Call Transcript - LZB Q4 2022

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the La-Z-Boy Fiscal 2022 Fourth Quarter and Full Year Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be opened for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Ms. Kathy Liebmann, Investor Relations. Kathy, over to you.

Kathy Liebmann, Investor Relations

Thank you. Good morning and thank you for joining us to discuss our fiscal 2022 fourth quarter and full year results. With us this morning are Melinda Whittington, La-Z-Boy's President and Chief Executive Officer; and Bob Lucian, Chief Financial Officer. Melinda will open and close the call, and Bob will speak to segment performance and 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. Before we begin the presentation, I would like to remind you that some statements made in today's call include forward-looking statements about La-Z-Boy's future performance and other matters. Although we believe these statements to be reasonable, our actual results could differ materially. The most significant risk factors that could affect our future results are described in our annual report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings. Also, our earnings release is available under the News and Events tab on the Investor Relations page of our website, and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call slide deck. With that, I will now turn over the call to Melinda Whittington, La-Z-Boy's President and CEO. Melinda?

Melinda Whittington, President and CEO

Thanks, Kathy, and good morning, everyone. Late yesterday afternoon, following the close of market, we reported record results for fiscal '22. Highlights for the year included record delivered sales and profits for the fourth quarter and the full fiscal year for the total consolidated company. Record delivered sales for our wholesale segment, record delivered sales and profits for our company-owned retail segment, strong delivered sales and profit performance for Joybird, returns of $118 million to shareholders through dividends and share repurchase, the highest level in our history, and the launch of Century Vision, our growth strategy through our centennial year in 2027. All in, these are great results in a volatile environment. Sales were $2.4 billion driven by the strength of our consumer brands, our vast distribution and the strong demand for home furnishings. We delivered $3.11 in non-GAAP earnings per share, 19% ahead of last year and 45% more than pre-pandemic fiscal '19, all while continuing to navigate the challenges of the pandemic, global supply chain disruption, and a tight labor market. And we finished the year strong. Sequentially from Q3, our fourth quarter exhibited momentum in delivered sales and significant operating margin improvement. I'd like to take this opportunity to thank our talented team across the entire company for their hard work, perseverance and dedication. Our employees are amongst our greatest assets, and are responsible for delivering these phenomenal results in challenging times. As we celebrate these outstanding results, we note that written sales for Q4 reflect the consumer impact of inflationary pressures and geopolitical concerns. After a strong February with positive year-over-year growth, we saw significant deterioration of written trends in March, some recovery in April and ongoing volatility. Written same-store sales for our company-owned retail segment decreased 9% for fiscal '22 fourth quarter, primarily due to lower traffic. Written same-store sales across the entire La-Z-Boy Furniture Galleries network decreased 4% in the fourth quarter. The difference versus retail is mainly due to the base period as many Canadian stores were closed in last year's fourth quarter, and this more dramatically impacted the broader network than our own retail segment. For the full fiscal year, written same-store sales for the La-Z-Boy Furniture Galleries network increased 1% and were flat for the Company-owned retail segment. Compared with fiscal 2020, written same-store sales for the entire network as well as for our company-owned retail segment grew at a compound annual growth rate of approximately 15% over the last two years. Our Joybird business wrote 3% more this Q4 than last year's fourth quarter. For the full fiscal year, Joybird's written sales were up 27% and grew at a compound annual growth rate of 44% over the last two years. As we begin fiscal '23, we will leverage our strong balance sheet and historically high backlog to continue to grow the business and strengthen our capabilities for the long term. We are focused on, first, continuing to enhance our manufacturing capability to better service our consumers and customers with shorter lead times. In fact, over the Memorial Day weekend, we were pleased to begin offering consumers customized product in 10 to 14 weeks versus our previously quoted four to seven months. Second, focusing on consumers with enhanced marketing and shopper execution to drive traffic and sales conversion. And third, strategically investing in our Century Vision work to enhance the power of our La-Z-Boy brand with consumers, this proportionately growing the young Joybird business, and strengthening our company's foundational capabilities so that we continue to profitably grow the Company from this new base. In our first year of Century Vision execution, we've expanded our consumer insights organization, initiated significant consumer research, and launched new television spots featuring La-Z-Boy brand ambassador Kristen Bell, who resonates with a broad range of consumers, including a younger demographic. In fiscal '23, we have plans to expand the La-Z-Boy Furniture Galleries network by about 10 new stores. These investments will allow us to canvass the marketplace, improve shopability and ensure our omnichannel offering enables us to engage consumers wherever they wish to purchase. On Joybird, since acquiring the Company in 2018, we've more than tripled sales and achieved reliable profitability, as a relatively new brand with significant opportunity to grow share. We will continue to invest in marketing to build Joybird's brand awareness and accelerate growth. While we'll stay true to Joybird's digital roots, the important element of our strategy is focusing on reaching new consumers and enhancing the omnichannel experience. We already have five well-performing small-format Joybird showrooms in popular urban locales and have several more stores slated to open in the first six months of fiscal '23. Finally, as we strengthen foundational capabilities across the Company, we're improving our ability to execute acquisitions, including opportunistic purchases of independently owned La-Z-Boy Furniture Galleries stores, which further strengthen our high-performing company-owned retail segment. These margin-enhancing acquisitions provide the benefit of our integrated retail model, where we earn a profit on both the wholesale and retail sides of the business and our strongest ownership of the end-to-end consumer experience. In fiscal '22, we acquired eight La-Z-Boy Furniture Galleries stores, and I'm pleased to note that we have already signed agreements to acquire six stores in fiscal '23, five in the Denver market and one in Spokane, Washington. We are enhancing the agility of our supply chain. Today, we are producing more furniture than ever, a testament to the strong manufacturing foundation La-Z-Boy developed over its 95-year history. Building on that strength and recognizing the environment will remain dynamic, we are focused on increasing agility across the enterprise to work down our backlog, significantly shorten lead times and position La-Z-Boy to successfully complete and win share going forward. During fiscal '22, we made a series of enhancements across the enterprise to drive agility and increase production capacity efficiently. We've added to our experienced team with key leadership from other industries to bring fresh perspectives and we've made structural changes across our supply chain to increase production including expanding our North American operations with multiple new facilities in Mexico. These operations will help in servicing our backlog in the short term as they ramp to full capacity, and longer term, will contribute to a lower cost manufacturing footprint with improved capabilities to service the West Coast. We have also changed processes within our plants to maximize output with a better product mix, shifted procurement strategies with an expanded supplier base in multiple geographies and are strategically managing inventories to protect against future parts outages and disruptions. Sales and operating margin progress made in Q4 reflect these initial moves but there is more work to do. In short, we're structuring the business to be successful in what will continue to be a volatile environment. As a premier well-loved furniture company that ranks number two in a highly fragmented market, we'll become more nimble going forward to ensure we grow out of the pandemic and gain share. Now, let me turn the call over to Bob to review the results in more detail. Bob?

Bob Lucian, CFO

Thank you, Melinda, and good morning, everyone. 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. Additionally, fiscal '22 included 53 weeks, with the additional week falling in the fourth quarter. For those of you new to La-Z-Boy, our fiscal year ends on the last Saturday of April, and every five or six years, we have an extra week in our fiscal year. On a consolidated basis, fiscal '22 fourth quarter sales increased 32% to a record $685 million versus the prior year quarter, reflecting higher pricing and surcharges, increased unit production and the extra week in the quarter, which increased sales by approximately $49 million. Consolidated GAAP operating income increased to a record $79 million and non-GAAP operating income was a record $65 million, an increase of 24% versus last year's fourth quarter. The quarter had a record non-GAAP operating profit level even without the extra week of results. Consolidated GAAP operating margin was 11.5% and non-GAAP operating margin was 9.4%. GAAP diluted EPS was $1.33 for the current year quarter versus $0.81 in the prior year quarter. Non-GAAP diluted EPS was $1.07 in the current year quarter versus $0.87 in last year's fourth quarter, a 23% increase. Moving on to full year results for fiscal '22. Sales increased to a record $2.4 billion, up 36% versus the prior year, reflecting strong demand, ongoing manufacturing capacity increases, higher pricing and surcharges and the extra week in Q4, which increased sales by approximately $49 million. Consolidated GAAP operating income increased to a record $207 million and non-GAAP operating income was a record $191 million, a 22% increase versus fiscal '21. The year had record non-GAAP operating profits even without the extra week. Consolidated GAAP operating margin was 8.8% and non-GAAP operating margin was 8.1%. GAAP diluted EPS was $3.39 for fiscal '22 versus $2.30 in the prior year. Non-GAAP diluted EPS was $3.11 for the year versus $2.62 in fiscal '21, a 19% increase. As I move to the segment discussion, my comments from here will focus on our non-GAAP reporting, unless specifically stated otherwise. Starting with our Wholesale segment, delivered sales for the quarter grew to a record $513 million, a 34% improvement compared with the prior year period and increased 24%, excluding the extra week. The growth was driven by pricing and surcharges as well as higher unit volume. Non-GAAP operating margin for the wholesale segment was 8.8% versus 10.2% in last year's fourth quarter. This was driven by increased material costs, differences in channel mix and plant inefficiencies related to increasing manufacturing capacity, partially offset by pricing and surcharges. Sequentially from Q3, non-GAAP operating margin increased 230 basis points, reflecting many of the changes made to drive agility across our supply chains. Casegoods began to receive a steadier stream of product from Vietnam in April following the country's COVID-related shutdown with elevated freight costs continuing to impact operating margin during the first two months of the quarter. We expect Casegoods operations to normalize in the first half of this fiscal year as we more consistently receive product, ship it to consumers and realize freight pricing. For the quarter, our Retail segment delivered sales were a record $233 million, a 20% increase over prior year's fourth quarter and 12% higher excluding the extra week. Same-store delivered sales were 16% higher versus the year-ago quarter. Retail posted record high non-GAAP operating profit dollars and non-GAAP operating margin increased to 13% versus 12.2% in the prior year quarter, driven primarily by fixed cost leverage on the higher sales volume. As Melinda noted, growing the La-Z-Boy Furniture Galleries network is a key element of Century Vision, and we look forward to our company-owned retail segment continuing to grow and becoming an even larger contributor to our long-term success. I'll now spend a few moments on Joybird, which is reported in Corporate & Other. Joybird delivered a great quarter with record delivered sales of $53 million, a 40% increase versus the prior year quarter and a 30% growth rate adjusting for the extra week of sales. During the quarter, the Joybird business exhibited multiple positive sales metrics, including written sales, web conversion, retail store traffic, average order value and average sales price. Moving forward, we will continue to invest in marketing, both digitally and through new channels to drive brand awareness customer acquisition and disproportionate growth of this relatively young brand. Putting all of this together, consolidated non-GAAP gross margin for the entire company for the fiscal year decreased 390 basis points versus the prior year. The decrease was due primarily to higher raw material and freight costs, costs related to increasing manufacturing capacity, labor challenges and the unavailability of component parts, which resulted in plant inefficiencies. These costs were partially offset by pricing and surcharge actions which were increasingly realized in the second half of the fiscal year as they begin to flow through the backlog to deliver sales. Consolidated non-GAAP SG&A as a percent of sales for the year decreased 300 basis points, primarily reflecting fixed cost leverage on the higher sales volume across all our businesses. Our effective tax rate on a GAAP basis for fiscal '22 was 25.9% versus 26.3% in fiscal 2021, impacting our effective tax rate for fiscal '22 was a net tax benefit of $0.7 million from the tax effect of the fair value adjustment of contingent consideration liability related to the Joybird acquisition. We expect our effective tax rate to be in the range of 25% to 26% for fiscal '23. Turning to cash. For the year, we generated $79 million in cash from operating activities, finishing the year strong with $34 million cash generation in Q4. We ended fiscal '22 with $249 million in cash, no debt, and held $27 million in investments to enhance returns on cash. During the year, we invested $72 million in higher inventory levels to help protect against supply chain disruptions and support increased production and delivery sales. We also spent $77 million in capital during the year, primarily related to retail store upgrades, new upholstery manufacturing capacity in Mexico, plant upgrades at our manufacturing and distribution facilities and technology projects. In Q4, we continued to buy back shares, spending $15 million repurchasing more than 400,000 shares of stock in the open market, leaving 7.5 million shares in our existing authorized share repurchase program. For the full fiscal year, we returned $91 million to shareholders via share repurchase and $28 million through dividends, including $7 million paid in dividends in the fourth quarter. Before turning the call back to Melinda, let me highlight several important items for fiscal '23. Please keep in mind that fiscal '23 will be a 52-week year and comparisons will be against the 53-week fiscal '22 period. Additionally, comparability will be affected, as always, by fiscal '23's first quarter containing 12 production weeks, reflecting our annual one-week shutdown in July. While we maintain our long-term commitment to steady sales and margin progress, we anticipate results may vary during fiscal '23 as macroeconomic factors and geopolitical events impact consumer confidence and furniture demand. Despite this volatility, we remain focused on driving demand to outperform the industry, strengthening our agility, working to reduce our large backlog and continuing to navigate through supply chain disruptions to better service the demand for our highest value products, which disproportionately sell through our Furniture Galleries stores. We will prudently navigate through the current environment in the short term, while executing against our Century Vision strategy to drive longer and profitable growth. With the height of the pandemic behind us, we expect seasonality to return to the industry as consumers revert back to normal spending patterns and focus less time on home furnishings purchases during the summer months. As a result, we will likely experience lower than year-ago written sales during Q1 and Q2 for both our direct-to-consumer businesses and our wholesale customers, as they experience fluctuating consumer demand and related inventory adjustments. As we continue to service our existing backlog and improve delivery times, we are also beginning to increase investments in marketing to drive demand for our strong brands to leverage their power in the marketplace. In addition, we expect a slight decline in delivered sales per week in our wholesale segment driven by a number of larger customers, who have temporarily delayed receiving product due to warehouse constraints. We expect these delays to clear up in the second quarter. Taking all these factors into consideration, we now expect delivered sales for fiscal '23 first quarter to be up 7% to 10% versus the first quarter of fiscal '22 in a range of $560 million to $575 million. Additionally, we expect consolidated non-GAAP operating margin to be in a range of 6.5% to 7.5%. Finally, we expect non-GAAP adjustments for purchase accounting charges for the year to be in the range of $0.01 to $0.03 per share. Capital expenditures are expected to be in the range of $85 million to $95 million for fiscal '23 as we invest to strengthen the Company for the future, consistent with our Century Vision strategy. Our capital allocation strategy over the long term is to invest approximately half of operating cash flow into the business and return the other half to shareholders through dividends and share repurchases. This 50-50 split may vary in any given year. In the near term, including fiscal '23, we have numerous strategic investments to make as we execute Century Vision and anticipate capital allocation to be more heavily weighted to investments in the business where our ROIs are 2x to 3x our cost of capital.

Melinda Whittington, President and CEO

Thanks Bob. I'm very excited about the future of La-Z-Boy Incorporated. We manufacture and sell great brands, have broad distribution, a strong and growing company-owned retail segment and a talented team in place to execute our Century Vision. Although the macroeconomic environment is volatile and will remain choppy for the foreseeable future, our focus is on the long term, controlling what we can and driving agility through every facet of the organization. Our balance sheet is strong and will allow us to move through this uncertain period while making important investments in our future. We have every intention of growing from our new base and believe the best is yet to come as we deliver long-term profitable growth and returns to all stakeholders. We thank you for your time this morning, and I'll turn the call back to Kathy.

Kathy Liebmann, Investor Relations

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

Operator, Operator

Ladies and gentlemen, the floor is now open for questions. Your first question is coming from Brad Thomas of KeyBanc Capital Markets. Brad, over to you.

Brad Thomas, Analyst

Sorry about that, it was muted. Good morning, Bob and Kathy. And first of all, I just wanted to give my congratulations on a strong quarter and obviously, a record year for the Company.

Melinda Whittington, President and CEO

Good morning, Brad. Thank you.

Brad Thomas, Analyst

We're getting a lot of questions about recent trends in the industry. And so I had a couple of questions about that. But I was hoping to address maybe first of all, Melinda, I believe you commented that trends have been more volatile of late. Could you give us any more detail on how May and June have been trending so far?

Melinda Whittington, President and CEO

Yes. I mean since year end traffic continues to be challenged across the industry and there's a decent amount of volatility on any given week or month right now. I will tell you that as we look at this going forward, the first thing we continue to be focused on is the production side of things. And what we've been working on over the last couple of years on our ability to produce both to manage this cost to service the backlog that we have and importantly, to get down to shorter lead times to help impact that consumer proposition and drive conversion on the traffic that we do see. As far as the consumer, the entire industry over the last three, four months is certainly seeing a slowdown in traffic. I think, there's a couple of things driving that, overall, consumer sentiment, no doubt, is challenged. As we talked about and everything from inflation and we can certainly go into some more there. The other piece that I think we don't know the relative impact of each of these is the return of seasonality. So for the last couple of years, we really haven't had kind of a big difference quarter-to-quarter in consumer sentiment. This is the first spring in several years that consumers were getting a regular spring and summer. People are traveling again and all. And so if you go back pre-pandemic, the spring and summer were always significantly slower than kind of the back half of our year. And so that return of seasonality is definitely driving some of it. And then we have to keep in mind that furniture pricing is still quite high, right, across the industry. We're 25% to 35% higher due to all of the input costs than we were pre-pandemic. And again, those are all across the industry. So what we're doing about it, like I said, the first one is really making sure we're managing our own production capacity so that, that proposition is better, and we have shorter lead times over Memorial Day. We were now quoting 10 to 14 weeks on custom furniture versus four to seven months. We're increasing marketing spend back up to levels more consistent with what we were doing pre pandemic. You'll recall, over the last two years, we backed off significantly because there was really no reason to drive the consumer into an urgency to purchase and then bring them in store and have them frustrated by lead times. And then, we're also really focused on in-store execution. So while traffic is lighter, our conversion remains strong with the excellent work that we're doing in our stores. So that's what we talked about. I think the reality across the industry is challenged on traffic right now with the consumer, some of that more temporary than other. And so, we're working on what we can control. The other piece we have is, of course, for a portion of our business, we're selling direct to the consumer. For more than half of our business, we're selling in a B2B capacity. And so, we're seeing a little bit of our customers sort of adjusting their stock inventory right now, but still a healthy pull-through on the custom side. So that remains our focus on that side as well.

Brad Thomas, Analyst

And to follow up on that, Melinda, what are you seeing in terms of the trends at Joybird and how is that brand performing versus La-Z-Boy? Is it performing better? Or has it slowed down more because it's more D2C or perhaps a customer that might be more constrained by the environment we're in?

Melinda Whittington, President and CEO

Yes. Before the pandemic, Joybird had written trends in the high teens, while our more established La-Z-Boy business was in the low- to mid-single digits. This difference has persisted in the fiscal year and the fourth quarter. Although we are seeing some slowdown in the written trend, it remains positive and significantly outperforms the average across the entire furniture industry.

Brad Thomas, Analyst

That's very helpful. And then with regard to the retail customers that you have that have wanted to delay receipt of product, I presume this is a function of their sales having slowed down. How does that work? How long can they delay it out before this starts to turn into canceled orders and what are you hearing from these larger customers?

Melinda Whittington, President and CEO

In the near term, it's really been more about timing. Retailers have spent the last year and a half trying to source products from various places and placing orders. However, as deliveries have started, they've encountered warehouse constraints. Specifically, some stock they ordered in advance is now filling up their warehouses, which is slowing down their ability to fulfill orders for consumers. So, in the near term, the main issue has been managing the flow of products and ensuring the right items are available. There may be an abundance of one product while another is in short supply, affecting us as well as other dealers. Overall, the shifts we've seen have primarily resulted from this transition from a high-demand environment—where everyone was scrambling to meet consumer needs—to a slowdown in consumer activity, alongside the logistical challenges of managing inventory.

Operator, Operator

Your next question is coming from Anthony Lebiedzinski of Sidoti. Anthony, please ask your question.

Anthony Lebiedzinski, Analyst

So first, in terms of your own production capacity, I just wanted to get a better sense as to how did the quarter progress in terms of your delivered revenue gains. Was it consistent throughout the quarter? Or was there any notable changes as the quarter progressed?

Bob Lucian, CFO

The quarter showed a steady increase as it progressed. Our latest plant in Torreón, Mexico, was coming online, which permitted us to gradually boost our capacity throughout the quarter. We finished the quarter on a strong note.

Melinda Whittington, President and CEO

We took some opportunity in the fourth quarter to reposition some lines to ensure we were making simpler products as we trained. We also began redirecting our sales efforts to ensure we were producing the right products for demand. We feel good about the progress made in this area.

Anthony Lebiedzinski, Analyst

Got it. Yes. So Melinda, during your remarks, you said you changed some of the processes in your plants. So is that what you referred to? Or is there something else there as well?

Melinda Whittington, President and CEO

Yes, sir. Yes.

Anthony Lebiedzinski, Analyst

Okay. Got it. Okay. And then just in terms of your inventory, so obviously, like a lot of other companies, inventories have increased. How would you characterize the health of your inventory and kind of given what's going on with traffic and just macro concerns? How do you feel about the health of your inventory?

Bob Lucian, CFO

We ended the year with the level of inventory we wanted to end the year with. We're still holding that right now given what's going on over in China to ensure that the lockdowns and some of the delays that are occurring from some of the parts and fabric and things like that to come from China don't impact our production facilities. So, we'll continue to maintain a slightly higher level of inventory to make sure that we're able to make product as we're able to. The inventory, what I'm talking about there is on the raw material side. The inventory from a finished product side, that's generally speaking, being made and being moved out, and we're adjusting production as needed to ensure we don't build up a whole bunch of finished goods inventory as we see customers modify their receipt timings.

Anthony Lebiedzinski, Analyst

Got it. Okay. In terms of price increases, pricing has gone up quite a bit. Within the guidance you provided for the first quarter, does that include any additional price increases that may have occurred since the fiscal year end? How should we consider any further pricing actions you might take?

Bob Lucian, CFO

Well, we never come out on future pricing actions we take. We will always continue to look at what's going on with the pricing of raw materials and price accordingly to make sure that we're maintaining our margins. The last pricing we took in February, and that pricing is working its way through the backlog. Part of it is coming in faster than others. But generally speaking, that's working its way through, and will continue to work its way through Q1 and into Q2.

Anthony Lebiedzinski, Analyst

Got it. Okay. And then lastly for me. So you stated that you will open 10 stores in fiscal '23. So is this a new annual run rate? Or how should we think about your long-term plans for store growth?

Melinda Whittington, President and CEO

You will notice some fluctuations each year, and currently, we are experiencing some of that in our Joybird stores due to construction delays. Overall, we believe there is potential for around 400 stores, and we are presently at about 350. We aim to reach this goal over our Century Vision period. The plan to open 10 stores annually is a reasonable estimate, but we do expect some variability from year to year.

Operator, Operator

Your next question is coming from Bobby Griffin of Raymond James. Bobby, ask your question.

Bobby Griffin, Analyst

This is on for Robby Griffin. First, I just wanted to touch a little bit on the wholesale backlog. It continues to trend well above historic levels and even was up year-over-year at the end of the fiscal year. Can you talk about your expectations for working down that backlog this year?

Melinda Whittington, President and CEO

Yes, I want the backlog to decrease. To start, there are two main factors affecting the backlog. First, we have orders that are already sold to end consumers. While having these written orders is beneficial, it also means there are dissatisfied consumers waiting for their products. Traditionally, we have been able to deliver customized products in four to six weeks, but now that has extended to four to seven months. Since Memorial Day, however, we have refocused on custom orders and have improved our delivery timeframe to 10 to 14 weeks, which is a positive development. This will help reduce the backlog, which is a good outcome. The second component of the backlog consists of stock orders, mainly from B2B customers who place orders based on their anticipated inventory needs. When production schedules stretch to six months, customers have to order six months’ worth of products to secure their manufacturing capacity. As we enhance our capacity and efficiency, we aim to reduce that timeframe—if we are three months out, we only need three months of orders. Our goal this year is to significantly lower the backlog, ideally to the minimal four to six weeks we experienced historically before the pandemic, but with a larger manufacturing base that allows for greater throughput. There are many variables at play, including the volume of incoming orders and our ability to fulfill them, so I anticipate some fluctuations as we progress through the year.

Unidentified Analyst, Analyst

Okay. That's really helpful. And then just a follow-up on that, how much flexibility do you have with your current capacity build out? How do we protect from getting too much capacity?

Bob Lucian, CFO

We plan to manage any potential decline in demand by reducing overtime at our plants, which is currently in place at almost all locations. We also have the option to cut shifts. Additionally, there tends to be natural attrition in the workforce due to the demanding nature of the manual work involved. If we decide to decrease production at the plant, simply not rehiring will help us adjust the plant's output over time. We will implement these strategies to align our production with incoming orders while also addressing the backlog mentioned by Melinda.

Unidentified Analyst, Analyst

Okay. Perfect. And then lastly for me, you guys mentioned beginning to increase investments in marketing. Can you walk us through some of those investments? Is it just a function of additional advertising of existing content? Are you developing new content?

Melinda Whittington, President and CEO

We have seen a notable decrease in our share of voice as a percentage of sales over the last two years, which we have highlighted for some time. This was partly due to the high volume of consumers already showing interest and the long backlog we experienced, leading us to avoid spending money that could increase frustration. Despite this, we maintained some level of share of voice in our overall mix. Moving forward, we are working to return our share of voice to levels that resemble pre-pandemic times. The marketing mix and content haven’t changed dramatically at this point, but as I noted in my prepared remarks, we are focusing on our Century Vision work to enhance our consumer engagement and rely on data to understand what resonates. Over time, you will observe shifts in our content and marketing strategies aimed at better connecting with consumers. This is crucial for the La-Z-Boy brand to ensure we appeal to a diverse range of consumers and attract younger demographics who may not initially see our products as suited for them. Our database work will help us effectively communicate this message. Additionally, we have made it clear that we plan to invest more heavily in the Joybird brand, given its youth, to foster greater brand recognition.

Operator, Operator

Thank you very much. There appear to be no further questions in the queue. I will now hand back over to Kathy.

Kathy Liebmann, Investor Relations

Thank you very much. Jenny. Thanks, everyone, for joining our call this morning. If you have any additional questions, please reach out to me. Have a great day. Bye-bye.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.