Conference Transcript - LZB 2026-03-02

Speaker 5

covers consumer hard lines here at Raymond James. Included in that, we have the residential furniture industry. And with us today, we're pleased to have Lazy Boy join us at the conference. We've had you guys join us for a lot of years, actually, at this point. So we appreciate the ongoing support. With us from the company is President and CEO, Melinda Whittington, Senior VP and Chief Financial Officer, Taylor Lupe, and Mark Becks, Director of Investor Relations and Corporate development. Melinda, with that, I'll turn it over to you guys.

Melinda Whittington, CEO

Good afternoon. Thank you all for joining us today. Before we get started, I'll just point out the forward-looking statement and ask you to please pay attention to that as we start into our into our presentation. So for those of you that may be new to Lazy Boy, we are Lazy Boy Incorporated as a 99-year-old company. We started it off based out of Monroe, Michigan as a manufacturer, and that has really been our heritage. We remain a U.S.-based primarily manufacturer, but we're in the midst of a large strategic pivot to really owning the consumer and owning more of our retail journey, and so we'll spend more time on that today. Throughout that time, though, we have always been very strong in doing the right thing as a company and staying core to values of courage and curiosity to understand when in our environment and compassion to all the stakeholders of our company.

Taylor E. Luebke, CFO

And Melitia mentioned, so almost 99 years, almost a 100-year-old company, our legacy was manufacturing and wholesale. And our company is still in the midst of a pretty seismic pivot to more of a direct-to-consumer, call it consumer-first enterprise. So we now are about 50% of our over 2 billion in sales is direct consumer either through our lazy boy retail stores or joybird business um that's up from that was 25 10 years ago so a pretty significant change that we continue to disproportionately drive uh and that's all supported by about 375 lazy boy retail stores across the us and canada um you know in the past we said we see a clear path to 400 stores actually with the health of our business and improved analytics, we now see upwards of 450 potential Lazy Boy stores in our network. And behind all of that continues to be incredible cash and liquidity. So we have over 300 million cash on hand and no externally funded debt.

Melinda Whittington, CEO

So we're going to break down today's presentation really going through these six reasons to think about Lazy Boy Incorporated as an investment. I won't read for you, but we'll sort of organize their presentation as we go through in that way. Let me first go ahead and talk about with our next slide on our Century Vision roadmap. So I stepped into the role about four and a half years ago and we stepped back to really look at with a company that had the legacy that we had, where do we go from here? How do we think about the assets we had at that time and what needs to change? And the great news is that we realized we had this iconic brand in Lazy Boy and we did the consumer research to recognize there's a lot more legs a lot more runway for the brand so we had the opportunity to update make more relevant and then expand the brand reach of lazy boy to more consumers in a super fragmented industry with a lot of both public and private players both at the manufacturing and the retail side so we set aside based on set off to really bring in-house our consumer research and begin to drive an expanded more relevant lazy boy brand one of the big pillars on how to go about that is to expand our own company-owned retail so we'll go into in a little bit of detail in a few minutes but we actually sell through a variety of channels our own company-owned stores which we have expanded significantly lazy boy furniture galleries lazy boy stores that to the consumer might look like any other store they should be consumer transparent but are actually owned by licensees and then also through multi-branded retailers and so we'll spend some time on that we also have some green shoots and brands like lazy boy i'm sorry like joy bird in addition to the lazy boy brand that give us growth potential over the long term and then we also are spending a lot of time in really strengthening our core capabilities in our people our technology, and our foundational supply chain to make sure that we are agile and able to really grow into the future. This is just a couple of proof points, and Taylor pointed a few of those out. Out of our store network of over 370 stores and growing, we now own as a company over 60% of those stores. We're up to 226. That enables us both to really own the consumer experience end to end, as well as benefit from the financials of having that entire vertically integrated portfolio. Our execution in store has dramatically improved and continues to have runway, including our in-home design at no additional charge, which drives a three to four times larger average ticket. And again, still a lot of expansion capability there. And then not to to step away from our wholesale customers so that business that we built foundationally does give us a way to reach consumers we otherwise won't reach we know in such a fragmented industry that not everyone's going to come into a lazy boy store and so we have strategic partners that we are able to reach more consumers with on a generally a much more narrow product selection but it gives us a way to be out there and relevant and meet consumers where they want to shop whether that's online whether that's in store whether that's a lazy boy experience or or a multi branded retailer in recent years we've really expanded strategic partnerships with players like living spaces rooms ago and farmers to name just a few that have quite a few and are sophisticated and driving our brand and driving growth for our company I'd also just call out that we are investing in our brand and our brand messaging. We were just recently awarded by AdAge. We were named as one of the top five rebrands of the year as we've really revitalized the brand. And that is, again, based on consumer insights. It's how do we make Lazy Boy relevant for today's consumer, building on that foundation of the trust for our quality, our comfort, our customization, our primarily U.S.-based supply chain but how do we make that relevant for today's consumer and so that's everything around our messaging hopefully you've seen some of those messages but where are we speaking to consumers how are we speaking to consumers and then how are we backing that up with the right product that's right for them as I mentioned from the start growing our DTC business primarily through our retail stores is a focus and priority for lazy boy enterprise and is what will lead to disproportionate growth so you know

Taylor E. Luebke, CFO

there's really a three-legged stool kind of growth strategy for this one being growing same store sales and we've shown incredible results and driving conversion driving our design business driving average ticket in light of continued kind of industry-wide traffic challenges so still more work to do there but pleased with our execution in store and getting in driving same store sales the second is driving new store growth so putting lazy voice stores and demographics and centers where we can give a consumer the full suite of everything the brand has to offer I mentioned that we see upward potential from our 375 today up to 450 across the US and Canada and we continue to pace towards that so last year and this has been the most the highest level of new stores we've opened in lazy boys history with 16 over the last 12 months and maturing as we would expect. The third way is acquiring the independent owners that Melinda mentioned, so independent Lazy Boy dealers. And you can see at the top right, we've had a pretty good cadence of completing those every year and almost every quarter. And a healthy pipeline still looking forward. We're incredibly pleased, actually, to have just recently closed a 15-store acquisition in the Southeast region. So Atlanta, Jacksonville, Orlando, and Knoxville, which is the largest in the history of our company.

Melinda Whittington, CEO

And as I mentioned, it doesn't, as we expand our own company-owned retail and the reach of the brand, I don't want to understate the importance of our wholesale customers as well. This gives you a bit of a visual on, of all the product that we manufacture and sell as Lazy Boy, that dark blue is what's now selling through our company-owned stores. the I guess brightest blue there is what is still selling through independently owned which again is a growth potential both in just expanding the performance of those stores and our brand but also as we're able to acquire some of those back those are 30 40 50 year old relationships and over time we're acquiring more of those back I don't want to then underestimate the other two pieces the light blue or lazy boy comfort studios and branded spaces this is kind of a store within a store concept where in a sea of sameness and furniture our brand does still stand out and so with strategic partners we're able to bring the brand to life and sell in what is still branded space but within multi-branded retailers and then last but not least just a broader group of of reaching the consumer through other retailers as well each one of those plays a role in our growth and we see opportunity but again what what we are most focus on is continuing to expand our own retail and our own omnichannel experience as part of our century vision strategy we have kind of two financial goals behind everything melinda's been walking through one is to grow sales at 2x the market um and the second is to get to grow our

Taylor E. Luebke, CFO

operating margin to double digits over the long term uh there's two key ways uh that we will get there one is getting a retail segment to mid-teens um and that's both that's by driving the flywheel that three-pronged strategy that i just mentioned a couple of slides ago so i go sorry driving same store sales sending up new accretive stores as well as continuing to acquire back independent operators on wholesale it's getting back to double digits and in spite of kind of industry challenges we continue to make headway on right-sized actions both on exiting non-core businesses as well as restructuring some of our supply chain to drive margin enhancement there So we've actually called out on our distribution transformation, which is a multi-year project to consolidate what is 15 distribution centers to three centralized hubs, upwards of 75 basis points of margin improvement to our wholesale segment. And then lastly, continuing to grow Joybird prudently and getting to a level of profitability break even to then grow from there. Behind all of that, from an enterprise perspective, we have in the near term announced some strategic initiatives, both in exiting our non-core wholesale case goods business, the planned closure of our U.K. manufacturing facility, as well as that independent acquisition, the 15-store network I talked a little bit ago, that as we expect to be substantially completed by the end of this fiscal year, will be 75 to 100 basis points of improvement to the enterprise. now all in all behind all this to get to double digits over the long term we do need some normalized certain industry growth um but in spite of which we think we know what will come we continue to make transformations and initiatives to drive our own momentum and drive our margin in light of that and also i think it's worth mentioning uh for those that follow the industry or don't um you know we we are primarily even after 99 years with a global company but we're still primarily a U.S.-based business. So 90% of our revenue is in the U.S., and 90% of our manufacturing final assembly is in the U.S. And we are that way because that's how we've won over time. Our competitive advantage in the market is high-quality, customized furniture at speed. And just to do that, you have to be close to your consumers.

Melinda Whittington, CEO

It just so happens in the current kind of trade environment we're in, we're incredibly well-positioned, if not the best positioned of those in our peer group to manage through and speaking of peer group again highly highly fragmented industry with a lot of private players both at the manufacturing and the end on the retail side and also a lot of players some of the bigger ones tend to be more focused on furnishings so everything out your tables lamps your accessories your rugs and so forth our Our core is really around that high quality, comfortable, upholstered business that is customized for the consumer. About half of our business is customized. At the same time, we do offer whole home solutions. So in our stores with our designers, we have the tables, lamps, the accessories, the case goods, and we'll continue even with some of our strategic moves to have case goods to be able to meet the entire whole home needs of a consumer. but again our core is on that that upholstered product but this gives you a little bit of sense of just relative size even with that focus relative to some of the players you may be familiar with in the industry I'd also just again reiterate the power of the vertical integration so really the strategic pivot is to go from our history as that manufacturer but leveraging that now as foundational capability while we really seek to be consumer first and drive that through our vertical integration to expand our own retail footprint and to ensure we have a state-of-the-art omni-channel experience we know our consumers are going to do their research online just like like any any purchase decision at this point so gone are the days of sort of wandering stores and browsing they're going to start online they're going to think about it we have to attract and attain those consumers and retain those consumers but we also know that 70 80 percent of our consumers if not more for a higher end purchase are going to want to experience the product before they actually make that purchase and so that's why that installed base of stores

Taylor E. Luebke, CFO

and expanding is still so important for our consumer on the industry those that are are new to the industry or just want some freshening up so the the industry's you know it's a sizable industry that has historically been a really consistent consistently growing so call it 3% to 4% over an extended period of time. With that being said, the last several years have been muted, largely because the industry is highly correlated to just housing turnover, whether new home starts, existing home sales, et cetera. And that's been impacted by, everyone reads the news, whether it's mortgage rates was up in the sevens, now down in the six, now crossed into maybe a 5.99 the other week. So we'll see if that keeps going south, as well as affordability, as well as just lack of supply. But those two areas is why we still feel bullish about the long-term growth of the industry and our ability to disproportionately benefit when it does come back. There's natural housing turnover. We know there's a shortage of supply in the U.S., estimated at 4 to 7 million units. So there will continue to be new housing starts that will pick up, as well as existing home sales being at kind of an annualized 4 million is, you know, significantly lower than the 5 to 5.5 that was running for an incredible amount of time. So if anything, we believe the industry is kind of like a beach ball being held underwater, and it's just taking a lot longer for all of those three metrics to improve to enable kind of a turn. But we foresee it coming, and we expect that that's why we continue to invest in new stores and acquisitions and the brand and product innovation so that when it does come, we'll have that tailwind to disproportionately grow versus some of our peers. And even in light of some of the industry challenges, is we've continued as an enterprise to outpace the industry with that 2x that we had mentioned in our century vision objectives.

Melinda Whittington, CEO

I want to spend just a moment on the on the quality of the team because in the end as we are at 99 years it all comes down to the people. You can enable through technology but it comes down to the people from our manufacturing base to our marketing teams to our in-store associates bringing our brand to life and it all starts from the top. This is our leadership team and some of the key leaders there as you see while this industry and it's important that to exist and be successful in this industry you need two things you need people that truly understand the industry and the history and that is big throughout our organization our industry is also ripe to bring new thinking from other industries and this lead team this gives you a little bit of sense of some of some of the key leaders directly reporting to me from the commercial side and then some of our both our manufacturing role and of course Taylor and our experience levels where we've had the opportunity to work with some of the best companies across industries and really bring those experiences into lazy boy but then right-size that for

Taylor E. Luebke, CFO

the furniture industry and I think that's core to some of our strategic wins and will continue to be as part of you know continuing to manage through the near term but investing for the long term is kind of the capital behind it So we have a really strong cash-generating enterprise, even in a kind of a down market that we've been in for a couple of years. And then we also consistently deploy that. Now, every one year to the other could tilt one way or the other, depending on opportunities in front of us. But over time, we've deployed 50% of our capital back into the business, either via CapEx, new stores, remodels, manufacturing, et cetera, our distribution transformation project, or via acquisitions of independent Lazy Boy owners. We've also deployed about 50% and will continue to back to shareholders, which would be our dividend, which we've increased plus 10% for five consecutive years or in the form of share repurchases. As mentioned, continuous strong cash balance of $300 million, no external debt. And in a world with a more kind of normalized industry outlook and more certainty, we expect over time to deploy down to more call of a $200 cash balance. So over time, the industry has been challenging, but we've been growing our sales. So we're a bigger business now than we were pre-pandemic or reverse 2021. We continue to make strategic choices to right size and focus our enterprise, both to improve margin in the near term, but also so we're healthier for the long term, as well as continuing to invest in new stores or distribution to grow even more over time. and lastly in doing all of that driving the business we continue to invest to drive value to all of our stakeholders whether that's employees whether that's the community communities we operate in or the environment and we've been recognized i won't read all of them by uh other outlets for for the work that we do whether it's times most iconic companies forbes best employers or new newsweek's best retailers and that's how you get to be 99 years old I'll maybe start the Q&A session off.

Speaker 5

I think we have about 10 minutes or so. But Taylor, you guys mentioned new analytics, you know, gives you confidence in the store target going to 450. Can you talk a little bit about what you're seeing in terms of new store productivity, kind of how the typical ramp period is for that store? Maybe just walk through from a very high level the kind of store economics, like, you know, capital to build a new store. Just help us think about that.

Taylor E. Luebke, CFO

So some of it's new analytics, but a lot of that kind of what had been our historic target of up to 400 to 450 is also driven off just our performance and improvement over the last five years we've gotten. You saw the proof points of century vision, you know, our throughput, our throughput per store has improved, our average ticket, our conversion. So it's just we have now the economics of a new store make more sense in more places. The kind of, if you think about new stores, so they're not capital intensive. So we're a lease model. We don't like to own more real estate than we need to. So it's, you know, a million to a million and a half kind of upfront capex for a new store. And we typically see about a three-year ramp to maturity, both in sales and in profit. So year one is, you know, typically kind of break even about 80 to 85 percent of a maturity level. And then we see kind of a step change to more neutral margin year two to then either at target or ideally, in most cases, accretive to this segment by year three because we're standing up new stores where it'll help grow the total profit pool. So the capital up front is intense. The maturity is, I think, a pretty good timing. We continue to work on how we shorten and improve that, as we would always do. And the paybacks are always, you know, shareholder value creating.

Speaker 5

That's helpful. And I guess maybe secondly on stores, I'm going to date myself here, Melinda, but I think I have covered it long enough to remember the original 445 when you guys beat the revenue target.

Melinda Whittington, CEO

Getting the 400 stores was a little tougher from a real estate perspective. talk a little about the pipeline and the work kind of to build up the team and how you've kind of developed the pipeline now and it seems that we're getting a better store consistency pace open now too absolutely yeah great memory so a decade ago we were talking about uh before my time but uh stores that that could deliver four million a store was aspirational we had targeted 400 stores and we wanted to do it in five years about three years in we had hit the four million a store we stopped on the expansion because the real estate profile just didn't make sense and so we sort of stepped away from that and a big piece of that was around again at 4 million a store what made sense from a real estate perspective was just different as we look at that now and where we're at going through the 400 stores makes a lot more sense we're closer we're closer to 5 million on average a store and I believe we still have a lot of opportunity we have we have become much more sophisticated both in our real estate activities on making sure we're getting stores in the right place based on good analytics on making sure we're negotiating strong lease terms we're able to skate where the puck is going by negotiating terms where we don't get wedded to a site and if main and main moves then in you know 10 years you can you can shift and get in and be in the right place to really drive sales as well as have the right um the right cross cost profile we also continue to just get better in execution. Eight years ago, we were at single-digit margins in retail. And as we've been able to drive store execution, we're sustainably in double-digit margins. And with a little bit of normalized industry, COA, as Taylor pointed out, to get into kind of a double-digit retail margin profile. That's on everything that is execution. That's quality of people. That's the right messaging to bring people into store. That's the right product that's in the store we've done a lot to still have some of those big oversized comfortable man cave kind of kind of offerings but also a lot of the trends are around more streamlined furniture where people still want that comfort they still want functionality they still want motion but they want it to look streamlined they want it to not look like motion and so a lot stronger product offerings in there a lot more upgrade potential within particularly within our design sales we see a lot more use of leather of power of big sectionals of whole room solutions and then probably our biggest still growth potential on that is is really leveraging these free in-home design services for us that works well because we get a sticky or more pleased consumer it drives a bigger ticket three to four times the size of ticket and it's still relatively under leveraged and we have an opportunity to help sort of you know a middle America consumer understand that they can have a designer in their home and help really bring a great solution into their home so each one of those over the years we're at in dollars about a third of our sales in store leverage design but again you can do the math to say that's still only call it 10% of our customers that are walking in the store are leveraging design huge opportunities continue to grow which again is what starts to open up then more geographies to see our way to that original 400 that we backed off of a decade ago and actually now as we've done that done those analytics on both the real estate side and then the performance in store to say we see our way to more like a 450 number again all in a you know a relatively fragmented market where we see the opportunity for a lot more growth of the core lazy boy brand on the designer aspect i think that's an interesting point uh you know third of sales only 10 probably of the tickets uh but in some markets you do actually index much higher than that so like when you think about the opportunity to kind of make that more consistent across the portfolio is it is it tools or is it marketing to let the consumer know like what's the driver and i know the stores are coming under rob's uh new leadership so i'll make sure to ping him next time i see him on it but uh i'll let you answer that for him yes certainly um a little bit of all of those right across across 220 some stores or whichever way you look at it across 370 some stores the block and tackle work of retail is real and always making sure that you've got the right talent that you've got the right messaging and in sort of you know call it five years ago pre pandemic we were actively averaging or advertising design but our focus in recent years has been more around sort of rejuvenating the brand and the and the quality and the and the relevance of our brand I think we have an opportunity to remind consumers again of of that of that design capability but it's also around making sure you've got the right in-store experience it's training your folks so that every store is really leveraging design so that you've got all of those seats filled all the people so that we have trained designers in and they're able to actually take all the all the opportunities for these in-store designs I over the about a year ago we made a real concerted effort to ensure we didn't have any design seats empty because of what an impact that has and you kind of have to sort of keep your eye on the ball constantly to be reinvigorating that model and making sure to to Bobby's point our best stores

Speaker 5

do 50% design so there's definitely a lot of upward potential there and then we saw on the basket I think I bring this up on most of our conversation but you probably have the cleanest bound for zero debt you think about the opportunity for share repercussions for environment what are you looking for as you make a little everything thank you this year i'd mentioned our capital allocation is 50

Speaker 2

This year we had to put a size one of our investments back into the business, both in the distribution as well as the IoT store, and we didn't have to start with it ever. So, at that point, given the real strong cash generation, we did step back in to call it a more normalized share report. What do we expect to continue that moving forward? Time for one more.

Speaker 4

Hi. How do returns on capital differ between your organic store growth and the inorganic acquisitions that you're making?

Taylor E. Luebke, CFO

Could you repeat that for me?

Speaker 4

How do returns on capital differ between your organic store growth and the inorganic acquisitions that you're making?

Taylor E. Luebke, CFO

They're generally similar over time, over the life of kind of the project when we look at them. So, you know, we look for strong returns on capital. When we're standing up a new store, it's usually a completely incremental consumer base, so it all flows straight through. And then the acquisition, you're getting half the sales and all the profit margins.

Speaker 2

And expanding, actually, the Lazy Boy brand and share.

Taylor E. Luebke, CFO

Because I don't have to make a choice. I can do both at the same time and grow our business in both ways.

Speaker 5

Very good. I think we're right on time, so thank you. Thank you all.

Taylor E. Luebke, CFO

Thank you.