LaZBoy Incorporated Aktie

Greetings. Welcome to the La-Z-Boy Fiscal 2026 Fourth Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded.

I would now like to turn the conference over to your host, Mark Becks, Director of Investor Relations and Corporate Development of La-Z-Boy Inc. You may begin.

Thank you, Holly. Good morning, everyone, and thanks for joining us to discuss our fiscal 2026 fourth quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Incorporated Board Chair, President and Chief Executive Officer; and Taylor Luebke, SVP and CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon.

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 factors, 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 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 includes reconciliations of certain adjusted measures, which are also included in the appendix at the end of our conference call slide deck.

With that, I will now turn the call over to Melinda.

Thanks, Mark. Good morning, everyone. Yesterday, following the close of market, we reported our April ended fourth quarter and fiscal year results, demonstrating strong execution and continued progress on our strategic initiatives. Highlights for our fourth quarter included our Retail segment delivered sales increasing 9% by acquisitions and new stores and we opened 4 new stores during the quarter, bringing the total to 230 company-owned. On top, adjusted operating margin for our retail segment strengthened versus prior year coming in at almost 14% for the quarter. And in our Wholesale segment, delivered sales decreased slightly, but adjusted operating margin improved versus prior year.

Highlights for our total fiscal year included total consolidated delivered sales of $2.1 billion up versus prior year, with Retail segment delivered sales increasing 6% versus prior year. And during the year, we opened a total of 15 net new stores the highest number of annual net new stores in our company history, and we completed our largest ever 15-store independent La-Z-Boy acquisition. In our Wholesale segment, delivered sales were flat versus the prior year, and adjusted operating margin strengthened. We generated $204 million in operating cash flow, up 9% versus prior year, returned $85 million to shareholders through share repurchase and dividends, including our fifth consecutive year of increasing the quarterly dividend by 10%, and finally, we continue to maintain a strong balance sheet with just over $300 million in cash and no external debt.

I'm proud of the strong finish to this fiscal year, as our performance delivered on expectations even against an uneven backdrop. We are focused on driving our own momentum, led by our retail business expansion through new stores, acquisitions and strong in-store execution.

Now turning towards consumer trends as reflected in our retail written sales. During the fourth quarter, total written sales for our company-owned retail segment increased 11% versus last year's fourth quarter, driven by acquired and new stores. written same-store sales, which exclude the benefit of new and acquired stores, decreased 2% for the quarter, which is a sequential improvement versus the third quarter, and same-store sales trends are strongest late in the fourth quarter, with April delivering positive comps versus prior year, and this strength continued through May with positive comps and a solid Memorial Day holiday.

We continue to drive our own momentum despite softness across the category, with industry data reported by the U.S. Census Bureau, indicating the market declined in the low to mid-single digits during the quarter. We remain focused on retail growth. where we can control the entire end-to-end consumer experience and gain share in the large and heavily fragmented furniture and home furnishings industry, regardless of market conditions. We are leveraging the strength of our iconic brand, our agile U.S.-centered supply chain, consumer-led insights, quality products, and excellent in-store execution to delight and inspire consumers across our network.

And in our Joybird business, total written sales increased 2% in the quarter, driven by new stores. We continue to expand Joybird distribution with new stores and compatible wholesale partners and opened our 16th dedicated Joybird store in Dallas, Texas last month.

Focusing on our broader strategic ambitions, I'd like to recap the progress we have made in our Century Vision objectives over the course of fiscal '26 or 99th year. Recall, Century Vision is our strategy to grow sales and market share through our consumer brands at a rate double the industry over the long term and sustainably expand our operating margin well beyond our centennial anniversary in 2027. We have significantly expanded La-Z-Boy's brand reach over the past year, with the largest number of new store openings and the most independent La-Z-Boy store acquisitions in 1 year in our company's history.

As I mentioned, during the year, we added 15 new company-owned stores, ,acquired 15 independent La-Z-Boy stores and ended the year with 230 company-owned locations. The company-owned footprint now represents 61% of our total network. Our total La-Z-Boy store network, including company-owned and independently owned stores, now stands at nearly 380 stores across North America. We see runway to growing the La-Z-Boy footprint to 450 locations, driven primarily by expansion of company-owned stores. We expect to open approximately 10 new stores each fiscal year going forward. And we will also continue to pursue independent store acquisitions as they become available.

As a reminder, these acquisitions are one of the best uses of our cash as they are immediately sales and profit accretive, and provide ownership to new markets with potential white space opportunities. We are delighted to have recently signed an agreement to acquire another 3 store network across Florida and Alabama which we expect to close at the end of June. We are committed to growing our direct-to-consumer business, where we are able to offer best-in-class consumer experiences. In wholesale, we continue to add new compatible distribution and grow existing distribution with partners that value the strength of the La-Z-Boy brand, our enduring quality and differentiated product functionality, supported by our vertically integrated manufacturing capabilities.

During the year, we added 30 new dealers and 100 new doors including our new partnership with living spaces. There remains a considerable opportunity in growing with our strategic partners, and we will be particularly focused on driving organic growth within our existing base going forward. Additionally, we will continue to invest in our Comfort Studios and branded spaces that offer unique store within a store branding at our larger independent retailers. We ended the fiscal year with nearly 1,400 La-Z-Boy Comfort Studio and branded space locations, each fully dedicated to our La-Z-Boy branded products.

Relevant brand messaging is another core pillar of our Century Vision growth strategy, and I'll spend a few moments highlighting some of the wins we achieved throughout the year and how we are capitalizing on this momentum. Recall, we launched a new brand identity last August, rooted in comfort and quality to enable the brand to reach a broader audience. The campaign has been positively received by our consumers, customers media and analysts alike, noting that our new look and feel just seems more comfortable, and this is recognized in the advertising industry as well. as we were named by Ad Age as 1 of the top 5 rebrands of 2025 and recently by the [ Shorty ] Awards, an international award honoring outstanding work across social and digital media as a gold winner under the brand redesign category.

I would also note that during the fourth quarter, La-Z-Boy was named to America's Best stores list for 2026 by USA Today. This award is based on independent survey data and underscores our brand relevance and strong in-store execution. We are also building momentum in product innovation. This spring at High Point Furniture Market, our introductions included Audiolux and Comfort Essentials. Audiolux is our market-leading premium audio furniture line that leverages La-Z-Boy's in-house consumer-led insights to drive relevant innovation. The product line combines an integrated audio experience partnering with [indiscernible] and offering the comfort and quality for which La-Z-Boy is known.

Look for written stores this fall. We're also -- we also introduced our Comfort Essentials an opening price point offering within our stationary assortment designed to meet the needs of value-focused consumers. We know that younger shoppers are looking for more accessible options to begin their journey with the La-Z-Boy brand, and we are innovating to meet that need. Through continued investment in brand evolution, retail expansion, digital transformation, innovation and consumer insights, we are unlocking the powerful La-Z-Boy flywheel.

Another core pillar of Century Vision is to optimize the Joybird brand to growth and profitability. Joybird complements our broader core strategy of branded customized upholstery manufactured in North America and has a significant long-term opportunity to grow share. Although Joybird's core consumer has been particularly volatile in the current economic environment, -- we remain committed to disciplined investments in the business to position the brand for sustainable long-term success. We opened 3 new stores in fiscal '26 and plan to open 3 to 4 in fiscal '27. We also recently introduced a Joybird wholesale program with select strategic partners that has been very well received and helps expand Joybird's brand reach. We continue to monitor performance and are taking the appropriate steps to improve growth and profitability, including redesigning our enterprise supply chain to more efficiently support drivers, as I'll touch on shortly.

The final pillar of Century Vision's strategy is strengthening our foundational capabilities and agility across our supply chain technology and people. Our vertically integrated model with approximately 90% of upholstered products manufactured in the U.S. is a differentiated competitive advantage, enablizing personalized furniture delivered to consumers' homes in as little as 4 to 6 weeks. And it is vital to our enterprise success and navigating the current geopolitical landscape. We are establishing an even more agile supply chain with our multiyear distribution and home delivery transformation project.

During the past year, we completed the Western [indiscernible] project with our new Arizona centralized hub, and we are well on track with our Midwestern and Eastern phases. As a reminder, this multiyear transformation will improve an already strong consumer experience and help drive stronger wholesale operating margins through operational efficiencies. During the year, we also made meaningful advances in streamlining our operations and honing our focus on our core business. We finalized our U.K. supply chain restructuring in April and we completed the final step of our portfolio optimization in case goods with the sale of the American Drew and Kincade wholesale casegoods businesses in May.

And our strategic and agile adjustment to our supply chain continue as we look forward. We recently initiated projects to stream in our 2 smallest upholstery plants into our larger U.S. plant network. This will include fully consolidating Joybird manufacturing into our long-standing La-Z-Boy plants during fiscal '27 to more efficiently support this business. We expect both of these small plant transitions to be largely completed by the end of our fiscal year. Given the ongoing efficiency gains across our supply chain, we have ample capacity within our existing U.S. manufacturing operations to support future growth and view these changes as another key step in our Century Vision goal of building a more agile supply chain and continuing to improve operating margins and adjust to an ever-changing macro environment.

As we begin fiscal '27, we are focused on controlling the controllables and confident in our ability to drive our own momentum and outperform the market. While the timing of a return to growth for our industry is uncertain, we have discrete leverage to drive growth in our business and strengthen our foundation across our Century Vision pillars. And looking forward, we remain optimistic about an eventual rebound in housing fundamentals and in the furniture and home furnishings industry, which has historically grown at a healthy 3% to 4% growth rate.

And now let me turn the call over to Taylor to review our financial results in more detail.

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items, which are detailed in our press release and in the appendix section of our conference call slides.

On a consolidated basis, fiscal 2026 fourth quarter sales were flat at $570 million versus last year as growth in our retail business was offset by lower delivered volume in our Joybird business. Consolidated GAAP operating income was $41 million and adjusted operating income was $57 million. Consolidated GAAP operating margin improved to 7.2% and adjusted operating margin improved to 9.9% versus 9.4% last year, with the change primarily driven by 100 basis points from our case goods business due to favorable inventory adjustments and pricing leading up to the divestiture partially offset by expense deleverage on lower Joybird delivered sales.

Note, the benefit from our casegoods business is nonrepeatable given the recently announced sale of the wholesale casegoods business. Diluted earnings per share totaled $0.81 on a GAAP basis and adjusted diluted EPS was $1.26.

As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise. Starting with the retail segment. For the fourth quarter, delivered sales increased 9% to $270 million driven by acquired and new stores and retail adjusted operating margin strengthened to 13.9% versus 13.1%, driven by the positive impact of acquisitions. For our wholesale segment, delivery sales increased 2% -- decreased 2% to $393 million versus last year, driven by modest declines across most of the businesses with continued softer industry trends.

Adjusted operating margin for the wholesale segment increased to 10.1% in the fourth quarter versus 8.5% last year, driven by 150 basis points improvement in our casegoods business. primarily due to favorable inventory adjustments and pricing leading up to the divestiture. For Joybird, reported in Corporate and Other delivered sales were $32 million, down 10% on lower delivered sales volume. Corporate and other adjusted operating loss increased versus the prior year, primarily due to expense deleverage on lower Driver delivered sales. On a GAAP basis, we recorded a $20 million noncash impairment charge to reduce the carrying value of Joybird's goodwill, reflecting near-term impacts of the current macro backdrop, which have disproportionately impacted the Joybird consumer. As noted, we continue to manage prudently and are taking steps to improve Joybird growth and profitability.

Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2026 fourth quarter. Consolidated adjusted gross margin for the entire company increased 230 basis points versus the prior year fourth quarter. The increase in gross margin was primarily driven by the shift in consolidated mix towards our retail segment, which has a higher gross margin rate than our wholesale segment and casegoods, primarily due to favorable inventory adjustments and pricing before the divestiture. Adjusted SG&A as a percent of sales for the quarter increased by 180 basis points compared with last year, also due to the shift in consolidated mix towards our retail segment, which carries a higher fixed cost structure relative to wholesale as well as fixed cost deleverage on lower delivered volume in our Joybird business.

Our effective income tax rate on a GAAP basis for the fiscal year was 25.9% versus 31.4% for the prior year. The decrease in the effective tax rate in fiscal year 2026 compared with the prior year was primarily the result of the favorable tax impact of closing the U.K. manufacturing business this year versus the unfavorable impact from foreign discrete tax item in last year's rate. We expect a more normalized effective income tax rate looking forward in the range of 26% to 27%.

Turning to liquidity. We ended the year with a strong balance sheet, $303 million in cash and no externally funded debt. We generated a strong $204 million in cash from operating activities, an increase of 9% versus prior year. In fiscal year 2026, we have a strong and disciplined deployment of capital with $248 million reinvested back into the business or returned to shareholders. We paid $86 million for acquisitions, primarily related to the 15 store acquisition of the retail business in the Southeast U.S. and also invested $76 million in capital expenditures during the year, primarily related to investment in new La-Z-Boy stores and remodels, manufacturing-related investments and spending related to our distribution and home delivery transformation.

We continue to believe that the best use of our cash and highest return on investment is reinvesting back into the business. And as such, we remain committed to disciplined investments in new stores and remodels, acquisitions in our distribution and home delivery transformation project to profitably grow our core business. During the fiscal year, we returned $85 million to shareholders through dividends and share repurchases, including $47 million in share repurchases and $38 million in dividends, which was our fifth consecutive year of increasing the quarterly dividend by 10%. In the quarter, we continued more normalized pace of share buybacks of $20 million.

In April, reflecting continued confidence in the company's ability to sustainably grow the business, the Board of Directors approved a new share repurchase program of $300 million, replacing the prior program. This represents approximately 20% of shares outstanding and underscores our commitment to maximize shareholder value and deliver returns to our shareholders. The company expects normalized share repurchases looking forward, subject to market conditions and business performance. We continue to view share repurchases in our dividend as an attractive use of our cash and positive return to shareholders. Over the last 5 years, we have returned over $430 million to shareholders through dividends and share repurchases. While capital allocation in fiscal year 2026 was tilted more towards the business, looking forward, our capital allocation target remains consistent, during invest 50% of operating cash flow back to the business and return 50% to shareholders and share repurchases and dividends.

Before turning the call back to Melinda, let me highlight several important items for fiscal 2027 and our first quarter. For our first quarter, while we continue to have a measured view of the current macro environment, we expect first quarter sales to be in the range of $490 million to $510 million, reflecting organic growth of up to 4%, which excludes acquisitions and divestitures, an adjusted operating margin in the range of 4% to 5.5%. Lastly, as a reminder, our first quarter is generally the lowest sales and margin quarter in the fiscal year due to seasonally lower industry sales in our annual week-long plant shutdown.

Also to note, for our fiscal 2027 full year, comparability to prior year will be affected by 2 items. The full year impact of our exit of the wholesale casegoods business, which was completed last month, and which delivered approximately $60 million in annual sales in fiscal 2026 and the half year impact of our 15 store retail acquisition, which was completed at the end of October last year. We expect to open approximately 10 new La-Z-Boy stores during the coming of the year, of which the majority will lead company own as well as 3 to 4 new [indiscernible] stores.

We continue to monitor the evolving tariff and trade policy environment and adjust accordingly. We are in the process of applying for refunds for IEEPA tariffs through the standard CDP system and will determine next steps as we monitor our progress. As a reminder, 90% of our upholstery production is based in the U.S. which continues to be a competitive advantage as we are able to deliver customized upholstery with speed to market and limits the impact of tariffs on our business relative to some in our industry.

We expect capital expenditures to be in the range of $90 million to $110 million for the year with continued investment in our distribution and home delivery transformation, manufacturing-related investments and investments in our La-Z-Boy retail stores, including new stores and remodels. And lastly, we expect capital allocation to be balanced between investments back into the business and return to shareholders.

And with that, I will turn the call back to Melinda.

Thanks, Taylor. We ended fiscal '26 on a strong note, and we're creating our own momentum and investing for long-term success. We're adapting our business with key strategic initiatives to even better position La-Z-Boy Incorporated for our next 100 years. And while the timing of a strengthening in our industry remains unclear, we are well positioned to continue to gain share now and disproportionately benefit when the industry does resume to a more normalized growth trajectory.

Before I conclude the call, I want to thank the entire La-Z-Boy Incorporated team and our many partners for their hard work and commitment to navigating the current environment, delivering strong results and strengthening for the future. We are focused on continuing to drive value for all of our stakeholders, and I'm excited for the year ahead.

And now I'll turn the call back to Mark.

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

[Operator Instructions] Your first question for today is from Brad Thomas with KeyBanc Capital Markets.

This is Taylor Zick on for Brad. But maybe first, Melinda, you had a pretty good quarter here. You called out the strength in April and then continuing those positive trends here in May. So just kind of curious, first, kind of what you think is kind of helping to drive some of that strength here towards the end of the quarter and into, I guess, fiscal 1Q. I'm curious if you want to comment at all on maybe what you're seeing so far here in June.

Sure. I would say, overall, I'll step back and say we know that consumer behavior overall remains choppy. There's a lot going on, right, in both continued housing trends as well as just overall consumer sentiment. But everything that we are doing is around driving our own momentum in that environment. And when I look at the strong results in the last couple of months, April into May. It's around that execution, right? It's around having the right product, the right messaging and then outstanding in-store execution. And speaking to the consumer meeting to them, where they're ready to buy, as we've talked in the past and even in some of our ongoing innovation work. We have to meet some of the consumers that are aspirationally trying to get into the brand and have some sharpened price points, particularly on these big tentpole events.

And at the same time, we still have a really strong design business and some incredible in-store execution that's driving larger tickets. So it's really it's that flywheel of all those pieces that I think is delivering the results that we've seen recently. As we kind of continue on, we're still early into June as an industry. We know we have some of these bigger tent poles. So our focus is around the July 4 holiday is the next big one coming up. and we're looking to continue that momentum even up against a backdrop that will remain choppy.

Great. And then maybe if I can squeeze one in for Taylor as well. Your operating margins here for this first quarter kind of came in near 10%, which is significantly above kind of where you had guided for the quarter. So maybe just if you can comment on what you saw that kind of went right during the quarter that really pushed you above that guidance range. And then as we head into your fiscal first quarter guidance, maybe can you kind of help us kind of understand some of the puts and takes here given the outperformance in fiscal 4Q, how does that help you kind of inform the guide for fiscal 1Q as well?

Yes. Thanks, and good morning, Taylor. So let me hit Q4 first. One, incredibly pleased with the strong results for the quarter against and back the strength of our retail business, but written delivered sales as well as margin expansion. But even a solid -- a solid quarter on wholesale segment with expanded operating margin versus the prior year. So we continue to operate with excellence across our enterprise and really drive our momentum, as what a said, so delivering to consumer every day. Obviously, it helps with the results, but also just an [indiscernible] cost discipline as well as optimization helps deliver strong margins.

You mentioned over delivery. The big -- the real reason for the over delivery versus our range was the benefit of kind of inventory trends as well as pricing on our casegoods business prior to us completing that sale in May, which I'd mentioned is nonrepeatable, kind of strip that out, we are at the high end of our guidance range for the quarter, which, again, incredibly pleased with especially with where the world is right now. As we pivot into Q1, I think let me level off and then I'll come back down. So as we approach our fiscal year '27, our objective as we go into a year is to grow our organic sales behind our core business and expand our operating margin, again, towards our long-term objectives of the outperform the industry by 2x and to get to double-digit margins over the long term. So that's our objective for the year.

As we enter the year, really proud of where our retail business is and their performance, as Melinda mentioned. I think we are seeing some near-term pressure on our wholesale business largely as well as [indiscernible]. One is demand is still choppy, particularly on the B2B side, although we have plans to mitigate, we think it's short term. But also, as you can see in the news or PPI or other measures, there's -- inflation has ticked up a bit, and we're absorbing some of that in the short term, which is manageable but it's there. And I would just say that's intentional for us is we're really looking to maximize demand over the summer selling periods, but short term. And while we may have waited versus other kind of peers out there, we have taken action to address kind of the inflationary input cost called post Q1.

So those are kind of near-term kind of headwinds on the wholesale side, which are -- which will mitigate ongoing as well as the strength of our retail. And then I would say, lastly, Melinda had mentioned, outside of the end of year 2 of our distribution and home delivery transformation project, we have announced, which I'm proud to continued optimization of our supply chain, where we'll consolidate 2 of our smallest plants into our broader U.S. network over the course of the year. So that adds some friction cost again, manageable with additional initiatives that we have underway.

Your next question for today is from Bobby Griffin with Raymond James.

Taylor, I wanted to go back to, I guess, some of the margin commentary and kind of better understand the core performance. So if I back out the wholesale dynamics with the inventory and the pricing as you note, I think you guys still come towards the top end of your guidance, which is very healthy, but that would imply some margin pressure, I think, versus last year. call it like EBIT would have been closer to like an 8.8% margin versus the 9.4% last year. So that year-over-year pressure, what drove that? Is that the supply chain investments around home delivery optimization or is that deleverage? Or what else could potentially be driving that as I try to look at this quarter on a more normal basis?

Bob, thanks for the question. So one, again, proud of the -- where we came in on your kind of peeling back on the quarter, I would say it's some continuation of what we've been talking for the last 3 quarters, which is where we have some friction costs with our delivery our distribution and home delivery transformation, but also while proud of sequential improvement in our same-store sales, it's still negative, which does have to leverage impact underneath as well as we've mentioned, kind of results for the driver business, deleverage impacts on the lower delivered quarter.

So those are really the reasons it's not anything new. It's what we were managing through the year. We've seen incremental improvements across most of them. And again, as we approach this year, our intent is to grow our core business behind sequential improvement turned to positive same-store sales and improve our profitability.

Okay. That's helpful. And then, Taylor, yes, the 10-K actually called out some of the distribution costs from the work you guys are doing on the supply chain. I think it was a 70 basis point headwind to gross margin for wholesale. As you look at fiscal year '27, does that stay the same? Or does that actually now start to decrease as we get further into the project? How does that headwind appear as you continue to work through that multiyear project?

So let me back up and just talk where we're at in the entire multiyear project, and I think I'll answer the question. So this is a 4-year multiyear transformation of what started with 15 distribution centers that will transition down to 3 centralized hubs, which the benefits are enormous across our enterprise, both consumer as well as internal from profitability as we want to meet consumers with broader delivery radius. Two, it reduces our square footage by 30%; and three, reduces our mileage travel of heavy furniture by 20%, all while having better call it more productive inventory stores.

So year 1, we just completed, very pleased. We completed the Western phase. We're now in year 2, which is another similarly big year where we will get close to completion of our Midwest in Eastern hubs. So I would call it year 1 and year 2 is roughly equivalent, where we had noted there are some friction costs, which we still intend to grow margin despite of. We're turning more to towards breakeven positive year though with the full benefit of, call it, that 50 to 75 basis points benefit in year 4 as we complete the project.

Okay. And I got 2 more, and I promised 1 of them is for Melinda. I might just pick on tail, but there's a lot going on...

[indiscernible].

But it's encouraging what's taking place and you kind of -- I don't want to call it rebuilding, but you're kind of flexing the organization, but -- so when we stack up that change, the new supply chain optimization that you've called out today, minor, but still consolidating plants, plus the sale of casegoods and the margin benefit there. understanding this is down the road and there's a lot that can change from the industry but what does all that add up to be on a potential margin lift? And what is the base case for us to kind of grade it against?

So one, I would say, Bobby, I am as pleased as I've been with the transformation and agility across the enterprise, whether it's the distribution and home delivery, whether it's the continued plant optimization, whether it's just on the portfolio. So I appreciate the words. We've sized some of these, which we intend to realize over the coming years. Others is just in the background as part of the everyday cost improvement, continuous improvement to drive towards our double-digit sustainable margin over the long term.

And we've talked before, like we see our way absent any kind of market normalized market growth to bridging where we've been, it's about halfway to that double digit, where, frankly, the other half, we do need some just general healthy housing fundamentals and industry growth to leverage our fixed cost basis across both our store called store fleet and our supply chain operations. So these 2 new -- the 2 new announced today on the smaller upholstery plants will be kind of also what we're working on to bridge that half to our double-digit [indiscernible].

Okay. That's helpful. And then Melinda, just I thought the Joybird comments were interesting with the supply chain in new stores. I mean written sales is still negative, but you guys opened up new stores I think probably implies you're seeing something there. So just curious kind of what you see out of the new stores when you do open it? Is there a list of the DMA? Is that part of the path to help turn the written? Just curious kind of the strategic aspect there.

Yes, certainly. I'm glad I finally got a question, Bobby.

[indiscernible].

No. I -- thanks for highlighting Joybird. I mean, stepping back, Joybird fits very well into our portfolio as being a direct-to-consumer brand, vertically integrated fits very well with expanding kind of our offerings as La-Z-Boy incorporated strategically. And Joybird has an outsized [indiscernible] started online. We know where to open those stores. And so when we do open a store, they're almost immediately accretive to the overall Joybird portfolio. What we need to continue to do though is in this time and at the size is make sure that all of the support behind Joybird is rightsized and structured in an agile way for sort of this choppy consumer environment.

So you may remember, Bobby, probably in the middle of the pandemic, we had done some work. We were going to start to fully synthesized Joybird manufacturing into our La-Z-Boy plants. And we actually backed off of that in the middle of just the pandemic and the backlog and everything and decided not to distract all the operations. But this is a sort of retooling and bringing back to life that project, which will give us a new level of agility on being able to support Joybird from behind the scenes, right?

And then to the front, we'll continue on that pace of expanding the brand reach of Joybird carefully, right, with the store positioning. And even over the last year, we opened up with some of our best strategic partners across our other brands, opening up just a small wholesale presence so that we can keep expanding that reach at Joybird in a really efficient way to some markets that aren't likely going to make sense for a store at sort of the size and scale of the business today. But we watch it closely because it is definitely an investment phase for us and has continued to be.

Very good. I appreciate all the details. Congrats on the work with inside the organization, the supply chain. I understand it's going to take a little while, but it does look like we're making real progress, and it's shown up.

Your next question for today is from Anthony Lebiedzinski with Sidoti.

Really nice to see the strong finish to fiscal '26. Just a quick on Joybird. So you talked about wholesale strategic partnerships. What have you seen thus far? And what do you think is the opportunity there? If you could expand on that.

Yes. It's complementary to our core business. And so what we're looking at is similar to our La-Z-Boy brand we want to make sure that we're only expanding with partners that are going to appreciate and treat the brand for what it is at one of the few true consumer brands, supported by our own marketing and brand support. One of the few true consumer brands manufactured still in our industry. And so we're working with those partners. It's a metered rollout to make sure that we're learning as we go along the way.

And as I mentioned in some of my previous comments, it's focused on getting the brand out to some areas that probably don't make sense to support with their own stores. And so we're in a learning phase. But so far, demand has exceeded -- our -- maybe our willingness to expand because we want to make sure that we're learning as we go there. But we're very pleased with what that's done so far and our strategic partners are very pleased with what they've seen as well in bringing some new news into their stores, frankly, as they're offering a variety of brands.

Got it. Yes. and then Taylor, I know you touched on this a little bit, but as far as form costs and transportation costs, can you just comment on that? And are you looking to do any pricing actions to try to offset this? Or how should we think about that?

Thanks, Anthony. Yes. So I think first and foremost, there have been some news and supply, particularly in the poly suppliers and issues over the past couple one, I'd say, most importantly, we have no supply risk. We fully meet the demand in front of us, which positive, we do see, particularly on poly, but also just broader base inflation, a lot of weight to kind of petroleum inflationary pressure in the near term, which I'd mentioned, I think, in my earlier comments, at least on a quarter 1 kind of an outlook. So we see it. We've intentionally chose to just [indiscernible] they're generally speaking, no significant changes for prior years.

We have reached the end of the question-and-answer session, and I will now turn the call over to Mark for closing remarks.

Thanks [indiscernible]. Melinda, Taylor and I will be in our offices to take any follow-up calls. Thanks, and have a great day.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good morning, everyone, and welcome to the La-Z-Boy Fiscal 2026 Third Quarter Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Mark Becks, Director of Investor Relations and Corporate Development at La-Z-Boy. Mark, the floor is yours.

Thank you, Jenny. Good morning, everyone, and thanks for joining us to discuss our fiscal 2026 third quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Incorporated's Board Chair, President and Chief Executive Officer; and Taylor Luebke, SVP and CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon.

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 includes reconciliations of certain adjusted measures, which are also included as an appendix at the end of our conference call slide deck.

With that, I will now turn the call over to Melinda.

Thanks, Mark. Good morning, everyone. Yesterday, following the close of market, we reported our strong January-ended third quarter results. These results are proof that we continue to strengthen our enterprise and increase the agility of our business. Highlights for our third quarter included total delivered sales of $542 million, up 4% versus prior year. In our Retail segment, both written and delivered sales increased 11% versus prior year. And we opened 4 new company-owned stores during the quarter, bringing us to 16 new company-owned stores in the last 12 months and 4 closed. In our Wholesale segment, delivered sales grew 1% versus prior year. And we made continued progress on our distribution and home delivery transformation project with the completion of our Western U.S. phase of the network. Our GAAP operating margin was 5.5% and adjusted operating margin was 6.1%, coming in toward the high end of our guidance range. And we again generated strong operating cash flow of $89 million for the quarter, increasing 57% versus last year's comparable period.

Amid the ongoing challenging consumer environment, we continue to create our own momentum, led by retail expansion. As I noted, total written sales for our company-owned Retail segment increased 11% versus last year's third quarter, driven by new and acquired stores. Written same-store sales, which exclude the benefit of new and acquired stores, decreased 4% for the quarter. Continued challenging traffic, consistent with our industry, was partially offset by strong in-store execution, including higher conversion rates, average ticket and design sales. Within the quarter, same-store sales trends were strongest in January, turning positive versus a year ago until widespread adverse weather slowed traffic in late January and continuing into early February across much of the United States. While we don't believe these weather events will impact overall furniture demand, we do expect some timing effects carrying into our fourth quarter deliveries as consumers reengage on planned purchases. Separately, for Joybird, total written sales for our third quarter decreased 13% compared to a year ago as this consumer segment continues to be particularly volatile against the current macroeconomic backdrop.

During the quarter, we also progressed our strategic initiatives. We successfully integrated our 15-store acquisition in the Southeast region of the United States. We formally announced the planned closure of our U.K. manufacturing facility, where production will cease by the end of the fiscal year. We completed the sale of our Kincaid upholstery business just after the close of our third quarter. And we signed a letter of intent for the sale of our noncore wholesale casegoods businesses, American Drew and Kincaid, targeted to be complete by the fiscal year-end.

Stepping back, I'd like to spend a few more minutes highlighting some of the structural improvements our team has achieved through these current initiatives and highlight the progress made as we advance our Century Vision strategy for our next 100 years. We are pleased to have successfully integrated our acquisition of the 15-store network in the Southeast region. This transaction was our largest single retail acquisition in the company's history, adding $80 million in annualized retail sales and $40 million net to the total enterprise. The seamless integration into our company-owned network reflects the collective efforts of many internal stakeholders, and the stores are performing well. Independent store acquisitions are an important part of our Century Vision strategy as they are immediately sales and profit accretive and provide ownership of a new market with potential white space opportunities. We will continue to pursue these types of acquisitions as they become available.

Opening new La-Z-Boy stores is also a key lever to growing our Retail business and expanding our brand reach. In addition to completing our largest ever acquisition this quarter, we also are achieving the most significant period of new store expansion in our company's history. We opened 4 new company-owned stores in the quarter. And in the last 12 months, we opened 16 new stores, while closing 4. In total, we've added 29 net company-owned stores over the past year. Our total network of stores, including independently owned, has expanded to 374. And our current proportion of company-owned stores is now at an all-time high of 60% of the total network. We see opportunity to grow the La-Z-Boy store network to over 400 stores as we broaden our brand reach and delight and inspire even more consumers. We expect to open 16 new stores in total for this fiscal and continue at a pace of opening roughly 10 stores a year for the next several years.

Momentum in our Wholesale segment also remained solid as we delivered our seventh consecutive quarter of sales growth in our core North American La-Z-Boy wholesale business, and we continue to grow our strategic compatible distribution with key partners like Slumberland and Rooms To Go. Wholesale customers value the strength of the La-Z-Boy brand, the enduring quality and the differentiated product functionality offered by our North American manufacturing capabilities. Our vertically integrated model with approximately 90% of upholstered products produced in the United States remains a key competitive advantage as we navigate the current challenging macroeconomic environment and has served as our foundation throughout our 99-year history.

We're making meaningful progress on building an even more agile supply chain through our multiyear distribution and home delivery transformation project. During the third quarter, we completed the Western U.S. 1/3 of this project, serviced by our new Arizona centralized hub. And we recently broke ground on our new Dayton, Tennessee centralized hub, which will serve our Eastern region. This transformation will improve an already strong consumer experience, ensure faster speed of delivery and enable an expanded delivery reach. And in aggregate, we expect this project to deliver between 50 to 75 basis points of Wholesale margin improvement, up to 50 basis points to the entire enterprise once completed.

As part of our strategic road map to expand brand reach, leveraging our iconic brand, we are creating integrated strategies for our retail and marketing teams. These strategies have enabled more cohesive and focused plans for our store network, improving execution and reducing redundancy. As a result, we are better positioned to capture consumer demand, improve responsiveness and navigate the volatile environment with greater discipline and agility. Our new brand identity continues to receive positive media attention. In December, La-Z-Boy was cited by Ad Age as one of the top 5 rebrands of 2025. The mention went on to say, La-Z-Boy's brand refresh felt like a full-bodied exhale, designed to make comfort feel as intentional as its famously cushy chairs. We plan to continue building off this success and expanding brand relevance with new and innovative ways to delight and inspire our consumers.

Lastly, during our third quarter, we drove further progress in optimizing our portfolio and enabling focus on our core vertically integrated North American upholstery business. We formally announced the planned closure of our U.K. manufacturing facility, where we expect production will cease by the end of our fiscal '26. And we have solidified alternative sourcing for this business, leveraging our global supply chain network to ensure we are well positioned to grow with our new customer base. We also completed the sale of our Kincaid upholstery business just subsequent to our fiscal third quarter-end. We were pleased to transition this business in full to its new owners who are former employees of the company. And finally, we signed a letter of intent for the sale of our noncore wholesale casegoods businesses, American Drew and Kincaid.

Importantly, these changes will not impact our ability to offer casegoods as part of beautiful whole home solutions for consumers in our La-Z-Boy stores, Comfort Studios and branded spaces. In fact, these changes will enhance our offerings in the future, opening up broader sourcing and driving efficiency in the process. We expect these final casegoods initiatives to be substantially complete by our fiscal year-end in April.

And now, let me turn the call over to Taylor to review the financial results in more detail. Taylor?

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items which are detailed in our press release and in the tables in the appendix section of our conference call slides.

On a consolidated basis, fiscal 2026 third quarter sales increased 4% from prior year to $542 million as growth in our Retail and Wholesale business were partially offset by lower delivered volume in our Joybird business. Consolidated GAAP operating income was $30 million and adjusted operating income was $33 million. Consolidated GAAP operating margin was 5.5% and adjusted operating margin was 6.1%. The change was largely driven by investments in our distribution and home delivery transformation project. Diluted earnings per share totaled $0.52 on a GAAP basis, and adjusted diluted EPS was $0.61.

As I move to the segment discussion, my comments from here will focus on our adjusted reporting unless specifically stated otherwise.

Starting with the Retail segment. For the third quarter, delivered sales increased 11% to $252 million, driven by acquired and new stores. Retail adjusted operating margin was flat versus a year ago at 10.7% as accretion from acquisitions was offset by investment in new stores and fixed cost deleverage from lower delivered same-store sales.

For our Wholesale segment, delivered sales increased 1% to $367 million versus last year, driven by modest growth across the majority of our businesses, including our core North America La-Z-Boy wholesale business. Adjusted operating margin for the Wholesale segment was 6% in the third quarter versus 6.5% last year, driven primarily by investments in our distribution and home delivery transformation project and unfavorable foreign exchange rates.

For Joybird, reported in Corporate and Other, delivered sales were $36 million, down 3% on lower delivered sales volume. Joybird operating loss increased versus the prior year, primarily due to fixed cost deleverage on lower Joybird delivered sales.

Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2026 third quarter. Consolidated adjusted gross margin for the entire company increased 10 basis points versus the prior year third quarter. The increase in gross margin was primarily driven by the shift in consolidated mix towards our Retail segment, which has a higher gross margin rate than our Wholesale segment, partially offset by investments in our distribution and home delivery transformation project. Adjusted SG&A as a percent of sales for the quarter increased by 80 basis points compared with last year, also due to the shift in consolidated mix towards our Retail segment, which carries a higher fixed cost structure relative to Wholesale, as well as fixed cost deleverage on lower delivered same-store sales.

Our effective tax rate on a GAAP basis for the third quarter was 31.3% versus 25.1% in the third quarter of fiscal 2025. The year-over-year increase was primarily due to nondeductible operating losses and onetime charges related to our supply chain optimization actions in our U.K. business. We expect our tax rate to normalize in fiscal 2027.

Turning to liquidity. We ended the quarter with $306 million in cash and no externally funded debt. Our balance sheet remains strong, supported by the consistent cash generation of our operating model even as we absorbed a significant acquisition in the quarter. We generated a strong $89 million in cash from operating activities in the third quarter, increasing 57% versus last year's comparable period, with improved working capital and an increase in customer deposits.

We invested $18 million in capital expenditures during the quarter, primarily related to investment in new La-Z-Boy stores, as well as remodels, manufacturing-related investments, and spending related to our distribution and home delivery transformation. We also completed our 15-store acquisition in the Southeast region at the beginning of the quarter for a total of $86 million. We continue to believe that the best use of our cash and the highest return on investment is prudently reinvesting back into the business. As such, we remain committed to disciplined investments in new stores, acquisitions, and our distribution and home delivery transformation project to profitably grow our core business.

Regarding cash return to shareholders, year-to-date, we returned $55 million to shareholders through dividends and share repurchases, including $28 million paid in dividends and $27 million in share repurchases. Also, in the quarter, we resumed more normalized share buybacks of $14 million, which leaves 3 million shares available under our existing share repurchase authorization. We expect consistent share repurchases ongoing, assuming ordinary business and economic conditions. We continue to view share repurchases and our dividend as an attractive use of our cash and positive return to shareholders.

Capital allocation in fiscal 2026 is tilted more towards the business through investments in the recent 15-store acquisition and our distribution and home delivery transformation project. Longer term, our capital allocation target remains consistent to reinvest 50% of operating cash flow back into the business and return 50% to shareholders in share repurchases and dividends.

Before turning the call back to Melinda, let me highlight several important items for fiscal 2026 and our fourth quarter. We expect fiscal fourth quarter sales to be in the range of $560 million to $580 million and adjusted operating margin to be in the range of 7.5% to 9%, reflecting a continued cautious view on the macroeconomic backdrop, as well as the short-term impact of recent adverse weather events. We expect to open 5 new company-owned stores in the fourth quarter, bringing us to 16 for our full fiscal year.

We expect capital expenditures to be in the range of $80 million to $90 million. This includes investments for new stores and remodels, our distribution and home delivery transformation project, and continued manufacturing-related investments. And as a reminder, we expect the financial benefits of our strategic initiatives to have an annualized impact of approximately a $30 million net sales decrease and an adjusted operating margin improvement of 75 to 100 basis points to the entire enterprise. This represents the combined impacts of our 15-store acquisition, our casegoods exit, our planned closure of the U.K. plant and our management reorganization. We expect the benefit of all of these initiatives when they are substantially completed by the end of this fiscal year. And these impacts do not include the additional long-term margin improvement we expect from our distribution and home delivery transformation project. And note, at this time, we do not expect these strategic initiatives to have a material onetime gain or loss to the enterprise. Lastly, we expect our tax rate for the full year to be in the range of 27% to 29%.

And with that, I will turn the call back to Melinda.

Thanks, Taylor. The furniture industry and broader macroeconomic environment continue to be challenging. What has not changed is our iconic brand and the ability to delight and inspire millions of consumers. As a testament to our enduring impact and cultural relevance, La-Z-Boy Incorporated has been recognized by Time Magazine as one of America's most iconic companies for 2026. This unsolicited award reflects the lasting connection generations of families have built with our beloved brand over our 99-year history.

As we look ahead, we'll continue to honor our heritage of comfort, customization and quality, while evolving to succeed in any environment. We will continue to leverage our vertically integrated model with approximately 90% of upholstered products produced in the United States, create our own momentum and position ourselves to disproportionately benefit when the industry does rebound. This, combined with our mission of delivering the transformational power of comfort, will enable us to drive value for all stakeholders.

I'd like to thank our dedicated employees for their continued commitment to bringing our beloved products into more homes. And I wish everyone the best in the year ahead.

Now, I'll turn the call back to Mark.

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

[Operator Instructions] Our first question is coming from Bobby Griffin of Raymond James.

I guess, Taylor or Melinda, I wanted to dive in kind of on some of the strategic kind of actions you guys have taken so far. And congrats on the speed of getting a lot of those underway. Taylor, can you maybe level set us that margin improvement that you're referencing, what base year should we use? Because when you look back in fiscal year '25, we were about a 7.6% EBIT margin. Then it starts to slide, given you start to do some of the distribution changes. So like level set us on where we should think about the improvement off of what base. And then, I got some follow-up questions on that.

Yes, Bobby. So when we announced these strategic initiatives, and you're right, we're really pleased with the progress we've made over a very short period of time with selling our upholstery business, as well as solidifying our plan for the U.K. supply. The 75 to 100 basis points that we put out there was based on, call it, the trailing 12 months of the enterprise results at the point of quarter 2. So you can think of that as the right basis on which we expect to deliver that.

Okay. And is there any -- like when we think about completing that by the end of FY '26, and then we can do the simple math on adding that to the trailing 12, is there any offsets that would keep all that savings from flowing through? Like is there an investment piece that you would need to use for advertising or anything like that? Or is that really going to be dropped down to, call it, the bottom line?

Bobby, we put it out there because we expect to realize it, again, against a pretty -- a generally consistent kind of macro consumer backdrop is how we look ahead. So our intent is it flows through, all else being equal.

Very good. Okay. That's helpful. And then Melinda, I want to maybe dive in on the comments you made about developing more agile business post some of these changes. What do you think that gives La-Z-Boy as you think about kind of navigating the next 3 to 5 years in today's kind of consumer environment? Is it quicker product development? You can move faster on stores? Like just anything there to kind of help us think about how that could change the business and how you go to market?

Yes. Thanks for the question, Bobby. I guess, at a couple of levels -- I'll start with some of like the transformation work on our supply chain. 99 years of building product in the United States for the North American consumer, we're quite good at it. But the consumer preferences change, the -- where it makes the most sense to position your supply chain, the way that people want to be compensated and are motivated, those are all things that we constantly look at and have evolved over time. And so, I think the distribution transformation project is just one of those examples where we had a fairly organic network to support our stores. But as the stores footprint has changed so dramatically, we had a huge opportunity to just rethink that process. And in the end, not only is that going to deliver bottom line savings to the company and to the shareholder, but it's going to be an even more enhanced consumer experience. Broader delivery ranges is one example, and a better employee experience as well, because it will be efficient.

On the consumer side, as I think about our store network and then our in-home consumer insights, we are constantly evaluating how to have the right product, the right messaging and the right shopping experience for the consumer. All things must begin with the consumer. And our broader retail ownership and omnichannel experience give us more control of that. So it's staying in touch with kind of where the puck is heading, making sure we're predicting that and then being responsive to that. So I guess, I'd say, kind of building the machine to constantly evolve over the future.

Our next question is coming from Taylor Zick of KeyBanc Capital.

Melinda, maybe just to start here, I kind of wanted to ask about the cadence of trends during the quarter. You provided some good commentary already, but just kind of knowing that there was improved trends in the prior year post election and then you noted some January impacts as well. But any color you can kind of provide on maybe what the underlying trends were in your third quarter versus your second quarter?

Yes. I would start by saying the consumer remains choppy, right? So we've talked about that for a while that the consumers are broadly -- we have a bifurcated consumer that we have some that are really -- it's aspirational to step into our brand and invest in quality, and so we sharpened price points. At the same time, we still have a very strong consumer interested in whole room solutions and upgrades and really investing in their home with us.

So with that said, if I look back over Q3, to your point, over 2 years, Q3 was actually positive. And looking across the 3 months in our quarter, January was our strongest, actually turned positive on a same-store sales basis until -- and then was impacted by weather right here at the very end. I'll step into sort of the President's Day that began our fourth quarter. We're actually quite pleased with how President's Day came out. Our results -- our trends were positive versus a year ago. So I think that speaks well. But at the same time, we continue to manage prudently, just knowing that -- and we believe the consumer is still pinched and probably will be for a while, and ultimately, the product is discretionary. So we feel good about the momentum we're making, but we continue to be prudent in how we go forward.

Great. That's super helpful. And you answered my second question already. Maybe, Taylor, I can squeeze one in for you. Maybe on the 4Q guidance here, your 7.5% to 9% operating margin puts margins down a little over 100 basis points despite a higher mix of retail and some of your strategic actions within the portfolio. Can you kind of just help us understand the puts and takes there? I know some of the pressures from the short-term headwinds from the distribution and home delivery redesign coming through. But is there anything else we should keep in mind for fourth quarter?

Taylor, thanks for the question. No, actually, we still feel really good about the growth potential, as well as margin potential, of the business. And as Melinda had mentioned in prepared remarks and otherwise, we continue to manage through the near-term challenges and the choppy consumer, but also build for the future with our retail expansion, our distribution projects, as well as our, call it, strategic initiatives. Overall, on margin, we've had good momentum on our Wholesale. Retail continues to hold at a strong double digit, which incredibly pleased about. There is just the near-term headwinds of traffic continues to be challenged, which adds deleveraging impacts on our larger fixed cost basis. So we continue to hone our operations and manage in the near term, but also deliver some of these bigger transformative things for the long term and deliver margin improvements ongoing behind the likes of the strategic initiatives we mentioned to Bobby [indiscernible], the 75 to 100 basis points, as we enter into our fiscal '27, as well as the 50 basis points to the enterprise, which is the longer-term benefit of our distribution and home transformation project.

[Operator Instructions] Our next question is coming from Anthony Lebiedzinski of Sidoti & Company.

So Melinda and Taylor, you both mentioned that the consumer environment is choppy, certainly nothing terribly new there. But as we look at the guidance for 4Q, can you perhaps try to separate how much of the guidance is tied to weather issues versus the macro environment?

Anthony, I think how I'd broadly look at it is, we don't -- we're not expecting any big change in sort of the consumer environment in Q4 relative to what we've seen throughout most of this fiscal year. And the only piece of a little bit of conservatism in there versus just a continued trend on the consumer is just this weather impact that hit sort of right at the end of our Q3 and into our Q4, and you saw that in -- impacts in the written. And so, by the time that consumer reengages -- again, we saw some of that with strong President's Day. But by the time that consumer reengages both in our stores and then with our wholesale customers, and that turns into orders and restocks and deliveries, I think that puts a little bit more pressure on Q4 than we otherwise would have.

Net of it, if I could just chime in, Anthony, we don't believe we've lost -- us or the industry lost furniture sales other than it's a timing impact on -- some may phase out into quarter 1, based on when that consumer decides to reengage in their shopping journey. We're ready to meet demand and delight and inspire them when they come in our store.

Got it. Thanks for that great color. So, on the Wholesale side, you guys highlighted Slumberland and Rooms To Go. As you look forward here, I mean, do you see further opportunities to expand your brand reach on the Wholesale side? Would love to get your thoughts on that, and how you're thinking about the opportunities there?

Yes. Strategic partnerships are a very important part of our business and our growth plan going forward as well. While we certainly disproportionately focus on our own retail because we can own that entire consumer experience and obviously own more of the financial benefits as well, we also recognize that strategic partners are a way of reaching consumers that we otherwise are never going to reach in a very fragmented market. We happened to call out Slumberland and Rooms To Go just because they are great examples of -- Slumberland, we've done business with for decades and continue to partner and grow with them in strategic ways that are good for our brand and compatible distribution across multiple outlets. And similarly, Rooms To Go is a vibrant growing operation that reaches a lot of consumers, particularly in the Southeast, and is a newer partner that we've added just over the last couple of years.

If I look at -- in even just, call it, the last 12 months, we have continued to add some big strategic partners. I think we've called out Farmers down in the Southeast, which reaches a consumer that's not serviced today by our Furniture Galleries, and that was -- these are hundreds of store kind of networks. We opened up Living Spaces, which is a very sophisticated retailer out West. So we have seen those opportunities. And so, I think there are still opportunity.

That said, I think our bigger growth potential in the next several years is to continue expanding with those strategic partners as opposed to adding a ton of strategic partners. It's important to us to work with folks that are really going to appreciate the brand and not create too much conflict out there that just doesn't end up making sense. Instead, we want to make sure we're reaching consumers where they want to shop and continuing to expand our brand.

That's very helpful. And my last question is with regards to Joybird. So the sales there have continued to trend below the rest of the business. How are you guys thinking about Joybird, not just for the next couple of quarters, but maybe longer term? Any updated thoughts on Joybird that you may have?

Yes. Joybird is tough. We really -- we've done the work to believe in it. It resonates with the consumer. It fits well into our portfolio as a -- and our aspiration to be a vertically integrated branded retailer. It's a good strategic green shoot. While it's small, it's mighty. But we are continuing to see a particularly volatile consumer there. That consumer is younger, more urban-focused and just disproportionately impacted by some of the macroeconomic challenges. So we continue to take actions towards getting that business rightsized to grow profitably, and we'll continue to work through and monitor that.

And we have another question in from Bobby Griffin of Raymond James.

Melinda, I just wanted to maybe circle back on the U.K. You called out you have an alternate source of product there lined up. Just maybe, like, now with kind of the changes there, do you still look at the opportunity there the same that was historically as when it was the prior kind of a pretty big single customer for you guys? And I understand there's been some retail transition there, but the new retail partner is actually larger. So how does that setup look going forward? And what is ultimately the potential there? Could that get back to the same level as before and with maybe even better margins, given the new setup or structure?

Yes. Thanks for that question, Bobby. You're right. It's been, gosh, a little over 2 years ago now, where [ FCS ], which was a publicly traded company and our biggest customer globally, which is kind of crazy given the relative size of our international business, but was actually bought out by a private company that chose not to work with brands anymore. And so, we pretty quickly pivoted. We had long-time discussions with DFS, which as you astutely noted, is 3x, 4x bigger than FCS and probably a better fit for our brand and our customer base. But between FCS and DFS, they'd always required exclusivity. So we are well underway with DFS. They continue to be super pleased. We've had some introductions where they've called out that we've been one of their fastest-growing, if not the fastest-growing introduction they've had. But at the same time, it just -- it's taking a while. It's taking longer, frankly, than we probably forecasted to just get up to the kind of run rates of where we were with FCS, particularly given that U.K. economy and the macroeconomic environment is also quite challenged. So we are super pleased with DFS. They are pleased with us. We are continuing to grow that business, and we want to serve that consumer.

That said, at the kind of volume levels that we're seeing through this multiyear transition, it just didn't make sense to have a fully dedicated plant there in the U.K. So, as we leverage our overall global network, we think we're getting that rightsized. We think we get that cost structure right as well, so it makes sense for us, it makes sense for DFS and it makes sense for the consumer to grow that business. And we actually think, to your point, it will accelerate it -- accelerate that growth. And then, historically, our U.K. business margins were fairly consistent with other wholesale that we would see like in our core North America, and we anticipate being able to get back to those kind of ranges over time.

Very good. And then, does the new setup from the manufacturing side of things or the sourcing side, does that allow other international type growth opportunities any different than before? Just anything there?

No change. Yes, no change. We still have -- yes, we still have the opportunity there. Again, international expansion, less of a focus area for us right now just because that core North America business has so much opportunity. But no, we're not losing any optionality more broadly.

We have now reached the end of our question-and-answer session. I will now hand back over to Mark for any closing comments.

Thanks, Jenny. We'll be in our offices for the rest of the day to handle any follow-up calls. Thanks, and have a great day.

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

Greetings. Welcome to the La-Z-Boy Fiscal 2026 Second Quarter Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now hand the conference over to your host, Mark Becks, Director of Investor Relations and Corporate Development of La-Z-Boy Incorporated. You may begin.

Thank you, Holly. Good morning, everyone, and thanks for joining us to discuss our fiscal 2026 Second Quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Inc.'s Board Chair, President and Chief Executive Officer; and Taylor Luebke, SVP and CFO. Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through.

After our prepared remarks, we will open the line for questions. Slides will accompany this presentation, and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon. 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 adjusted measures which are also included as an appendix at the end of our conference call slide deck.

With that, I will now turn the call over to Melinda.

Thank you, Mark. Good morning, everyone. Yesterday, following the close market, we reported solid October ended second quarter results. We were pleased to once again deliver modest sales growth, particularly in our Wholesale segment, where we also again delivered margin expansion continuing to create our own momentum in what remains a choppy market.

Highlights for our second quarter included total delivered sales of $522 million, up slightly from prior year. In our Retail segment, delivered sales increased slightly and total written sales increased 4% with written same-store sales improving sequentially over the last 2 quarters. In addition, we opened 5 new company-owned stores in the quarter, bringing our total to 15 new company-owned stores over the last 12 months. And our Wholesale segment, delivered sales grew 2%, once again led by growth in our core North American La-Z-Boy wholesale business. And we made continued progress on our distribution and home delivery transformation project with the consolidation of 2 additional distribution centers. Our GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%. We generated strong operating cash flow of $50 million for the quarter, triple last year's comparable period. And we announced a 10% dividend increase marking our fifth consecutive year of double-digit increases.

Overall, our operating performance for the second quarter was solid in the midst of a choppy landscape with sales slightly ahead of the midpoint of our guidance and adjusted operating margin that exceeded our expectations. As I noted, total written sales for our company-owned retail segment increased 4% versus last year's second quarter, driven by new and acquired stores. Written same-store sales which exclude the benefit of new and acquired stores, decreased 2% for the quarter, but demonstrated a continued sequential improvement in written same-store sales trends over the last 2 quarters.

While consumer trends remain challenging for our industry, we continue to be agile and hone our execution. We saw our strongest results of the second quarter in October where we achieved positive written same-store sales. However, results in early November remain mixed.

And for Joybird, total written sales for the quarter were a positive 1% increase versus a year ago, demonstrating significant improvement versus the prior 2 quarters and driven by strength in retail store performance. We also have made substantial progress against our strategic initiatives, focusing on our core, vertically integrated North American upholstery business. We completed our 15 store acquisition in the Southeast U.S. region, expanding our ownership of important growing markets. We announced the planned exit of noncore businesses including Kincaid casegoods, American Drew casegoods and Kincaid upholstery. And we announced the proposed closure of our U.K. manufacturing facility.

Notably, we expect all of these exits to be substantially completed by the end of our fiscal year. And we have strategically realigned our senior commercial leadership as well as realigned our corporate staffing to more efficiently support our streamlined business. These strategic initiatives are a clear demonstration of our proactive approach to driving our own momentum and what remains a challenged marketplace. We remain agile and committed to strengthening our business to prudently navigate the current environment while at the same time, best positioning ourselves for the next 100 years. To expand a bit more on these important Century Vision strategic initiatives, we were thrilled to complete our acquisition of the 15 store network in the Southeast U.S. region at the end of October.

These acquired stores are located in attractive markets Atlanta, Georgia, Orlando and Jacksonville, Florida and Knoxville, Tennessee. And our ownership of these markets will enable new store growth on top of the already high-performing existing store base. This is the largest independent store acquisition in our company's history and will add an estimated $80 million in annual retail sales and roughly $40 million net to the total company on a consolidated basis.

Recall, our Wholesale segment already manufactured and sold products to this business, and therefore, already recognize the wholesale portion of these annual sales. Given the strong profitability of this network, immediate sales and profit accretion and opportunity for further market expansion, this is a very attractive investment for our company.

As an important pillar of our Century Vision strategy, over the last several years, we have maintained a consistent cadence of independent dealer acquisitions. And we see opportunity for a continued pipeline over time with roughly 40 independent dealers and nearly 150 independent stores still in our network. New store growth is another key lever to growing our retail business. And our strong balance sheet gives us the flexibility to make disciplined investments even in more challenging macroeconomic conditions. We opened 5 new company-owned stores in the quarter and closed 3 and opened 15 new stores in the last 12 months and closed 5. As we deliver the most significant period of new retail store growth in our company's history.

Looking back even a bit further over the last 24 months, we have added 20 new company-owned stores as we continue to expand our La-Z-Boy store network towards our target of over 400 stores. And with this recently completed acquisition, company-owned stores now represent 60% of the current 370 La-Z-Boy store network, a significant increase from 45% of the approximately 350 store network just 5 years ago.

We were also pleased to open our 15th Joybird store just last week in Easton Town Center in Columbus, Ohio, one of the Midwest premier open air shopping and dining destinations. We remain on track to open 3 to 4 new Joybird stores this fiscal year, and are pleased with the ramp-up and performance of our Joybird retail stores.

In wholesale, our refined channel strategy is also contributing to our sales momentum as we expand our brand reach with compatible strategic partners. We recently added living spaces a top 100 furniture retailer with over 40 stores across Western states. We also launched La-Z-Boy product at Costco on floors in over 350 locations as well as on costco.com. This follows the addition of Farmers Home Furniture and there are over 260 stores in the Southeast in our first quarter. Each of these strategic additions are complementary to our existing distribution and expand our brand reach to even more consumers.

And lastly, highlighting our industry-leading service levels, we're proud to once again be named the Forbes 2026 Best Customer Service list, recognizing our team's passion and commitment to our mission of transforming homes, rooms and communities for our customers and consumers. We're also capitalizing on the momentum from our ongoing initiatives to continue rolling out our new brand identity, which has been well received. The response from media, customers and consumers has been overwhelmingly positive, generating headlines such as La-Z-Boy just rebranded to prove its more than your grandmother's recliner and how La-Z-Boy made Comfort cool again.

We plan to build on this success and continue executing our strategy to drive brand consideration and purchase intent across a broad range of consumers, including millennials and Gen X.

On our final strategic pillar, strengthening our foundational capabilities, including building a more agile supply chain. We are making strong progress on our multiyear project to transform our distribution network and home delivery program. This transformation will reduce our distribution footprint from a total of 15 large distribution centers to 3 centralized hubs.

In the second quarter, we consolidated an additional 2 distribution centers. As a reminder, the cumulative benefits of this transformation will include an estimated 30% reduction in square footage across our warehouse network, an approximate 20% reduction in mileage of inventory traveled across our network doubling of our delivery radius from 75 to 150 miles, enabling us to reach even more consumers and improved inventory productivity and working capital levels. All while improving an already strong consumer experience and once completed, delivering 50 to 75 basis points of wholesale segment margin improvement, the equivalent of up to 50 basis points on the total [indiscernible] and margin.

Finally, as I noted earlier, we are taking steps to optimize in our La-Z-Boy stores, Comfort Studios and branded spaces as they enable consumers to furnish their homes and elevate our design business. And we are confident our new structure will further enhance our offerings in the future. In addition, while we remain committed to growing our La-Z-Boy business in the U.K., we have announced the proposed closure of our U.K. manufacturing facility in favor of more financially sustainable sourcing alternatives. We are currently in the required 45-day collective consultation period as required by the U.K. statutory process.

We expect all of these strategic actions to be substantially completed by the end of our fiscal year. And we are committed to supporting our customers, our consumers and our employees through these transitions. And as we announced last month, we also strategically realigned our executive commercial leadership and corporate staffing to focus on our core and enhance operating efficiency. As our industry continues to evolve, it's important we remain agile and evolve our business to position us for continued profitable growth into the future.

Collectively, these initiatives sharpen our focus on growing our core business where we have a leadership position and a right to win with the consumer. They also align with our Century Vision goals of growing double the market and delivering double-digit operating margins over the long term. The furniture industry has experienced tremendous change and challenge in recent years. Despite this, our mission remains the same, to empower our people to transform rooms, homes and communities. Our iconic brand, well-positioned manufacturing base, strong balance sheet and talented team provide the foundation for sustained sales growth and margin expansion.

And now let me turn the call over to Taylor to review the financial results in more detail.

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items, which are detailed in our press release and in the tables in the appendix section of our conference call slides.

On a consolidated basis, fiscal 2026 second quarter sales increased slightly from prior year to $522 million as growth in our retail and wholesale business, partially offset by lower delivered volume in our Joybird business. Consolidated GAAP operating income was $36 million and adjusted operating income was $37 million. Consolidated GAAP operating margin was 6.9%, and adjusted operating margin was 7.1%, and Retail margin deleverage due to lower delivered same-store sales and the impact of investment in new stores was partially offset by stronger wholesale segment margin, which included solid operating trends as well as the 110 basis point benefit of a change in our dealer warranty arrangements during the quarter.

Diluted earnings per share totaled $0.70 on a GAAP basis and adjusted diluted EPS was $0.71, flat versus last year's comparable period. As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise. Starting with the retail segment for the second quarter, delivered sales increased slightly to $222 million. Retail adjusted operating margin was 10.7% versus 12.6% due to fixed cost deleverage on lower delivered same-store sales and investments in new stores.

For our Wholesale segment, delivered sales for the first quarter increased 2% to $369 million versus last year, driven by growth in our core North America La-Z-Boy branded wholesale business. Adjusted operating margin for the wholesale segment was 8.1% versus 6.8% with 160 basis points improvement driven by lower warranty expense due to the change in our dealer warranty arrangements as well as solid operating trends, partially offset by incremental expenses related to our distribution transformation project and increased advertising expenses.

On our wholesale business, we view our North America supply chain as a competitive advantage with approximately 90% of finished goods produced in the U.S. As such, we are well positioned to navigate the current trade and tariff environment. For Joybird, reported in Corporate and Other, delivered sales were $35 million, down 10%, primarily due to lower delivered sales volume. Joybird operating loss increased versus the prior year, primarily due to deleverage on lower Joybird delivered sales.

Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2026 second quarter. Consolidated adjusted gross margin for the entire company increased 10 basis points versus the prior year second quarter. The increase in gross margin was primarily driven by lower input costs, led by favorable ocean freight and improved sourcing, partially offset by higher supply chain costs, including friction costs related to our distribution and home delivery transformation.

Adjusted SG&A as a percent of sales for the quarter increased by 50 basis points compared with last year due to fixed cost deleverage in our retail stores as well as investment in new stores. This was partly offset by the benefit of a change in our dealer warranty arrangements in the quarter that resulted in a onetime benefit due to a reduction in our ongoing warranty liability. This change has no impact on the end consumer and provides significant improvements in program management and administration.

Our effective tax rate on a GAAP basis for the second quarter was largely unchanged at 26.7% versus 26.3% in the second quarter of fiscal 2021. Turning to liquidity, we ended the quarter with $339 million in cash and no externally funded debt. We generated a strong $50 million cash from operating activities in the second quarter, triple the year ago period with improved working capital and higher customer deposits. We invested $20 million in capital expenditures during the quarter, primarily related to new stores and remodels and supply chain-related investments. We continue to believe that the best use of our cash and the highest return on investment is prudently reinvesting back into the business. As such, we remain committed to disciplined investment in new stores, acquisitions in our distribution and home delivery transformation project to profitably grow our core business.

Regarding cash returned to shareholders. Year-to-date, we returned $31 million to shareholders through dividends and share repurchases, including $18 million paid in dividends. We repurchased 23,000 shares in the quarter, which leaves 3.4 million shares available under our existing share repurchase authorization. Subsequent to quarter end, reflecting the confidence in the company's financial strength and long-term growth prospects, the Board of Directors increased the regular quarterly dividend by 10%. This is the fifth consecutive year of double-digit increases to the dividend.

We continue to also view share repurchases and our dividend as an attractive use of our cash and positive return to shareholders. Capital allocation in fiscal 2026 is tilted more into the business through investments in the recent 15 store acquisition in our distribution and home delivery transformation project. Longer term, our capital allocation target remains consistent to reinvest 50% of operating cash flow back into the business and return 50% to shareholders and share repurchases and dividends.

Before turning the call back to Melinda, let me highlight several important items for fiscal 2026 in our third quarter. We expect fiscal third quarter sales to be in the range of $525 million to $545 million, a growth of 1% to 4% year-over-year and adjusted operating margin to be in the range of 5% to 6.5% reflecting advancement of our Century Vision initiatives, friction costs related to portfolio optimization and supply chain transformation and a measured view on the uncertain macroeconomic backdrop. We expect to open approximately 15 new company-owned and independent La-Z-Boy stores during the full fiscal year, of which the majority are company-owned as well as 3 to 4 new Joybird stores. We continue to expect our tax rate for the full year to be in the range of 26% to 27%. We expect capital expenditures to be in the range of $90 million to $100 million for fiscal 2026, consistent with prior guidance.

This includes investments for new stores and remodels, our multiyear project to transform our distribution network and home delivery program and continued manufacturing related investments. Of note, I want to spend a few moments on expected financial benefits of our strategic initiatives to hone our portfolio, which Melinda covered earlier. With the combined impacts of our 15-store acquisition, our casegoods exit, our proposed closure of the U.K. facility and our management reorganization we expect the going annual impact on our enterprise to be an approximate $30 million net sales decrease in a significant adjusted operating margin improvement of 75 to 100 basis points to the entire enterprise. We expect all of these initiatives to be substantially completed by the end of this fiscal year.

And at this time, we do not expect these exits to have a material onetime gain or loss to the enterprise. Lastly, we anticipate adjustments for all other purchase accounting charges for the year to be in the range of $0.01 to $0.02 per share. And with that, I will turn the call back to Melinda.

Thanks, Taylor. We are sharpening our focus on our core businesses and enhancing our agility to navigate the challenging home furnishings environment. At the same time, we're executing on our long-term strategic objectives, and I am more excited than ever about the opportunities that lie ahead. Before I close, I want to welcome the employees of our latest acquisition. And I want to thank all of our employees around the world for their continued dedication to our mission of bringing the transformational power of comfort to more homes.

And now I'll turn the call back to Mark.

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

[Operator Instructions] Your first question for today is from Anthony Lebiedzinski with Sidoti & Company.

So first, I just wanted to check in with you about just if you saw any differences in geographic sales dispersion in your markets? Or was it more or less kind of consistent in your operating area?

Nothing dramatic, Anthony. Good morning. On any given week, you might see a little bit of choppiness across different geographies, but nothing significant. Canada continues to be more challenged just with trade tariff situation and some of those areas there. So that is maybe a little more balancing, but nothing dramatic.

Got you. And then just can you also comment on the extent of your pricing actions? And also, just wanted to get a better understanding of how do we think about unit volumes in and your expectations for Q3 as it relates to unit volumes.

Anthony Yes. So on pricing, we mentioned throughout the year in our playbook to deal with trade and tariff changes. One of our levers beyond just sourcing adjustments or inventory moves is some nominal pricing actions. So earlier in the year, we took a round of nominal pricing based on trade policies at that time.

Given some changes with the 232 in the sectoral tariffs on upholstered furniture within the quarter, we actually took another round of nominal pricing to help offset, but still well positioned competitively versus our peers. Again, 90% of the products we make are in the U.S., so that other 10%, a little bit exposed, but still very well positioned. So in aggregate, through the course of calendar year, we're still in the single digits, which everything we hear from other manufacturers or retailers is at the very low end of what we're hearing out in the market.

On volume per se, directly related to pricing, hard to piece out in this industry, particularly with everything else going on around traffic and other kind of general consumer uncertainty. But in our quarter, on our main North America wholesale business, we saw volume flat year-over-year, which relatively speaks to our pricing is going well in the market.

And then also in terms of the guidance, you talked about friction costs related to portfolio and supply chain optimization costs, can you expand on that and help us better understand the expected impact of this? And when should we see less of those friction costs?

Well, a couple of things on the friction costs. So that's a combination of our distribution and home delivery transformation project. We outlined a quarter ago was a multiyear project and hugely excited for the benefit to our network to our consumers into the company. Once we're through it, we'll improve all of our stakeholders as well as make us more profitable. In that case, you just have to get a little bit more inefficient in the short term to get way more efficient ongoing with some call it, dual lease costs or they're just transition costs as we move out of the, call it, 15 DCs to 3 over time. So manageable, but it's there.

On the strategic initiatives that Melinda had mentioned, our casegoods exit, our U.K. shutdown. It's -- we expect to be subsequently out of those businesses or those transitions completed by the end of our fiscal year. So I'm really just talking more about the back half of the year, and particularly quarter 3 as I outlined those friction costs as it relates to those 2 areas.

Got you. All right. And then my last question, so you mentioned expanding into living spaces on Costco. I know last year, you expanded more into rooms to go. How do you guys think about the opportunity there as far as it relates to expanding to other wholesale partners? Just broadly speaking, how do we think about the opportunity going forward?

I think a couple of things. Our focus over recent years has been very much around making sure we've got the right strategic partners that are going to represent our brand well and that are looking to grow and accelerate and give the consumer the right experience going forward. We certainly see that those that are winning out there in a very tough marketplace right now tend to be the more sophisticated kind of midsized regional players and a lot of those are the type of partners that we're working with.

It's always important that it's compatible distribution that it's not going to -- it's going to reach a consumer that we're not otherwise going to reach in our furniture galleries. We've had some really good wins. As you noted here in the last couple of months with particularly, as you mentioned, the living spaces, the farmers down in the Southeast, recent Costco, which just puts more eyeballs on the product. I think going forward, because we want to make sure that distribution is compatible with also growing our own retail. What we'll see is probably as much an expansion of growth with the existing base and really building with those as opposed to lots of big additional -- big additional new customers. But at the same time, the world is always changing, and we're going to make sure we're working with the right partners for the medium term and the long term.

Your next question is from Bobby Griffin with Raymond James.

I guess first, Taylor, I just want to make sure I understand the impact here of all the different moving parts. So the acquisition of 15 stores is going to add $40 million of net sales to the enterprise then we sold off some of the noncore businesses. And I believe in your prepared remarks, you were kind of net [indiscernible] 2 against each other. So does that -- is it to imply that the headwind from selling off the noncore businesses is about $70 million of sales that needs to come out of the wholesale segment. .

Yes, your math is correct, Bobby. And note, we're in a process now of evaluating sale or other strategic transactions, but net of, call it, this fiscal year, that should be the impact of the entire enterprises that plus 40 from the retail acquisition, minus 70 from the exit of these noncore businesses.

Okay. And then that would -- then you would see the corresponding step-up within wholesale margins from the savings and the better efficiency. So the -- I believe you called it $75 million to $100 million is really kind of just a wholesale margin step-up that segment.

The 75, it's all bucketed together. Bobby, on the retail acquisition, these wholesale moves on noncore as well as they call it, commercial leadership realignment. So all of that together is the 75 to 100 to the entire La-Z-Boy enterprise.

Okay. All right. That's helpful. That helps clean it up. And then just secondly, on the tariff aspect has some good commentary. I appreciate that. Does the nominal pricing you guys took here in 2Q, would that cover for the expected kind of modest step-up that we see on Jan 1 in the 232? .

Yes.

Okay. So you're all covered now based on what we know today from tariffs?

We've executed our playbook and some of it is also adjusting where we make products to more optimize our network for current trade policies, but as well as additional nominal pricing we put into market at the tail end of the quarter to both cover the current as well as the expected change on January 1. Obviously, we'll continue to be agile if anything changes between now and then. But overall, we feel really good and well positioned with our 90% of our product made in the U.S.

Yes, very good. That's -- you guys got an advantage for a lot of the industry there. And I guess just on the other side of things, some questions inventories were down pretty big this quarter. Is that just some of the efficiency gains starting to flow through? Or just kind of any commentary around that on a year-over-year basis, I was referring to. .

Just great work by our supply chain team on being really tight on our inventory management while also protecting in-stock and service levels. I mean we continue to get better year-over-year. So really, it's just the everyday blocking and tackling and getting smarter. This time, we do have a little bit of a build in the comparator period as we were building some stock to protect ourselves in certain cases on cover availability. But overall, just great work across the organization on getting tighter on our working capital management.

Okay. I appreciate it. And then lastly, I guess, Melinda, this is the big acquisition with 15 stores, so -- and really good to see you kind of get over the finish line. Can you just talk about now with some of the organizational changes, the integration of that? And then also on the retail network, as we think about kind of the next leg of growth here, where are we at from quality of the store base in terms of like which ones -- how many remodels would you like to see and kind of opportunities there for the next multiyear kind of journey?

Yes. A couple of things on retail. We will open estimate at about 15 this year, and we have talked about continuing the pace of sort of net new stores in the 10 to 15 range. So we intend to continue that trajectory. As we've talked, we see our way to over 400 stores, and we're about 370 across the network at this point. And those will be more heavily weighted towards company-owned stores as we continue that expansion.

From a remodel standpoint, we have invested heavily over the last 5-plus years to make sure that our stores across the network, along with our independently owned are the appropriate reflection of our brand. And so I feel good about the overall use of our fleet, if you will, and we're going to continue to make sure that, that stays that way because it's important that consumers are inspired when they come into our stores, particularly when they're going to come in and participate in design and really think about bringing that product and investing into their home.

We will continue to expand our rebranding across all of our stores over the next several years, and we're doing that prudently just given the time right now, but we've had such a great reception to the new branding, and we want to get that out across all of those stores. But as I say, we're going to do that prudently as we go.

The other way to expand the company owned is, of course, the transactions, like you said. I'm very pleased with the integration of this big acquisition. And how that's all been working together for the company. And I think there's still a pipeline there. Again, those are arms-linked transactions, but there are still a lot of independently owned out there. And I think over time, we'll have more opportunity to expand in that way. And then I can't talk about retail without calling out just the fact that super pleased with in-store execution even in really challenging times. And so we continue to strengthen that execution. And then to your point, make sure that we are appropriately but efficiently supporting that -- those operations as well. And that kind of speaks to your point on overall reorganization. So really good about how that's going right now with our 2 commercial presidents and the move of marketing over into the retail organization. We're already seeing some early wins there. And again, important to be as agile and effective as we can be in what's still going to be, I think, a challenging environment here for a while.

And I guess one final one, if I could sneak one more in. Is the kind of selling the noncore businesses. And then as you think about, given your designers in the stores, the product portfolio they need how do you kind of balance that? I guess, is there opportunities on casegoods for partnerships? Or do you still have some case good sourcing that could be there, and this is just a different noncore business that was sold? Just anything around that aspect?

The short answer to your question is yes. So casegoods are important too. So what we do best is manufacture and sell a custom upholstered furniture. Our casegoods offerings are super important to enhance that upholstery experience to ensure that in store, we have the ability to service the consumer around whole room and particularly with our design sales. And even in our branded spaces and our comfort studios with our strategic partners. It's important that we have the right casegoods to enhance what we're doing from an upholstery standpoint.

That said, it's not our core competency to own the entire design and creation of the casegoods or even our right to win with customers on our wholesale casegoods business. It's just -- it's not our core competency. So we believe there are better places to do that, and we're excited about sort of reinventing that space, recognizing that change is always a challenge, but we are committed to having the right case goods products in our stores to enhance the upholstery side, but do it in a more efficient way and in a way where we have a real right to win on the design side as well.

Your next question for today is from Brad Thomas with KeyBanc Capital Markets.

This is Taylor Zick for Brad. Melinda, you gave some good color on trends throughout the quarter. While also noting that November was a bit mixed. If I recall, I think last year, you saw -- the industry saw improved demand in November post election. So just given the comparable month was a bit stronger, how are you thinking about underlying demand trends as you head into your fiscal 3Q?

Yes. Yes, you're spot on. I think the -- first of all, if you just look at -- in the absolute -- the consumer is challenged, and demand remains choppy, and so we need to be agile and prudent as we deal with that. You're absolutely right that the comparison period from post election last year is a challenging one. And so again, that's kind of why we are navigating this in a prudent way and looking to make sure that we are efficient in how we're executing, but doing everything we can to reach those consumers that are out there and driving the strongest absolute results that we can.

Got you. And maybe if I could just follow up on -- I don't think I heard much on the prepared remarks, but just curious on what you're seeing out there in the market relative to promotions and maybe what you're thinking about -- how you're thinking about promotion, promotional intensity later in this quarter and maybe into 2026 as the industry kind of seems to be flattening out.

Yes. I think to start at the supply side, as Taylor noted, we are -- our pricing has been relatively nominal single digit. And so we're positioned very well. What we've seen from other suppliers, other manufacturers is significantly higher pricing. And so that's going to drive cost into the business overall. We're talking double digits, pretty widespread. Some of that is taking time to ultimately shift all the way out to the end consumer, but we are seeing that.

At the same time, if I go back to Labor Day, which was our last big tent pole for the industry. We did see sharpened deeper price points to drive traffic, not overall in absolute bigger discounting, but a lot of again, traffic driving kind of deep attention, getting type of activity increase than from what we've seen, say, like at Memorial Day. So it's a very active marketplace out there and trying to do the right things to drive that traffic and give particularly the increasingly value-conscious consumer an opportunity to take care of their homes and get into our brand. But at the same time, recognize there's still -- you talked about that bifurcated consumer that K-shaped economy. We are still seeing design sales hold up really well. And seeing consumers that are coming in, ready to do whole rooms and weather and power and all those big upgrades. So it is a -- it requires some laser precision to navigate that environment.

Yes. That's great. I appreciate the color. Maybe if I can sneak one in for Taylor. Taylor, you made commentary that capital this year and fiscal '26 would be tilted more towards reinvestment. As you eye up this exit of these noncore businesses, how are you thinking about capital allocation into 2026 between reinvestments and maybe some return to shareholders?

Yes. Good question, Taylor. So right now, a little early to comment to any change in our capital allocation for the year. We're thrilled with where we're at for this year. As we mentioned, we think our best use of cash when it's prudently reinvested back in the business. Last year was a little tilted towards shareholders right now. It's a little bit back in the business with this acquisition as well as CapEx on our distribution transformation as well as new store standup.

So right now, we're still working through these exits on those businesses that Melinda had mentioned. Any new information as we progress through that, we'll share on capital decisions. But I am thrilled actually with our level of investment back to the business and very pleased to once again return a double-digit increase to our dividend, the fifth consecutive year on which I think speaks a testament to our strong financial footing and confidence in our business moving forward.

We have reached the end of the question-and-answer session, and I will now turn the call over to Mark for closing remarks.

Thanks, everyone. Melinda , Taylor and I will be in our offices to take any follow-up calls. Thanks, and have a great holidays.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.

Good afternoon, everyone. Thank you for joining us at the Goldman Sachs 32nd Annual Global Retailing Conference. I'm Emily Ghosh, and I'm part of the Hardlines team at Goldman. It's my pleasure to introduce La-Z-Boy Inc. and to moderate our fireside chat.

Today, we have with us Melinda Whittington, Board Chair, President and Chief Executive Officer of La-Z-Boy. Melinda joined La-Z-Boy in 2018, serving as Chief Financial Officer prior to becoming CEO in 2021. We also have Taylor Luebke, Senior Vice President and Chief Financial Officer, who joined La-Z-Boy in 2021 and was promoted to CFO at the beginning of the year; and Mark Becks, Director of Investor Relations and Corporate Development.

Melinda, Taylor and Mark, thank you so much for joining us today.

Thanks for having us.

Thanks for having us.

Just to start, can you provide a brief overview of La-Z-Boy's Century Vision strategy? What were the goals that you set out to achieve in 2021? And where is the company at on the journey now?

So we are a 98-year-old company, founded in the U.S. on the high-quality recliner. And manufacturing is our history. When I stepped into the role in 2018, we leveraged outside consultants as well as a lot of internal capability to really look at -- what got us here won't get us there. Do we need a complete pivot of the company? We've been strong and stable, but where do we go from here?

And we really identified two core assets that needed some tender loving care, what we really believe can drive for the future. One of them is our iconic La-Z-Boy brand. We did the testing to see what do we know about this brand and does it have legs for the future. And what we learned based on real consumer testing is that La-Z-Boy remains a highly -- a brand that people know about, people trust. They think of us for quality. They may not think of it as relevant for them, particularly a younger consumer. It's kind of like, oh, I remember when my dad had kind of thing. And so we looked at does the brand have the legs to leverage sort of that foundation but become more relevant for today's consumer and a broader base of consumers.

And then the second thing we realized is we have this manufacturing foundation, but we had a fairly small portion of what we were making selling through our own company retail. And we realized that we were getting quite good at that, and we had a great opportunity with the company retail that we can own the entire consumer experience to give a great experience end-to-end as a vertically integrated retailer. We're able -- because part of what we do is we customize, about half of what we sell is customized. We can own the entire experience to make sure that is comfortable in all ways.

We own the ability to test by having our own retail and test new products, test messaging, test shopping experiences. And we can acquire the consumer data to then kind of make that flywheel back into the entire process. We also recognize that when we have the entire integrated model, we have more sales and more profit by owning that entire side of things. So we really set out to extend La-Z-Boy's brand reach to a broader consumer base, making it more relevant, extend our stores and then strengthen the foundational base of our supply chain to be more agile and our people and our technology to enable that for the next 100 years. And that's the journey we're on.

That's very helpful. And -- so one thing that you guys have mentioned is in addition to strengthening your core business, you're evaluating alternatives to address financial pressure from noncore parts of the business. Can you talk us through what some of those opportunities might be?

Sure. You want to take those?

Yes. So I think it's worth defining or redefining what we consider a core business, which Melinda hit on a bit with our Century Vision strategy. But how we've won for 98 years and where we really have a right to win is in the North America market, where we're mid-single-digit market share in a really fragmented industry. So a lot of right to win, room to expand just here domestically. But we do that via branded, customized comfortable upholstery products. That's kind of where we win.

Where we're at in our journey, it makes sense that we continue to look at optimizing our portfolio for the next 100 years. And there are certain parts where we still need to reevaluate, do we really have that right to win looking forward? Or is it better off with an adjustment or in some other hands or another alternative moving forward.

So we're just starting it. We alluded to in prior earnings or releases, some financial pressures from some of those smaller parts of our enterprise, whether it be our casegoods business, whether it be our international segment. So again, still in evaluation, we intend to continue to give updates quarter-by-quarter as we publish our earnings.

Thank you. Shifting a little bit now to industry trends. In the first quarter, you mentioned that industry traffic was depressed as housing transactions continue to be near 30-year lows. What's your assessment of the health of the furniture industry today and your expectations for the remainder of the year? And then what would you think industry growth could look like when we return to a more normalized environment?

So for those that don't spend their entire lives thinking about furniture, to step back a little bit, furniture is driven by housing. We know that transactions, whether in changing houses, first homes, that is going to be when I buy a lot of furniture, those big life events. And the reality is for 3 years plus at this point between interest rates, housing affordability, housing availability, all of those have been depressed at sort of decades-low levels. That is still the case.

We also know that, that will turn around. We know that there is pent-up demand for furniture. There is pent-up demand for housing. And over time, that will unlock. Exactly when, my crystal ball isn't working as well. But certainly, beginning to see interest rates come down will be one of those big steps. At the same time, challenged consumers make for a challenging time because we are a larger discretionary purchase.

So what we really had to do is work on making sure that our product offerings, our messaging and our execution in-store and with our B2B customers is really top of the line to collect those transactions when they are happening. What we've seen, we mentioned it particularly in the first quarter as we've just seen a lot of choppiness with the consumer. Again, we believe the momentum we do see is when we're making our own momentum to really out-execute with the competition, but we feel really good about the long term. At the same time, that's why when we talk about expanding our brand recognition, our brand presence and expanding our own retail and the agility of our supply chain is all around laying that foundation so that we disproportionately benefit when we do get that eventual tailwind for the industry.

Thank you. Following up on the consumer, you mentioned some choppiness. How would you characterize the health of the La-Z-Boy consumer today? And then have you seen any signs of customers front-running tariffs?

So a couple of things. Maybe I'll talk about the consumer, and then maybe you can speak a little bit more on the tariff side of things. Our consumer is an upper middle income consumer. So roughly 2/3 of what we sell is at a household level income of over $100,000. And so we continue to see that consumer healthy. In fact, in our stores, we offer free design services. And we generally see -- like, our average ticket is about a $3,000 ticket, a design service ticket, which is less than 10% of our total transactions. But those design service customers, the average ticket goes to almost $10,000. It's more than triple. And we will, from time to time, have tickets at or near $100,000. So that consumer, we know when we can delight with a high-quality product for a consumer that wants to invest in the quality and comfort. Particularly with design, where we're filling out a whole room or even a whole home, are still alive and well, but it requires us to really to execute.

The other side we've seen is certainly that you see a consumer that is strained, that is getting more constrained, particularly if tariff costs are passing through to the consumer. So we also know that we need to be sharpening our price points at the opening end. We know that our brand is aspirational to many. We won't be down in that -- in the discount space of sort of the 1 use, the 1 apartment-type of furniture. But to get to consumers that are aspirational, particularly for like an iconic recliner, we want to make sure we're sharpening price points so that they have a way to at least get into our franchise.

On the tariff front, so I think it's worth just talking about how we're positioned relative to the rest of the industry. So 90% of the finished product that we sell in the United States and Canada is actually produced in the United States, which is far and away above any of our peers, public or private, call it, be it domestically sourced. And we're not that way because of trade policy per se, we're that way because that's how we -- that's our competitive advantage and how we've won over the decades, which is high-quality, customized upholstered product at speed. And to enable those, you have to be close to your consumers, which over 90% of our sales are in the U.S. And to even enable that, we domestically source big inputs like wood, steel, foam at a premium per se to other places you get because it enables us to win with that formula.

It just so happens that in the current climate, it does well position us for tariff exposure. So we feel really good about where we're at. As Melinda had mentioned a little as she was talking, our larger concern has been on further pressure on a consumer that's been pressured for years now in a housing market that's been pressured. But we've taken actions over the last 4 to 6 months to mitigate our minimal exposure, and we feel pretty good relative to our peer set and continuing to offer value to the consumer.

On your exact question on consumers front-running tariffs, we largely didn't see that, like you would hear in the news on like people buying trucks and automobiles trying to really, really get ahead of it. We didn't see it from a La-Z-Boy perspective, nor in the industry data we watch. If anything, we saw our Joybird consumer, which is a typical younger consumer, more online, we actually saw them kind of close the browser and go away for a bit, just to see how things would shake out, which we're now seeing them start to come back into the business and accelerate purchases, and they've gotten maybe more accustomed to the new normal.

That's great. So while it sounds like La-Z-Boy is less impacted from a tariff perspective than many of its peers, how are you guys taking into account tariffs and company guidance? And how should we think about the timing or magnitude of any price increases?

So we've executed against our mitigation in our last, call it, fiscal quarter 4, so call it April, March, Feb timing. I kind of went backwards there, but you get it. And we've been planning for a while. It was pretty clear with the new administration coming in that something was going to happen on the trade policy front. So between a combination of vendor diversification, vendor cost sharing, our own sourcing footprint and some inventory moves, we're able to mitigate a lot and also some nominal pricing actions. So we went out in our last quarter 4 and took some nominal pricing to offset tariffs. Again, low single digits, relatively speaking to the universe of furniture retailers or manufacturers out there on the lower end of what we've seen.

So that's been in market and reflected in our guidance. And our outlook for quarter 2, whatever verbiage we had in there is based on at the moment in time, which still kind of holds today. If the trade policy fundamentally changes, we'll have to reevaluate. But right now, it's based on kind of current policies in effect.

Thank you. Moving now specifically to your Retail segment. Delivered sales increased 2% in your first quarter, and you mentioned an increasingly challenged consumer and macro environment which weighed on traffic. Can you talk us through the puts and takes for the quarter for this segment what actions are you taking to drive traffic? And how are you thinking about sales cadence for the remainder of the year?

So let me maybe talk about a little bit when I talked about Century Vision and the importance of expanding our store footprint. Stepping back, of what we manufacture as La-Z-Boy brand, we really sell through 3 channels. The biggest, a little bit over 1/3 of that is through our own company-owned retail Furniture Galleries. The -- a little bit smaller 1/3 of that is through Furniture Galleries that to a consumer would -- you wouldn't know, you'd be agnostic if they were company-owned or not. And if I look at those two groups together, that's about 2/3 of what we manufacture and sell as La-Z-Boy product, and that's sold across a network of 370 stores, ballpark, of which we own over half of them at this point.

And then about 1/3 of our product is sold -- La-Z-Boy product is sold through multi-branded retailers. And we still see this. That's where our heritage was. And we also see it as an important place to reach consumers that in such a fragmented marketplace are never going to come into the Furniture Gallery, but they might be interested in the one-off chair. It's a way of driving brand relevance. And so we have some great compatible distribution with great strategic partners that help us actually expand brand awareness and sell furniture.

As we think about what we're doing with our Furniture Galleries, I'll also step back to say for a higher-end quality purchase particularly focused on comfort, consumers want to come in the store. We still find 70% to 80% of consumers broadly, they'll start their purchase cycle online. They're going to do a lot of research, but they're going to come in to experience the product before they actually close that transaction.

So stores and omnichannel experience is important, stores remain a very important piece of that. So for our about 370 stores, we have declared that we're on a journey to expand stores up to over 400 stores. And we have the modeling to show that we have good profitable places to put those additional stores in North America. But there's really 3 ways to expand our retail footprint for all the reasons I talked at the beginning. One is to expand same-store sales, which is obviously great from a profitability standpoint, you're leveraging your fixed cost base of those stores out there. I'll come back to that one.

The second one is to expand the number of stores that we have out there, so net new stores. We added -- in the last 12 months, we've added 13 new stores. And for our fiscal year, which is May through April, we intend to add 15 stores, and we've been on a cadence of 10 to 15 stores for our total network.

The third way, same-store sales, net new stores. And then the third one is we are opportunistically buying back independent licensees. So before La-Z-Boy Incorporated was as much of a retailer ourselves, decades ago, we offered these licensees and we offered the opportunity to open La-Z-Boy stores. Again, to the consumer, you wouldn't know if they were company-owned or independently owned. Slowly, a lot of these independent licensees are interested in the transaction, either multigenerational kind of handover or for a variety of reasons. So that's our third way of kind of building our retail footprint.

In fact -- just last month, 2 months ago? I've lost track. We announced one of our biggest ever transactions in buying back that will close here at the end of October, but a 15-store network across the Southeast, including the Atlanta area, some of Florida and some at Tennessee. So 3 ways to grow our retail footprint.

On those same-store sales, that is the one that is -- we are investing because of the leverage that you have when the market is growing on the same-store sales and really being able to get more out of each of those assets. In our first quarter, that was more challenged. We continue to see a choppy consumer. Q1 for us, again, May, June, July, is always our slowest time period for furniture. People are thinking about everything except their home and buying furniture. And that was particularly exacerbated for us this year on leveraging that base footprint.

So our focus, again, one thing is the tailwind over time helps, and we believe with our footprint, we'll disproportionately benefit. But we also are tightening up all of our execution to ensure we're driving maximum traffic into our stores, and then super importantly, making sure that we're treating that traffic well and converting that into happy consumers.

That's great. Thank you. On the subject of opening new stores in the network of 400-plus stores that you mentioned for the future, what is your strategy there? And how are you thinking about targeting new versus existing markets? And then any detail you can provide on new store performance in the first year and how that ramps over time?

Sure. So I'll talk a little bit about the where, and then Taylor can talk about the financial side of it. We have great modeling to show where our La-Z-Boy consumer is and where stores will do well. So it's a -- nothing is a sure bet, but it's a pretty sure bet on where we're placing those stores. We, years ago, declared that we saw opportunity for around 400 stores. But as we got into more expensive real estate and some of those type of things, we backed off of that at about 350.

With the way we're now running our Furniture Galleries and the profitability we're able to drive to the Furniture Galleries, we're able to update those models and continue to expand. We have national coverage as well as a significant presence in Canada as well across the entire network, whether they be company-owned or independently owned. But it's less about moving into a new region. It's more about fleshing out for populations that are growing to ensure you have appropriate coverage, or in some cases, moving a little bit into some areas that maybe we couldn't reach before when we weren't as refined in our business model and how we went about it.

And on the kind of progression or pace, I would just start with -- generally speaking, with a couple of exceptions aside, low capital intensive for us to stand up new stores. We're generally having developer or others work it for us. We'll sign a -- typically a 10-year lease, and that's kind of our operating model. But from a kind of cadence of year 1 to call it, year 3, typically, our year 1, our store is about 80% of maturity. And then from a profitability, generally breakeven, give or take, depends on if it's a multi-store market or a more isolated one. But then we see by kind of into year 3 more at a, call it, a going state, growing profitability, which is accretive to the entire enterprise. So generally speaking, a really quick payback period on the upfront investment, but then also a pretty quick acceleration to kind of a going accretive part of the enterprise.

I will say, just as we've grown over time, we continue to get smarter. So we continue to look at ways at optimizing the start-up even quicker. So for example, if you're going to open a store in our quarter 1 in May, June, July, let's open it before Memorial Day. Otherwise, maybe there's a better time because you want to catch that consumer when they're coming out to a new location versus more of a trough period. So those are the type of things we continue to look at refining, but really happy with our expansion.

And as Melinda mentioned, last year, the last 12 months, we opened 13, that's the most in decades. And then we'll go again with 15 again this year. So even though the market is continuing to challenge, we continue to invest our capital, which we have a really healthy balance sheet to, again, grow the business for the future.

That's really helpful. Thank you. We also wanted to make sure to ask about Joybird. Can you talk a little bit about how Joybird fits in with the rest of your assortment and your plans to grow the business?

Sure. So we bought Joybird. It was a start-up making about $45 million a year, 7 years ago. It was at the time that our industry was one of the last industries to start to shift to online. And so there were a lot of kind of digital start-up furniture brands. What we've learned over the last 7 years is that late shift on to digital has sort of settled into that 70% to 80% still buying in-store. And so we've seen a lot of the pure digital players kind of disappear out of the marketplace.

What we like about Joybird and where the transformation is for us is we really are transforming Joybird into an omnichannel model as well. So if I think about Joybird was a start-up, it was all online, and we now are supporting that online business, but we're up to 14 stores. And with an expansion plan certainly to '25 and beyond, but prudently because we're still working through growing that business in a profitable way.

On the other side, you got the La-Z-Boy brand that's got a multiyear heritage in store, and we're now working to strengthen our digital presence as well, knowing that consumers are going to start their journey there. And so you need to be both super inspirational, but also functional to capture the consumer online.

For Joybird, when we bought it, we did it for a couple of reasons. First one is we wanted to learn our way into the digital space, and that has certainly been a big benefit. The second thing we were looking to do is really capture a different consumer. So the Joybird consumer is still a more upper middle income consumer, but they tend to be more urban. They tend to skew about 10 years younger, although both of our consumer brands service a fairly broad age group. And they also tend to be a -- the Joybird consumer is about expression through their brand. And so it's a very color forward, very -- currently more mid-century modern, kind of clean line kind of furniture.

We love it also in that it is a relevant consumer brand. It's vertically integrated. We make our own furniture with Joybird as well, but it's reaching a slightly different consumer. So even when we talk about some of the noncore portions of our business, we see Joybird, while still very much in an investment phase, we see it as fitting into that model of a branded, vertically integrated D2C brand for us.

Thank you. Shifting now to margins. La-Z-Boy has set a long-term goal to grow its operating margins as part of its Century Vision strategy. And you've mentioned targeting Retail adjusted operating margins in the mid-teens and Wholesale in the low double-digit range. Can you walk us through the key drivers to achieve these targets for where margins are right now?

Yes. So you had mentioned it, so I won't have to repeat it. I'll tell you how we get there, if that helps. So Retail -- and both of those have proxies in our relatively recent history, which is why I think it's a good proof point of getting back with just both over the longer term. So Retail to double digits, which we've shown recently, the ability to do that even -- or call it, mid-teens, I'll say that, even what a, call it, a challenging backdrop with no real market headwinds, trailing 12 months for a while now, we've been double digit on Retail, which -- incredibly proud of even as we stood up new stores, invested in remodels, et cetera.

But it's really getting those 3 kind of growth levers that Melinda mentioned all working in unison is how you get there, and you get there relatively successfully, which is growing same-store sales, successfully leveraging that embedded fixed cost base, acquisitions of independent licensees, which generally are profit accretive from day 1. And if not, it's a kind of brand salvage path for us which we improve back to our standard. And then three, new stores, which in the first year can be a little bit of a drag, but quickly over year 2 and year 3 gets to accretive profitability. So those three working in unison is what enables Retail back to, call it, the mid-teens.

Wholesale to 10, our Wholesale segment is the one that has been kind of most impacted into the pandemic and out of it. Pleased to say of our Wholesale business, our La-Z-Boy part of that, which is far and away the largest, has now grown sales and margin 5 consecutive quarters, which is impressive. And again, back to no kind of volume headwinds from housing or anything else. But we see that segment back to double digits in two ways. One is half of it, we see fully within our control, which is general continuous improvement every day, but also bigger transformative projects like our distribution and home delivery transformation we've announced in the last quarter and kicked off, which over the next 4 years will be a 50 to 75 basis point margin improvement for that segment.

And I'll just spend a couple of times on that one before I get to the other half of it. It really is a culmination and a transformation of where we've been, which is over time organically through new stores, acquisitions, we ended up with a distribution network that was the way it was for all the right reasons at the moment in time. When you took a step back, there was a much more efficient, better way to set ourselves up not only to service our current consumer business, but also as we look forward to further expansion and growth, et cetera.

So over the next 4 years, we will go from what was 15 distribution centers down to 3 centralized hubs located very closely to legacy manufacturing sites. In doing so, it will enable, obviously, a lot less building with 30% less square footage and more efficient square footage. Our products will travel 20% less mileage, which is meaningful on the heavy upholstered furniture and also enable much more productive inventory and working capital management. So check, check, check, but it's a big project, so it's going to take some time. But -- so we'll have a little transition over the next couple of years, but going into year 3 of this project, we expect to turn and start seeing savings and then year 4, we see the ultimate payoff of that 50 to 75 basis points.

So that's kind of -- we're in the mid- to low 7s on Wholesale now. We see half of it, we fully can control that as one big project to help get us there. The other half, frankly, we do need some normalized industry growth on the back of housing to enable volume growth to better leverage our overhead. So those two, Retail to mid-teens, Wholesale to double digit is kind of the sweet spot on how we get the total enterprise to a double-digit long-term margin.

That's great. Thank you. A core pillar of your Century Vision strategy is expanding brand reach. Could you walk us through your marketing strategy and how you're approaching brand campaigns? And then along with that, are there any particular customer segments you're looking to gain share in? And how are you thinking about advertising spend?

Sure. So going back to when we kicked off Century Vision now 4 years ago, as I said, we realized one of our very biggest assets was this La-Z-Boy brand, that consumers were aware of the brand. They had positive attributes with the brand, but they didn't see it as relevant to them. And so what we really have set on that journey on is understanding how to drive that relevancy back. And it started with bringing, for the first time, in-house consumer insights.

My background is a lot of years at Procter & Gamble. So everything begins with this consumer, and I fundamentally believe that as a branded consumer product, you need to be about the consumer and the unmet need and everything you do. So we brought those insights in-house and really use them to start to test and in a databased way, go after where are our assets, where do we have work to do.

So one of the first things that you saw is it's now, we're -- are we 2 years in already? Hard to imagine, but our Long Live the Lazy campaign, which is all around embracing who we are. It's ownable. It is a little bit entertaining, hopefully. And relevant to catch your eye to really embrace the fact that we are motion furniture, we are comfort, and we are for everyday life, right? And even I should point out that for a while, we even tried to downplay like our history of motion and our expertise in motion. But the reality is motion furniture is some of the fastest-growing product in like what consumers want today. So let's embrace that and go with that as a proof point.

The second thing where we are on a journey of updating is around our product offering. So again, we're known for comfort, and we still have a great population of folks that want that more traditional super comfortable furniture. But consumers also want for us more streamlined, more modern looks, but they still want the motion, they still want the functionality and the comfort.

So we've introduced some pretty significant additional product lines that are still made by us, still fully customizable, half of what we sell is custom. And so really being able to move our product trends along to where the consumer is going. In some cases, even playing some catch up with maybe even everything from more modern products, more design-oriented product to maybe also having some scaled-down options that enable some more aspirational consumers in. And then helping consumers understand use cases as well from is it your main entertainment space? Or is it your nursery? There's some incredible stories where people get very passionate at a very young age when they've leveraged a chair through an injury or through a nursery or that type of thing.

So really just becoming more relevant in that space, in our messaging, in our product offering, updating our stores to demonstrate who we are today and where we're headed in the future. And then making sure that we're also, to the point on messaging -- spend is similar, no dramatic changes, up or down. But really, we released a new brand identity that is much more -- I'm looking to see if it's up here anywhere. But that is much more about -- it's more digitally enabled. It's a comfy -- it's back to our heritage in many ways when you look at kind of what that identity is, but it stands for the comfort that we stand for.

And then where we go to market with our messaging is much more into relevant social media, targeted influencers, podcasts, those type of things, and really being ready to respond to where culture is going. How often do you see a show or read a book or see a movie and there's a reference to a La-Z-Boy? How do we jump on that and leverage that to just be more relevant and top of mind for a broader base of consumers.

What we know is that we have seen -- our sweet spot is still in that upper middle income and tends to gauge a little bit older and into suburban larger homes, more investment in quality. But we know that we are appealing to and becoming more top of mind to a broader consumer base, both in age and then in other demographics.

Thank you. Just in the last few minutes here, we're asking 5 questions to each company to get a view on what to expect in the coming months for the industry and for your business, kind of like a rapid fire question round. So first, we wanted to ask on the health of the consumer. What are your expectations for the environment in the second half of 2025 relative to your recent results? Do you think things will be the same, better or worse?

Five words or less? We're planning against the back half that probably looks about the same. I think the real unlock for our industry is when housing unlocks, and that's going to take a longer time.

Okay. And to the extent that you can answer the same question on the health of the consumer, but for 2026.

Plan for same, and we hope for better.

Well, thank you. That sounds great. On pricing, are you seeing any pushback or elasticity as a result of any pricing actions that you've taken?

Directly linked to pricing, no. I mean, particularly for us, ours is low nominal single-digit. Most of the industry are higher. I think it's a combination of everything going on to the consumer, probably has some pressure on them, but exact elasticity, no, I haven't seen it.

Okay. And on inventory, do you expect to see any disruption in shipments due to global supply chain disruption?

Given that we make our own product, no. No, because there -- we've lived through a lot of disruption in the last 5, 6 years, so we are -- when we talked about our agile supply chain, managing multiple sources of inventory, multiple vendors, multiple countries, managing what the stock parts for all of our raw materials, what are we keeping in stock, how are we staying agile in that, we continue to refine those processes. But from a finished product inventory, we make to order, so we don't have that challenge. And we work closely on our B2B side with customers and we're generally making to order there, too. So inventory, not really a factor.

Thank you. And on non-tariff margin drivers, so freight, wages, materials into 2026, do you expect those to be the same, better or worse?

Generally the same. We've seen pretty good stability thus far. Again, obviously, things are volatile and uncertain out there. So it's not to say that they will. But based on what we see today, generally the same, obviously moderate inflation on wages and others, which is pretty normal. So -- but nothing like we saw during the pandemic.

Okay. And our last question is, looking at the industry, do you think market share consolidation will speed up, slow down or be the same in 2026?

In our industry, consolidations from a transaction standpoint have generally not gone well. Finding the synergies, either the upside revenue synergy or the cost synergies, there's literally books written about that not being a great sign. What tends to happen in more challenging times is both on the manufacturing and the retail side. Some of the smaller, the less strong balance sheets and all just simply end up closing down and dropping out. That has been happening for the last 3 years. I think it will continue to happen. And that's why we're proud of our 98-year history and a very strong balance sheet to weather that.

Great. Thank you for joining us today.

Thank you.

Thank you.

Greetings, and welcome to the La-Z-Boy Incorporated Fiscal 2026 First Quarter Conference Call. [Operator Instructions]. And please note, this conference is being recorded.

I will now turn the conference over to your host, Mr. Mark Becks, Director of Investor Relations and Corporate Development at La-Z-Boy Incorporated. Sir, you may begin.

Thank you, Ali. Good morning, everyone, and thanks for joining us to discuss our fiscal 2026 first quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Incorporated's Board Chair, President and Chief Executive Officer; and Taylor Luebke, La-Z-Boy's SVP and CFO.

Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation and you may view them though our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon.

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 Events tab on the Investor Relations page of our website, and it includes reconciliations of certain adjusted measures, which are also included as an appendix at the end of our conference call slide deck.

With that, I will now turn the call over to Melinda.

Thanks, Mark. Good morning, everyone. Yesterday, following the close of market, we reported our July-ended first quarter results. During the quarter, we delivered sales growth in both our Retail and Wholesale segments as well as margin expansion in Wholesale, and we accomplished significant Century Vision' strategic milestones even despite continued industry headwinds.

Highlights for our first quarter included; in our Retail segment, delivered sales increased 2%, and written sales increased 5%. We opened 2 new company-owned La-Z-Boy Furniture Galleries, bringing our total to 13 new company-owned stores over the last 12 months, and we announced a 15-store acquisition in the growing Southeast region of the United States, which is expected to close late in October and will be the largest independent La-Z-Boy Furniture Galleries acquisition in our company's history.

In our Wholesale segment, delivered sales grew 1%, led by growth in our core North American La-Z-Boy Wholesale business. On top of this, we successfully transitioned to our new Arizona distribution center, the first of 3 centralized hubs that will provide the foundation to our multiyear distribution transformation. We also delivered strong operating cash flow of $36 million for the quarter. And finally, we continue to maintain a strong balance sheet with $319 million in cash and no external debt, and we updated our revolver to more favorable terms.

Consolidated sales for the quarter were $492 million, down slightly from the prior year. While we delivered growth in our Retail and Wholesale segments against an increasingly challenged consumer and macroeconomic environment, those challenges did affect store traffic and related same-store sales in our Retail segment. And our Joybird business delivered sales for the first quarter were down 20%, consistent with the drop in written sales Joybird experienced in our fourth quarter. The combination of slower same-store sales plus investment in new store expansions, which take a couple of years to get to going profitability, pressured our total company adjusted operating margin for the quarter which came in at 4.8%.

As we look forward, we continue to be optimistic about our ability to grow sales and outperform the industry while driving strong margins and we are actively adjusting our near-term operations to prudently navigate the current environment. Total written sales for our company-owned Retail segment increased 5% versus last year's first quarter, driven by new and acquired store growth, which more than offset a 4% RIN same-store sales decrease. Both total and same-store written sales trends sequentially improved versus our fourth quarter. Joybird written sales decreased 14% in the quarter versus a year ago, with trends improving throughout the quarter and with continued stronger performance in physical stores than online.

Industry traffic remains depressed with housing transactions continuing to be near 30-year lows and exacerbated by increasingly challenged consumer. Industry data for the quarter continues to be volatile and mixed with retail public company peers reporting same-store sales ranging from down low to mid-single digits, while broader industry data, as defined by the U.S. Census Bureau shows recently downwardly revised figures, but still in a positive mid-single-digit range. Even as we navigate the current consumer choppiness, we continue to advance our Century Vision strategy to deliver long-term shareholder value.

In our ongoing drive to increase our direct-to-consumer business, where we control the entire consumer experience, we were thrilled to announce the upcoming acquisition of a 15-store La-Z-Boy Furniture Galleries network in the Southeast region of the United States. This network currently drives roughly $80 million in annual sales which will add an incremental $40 million in sales to the company on a consolidated basis. And we see continued growth opportunity for that region.

Further, during the quarter, we opened 2 net new stores with 15 total planned for the year, mostly company-owned and making this one of the most significant retail expansion years in our company's history.

At the end of the quarter, our retail footprint included 205 company-owned furniture galleries, 56% of our entire 368 store network, which includes independently-owned stores. And there is continued opportunity to expand our retail store footprint as part of our Century Vision.

We're also pleased during this past quarter to open our 14th Joybird store just last week in Mission Viejo, California, as we prudently expand the Joybird physical store footprint with up to 4 stores planned in this fiscal.

Demonstrating our consumer-recognized strength in Retail, we were recently named by Newsweek as one of America's Best Retailers in 2025. And ranking #1 in the furniture category for the first time in our history. This recognition based on quantitative data, gathered from independent surveys is a testament to our talented and dedicated team and our continued focus on further strengthening our product offerings, our customer service and our in-store experience.

Our refined channel strategy in Wholesale is also seeing continued momentum as we expand our brand reach with compatible strategic partners to delight and inspire more consumers. We recently added another strategic regional partner in Farmers Furniture an approximately 250 store retailer in the Southeast, giving consumers greater access to the La-Z-Boy brand in some more rural markets we haven't served in the past.

With our refined channel strategy, we continue to add new distribution as well as grow our brand with existing partners to ensure La-Z-Boy is accessible to more consumers.

And another core pillar of our Century Vision growth strategy is to expand brand reach. Here, we also made progress during the quarter with our brand campaign update, which we again officially launched on National Lazy Day, August 10. And we also recently introduced our reinvigorated Lazy Boy brand identity. Rooted in our heritage of comfort and craftsmanship, the new identity reflects a more modern brand and represent an important step in our journey to evolve with our consumer, further increase brand relevance and reach a broader audience.

Within our Century Vision pillar to drive supply chain agility, as we noted last quarter, we are in the first quarter of a multiyear project to transform our distribution network and home delivery program. We're designing and building an even more effective network for our business today and in the future, delivering an even better consumer experience while strengthening our operations, improving margins and further enhancing the agility of our vertically integrated supply chain.

This transformation will reduce our distribution footprint from a total of 15 large distribution centers to 3 centralized hubs, supported by small format cross stocks across the country, located close to our customers and our consumers. And it will drive an estimated 30% reduction in total square footage across our network. It will also reduce mileage of inventory traveled across our network by approximately 20%.

Further, the program will enable improved inventory productivity and working capital levels, will enable us to reach a broader consumer base doubling our delivery radius from 75 to 150 miles and decreasing our reliance on third-party providers, and increase the agility of our supply chain to more optimally serve our current store footprint with flexibility for added growth in the future, all while improving an already strong consumer experience.

During the quarter, we successfully completed the opening of our new Arizona distribution hub, the first of these 3 centralized hubs, and we are excited about the early progress of this transformation, which is an important driver toward our broader objective of double-digit margins in our wholesale segment over the long term.

We continue to drive long-term value creation through our Century Vision strategy across the enterprise, and we are strengthening our core business of branded customized upholstery in North American markets to ensure that our company is structured to deliver on long-term value creation while also prudently responding in the near term to an increasingly challenged consumer environment.

In addition, we are actively evaluating all alternatives to address financial pressure from non-core parts of our enterprise. Our guiding principles will remain the same. We will do the right thing for our consumers by delivering comfort and customization with quality. We will be nimble to responding to the dynamic environment and leverage our iconic brand, vertically integrated business model, and robust balance sheet to further strengthen our foundation and disproportionately benefit when an industry rebound occurs.

And now let me turn the call over to Taylor to review the financial results in more detail.

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items, which are detailed in our press release, and in the tables in the appendix section of our conference call slides.

On a consolidated basis, fiscal 2026 first quarter sales decreased 1% to $492 million versus the prior year as growth in Retail and Wholesale segments was offset by a decline in Joybird sales. Consolidated GAAP operating income was $22 million and adjusted operating income was $23 million. Consolidated GAAP operating margin was 4.5%, and adjusted operating margin was 4.8%, with margin expansion on our Wholesale segment more than offset by Retail margin compression due to fixed cost de-leverage and investment in new store openings.

As a reminder, our first quarter is generally the lowest sales and margin quarter in the fiscal year due to seasonally lower industry sales in our annual weeklong plant shutdown.

Diluted earnings per share totaled $0.44 on a GAAP basis and $0.47 on an adjusted basis. As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise.

Starting with the Retail segment for the first quarter, delivered sales were $207 million, up 2% over the prior year's first quarter, driven primarily by new and acquired stores. Retail adjusted operating margin was 6.3% versus 10.3% due to de-leverage in same-store sales and investment in new store openings.

For our Wholesale segment, delivered sales for the quarter increased 1% to $353 million, driven by growth in our core North America La-Z-Boy Wholesale business and Casegoods business, which more than offset the continued impact of a significant customer transition in our international wholesale business that began in the second quarter of fiscal 2025.

Adjusted operating margin for the Wholesale segment was 7.5% versus 6.9%, driven by lower warranty and marketing expenses along with continued gross margin expansion in our core North America La-Z-Boy Wholesale business, partially offset by the margin impact of the significant customer transition in the International Wholesale business.

As a reminder, approximately 90% of our upholstered units sold in North America are produced in the United States with our USMCA-compliant Mexican operations supporting most of the balance as well as much of our cut and sew operations. As such, we have been able to navigate the current trade and tariff situation through strategic inventory moves, sourcing adjustments, vendor diversification and nominal pricing actions.

For Joybird, reporting corporate and other, delivered sales were $28 million, down 20% versus the prior year quarter, with store performance stronger than the online business. Joybird operating loss increased versus the prior year due to low delivered volume. To note, we have seen some improvement in consumer trends through the first months of the fiscal year and will continue to prudently manage this business.

Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2026 first quarter. Consolidated adjusted gross margin for the entire company decreased 30 basis points versus the prior year first quarter. The decrease in gross margin was primarily driven by an increase in supply chain costs in our distribution and manufacturing operations and promotional activity on Casegoods products and accessories, partially offset by lower input costs. Adjusted SG&A as a percent of sales for the quarter increased by 150 basis points compared with last year due to fixed cost de-leverage in our retail comparable stores as well as investment in new stores, partially offset by lower warranty and marketing costs. Our effective tax rate on a GAAP basis for the first quarter was largely unchanged at 25% versus 25.5% in the first quarter of fiscal 2025.

Turning to liquidity. We ended the quarter with $319 million in cash and no externally funded debt. We generated a strong $36 million in cash from operating activities in the first quarter with disciplined management of working capital. We invested $18 million in capital expenditures during the quarter, primarily related to La-Z-Boy Furniture Galleries new stores and remodels and manufacturing-related investments. We continue to believe that the best use of our cash is prudently reinvesting back into the business. As such, we are committed to investments in new stores, acquisitions and our distribution transformation to profitably grow our core business.

As a note, last month, we extended the maturity date of our 5-year $200 million unsecured revolving credit facility to 2030. The amended facility increased the accordion feature to $125 million from $100 million. It also allows for more favorable terms, including the removal of the SOFR credit spread adjustment and additional covenant flexibility. We have no borrowing against the facility.

Regarding cash returned to shareholders for the quarter, we returned $22 million to shareholders through dividends and share repurchases, including $9 million paid in dividends. We repurchased 300,000 shares in the quarter which leaves 3.4 million shares available under our existing share repurchase authorization. We continue to view share repurchases in our dividend as an attractive use of our cash and positive return to shareholders.

In fiscal 2025, capital allocation was tilted to shareholders. Looking to fiscal 2026, we expect capital allocation to be more weighted to investments in the business through capital expenditures and acquisitions, particularly given the strategic upcoming acquisition of a 15-store network at the end of October. This will be our largest independent La-Z-Boy Furniture Galleries acquisition in our company's history and will enable full access to multiple large and growing markets in Florida, Georgia and Tennessee. On top, it is already a well-run and profitable network and will pave the way for additional new store expansion. As a result, this investment will be at the high end of our historical 4x to 6x EBITDA range for independent La-Z-Boy Furniture Galleries acquisitions.

We will continue to return capital to shareholders with our quarterly dividend and annual dividend increase, subject to regular Board approval. And given the transformational investments back into the business in fiscal 2026, we expect minimal share repurchases for the balance of the year. Longer term, our capital allocation target remains consistent to reinvest 50% of operating cash flow back into the business and return 50% to shareholders in share repurchases and dividends.

Before turning the call back to Melinda, let me highlight several important items for fiscal 2026 and our second quarter. Assuming no significant changes to an increasingly challenged consumer environment or trade and tariff policies, we are planning prudently to expect fiscal second quarter sales to be in the range of $510 million to $530 million and adjusted operating margin to be in the range of 4.5% to 6%.

On our distribution transformation project, over time, we expect 50 to 75 basis points of wholesale margin improvement. Looking at the cadence, we expect a modest drag on adjusted operating margins to continue for the first 2 years as a result of transition inefficiencies with savings beginning to flow through in year 3 and at a going rate as we exit year 4.

We will continue to invest in our Century Vision growth strategy and expect to open approximately 15 new company-owned and independent La-Z-Boy Furniture Galleries stores during the year, of which the majority are company-owned as well as 3 to 4 new Joybird stores. We continue to expect our tax rate for the full year to be in the range of 26% to 27%. We anticipate adjustments for purchase accounting charges for the year to be in the range of $0.01 to $0.02 per share.

And lastly, we expect capital expenditures to be in the range of $90 million to $100 million for fiscal 2026, consistent with prior guidance as we invest to strengthen the company for the future, consistent with our Century Vision strategy. This includes investments in our La-Z-Boy Furniture Galleries for new stores and remodels, our multiyear project to transform our distribution network and home delivery program and continued manufacturing-related investments.

And with that, I will turn the call back to Melinda.

Thanks, Taylor. We're leveraging our 98 years of experience and our fortress balance sheet to navigate a challenging and volatile environment. And we're doubling down on driving our core businesses to serve our consumers with the comfort and quality they expect from La-Z-Boy Incorporated.

At the same time, we will continue to strategically grow and improve our business and drive long-term shareholder value. I'd like to again thank our entire team of more than 10,000 employees around the world for their continued dedication to our mission of driving the transformational power of comfort to more homes. I am truly excited for the opportunities still ahead.

And now I'll turn the call back to Mark.

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

[Operator Instructions] Our first question is coming from Brad Thomas with KeyBanc Capital Markets.

This is Taylor Zick on for Brad this morning. Melinda, maybe just to start, investors tend to focus on the earnings outlook. But I think one thing, and you mentioned in your script, is that you saw a sequential improvement in trends during this quarter. So can you provide us some additional color to what you saw during the trends?

And secondly, in the past, you provided some early comments on what you're seeing quarter-to-date. So any thoughts on maybe how August is trending?

Yes. We have -- we definitely saw some sequential traffic improvement through our first quarter, and that has continued into early August. It's step by step, and we're managing prudently through that. Too early to call that a trend. As you know, the holidays are big for our industry. And so we're optimistic about Labor Day and with our ability to execute in-store and deliver a great consumer experience. We're focused on making sure our marketing investments are driving traffic to the store.

But at the same time, we know consumer fundamentals are challenged right now. That's been true for our industry for a while and I see that growing with an increasingly pressured consumer. So we're sort of navigating prudently as we go forward. But no doubt, we have seen some level of continued trend increase on traffic overall.

That's great. And maybe just on the margin performance, it sounds like some of the newer stores are putting some pressure here on the Retail segment. I guess how should we think about the ramp of those stores to maturity and as it relates to margins in the quarters ahead?

Yes. So as Melinda had mentioned in our prepared remarks, we stood up 13 new stores over the last 12 months, which we're incredibly excited about, which is exactly part of our strategy to expand La-Z-Boy brand reach. With that being said, on a kind of a cadence of a new store, we see in year 1, they are a drag on profitability with improvement into year 2 and kind of like a going rate into year 3 of a neutral to accretive margin to the segment.

So as we continue to expand, it will continue to be some pressure on the margin, but that is expected. I mean, the biggest and largest impact at least quarter 1, was traffic and the consumer being a little bit more challenged than expected, which had de-leverage impacts on the total segment.

And I guess one more before I turn it over. Melinda, can you kind of just speak to what you're hearing from your Wholesale customers. In some of our checks, we've heard some of the industry being hesitant to order products just given the uncertainty in tariffs and pricing. I presume that La-Z-Boy benefit in this type of environment given its North America supply chain. So what are you hearing from those customers?

Yes. As we noted, we did see growth in our Wholesale business for the quarter. And again, those trends have continued early into this next quarter. I think to your point, there's a lot of -- there's a level of hesitancy just around where the consumer is going to go. And so that's secondary when that pushes through on our B2B side of things.

As you note, the fact that we are -- the vast majority of our product is manufactured here in North America, so we're not as impacted by tariffs. That plays well for us being able to supply those consumers as we go through. And so we're navigating to play with, particularly with those strategic customers, the long-term players like the Slumberland of the world, to some of our newest like the Farmers, that we just mentioned opening up, to make sure that we're providing them a strong, steady supply of product at the right price point for their consumers. And that business has been steady for us.

Our next question is coming from Anthony Lebiedzinski with Sidoti.

So first, just curious, in your North American business, did you guys see any notable geographic differences in traffic and sales? Or was it more or less consistent across the board?

No big differences, I guess, across North America. I'd just call out that on the Canada side of things, with the 25% retaliatory tariff, of course, our product that we sell in Canada is primarily manufactured in the U.S. with a little bit of Mexico. And so we have -- with that pricing going through, we've seen an offsetting elasticity on units. So that business is holding steady but down on units and offset by pricing but around the U.S., no big geographic shifts.

Okay. And Melinda, you spoke about this a little bit this morning also mentioned in your press release that you're evaluating alternatives to address financial pressure from non-core parts of the business. Can you expand on that as to what you're looking forward to do exactly?

Absolutely. So over the time that we have had our Century Vision strategy now for 4 years. We've been very clear that we see our biggest opportunity around our La-Z-Boy brand, both an expanding reach across all channels and then expanding our own company-owned Retail and our direct-to-consumer business. We really see our strength as a vertically integrated retailer where we're owning that entire consumer experience, all the way from early attraction to the brand, to delivery into the consumer's home. So there is no doubt that is our primary focus and has been.

It's also important to have some green shoots, and we've talked about the fact that businesses like Joybird are fully integrated direct-to-consumer businesses, and we see that as a business we can continue to invest in and expand. And then we've talked about businesses like in our Casegoods, our international business that have been challenged over time, particularly in the last several quarters. And so we're working to make sure we're improving performance there, rightsizing those businesses and evaluating options for what makes sense for those as we go forward.

Okay. And then also given the uneven or choppy demand that you guys are seeing as well as some others in the industry, how are you thinking about the pace of new store openings and your distribution, home delivery transformation, are you looking to perhaps slow that down if this type of trend continues? Or are you kind of fully set on the current time line?

I think it's important that we play offense even in challenging times. And because of the strength of our financial position, our balance sheet, our cash, we're in the enviable position to be able to do that.

Now to your point, Anthony, we'll continue to monitor. It's been sort of unprecedented in times now, 4 years running for a variety of situations. So we'll monitor that and we'll be prudent. But at this stage, we are committed to our strategy.

Okay. And my last question is, you mentioned higher promotional activity in Casegoods, which is a as you pointed out just now, it's a smaller piece of your business. So near term, are you still seeing pressure there as far as promotional activity? How should we think about that?

It was really more transitory in quarter 1, particularly across both our Retail and Wholesale segments. In Retail, we were just looking to work through, call it, some nonperforming inventories so that we can re-merchandise our stores with the optimal product assortment, particularly as we head into the key furniture buying season and holiday season.

And then on the -- our actual case goods business, always we have a good healthy routine of continuing to try to work through nonproductive inventory, and we're able to work through some of that in quarter 1, which is typically a lower demand season for furniture, so a good time to just work through things at value.

Our next question is coming from Bobby Griffin of Raymond James.

I guess moving to first to start, can you maybe just help me understand better kind of the cadence of the written business during the quarter. I think we started out with a good Memorial Day or I think the -- we were mentioning you were pleased with the results on the last call. And then kind of during the quarter, you guys updated towards the low end of the guide. So is it the right way to think like May trends are pretty good and things softened in June and July and then improved in August? Just trying to understand kind of how it plays sequentially versus when we spoke last.

Yes. So if I look at -- to your point, if I go Q4 to Q1 and then into August, we have seen a bit of improvement in traffic trends that played broadly into written. We haven't relative to the last time we spoke, Bobby, we just didn't see that come through quite as significantly as we would have expected, and particularly on those same-store sales for our Retail side, between a softer consumer than maybe we had hoped, investment in new stores and then as Taylor just alluded to, really also investing in some discounting to re-merchandise our floors. The combination of those 3 just came through a little bit more harshly than we had anticipated, which impacted the margins versus the last time we put guidance out there.

Okay. And is that -- was that the big difference on like the EBIT margins this quarter coming in basically 70 bps below the low end when you guys kind of in, I guess, mid-July pointed towards the low end. Did you accelerate some of the discounting or pull forward some of those onetime hits to just get it done this quarter?

I don't know if I would say it was a pull forward other than we wanted to re-merchandise and work through and it was working. So we just continue it because it's right for the business, particularly as we get into the bigger season. And that in combination with the consumer as we exit the quarter, just being a little bit more choppy and uneven than perhaps our expectations contributes to the -- that's coming a little bit lower than what we put out there.

Okay. And then, Taylor, when you kind of gave the -- you talked a little bit about the opportunity on the supply chain rework and then mix with like it's going to take some investment. So is the right way for us when we kind of want to tune these models up. Let's just assume we stay in the similar consumer environment for, call it, the next 6 or 12 months. Should we think we have further margin pressure to go before the benefits start to flow through? Or any way to help us kind of think a little bit maybe -- I know you guys are not giving a long-term guidance, but just kind of how this plays out in terms of the investment side versus the ultimate improvements that can come from the rework supply chain?

Yes. So we -- I would say we just kicked this off in this last quarter. So quarter 1 was our first big step in with the Arizona relocation of the new centralized hub. So as I mentioned, in the first 2 years, we will see a modest drag on adjusted margins just due to transition inefficiencies as we're standing up new sites while operating legacy sites. It's manageable, but it's there. And then into year 3, we'll start seeing some savings than we'll see the biggest impact and the biggest meaningful margin expansion as we're in an exit year 4, which is about 50 to 75 basis points expansion for the segment.

And is that -- that shows up in Retail segment margins, EBIT margins or Wholesale?

Wholesale.

And I guess, lastly for me, just on the store, the new store productivity, the industry is choppy, volatile different ways to characterize it. Are you guys pleased with the ramp-up period? I think you called out it's an initial drag in the first year, which makes sense, but then you get kind of up to in line in year 2 or 3. Is that in line with historical standards? Or do you think there's opportunities to make that a little quicker? Like how do you -- how are you viewing the new store productivity on some of these newer stores?

I think the 2 to 3 years to get to going productivity is the rule of thumb we've had historically, and that continues. Now there is no doubt, particularly as we say, with a choppy consumer that it's important across all of our stores, we are maximizing everything we're doing to make the most of that installed base, which is -- was a challenged consumer, a little bit more challenging. But we are -- we're honing everything we're doing there. We continue to get better every day with what we're doing in retail, and we'll continue to make progress there.

Thank you, ladies and gentlemen. As we have no further questions in queue at this time, I would like to turn the call back over to Mr. Mark Becks for any closing remarks.

Thanks, Ali. Melinda, Taylor and I will be in our offices for the rest of the day to take any follow-up questions. Thanks, and have a great day.

Thank you, ladies and gentlemen. This does conclude today's call, and you may disconnect your lines at this time, and we thank you for your participation.

Good morning, everyone. Welcome to the La-Z-Boy Fiscal 2025 Fourth Quarter Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to your host, Mark Becks, Director of Investor Relations & Corporate Development. Mark, the floor is yours.

Thank you, Jenny. Good morning, everyone, and thanks for joining us to discuss our fiscal 2025 fourth quarter. Joining me on today's call are Melinda Whittington, La-Z-Boy Incorporated's Board Chair, President and Chief Executive Officer; and Taylor Luebke, La-Z-Boy's SVP and CFO.

Melinda will open and close the call, and Taylor will speak to segment performance and the financials midway through. After our prepared remarks, we will open the line for questions. Slides will accompany this presentation and you may view them through our webcast link, which will be available for 1 year. And a telephone replay of the call will be available for 1 week beginning this afternoon.

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 & Events tab on the Investor Relations page of our website. And it includes reconciliations of certain adjusted measures, which are also included as an appendix at the end of our conference call slide deck.

I would also like to call your attention to 2 changes in our presentation format beginning this quarter. As company-owned stores now represent well over half of our total network, we will be focusing our discussion on company-owned retail metrics only and no longer report written same-store sales for the entire La-Z Boy Furniture Galleries network. We believe this will provide appropriate perspective on current consumer trends while eliminating potential confusion.

Additionally, to be more consistent with current industry practice, we have renamed all of our non-GAAP financial measures to adjusted financial measures. For example, non-GAAP diluted EPS has been renamed to adjusted diluted EPS.

Importantly, the methodology for calculating these measures remains unchanged. And therefore, any previously reported non-GAAP financial measures that are renamed to corresponding adjusted financial measures remain unchanged.

With that, I will now turn the call over to Melinda.

Thank you, Mark, and good morning, everyone. Yesterday, following the close of market, we reported our April-ended fourth quarter and fiscal year. We delivered strong results despite continued economic and industry volatility, driving growth and successfully executing on our Century Vision strategy.

Highlights for the quarter included consolidated delivered sales of $571 million, growing 3% versus the prior year. Retail segment sales growing 8% led by new stores and acquisitions. During the quarter, we opened our 200th company-owned La-Z-Boy Furniture Galleries store, and we now own 55% of the total network. And our Wholesale segment sales grew 2%, led by our core North American La-Z-Boy wholesale business.

Highlights for the year included consolidated delivered sales of $2.1 billion, growing 3% versus the prior year. And within these total company results, our Retail segment sales grew 5% for the year led by the new stores and acquisitions as we continued progress against our Century Vision, direct-to-consumer growth strategy. During the fiscal year, we opened a total of 11 new company-owned La-Z-Boy Furniture Galleries, the most in over 2 decades, and acquired 7 independently owned stores. Our Wholesale segment sales grew 2% for the year, led by sales growth in our core North American La-Z-Boy wholesale business across all 4 quarters.

We generated $187 million in operating cash flow for the year, up 18% versus prior year; and returned $113 million to shareholders through share repurchase and dividends including increasing our dividend 10% for the fourth consecutive year. And finally, we continued to maintain a strong balance sheet with $328 million in cash and no external debt.

I'm extremely proud of the results delivered by this organization throughout the fiscal year with 4 consecutive quarters of sales growth, including fourth quarter delivered sales that exceeded the high end of our guidance range and adjusted operating margin at the high end of our guidance range even in the midst of significant external volatility.

The success we achieved this year is a testament to strong execution across our company as we progress our Century Vision. We are controlling what we can control to drive growth and this quarter was yet another proof point.

Even as we expect global economic uncertainty to continue challenging consumers in the near term, we are confident in the strength of our business model to outperform our peers and deliver strong financial performance. Our vertically integrated model and agile supply chain give us the foundation to navigate this environment.

Approximately 90% of our upholstered units sold in North America are produced in the United States with our Mexican operations supporting most of the balance. And our U.S.-centric footprint has been core to our competitive advantage to delight our consumers with customized product at speed for decades.

In addition, our Mexican-based cut-and-sew operations support more than 2/3 of this North American upholstered unit production, transforming raw cover sourced from multiple countries around the globe. The vast majority of the products produced and exported out of Mexico are USMCA-compliant, and therefore, not subject to tariffs under current tariff policies.

Of course, we will continue to carefully monitor the evolving global trade situation and adjust accordingly, leveraging strategic inventory moves, sourcing adjustments and continued vendor diversification as well as nominal pricing actions to manage the evolving landscape as necessary.

As part of our Century Vision foundational pillars, we will continue to invest in even further strengthening and increasing the agility of our supply chain. This spring, we kicked off a multiyear project to redesign our distribution network and home delivery program, further enhancing our ability to deliver high-quality, comfortable custom furniture with quick speed to market. We are leveraging our scale to drive efficiencies across the enterprise, reducing the total number of distribution facilities and reducing the total mileage products travel while at the same time supporting a growing network and driving an even better consumer experience. This initiative to transform our distribution network and home delivery program will also help deliver our broader objective of double-digit margins in our Wholesale segment over the long term.

And before leaving the topic of supply chain, I'd like to highlight a recent example of agility. In May, our upholstery manufacturing facilities in Siloam Springs, Arkansas, suffered extreme damage from a major storm, which included strong winds and hail. Thankfully, all of our employees are safe and the facility was not occupied at the time of the storm. But the damage impacted the manufacturing facility and damaged the front office area to the point of requiring a complete rebuild.

I am proud to say that with the help of support teams from across the company, we rebuilt infrastructure, losing just 1 week of production at the facility; shifted some work between plants; and ultimately minimized consumer and customer delays. This incredible effort and collaboration reinforces the strength of our supply chain and broader enterprise coordination and is another proof point of the resiliency of our teams and ability to navigate whatever comes our way.

Now turning towards the consumer-facing aspects of our business and written sales trends. During the fourth quarter, total written sales for our company-owned Retail segment increased 3% versus last year's fourth quarter. Written same-store sales for the Retail segment, which excludes the benefit of newly opened stores and acquired stores decreased 5% versus prior year fourth quarter. Stubbornly high mortgage rates and increased volatility in the global economy negatively influenced consumer sentiment and had an adverse impact on industry traffic.

Industry data for the quarter was extremely mixed with public company peers noting same-store sales of relatively flat to declines in the mid-teen range while industry data as reported by the U.S. Census Bureau indicated an increase in the mid-single digits.

Our objective remains unchanged: to continuously grow and gain share in the large and fragmented furniture and home furnishings industry regardless of existing market conditions. We are leveraging the strength of our iconic brand, new and innovative marketing, strong product offerings and excellent in-store execution to delight and inspire consumers. Our retail network is growing and our ability to deliver mass personalization with speed to market differentiates La-Z-Boy. These competitive advantages are unlocking a long-term runway for growth.

On our Joybird business, written sales trends decreased 21% in the quarter versus a year ago. As a digitally native brand, we believe the Joybird consumer has been more significantly impacted by rising macro uncertainty. This pressure is likely to persist in the near term amid ongoing macroeconomic volatility, and we are making appropriate adjustments to prudently navigate during this time. Notably, we are seeing relatively stronger written trends in our Joybird physical stores where we are able to more fully serve the consumer and overcome these purchase barriers.

Turning to our broader strategic road map, I'd like to spend a few minutes recapping progress over the year on our Century Vision objectives. Recall, Century Vision is our strategic framework setting up La-Z-Boy Incorporated for continued growth in the future as we celebrate our centennial in 2027 and beyond, driving top line growth at a pace double the market and delivering consistent double-digit operating margins over the long term.

We have successfully expanded La-Z-Boy's brand reach over the past several years and will continue to execute this strategy. Our total Furniture Galleries network ended the year with 366 stores. We remain on track to grow the total network to over 400 stores led by strong growth in company-owned stores.

During the year, our company-owned Retail segment surpassed the 200-store milestone, nearly doubling our store count over the last 10 years and ending the year with 203 company-owned stores. We opened 11 new stores in the year, the most in 2 decades, and purchased 7 stores from independent owners. The company-owned store footprint now represents 55% of the total La-Z Boy's Furniture Galleries network, up from 34% a decade ago.

We will continue to grow our direct-to-consumer business where we own the entire end-to-end consumer experience, can delight the consumer and are able to collect and leverage even more value-added consumer insights to strengthen the flywheel.

In Wholesale, we continue to expand our brand reach with compatible strategic partners to serve more consumers. This strategic initiative is driving increased share of voice for the La-Z-Boy brand and providing a broader range of consumers access to our brand. There remains considerable opportunity in growing with existing strategic regional partners like Rooms to Go, Gardner White, Furniture Row and Slumberland, while also selectively expanding our pipeline of new strategic partners.

Additionally, we will continue to invest in our Comfort Studios and branded spaces that offer a unique store-within-a-store branding at larger independent retailers.

Brand building is another core pillar of our Century Vision growth strategy. Recall, when we embarked on Century Vision, we conducted extensive consumer research and we continue to do so. One of our earliest learnings was that while La-Z-Boy had the highest brand awareness in furniture, much of that was driven by distant memory.

When we launched the Long Live the Lazy campaign, our intent was to go back to our roots of comfort and quality while being more relevant for today's consumers. Our next phase of this journey is launching a new brand identity this summer, continuing to make our brand more relevant while reaching a broader audience.

Our refreshed brand identity will consist of a new look and feel, tone and brand voice and be more applicable to today's digital world.

Today's presentation slides provide a sneak peek into the new look and feel with more to come in August around National Lazy Day.

Another core pillar of our Century Vision is to optimize the Joybird brand to drive sales growth and profitability. Joybird had a solid year with sales increasing 5% and adjusted operating margin slightly positive for the year. And this past month, we opened our 13th Joybird store in Costa Mesa, California, our first new location since November '23.

While the Joybird core consumer is particularly challenged in the current economic uncertainty, the brand continues to have significant opportunity to grow share and we remain committed to disciplined investments in the business to position the brand for long-term success with 3 to 4 total new stores planned for fiscal '26.

The final pillar of Century Vision is strengthening our foundational capabilities and agility across our supply chain, technology and people. As I noted earlier, navigating external uncertainty and weather challenges and initiating our distribution redesign are great examples of recent progress and continued opportunity for even more progress with distribution redesign being a key enabler towards systemic strengthening of our wholesale operating margins.

As we begin fiscal '26, we're optimistic about our ability to continue to outperform the market consistent with our performance in fiscal '25. While challenged in the near term, we still believe our industry will experience a meaningful period of growth longer term as addressing the structural housing shortage and eventual further interest rate cuts will enable a rebound in housing fundamentals. We continue to grow our business and strengthen our foundation to disproportionately benefit from that industry rebound when it occurs.

And now let me turn the call over to Taylor to review the financial results in more detail. Taylor?

Thank you, Melinda, and good morning, everyone. As a reminder, we present our results on both a GAAP and adjusted basis formerly referred to as non-GAAP. We believe the adjusted presentation better reflects underlying operating trends and performance of the business. Adjusted results exclude items, which are detailed in our press release and in the tables in the appendix section of our conference call slides.

On a consolidated basis, fiscal 2025 fourth quarter sales grew 3% to $571 million versus the prior year, primarily driven by acquisitions and new stores in the Retail segment and continued momentum in our core North America La-Z-Boy wholesale business.

Consolidated GAAP operating income was $30 million. And adjusted operating income was $54 million, an increase of 3% versus last year's fourth quarter. Consolidated GAAP operating margin was 5.2%. And adjusted operating margin was 9.4%, flat versus a year ago as lower input costs, including reduced commodity prices and improved sourcing and better leverage on marketing investments were offset by the impact of the significant ongoing customer transition in our international wholesale business as well as incremental tariff expenses in the quarter.

Diluted earnings per share totaled $0.36 on a GAAP basis and $0.92 on an adjusted basis, both of which include a $0.10 impact from unfavorable foreign tax discrete items.

As I move to the segment discussion, my comments from here will focus on our adjusted reporting, unless specifically stated otherwise.

Starting with the Retail segment. For the fourth quarter, delivered sales were $247 million, up 8% over the prior year's fourth quarter, driven primarily by new and acquired stores. Retail adjusted operating margin was 13.1% versus 14.2% and primarily due to investment in new stores as we absorbed the increased selling expenses and fixed costs supporting our long-term strategy of growing our Retail business.

Expanding the La-Z-Boy Furniture Galleries network is a key element of our Century Vision growth strategy, and we made substantial progress in Q4 and the full fiscal year with 5 new stores and 2 acquisitions for the quarter, and 11 new stores and 7 acquisitions for the full year.

For our Wholesale segment, delivered sales for the quarter increased 2% to $402 million, driven by growth in our core North America La-Z-Boy wholesale business through favorable shift in product and channel mix as a result of higher sales to our La-Z-Boy Furniture Galleries partially offset by the continued impact of a significant customer transition in our international wholesale business.

Adjusted operating margin for the Wholesale segment was 8.5%, flat versus last year's fourth quarter as gross margin and SG&A as a percent of sales were largely unchanged. Continued margin expansion in core North America La-Z-Boy wholesale business was offset by the margin impact of a significant customer transition in the international wholesale business as well as incremental tariff expense in the quarter.

To note, this significant customer transition triggered an impairment of the goodwill related to our U.K. business during the quarter. As background, we acquired the U.K. wholesale distribution business in fiscal 2017 followed by the U.K. manufacturing business in fiscal 2022.

We remain committed to growth of the La-Z-Boy brand in the U.K. and our new strategic partnership announced last September with DFS, the market leader in the U.K.

For Joybird, reported in Corporate & Other, delivered sales were $36 million, down 2% versus the prior year quarter as positive retail store growth was more than offset by declines in the online business. Importantly, Joybird adjusted operating margin was positive in the fourth quarter, relatively flat versus prior year fourth quarter and slightly positive for the year.

Moving on to full year results for fiscal 2025. Sales grew 3% to $2.1 billion, driven by acquisitions and new stores in our La-Z-Boy retail business and growth in our core North America La-Z-Boy wholesale business. In addition Joybird grew 5% for the fiscal year.

Consolidated GAAP operating income was $136 million. And adjusted operating income was $161 million, a 1% increase versus fiscal 2024. Consolidated GAAP operating margin was 6.4%. And adjusted operating margin was 7.6%, down 20 basis points versus fiscal 2024.

GAAP diluted EPS was $2.35 for fiscal 2025, and adjusted diluted EPS was $2.92 for the year versus $2.98 in fiscal 2024. GAAP diluted EPS and adjusted diluted EPS for fiscal 2025 both include a $0.10 impact from unfavorable foreign tax discrete items.

Moving on to our consolidated adjusted gross margin and SG&A performance for fiscal 2025 full year. Fiscal year consolidated adjusted gross margin for the entire company increased 70 basis points versus the prior year. Gross margin expansion was primarily driven by the shift in consolidated mix towards our Retail segment, which has a higher gross margin rate than our Wholesale segment as well as lower input costs led by reduced commodity prices and improved sourcing.

Adjusted SG&A as a percent of sales for the fiscal year increased by 90 basis points compared with last year, primarily driven by growth in our Retail segment due to investment in acquisitions and new stores, which carries a higher fixed cost structure relative to Wholesale and fixed cost deleverage on lower sales in our international wholesale business due to a significant customer transition.

Our effective tax rate on a GAAP basis for the fiscal year was 31.4% versus 24.8% in fiscal 2024. The increase in effective tax rate in fiscal 2025 compared with the prior year was primarily a result of a onetime tax effect of a nondeductible goodwill impairment charge related to the United Kingdom reporting unit, along with the impact from unfavorable foreign tax discrete items.

This increase disproportionately impacted the fourth quarter where our effective tax rate on a GAAP basis was 52.1% compared to 25.5% in the prior year. Absent these discrete items and nondeductible goodwill impairment, the effective tax rate would have been 23.2% for the fourth quarter and 24.9% for the full fiscal year.

We expect our effective tax rate to be in the range of 26% to 27% for fiscal 2026.

Turning to liquidity. We ended the year with a robust balance sheet, $328 million in cash and no externally funded debt.

We generated $187 million in cash from operating activities, an increase of 18% versus fiscal 2024 and ended the year strong with $62 million in operating cash generated in the fourth quarter, up 17% versus last year's fourth quarter.

We invested $74 million in capital expenditures during the year, primarily related to La-Z-Boy Furniture Galleries new stores and remodels and manufacturing-related investments. We also spent $30 million on acquisitions of 7 independent La-Z-Boy Furniture Galleries during the year.

During the fiscal year, we returned $113 million to shareholders through dividends and share repurchases, up 32% versus the prior year comparable period, including $35 million paid in dividends. In November, we increased the dividend 10% for the fourth consecutive year. Additionally, we repurchased 2 million shares in the year, which leaves 3.7 million shares available on our existing share repurchase authorization.

We continue to view share repurchases and our dividend as an attractive use of our cash and positive return to shareholders. In fiscal 2025, our capital allocation was 48% reinvested into the business and 52% returned to shareholders.

Before turning the call back to Melinda, let me highlight several important items for fiscal 2026 and our first quarter. Consistent with our Century Vision strategy, we continue to target sales growth double the industry growth rate and double-digit operating margins over the long term with the benefit of more normalized industry conditions.

In fiscal 2026, we expect consumers to be challenged by the volatile macroeconomic environment, and we are planning prudently to navigate the year ahead while still expecting to continue outperforming the industry.

Assuming no significant changes in external factors, we expect fiscal first quarter sales to be in the range of $490 million to $510 million, reflecting modest growth against the challenged consumer environment.

We expect adjusted operating margin to be in the range of 5.5% to 7%, including the impact of transitory pressure from our U.K. and Joybird businesses as well as investment in our distribution network and home delivery redesign project.

We expect to open approximately 15 new company-owned and independent La-Z-Boy Furniture Galleries stores during the year, of which the majority are company-owned as well as 3 to 4 new Joybird stores.

The global trade environment remains dynamic, and we have and will continue to execute our playbook to mitigate the impact. This includes leveraging the strength and agility of our supply chain through strategic inventory moves, sourcing adjustments, continued vendor diversification as well as potential pricing actions.

We anticipate adjustments for purchase accounting charges for the year to be in the range of $0.01 to $0.02 per share.

We expect capital expenditures to be in the range of $90 million to $100 million for fiscal 2026 and as we invest to strengthen the company for the future, consistent with our Century Vision strategy. This includes investments in our La-Z-Boy Furniture Galleries for new stores and remodels, our multiyear project to redesign our distribution network and home delivery program and continued manufacturing-related investments.

Our capital allocation target is to reinvest 50% of operating cash back into the business and return 50% to shareholders in share repurchases and dividends over the long term. In fiscal 2025, this was tilted towards shareholders. And looking to fiscal 2026, we expect capital allocation to be more tilted to investments into the business as we execute our Century Vision strategy.

And with that, I will turn the call back to Melinda.

Thanks, Taylor. We delivered a strong quarter and fiscal year in a volatile environment, once again demonstrating our ability to adapt and deliver. While we expect the consumer will be challenged for the foreseeable future, we also expect to continue to outperform the industry and deliver long-term profitable growth while prudently investing in the business. Our strong brand and vertical integration that includes company-owned retail and an agile supply chain, along with our strong balance sheet, provides us the foundation for continued growth.

Before I close, I'd like to note that during the fourth quarter, La-Z-Boy Incorporated was named to Newsweek's list of America's Most Loved Brands and Most Trustworthy Companies for 2025. These awards, based on independent survey data, our additional recognition of our brand relevance and the enduring strength of our iconic brand and company.

I want to thank the entire La-Z-Boy Incorporated team for their hard work, skill and flexibility in navigating a very dynamic environment. We are focused on driving value for all stakeholders, and I look forward to the year ahead. Mark?

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

[Operator Instructions] Your first question is coming from Bobby Griffin of Raymond James.

I guess, first, a lot of new stuff to unpack on this call, so appreciate all the details. Maybe when we start with the Wholesale segment and the potential to get back to 10%, it's about 280 basis points, I guess, of expansion. Could you maybe bucket what the size of each of the drivers between the distribution network changes? I believe there'll be some industry volume there, too, as well as recapturing the U.K. transition. Can you maybe give some flavor or some color on how big is each one of those drivers? And is there anything I might have missed, too, as the path back to 10%?

Yes. Thanks, Bobby, for the question. Yes, part of our margin algorithm over -- for Century Vision is to advance Wholesale to double-digit over the long term. Now that also requires normalized, call it, industry growth, which we're currently not in at current state.

But as we've talked in the past, as we think about bridging from where we're at today to, call that, 10% over the long term, we believe about 0.5% is fully in our control. And this distribution and home delivery redesign project is going to meaningfully help accomplish part of that over a multiyear project. The other half, frankly, is a requirement of just a healthy industry, which is backed by a healthy housing market. So that's -- yes.

And then, Melinda, maybe on the redesign and distribution project, can you talk a little bit about why now? I guess, obviously, this is part of Century Vision. Is it just also part that the scale of the business has gotten bigger, you own more of the corporate-owned stores. Just curious on the timing of the decision of why now to do the distribution project.

Yes, absolutely. And you really hit it on the head. I mean, we are over recent years with a lot more acquisition that sort of built pieces that we have the opportunity for efficiency as well as just really stepping back and with the expertise we have in the business today to just make sure that we have the right network to support our business as we go forward.

So this will be a several-year project. And by the time we're done, we will have overall reduced our total warehouse overhead, optimized routes and miles traveled, reduced inventory levels we need to carry and ultimately improve that delivery experience that's going into the consumer homes as well.

So it certainly drives an efficiency side of things, but even more importantly, it drives an even better service level to our consumers because we'll be able to cut time out of the system and less miles on product as well.

Appreciate it. And I guess lastly for me, can you talk a little bit about what you're seeing maybe on written orders here in May or the quarter-to-date period? I think it was pretty well known President's Day was soft, but just curious if there's been any kind of change in the monthly cadence over -- maybe more of the near-term time frame.

Yes. Our Memorial Day was a solid start to the year, and we certainly saw a strong execution in store. If I go back to across Q4, February was our most challenged month, as you know. And so what we're really looking to do as we always do is drive that total written number leveraging our new stores, our acquisitions and then maximizing what we are getting out of each individual store.

So I think with where the consumer is right now, we'll need to continue to be very active on that. But again, out of the fourth quarter, February was really the most challenged month. And we're pleased with where we started out on Memorial Day. So it will -- I think the consumer will need to stay actively engaged to drive through this period.

Very good. Well, good to hear the Memorial Day was better than President's Day. One day, we will be talking about a better furniture industry, hopefully.

One of these days.

And your next question is coming from Anthony Lebiedzinski of Sidoti & Company.

So certainly nice to see the sales outperformance for the quarter. And so first, let's start with that. So just relative to your guidance that you issued back in February, so even with a softer start, as you alluded to, I mean can you just give us the reasons -- the main reasons for the sales outperformance versus your outlook that you provided a few months ago?

Overall, I'd say broad base, so no one individual driver. At the time we were -- we put guidance out there in February, we had just come off President's Day, which I think across the industry was fairly challenged, just a lot of new macroeconomic news really coming out at that time. And so we mentioned that our written trends across the quarter, February was the most challenged from a year-on-year growth basis. .

So we were pleased. Again, we do what we always do there, which is to work to execute and delight the consumer and work with our business partners on the B2B side as well. And so as the year went on, we mentioned that February was the toughest month.

So we go back to what we do best, which is execute and make sure that we're doing right by the consumer. And we were pleased that the quarter ended up finishing up a little bit stronger than what we had initially expected even in the midst of what ended up being increased macroeconomic challenges throughout the quarter.

Understood. And then a couple of questions on tariffs. So you mentioned there was some tariff expense. I'm not sure if you quantified that, maybe I missed that. But if you could just maybe expand on that as to how much of the tariff expense are you thinking will be impacting your first quarter results.

And as far as pricing, you've talked about some potential, I think, pricing actions. So is any pricing included in the first quarter outlook? Sorry for the long-winded questions.

Thanks, Anthony. Let me try to hit those one by one, maybe not in the right order that you asked them. So as we talked before and as a reminder, we've been planning against multiple different scenarios since basically last fall as we know kind of trade policy could potentially evolve. So we were well ahead of kind of different actions we would take to mitigate anything that happened.

And essentially, at the start of our last quarter is when things went into place that we responded to agilely and balanced and calm. And our policy at La-Z-Boy here is we act on fact, we wait a week to ensure it sticks and then we execute our playbook to mitigate the impact to our company while also being cognizant of our consumers and customers.

So over the more immediate term in quarter 4, as you can imagine, with the general flurry of activity, there is a moment in time where actions we put into place can't completely mitigate impact as we put nominal pricing actions into the market.

For our core upholstery business, low single digits, as well as really great work on our supply chain on strategic inventory moves to get ahead of potential trade policy changes as well as, call it, just inventory productivity on utilizing what we had on hand.

As we look forward, we, a, want to remain agile to respond to how anything could change. The plans we put into market, we believe, mitigate the exposure we have. But frankly, our biggest concern has always been what does it do to the consumer, which has been relatively challenged now for a bit. So that's one we continue to watch. But overall, really happy with the team and our agility and think we're well positioned heading into quarter 1 of this fiscal year.

Understood. Okay. And then lastly, for Joybird. So Melinda, you talked about the divergence for your written business between online versus the stores. So I know you said that you will open, I believe, 3 to 4 this year Joybird stores. But longer term, are you perhaps maybe thinking of going maybe beyond that 25-store goal that you had previously talked about? Or just how are you guys thinking about longer term for Joybird in terms of the stores?

Yes. We still feel really good about Joybird, and it is still a young business. And so -- and particularly given that it services a more urban and generally a little bit younger consumer as well, a little more challenged here in the near term. And as you pointed out, Anthony, we're really pleased with the store base that we have now. We've got one more open here just in this last month or so. And that those are really servicing our consumer well even in a more challenged time for that consumer.

We've called out the 25 and we still see a path to that. We like this pace of 3 to 4 new stores. And do I think we have the potential to go beyond 25 over the long term? Yes, absolutely. But given just Joybird is still a fairly new brand and we want to make sure that we grow prudently, particularly in challenging time for our industry, so we're going to continue to optimize the brand, optimize that consumer experience and grow in a prudent way.

Our next question is coming from Brad Thomas of KeyBanc Capital Markets.

Melinda, I wanted to start off with sort of a big picture question considering the environment that we're in. I was wondering if you could just help us put into context, given tariffs coming through, how you're thinking about La-Z-Boy's relative price point and consumer offering. And so can you help us sort of put into context what you're seeing out there from a competitive standpoint in terms of promotions and pricing and what La-Z-Boy is doing relative to that?

Yes. Thanks, Brad. I think, obviously, we are positioned extremely well in this environment, as I mentioned, 90% of our products. So let me step back a little bit, about 90% of our business is in the United States even though we're still kind of single-digit share. So obviously, lots of opportunity to grow. And then within that, we service the vast majority of that with our manufacturing footprint in the United States.

So broadly, it should be a real strength for La-Z-Boy to have this manufacturing footprint here in the United States. And of course, our target is to provide consumers with the personalized furniture with speed to market. So I feel really good about where we're positioned from that standpoint. At the same time, we need to navigate the challenges for the consumer.

And just in general, we see pent-up demand for furniture. We know that our industry has been in a bit of a malaise for a number of years. But if the consumer is overall more strapped because of the broader macroeconomic trends, they will tend to stretch out their furniture purchases.

So we are, again, working to play offense. We are positioned well in our ability to keep our pricing responsible. We're not broadly seeing really crazy competitive moves out there, to your question. And I think that's because the input costs are going up for the industry, right, even if -- particularly if you're an importer, which more than half of our competition is. At the same time, you have a strapped consumer.

So to the extent that we can continue to deliver an incredible product at a competitive price, I think we're very well positioned even to navigate through a fairly challenging time.

And that's very helpful. But to be clear, Melinda, as we think about La-Z-Boy's pricing strategy going forward, are you needing to push through more price? And what does the timing look like for that over the quarters ahead?

Yes. Taylor mentioned some nominal pricing put into place in the last quarter and that has been sufficient to manage what we're going through. Obviously, we need to stay agile and we look for a variety of ways to respond to increased input costs from broader sourcing, how we manage timing of buys and so forth. But we've had a little bit of nominal pricing in. But at this stage, I don't have any big concerns about anything big coming down the pipe.

That's great to hear. And maybe a question for Taylor. Just as we think about operating margin, I know you're not going to guide the full fiscal year, you've given us the quarter ahead here. But maybe in broad strokes, can you help us think about the major puts and takes here for the fiscal year ahead?

Yes. Good question, Brad. Yes, we don't guide to the full year. But as we look out, a lot of it depends again to the health of the industry and the consumer, which right now is pretty uncertain. So what we've stated and what we believe is whatever the industry does, we'll outperform.

So if the industry looking ahead for our fiscal is flat, we'll grow. And if we grow, we should expect some margin expansion. If the industry is down, then we will be less down.

But our goal going into every year is to obviously expand our margins. Now we're in a very uncertain and volatile time, so it's tougher than when you've got all the industry or housing, call it, tailwinds behind you. But a lot of it depends on what the industry does.

So we're being incredibly agile. We're making our own momentum and controlling what we control quarter-over-quarter and being very prudent in light of all the external factors around us.

Well, we appear to have reached the end of our question-and-answer session. I will now turn the call back over to the management team for their closing remarks.

Thanks, Jenny. Melinda, Taylor and I will be in our offices for the rest of the day to answer any follow-up questions. Thanks, and have a great day.

Thank you very much, everyone. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful rest of the day. We thank you for your participation.