Thank you for holding, ladies and gentlemen. Good day and welcome to the La-Z-Boy Fiscal 2021 First Quarter Conference Call. All lines have been placed on a listen-only mode and the floor will be opened for questions and comments following the presentation. At this time, it is my pleasure to turn the floor over to your host for today, Ms.

Kathy Liebmann. Ma’am, the floor is yours..

Thank you, Jess and good morning everyone. Thank you for joining us to discuss our fiscal 2021 first quarter results. With us this morning are Kurt Darrow, La-Z-Boy’s Chairman, President and CEO and Melinda Whittington, CFO. Kurt will begin and close the call and Melinda will speak to the financials midway through.

We will then open the call to questions. Slides will accompany this presentation and you may view them through our webcast link, which will be available for 1 year and a telephone replay of the call will be available for 1 week beginning this afternoon.

Before we begin the presentation, I would like to remind you that some statements made in today’s call include forward-looking statements about La-Z-Boy’s future performance. Although we believe these statements to be reasonable, our actual results could differ materially.

The most significant risk factors that could affect our future results are described in our Annual Report on Form 10-K. We encourage you to review those risk factors as well as other key information detailed in our SEC filings.

Also, our earnings release is available under the News & Events tab on the Investor Relations page of our website and it includes reconciliations of certain non-GAAP measures, which are also included as an appendix at the end of our conference call deck.

With that, I will turn over the call to Kurt Darrow, La-Z-Boy’s Chairman, President and Chief Executive Officer.

Kurt?.

Thank you, Kathy and good morning everyone. Following yesterday’s close of market, we reported our fiscal 2021 first quarter results. While still in the midst of the COVID-19 pandemic, we are pleased with how our business is progressing with strong written order trends.

To put the quarter in context, let me remind you of the pandemic-related retail and plant closures and the subsequent ramp-up timeline for La-Z-Boy.

As a result of the pandemic, furniture retailers, including our La-Z-Boy Furniture Gallery stores, were closed for the tail end of March, all of April and most of May, with some still closed in June depending on local guidelines.

Relatedly, the majority of our plants closed for 4 weeks and restarted in late April at reduced capacity, with our Joybird Tijuana facility restarting about a month later due to COVID-19 challenges in Mexico. When we restarted our plants, we initially worked off the pre-pandemic backlog.

We then had to wait for order flow as our retailers opened throughout May and June, and in concert with that we increased production accordingly.

But because of the lag from order entry, the written sale to building and delivering the product and recognized the delivered sale, we essentially lost the majority in the month of May in terms of delivered sales as we expected when we commented last quarter.

We have continued to increase our rate of production weekly and are now operating at about 90% of prior year levels. But our lag time is currently running at about double our normal rate given strong demand during the quarter and the challenge of hiring additional workers.

The real good news is that our written order trends across the business are strong. For the entire La-Z-Boy Furniture Gallery network, which accounts for about half of our wholesale business, written same-store sales increased 14.8% in the first quarter.

And to provide some additional perspective on the quarter, the cadence of written same-store sales by month was a decline of 13% in May and increases of 30% in June and 32% in July.

So now, it’s a matter of catching up on moving higher than expected written orders through our production cycle to deliver sales revenue as we continue to increase production.

Now, it’s too early to tell for certain what’s driving the strong written sales, whether it’s pent up demand, which will eventually tail off or sector rotation with consumer shifting discretionary spending to their homes in an environment of no travel and limits on other leisure related activity or probably a bit of both.

These COVID-19 related closures and reopenings transferred to a 31% sales decline versus a year ago to $285 million for the quarter, with GAAP operating income declining to $4 million and non-GAAP operating income to $9 million.

We are still, however – we were still, however, able to generate $106 million in operating cash supported partially by strong customer deposits and ended the quarter with a balance sheet that remains strong. The remainder of my remarks will detail our non-GAAP numbers and Melinda will cover the non-GAAP adjustments in her remarks.

I will start with our wholesale segment, which now includes both upholstery and case goods.

On a sales decline of 30% to $224 million, non-GAAP operating margin was 9.4%, principally the result of the decline in production for the period and the consequent lower absorption of our fixed costs partially offset by temporary cost reduction actions related to our COVID-19 action plan, which we announced in March.

Written sale for the wholesale segment were up 2.5% for the quarter, with a decline of 38% in May more than offset by increases of 29% in both June and July respectively.

Throughout this unusual and unpredictable period, we are managing our marketing investments with fiscal responsibility, but at the same time we are very mindful of the increased interest in home furnishings and décor and the power of our brand.

In the spring, we did a soft launch of the second wave of the Live Life Comfortably campaign featuring Kristen Bell.

This wave focuses on La-Z-Boy’s design and customization capabilities, one of our brand pillars, and we are planning for the TV spots to be more frequent – and a more frequent rotation beginning this month as we move into what is typically the stronger fall selling season.

Additionally, we continue to invest in virtual capabilities as we increase our focus on offering consumers an omni-channel experience and providing seamless integration between our website and our stores. From a product perspective, our modulars, sectionals, and our wireless hand remote option on our power products continue to be in high demand.

On the manufacturing side, we continue to hire and train people to meet the unexpected demand surge, while following all COVID-related safety protocols. Now, let me turn to the retail segment.

Written same-store sales for the company-owned stores increased 11% for the quarter, even with a majority of stores closed for the month of May and some still closed in June.

Again, for perspective on how the quarter played out by month, written same-store sales for the company-owned stores were down 26% in May, but up 29% and 37% in June and July respectively.

For the quarter, delivered sales declined 36% to $91 million and non-GAAP operating margin for the segment was a loss of 6.8% due primarily to our inability to increase our production fast enough to meet the unexpected momentum in demand.

As we have discussed over the last several quarters, our retail business has become a core competency for the company and has been performing at a very high level, greatly contributing to the value of the La-Z-Boy enterprise.

The first quarter loss was an anomaly given the dynamic of store closures and the impact of their written and delayed delivered sales.

Encouragingly, on a temporary decline in traffic, we saw conversion and average ticket improvement as consumers used our website to conduct research before shopping in our stores and our store teams continued to execute at a very high level to close sales.

Additionally, we were pleased to see positive traffic trends in July after declines in May and June. In this environment, we are deploying new ways to engage with our store guests and enable safe and healthy shopping experiences.

These range from the ability to book personal shopping appointments, mask wearing by all team members, and store capacity management with a queuing system depending on local condition, ordinance, and needs. Feedback has been very positive from our store teams and customers in terms of creating a safe place to shop.

I will now spend a few minutes on Joybird. For the quarter, Joybird sales reported in corporate and other declined 22% to $13.4 million. However, written sales increased 38%. The delivery is expected to catch up in the later part of the second quarter and into the third, due to the Joybird plant not fully reopening until June due to COVID-19.

Balancing sales growth with bottom line performance, Joybird reduced its quarterly operating loss on a year-over-year and sequential basis. We expect quarter two delivered revenue rate o be restored to more normal levels, but anticipate it will continue to lag the strong written demand due to the short-term labor constraints.

I will now turn things over to Melinda..

Thank you, Kurt and good morning everyone. As always, let me remind you that we present our results on both a GAAP and non-GAAP basis as we believe the non-GAAP presentation better reflects underlying operating trends.

As detailed in our press release and in the tables in the appendix section of our conference call slides, excluded from our fiscal 2021 first quarter non-GAAP reporting are a pre-tax charge of $3.5 million or $0.06 per diluted share related to the company’s business realignment announced in June, which included a 10% reduction of our global workforce and the closure of our Newton, Mississippi manufacturing facility and a pre-tax purchase accounting charge related to acquisitions completed in prior periods totaling $1.2 million or $0.02 per diluted share.

Last year’s first quarter non-GAAP results excluded a pre-tax charge of $1.5 million or $0.02 per diluted share related to the company’s supply chain optimization initiative, which included the closure of our Redlands, California facility and a pre-tax purchase accounting charge of $1.5 million or $0.02 per diluted share.

Additionally, I would point out a revision to our segment reporting beginning this quarter. Due to similar financial structures and customer channels, we aggregated the former upholstery segment with the former case goods segments to form the newly combined wholesale segment.

And now on to our results, my comments from here will focus on a non-GAAP reporting unless specifically stated otherwise. As noted on a consolidated basis, fiscal ‘21 first quarter sales declined 31% to $285 million, reflecting the continued impact from the COVID-19 pandemic.

Consolidated non-GAAP operating income was $9 million versus $26 million in last year’s quarter and consolidated non-GAAP operating margin was 3.1% versus 6.3%. Non-GAAP EPS was $0.18 per diluted share in the current quarter versus $0.42 in last year’s first quarter. Consolidated gross margin for the first quarter increased 30 basis points.

Improved gross margin was driven primarily by targeted cost reduction actions, including the closure of our Redlands, California facility about a year ago, as well as the temporary actions associated with our COVID-19 action plan announced in March. Gross margin also benefited from improved performance at Joybird.

SG&A as a percent of sales increased 350 basis points, reflecting the decline in sales relative to fixed costs. Partially offsetting the increase in SG&A expense were temporary cost reductions taken as part of our COVID-19 action plan.

On a GAAP basis, our effective tax rate for fiscal ‘21 first quarter was 19.8% versus 22% in last year’s first quarter. Our effective tax rate varies from the 21% federal statutory rate primarily due to state taxes. Absent discrete adjustments, the effective tax rate for fiscal ‘21 first quarter would have been 26.1%.

For fiscal year ‘21, absent discrete items, we continue to estimate our effective tax rate on a GAAP basis will be in the range of 25% to 26%.

Turning to cash, we generated $106 million in cash from operating activities in the quarter, including a $61 million increase in customer deposits from written orders for the company’s retail segment in Joybird.

We ended the quarter with $337 million in cash, including $50 million in cash proactively drawn on the company’s credit facility to enhance liquidity in response to COVID-19 back in March compared with $114 million in cash at the end of last year’s first quarter.

We also held $16 million in investments to enhance returns on cash compared with $33 million last year. During the quarter, we repaid $25 million of the original $75 million drawn against our credit line based on business performance and ongoing liquidity.

Also during the quarter, we invested $10 million in capital primarily related to machinery and equipment upgrades to our Dayton manufacturing facility and investments in our retail stores. We expect capital expenditures to be in the range of $40 million to $45 million for the fiscal year.

Although spending will be largely dependent on economic conditions, continued business recovery and liquidity trends, our spending for the year will prioritize essential maintenance projects already underway, including plant upgrades to our upholstery manufacturing facilities, technology upgrades and improvements to several retail stores.

As part of our COVID-19 action plan in an effort to preserve cash in the near-term and provide for financial flexibility, we eliminated our expected June dividend and temporarily suspended opportunistic share repurchases.

We are pleased to announce – we have announced that – we are pleased to announce that yesterday our Board of Directors elected to reinstate a regular quarterly dividend to shareholders of $0.07 per share.

This is 50% of the quarterly dividend amount paid prior to the pandemic as we continue to monitor current business trends and remain vigilant with respect to the ongoing macroeconomic uncertainty.

Over time, we will continue to evaluate our dividend level and management may also at its discretion resume share repurchases based on an assessment of business trends. There are currently 4.5 million shares on purchase availability under our authorized program.

And finally, before turning the call back to Kurt, let me highlight several important items for fiscal ‘21. First, a reminder that our expected non-GAAP adjustments will continue to include purchase accounting adjustments for acquisitions to-date, which are estimated to be in the range of $0.04 to $0.05 for the full year.

And we anticipate pre-tax charges of $0.01 to $0.02 per share in the second quarter related to the completion of a recent business realignment, which included the closure of the Newton assembly plant and the 10% reduction in our global workforce.

The total charges for these actions, is coming in slightly lighter than anticipated due to lower severance benefits than originally forecast.

And relative to business trends, we are pleased with the progress we have made in Q1 in written sales and restarting our manufacturing facilities, but we remain cautious on future sales trends given ongoing economic uncertainty and pandemic risk.

Further, we continued to aggressively manage our cost structure across the business, but our ability to return to or exceed pre-pandemic margins is largely dependent on increasing our production rates.

And if demand continues at the current pace, in an odd twist, our challenge won’t be sales velocity, it will be more about how much we can make during this period of time based on our ability to hire to support demand.

And finally, a note on tariffs, the exclusion on tariffs that provided 2 years of tariff rebates received at the end of fiscal ‘20 was not renewed. So, we will have that expense going forward similar to most quarters in the last 2 years. And now back to Kurt for his concluding remarks..

Thank you, Melinda. As noted, we are pleased with our written order trends and believe there is still some pent-up demand in the marketplace given a long period of time retailers were closed as well as some shift in discretionary spending, with more money going into the home category.

But as Melinda noted, because we are mindful the pandemic is still upon us, we are cautious in our optimism on demand and our ability to flex our workforce as we move into the fall selling season.

As we manage the business tightly day-to-day, we are focused on providing great service to our customers and maintaining fiscal conservatism through this uncertain period. I am confident we will emerge a stronger company on the other side of this crisis. And I am quite pleased with how well the company is faring as we move through it.

We will continue to capitalize on the strength of our well-known and trusted brand, our vast distribution network, including the vibrant La-Z-Boy Furniture Gallery store system, our world class supply chain and our strong balance sheet to deliver long-term value to all stakeholders. We thank you very much for your interest in La-Z-Boy Incorporated.

And now, I will turn things over to Kathy to provide instructions for getting into the queue.

Kathy?.

Thank you, Kurt. We will begin the question-and-answer period. Now, Jeff, please review the instructions for getting into the queue..

Thank you. [Operator Instructions] We will take our first question from Bobby Griffin with Raymond James. Please go ahead..

Good morning, everybody. Thank you for taking my questions and I hope everybody is staying safe and healthy..

Good morning, Bobby..

Good morning..

So, Melinda, first, I guess I wanted to talk about capacity and just making sure we understand it correctly, is the issue of getting back to 100% from, call it the 90% at the end of the quarter with mostly on labor or is there some raw material shortages or anything else that’s happening inside the capacity – inside the manufacturing facilities that is limiting getting back towards 100%?.

Bobby, it’s primarily labor.

We have not had any meaningful hiccups in raw materials or supplies and – you have to think about – May wasn’t – May was not that long ago and we furloughed a lot of people and they came back enthusiastically, but unlike a retail store where you just turn the key and sales start coming in, you don’t go from 1 to 60 miles an hour when you start up – restart up plants.

And so, we – everybody is coming back.

There are some issues with enhanced unemployment benefits and things of that nature, but our constraint now as we ramp up and we have been working a lot of over time, but our constraint is just making sure we can find people that we can train and bring into our system and to continue to increase our production at all three of our facilities..

There is also just realities Bobby of keeping people safe in the middle of COVID-19, so keeping folks appropriately socially distant, if someone has been exposed outside making sure that we are doing the appropriate contact, tracing, and keeping people home.

So, given our focus on safety for our employees throughout this, there are just some realities to us from time to time on how many folks you can have working as well..

And that Melinda will probably limit the throughput in this environment even when you get the labor back is that correct?.

To some extent, we have managed to – I mean, our team has done a fantastic job to date, and we really – we have had very, fairly limited impact, but just with the realities of what you need to do if someone comes in and they feel they have been exposed to be able to keep the other safe, the number of people you are sending home, you do have a bit of a limiter that will go on until we have this pandemic solved..

But Bobby, I would add to that this is not solely a La-Z-Boy problem, this is a wide range industry problem. The demand after things reopen exceeded everyone’s expectation, and everybody that I know in the industry is working real hard to catch up with the demand. The lead times are out for everyone.

And if you do import a lot of product, it’s probably even worse. So, this is not unique to us, but we are glad we have the challenge and we are going to do our best to meet it over time..

That makes sense. Yes and I agree, Kurt, I think the demand surprised all of us on our side of The Street as well how quickly it came back. When you look at the lead times….

There are worse problems to have them..

Yes. High class problems I guess per say.

When you look at lead times, are they – remind me I am trying to think back in my mind from when things are more normal, they normally call it the 6 to 8 week range and we are now kind of in the 12 to 13 week range or kind of help us frame that up where we can think about the potential of delivering June, July strong order growth in 2Q or whether or not that order growth will have to shift a little bit into 3Q?.

Good question. So, our lead times are a little different by upholstery group. England’s a little different, and La-Z-Boy and Joybird’s a little different, but essentially at La-Z-Boy, we were able to deliver almost everything in 4 to 5 weeks, and we worked real hard at delivering custom orders quickly which is one of our strategic advantages.

And right now, Bobby that strip’s stretched out to 8 to 10 weeks. So, it’s nearly double of what we were used to doing. And it’s – and the order trends are continuing in August to mirror what we see in July. So, we will have a – we will have an extended backlog for some time..

Okay, but, we need ….

But on the positive side, we are making more units every single week..

Okay, I appreciate that detail. It’s good news on the August trends as well.

And I guess lastly for me, and I understand the high level of uncertainty with unemployment and kind of the virus still being out there but if we were to be in an environment where the industry has experienced kind of a secular shift of consumer spending that’s going to last for a while, what type of capacity do you have right now from the plant side of things? Could you get back to prior peak revenue without having to add a new manufacturing facility or help us think about that limitation?.

Bobby, our issue is not space or facility, our issue is people.

So -- and that’s always been the case, the square footage we are fine on and that’s why we continue to get more efficient and even how we think about square footage of plants, but it’s really about labor and then making sure those plants are in the right places to efficiently service - consumers from a transportation standpoint..

Okay, very helpful. I appreciate all the details. Congrats again on managing a very difficult quarter..

Thank you..

Thank you..

We will move next to Brad Thomas at KeyBanc Capital Markets. Please go ahead..

Hi, good morning, everybody. Congrats on the momentum in the business and strong execution here during a difficult time. I wanted to just follow-up on some of Bobby’s questions about how to think about, the production.

I think the way you characterize it was that you are operating in about 90%, of prior year levels, that means basically mean that the demand level that you are able to meet would be what you did in sales last year.

But only 90% of that, so you right now our run rating, still with revenues down 10% year over year? Is that the right way to think about it? And how do you expect, capacity to improve in the months ahead as you try to find more productive, qualified people to hire?.

A couple – I mean, directionally yes, you are right, but I have put a couple of different pieces that just speaks to the fluidity of the situation. We are at 90% today, two weeks ago we are less than that two weeks from now we will be better than that, as we continue to focus on hiring and efficiencies there.

And as I noted earlier, there’s always sort of the question mark on the impact of COVID on any given week, but in general, that trajectory is moving up. You are right, we did say it as of today we are at about 90% of year ago. The only thing is, I would point out is that’s a ballpark number for our La-Z-Boy branded manufacturing business.

And there’s obviously some play on how much of that is going to our own retail division, how much that is coming through. We have also got the case goods business, our England business. So those are rough ballparks. But to give you a sense of how we are ramping up and where we stand on throughput as of today, and how to think about the future.

I mean, yes, with demand – as long as demand is staying high. We will continue to try to increase that throughput and increase hiring but there are both our own internal factors and then there are the macro factors that we are working against..

That’s helpful, Melinda. And so as you try – triangulate this to our forecast, I know you all don’t provide guidance but would it be reasonable for us spent to in store that, the month of August may have GAAP revenues being down somewhere in the neighborhood of 10%.

Just given what’s happening with productivity and production here today?.

So I don’t want to handicap any one month Brad, but it’s obviously our plan, and we are not that far away in the – again, though, COVID outbreak and our ability to continue to hire. We plan to get above last year’s production levels at some time in the fall.

Now, that’s a prediction that takes a lot of things to go on, but we are not going to stay at this 90% level for the balance of the year, we are continuing to make progress. And our people are working incredibly hard. They are working overtime. We are doing everything we can to meet the demand, but it is going take a while before we get to that level.

And so it’s hard, to handicap just how much improvement we make month to month given all the other circumstances that are involved in that equation..

Got it. It’s helpful. Kurt. I am just trying to keep everyone’s expectations in check so that everyone doesn’t flow 30% revenue number into your upcoming quarter here, given that strong return or trends..

That is certainly our intention in balancing. Again, it’s good news on where we are on demand right now, but there are realities in servicing that..

Yes, all the written orders, we will not be delivered tomorrow..

So one last one for me if I could, I know you don’t have all the answers in terms of, how much of the strong trends are pent up demand and how sustainable might they be? But I am curious if you have had a chance to analyze any of the data on who your customers are.

And can you tell if these were individuals that had been shopping in the stores back in January and February, and were just delayed purchases or if these are new customers. Any insights or tidbits that you’re able to share would be greatly appreciated..

Brad, let me give you our overall point of view without going too granular but without the ability to travel, to go on vacations to go out to eat, go to sporting events. All those things, there’s been a shift on where the discretionary money is going.

And you can see by the results of Home Depot and other people, one of the big shifts has been to the home, people have spent a lot of time at home, people feel they are going to be spending more time at home. They want to reinvest.

And so we believe the main driver of this is sector rotation and that, probably until there’s some light at the end of the tunnel, about the medical cures or medicine to help with this pandemic. I think, the demand will probably stay at a decent level.

But never thought, that the industry never thought that we would bounce back after closures to this level and we always have to remind everybody, we are at these levels.

In what is the slower part of the year the summer, historically seasonality in the industry, so nobody was prepared for it, nobody could have taken their risk to keep everybody working and all the inventory that it would take so, but everybody is climbing out of it, everybody is improving and – but I do think the home category, not just furniture, but you look at paint sales, you look at all this other stuff.

Right now it’s a category that is capturing the higher percentage of discretionary income..

And I think no doubt, I mean, there you have some level of people couldn’t shop for a month or two. And we saw people, we saw a lot of evidence of folks spending time on our website and researching while they couldn’t be in store. Higher buying, this was even during April, higher orders placed online.

But probably more so when they walked into our store they were ready to buy so there’s definitely some level of pent up demand from that near-term closure.

The other piece that probably gets to your question also is there some level of share gain, and it’s really too early to tell that but we do know, early consumer data broadly not specific to La-Z-Boy but it indicates that a consumer right now in a very uncertain time is indexing back to safety to brands they trust to the familiar.

And so between that our high quality product and our Kristen Bell campaign, we are hopeful that we will see some share gain overtime, but it’s really too early to tell if any of this has to do with that..

Really helpful. Thank you both so much..

Thank you, Brad..

We will go next to Anthony Lebiedzinski at Sidoti & Company. Please go ahead..

Hi. Good morning, everyone and thank you for taking the questions and I hope everyone is well and healthy. So I just wanted to follow-up a couple of things. So I think Kurt, you mentioned that conversion was up in the quarter as well as average ticket.

Can you help us get a better understanding of the level of improvements there?.

We don’t share that data. But it given to people desire to improve their home and all the conversion was higher than normal. And on the traffic side, our traffic was good, but it didn’t beat the previous year until July.

So, we were doing in June, forget 27% more business with less traffic, but you can kind of equate the two And say that the version was up to be able to do that..

Got it. Okay, alright. And then so was the average ticket but you are not disclosing that exact number. Okay, got it. Okay, alright. So that’s fine.

So as far as the challenge of hiring additional people, I mean, do you think you will have to pay more incentivize people to come back or how do you overcome that challenge to get to 100% capacity or close to that capacity?.

Well, we have a number of options and a lot could depend on what happens if there’s another stimulus package and what does that do to workers mindsets, but the other thing I would, just caution everybody. Hiring is one part of the problem getting them efficient, getting them up to be a skilled worker in our type of business takes some time.

So there is a little bit of lag time from the time we hire them to the time that they are fully capable of meeting the expectations that we have. And so there is a lot going on and our supply chain team is just looking at every angle. And if paying people was the best option to be able to get more we would do that.

So we are looking at everything we can to try that, get this backlog down over time. And every week we make a little more than the previous week, but our order flow hasn’t slowed down so the problem is not decreasing. The good problem is not decreasing..

Sure, okay. And then you are pretty aggressive with cutting SG&A expenses. Obviously, some of that we will come back to, can give us a better understanding perhaps how as business comes back.

How much of the expenses will come back and how much of the expenses expense cuts are more permanent in nature?.

We took the reduction of 10% across our workforce in June that obviously was meant to right-size the business for the long-term and what we still expect at some point, I would expect some level of economic contraction and downturn so that 10% was across to all expense items including SG&A but also an SG&A selling expense.

And when we are selling well, you are going to have more commissions and so forth, you are going to have more ad spend. So there is a lot of moving pieces within that.

So certainly, our 10% headcount reduction was intended to be a longer lasting item, but majority of our other expenses are going to grow with the growing business overtime proportionally..

Got it. Alright, well, thank you and best of luck..

Thank you, Anthony..

Thank you..

[Operator Instructions] We will go next to Reuben Garner of The Benchmark Company. Please go ahead..

Thank you. Good morning, everybody..

Good morning, Reuben..

So, apologies if I repeat anything.

I had some technical difficulties early in the call, but maybe I kind of want to hit on I guess geographical call-outs, one of the big trends we have seen in the home construction industry is the suburban flight, I always thought of La-Z-Boy as being stronger in those markets, is that something that you guys have seen.

Do you view that as an opportunity if folks are moving out of the cities into single-family bigger homes, in the suburbs?.

Well, we have always had a higher share in the suburbs. We don’t have a number of locations in the cities like in Manhattan or Downtown LA or anything we are not represented. So, the suburbs have always been a strong point for us.

But I would say it’s some of our ups and downs in sales trends has a little bit more to do with what’s going on with that individual area or state and their evolution through this COVID change. Obviously, we just use the Northeast as an example. They were behind the recovery and the rest of the country.

And as soon as they recovered, our business started to pick up, but then you had all the southern states, the Texas, Florida, California have a second wave. So there is ebbs and flows on this. It’s not dramatic, but that is an effect on people’s willingness to go outside and do things and so we watch those trends pretty carefully as well..

Okay. And then maybe I guess a similar question, the virus has driven a lot of folks to spend money outdoors and creating home office environments. Are those two areas I guess can you talk about what exposure you have to them? I know, Joybird brought maybe a little bit of that as well.

Can you just talk about the growth you have seen in there and do you have any capacity constraints to serve those two markets, which I assume are faster growing than everything else?.

Well, we are in the home office business in our case goods portfolio. We are not in the outdoor business specifically although we do have a license agreement with a company that provides La-Z-Boy outdoor furniture.

But the other thing that there is going to be, I think some future benefit, the more people remodel, the more they put out additions and more work they do there. If you remodel part of your home, your old furniture doesn’t look quite as good as the new remodeled spot as it was if it was new.

So, the more activity that’s happening in the home and more that people want to make best in their home, there is a residual benefit to home furnishings if that trend continues..

Yes, makes sense. And last one for me and again apologies if you have already touched on it, but any material input costs, inflation or deflationary buckets that you would call out if you haven’t already and thank you guys for the time..

Yes, thank you for the interest today. From a cost standpoint, raw materials looks to be fairly stable right now to maybe a slight tailwind, but really pretty stable year-on-year.

Our people costs and – both in the primarily in the manufacturing side, but really in SG&A as well to the previous question, we did do a 10% reduction across our workforce, including the closing of the Newton plant, but at the same time with bringing folks back and as we spent a lot of the time in the call talking about just the hiring challenges that will be a bit of a headwind and the tailwind as we go through the current couple or in the next couple of quarters.

The other thing I would just point out is we have had these Chinese tariffs that have been with us for now, 2 years plus and we have had a lot of activity around that where we had really good news at the end of Q4 when we had a healthy amount of those tariff expenses rebated to us and we received that in the fourth quarter.

Unfortunately, those tariff exclusions were not continued by the governmental authorities, so we will be back to having that expense on a going basis.

So the quarter to quarter for quarters two and three at least that would look very similar, it would be a headwind in Q4 because we were in a bit of a of a hiatus from those tariffs in Q4 of last year..

Thanks, again and stay safe everybody..

Thank you..

And with no other questions holding, I will now turn the conference back to management for any additional or closing comments..

Thank you very much for joining our call today. If you have any follow ups, please be in touch. Have a great day. Bye-bye..

Thank you. Ladies and gentlemen that will conclude today’s call. We thank you for your participation. You may disconnect at this time and have a great day..